Tax Case Digests 1

San Roque Power Corp v. CIR

120/30 day period for filing refund of tax credit and a BIR ruling exception

FACTS: San Roque Power Corporation is a VAT-registered taxpayer which was granted by the BIR a
zero-rating on its sales of electricity to National Power Corporation (NPC) effective 14 January 2004,
up to 31 December 2004.5

On 22 December 2005 and 27 February 2006, the petitioner filed two separate administrative claims for
refund of its alleged unutilized input tax for the period 1 January 2004 up to 31 March 2004, and 1
April 2004 up to 31 December 2004, respectively.6

Due to the inaction of respondent CIR, the petitioner filed petitions for review before the CTA (raffled
to the Second Division): (1) on 30 March 2006, for its unutilized input VAT

During trial, the petitioner presented documentary and testimonial evidence to prove its claim. On the
other hand, respondent CIR was deemed to have waived its right to present evidence due to its failure
to appear in the two scheduled hearings on the presentation of evidence for the defense. In due course,
the CTA Division partially granted the refund claim of the petitioner in the total amount of
₱29,931,505.

Among other issues, the CIR questioned the claimant's judicial recourse to the CT A as inconsistent
with the procedure prescribed in Section 112 (D) of the NIRC. The CIR asserted that the petitions for
review filed with the CTA were premature, and thus, should be dismissed.

The CTA En Banc sided with the CIR in ruling that the judicial claims of the petitioner were
prematurely filed in violation of the 120-day and 30- day periods prescribed in Section 112 (D) of the
NIRC. The court held that by reason of prematurity of its petitions for review, San Roque Power
Corporation failed to exhaust administrative remedies which is fatal to its invocation of the court's
power of review.

ISSUE: Whether petitioner’s judicial claim was prematurely filed

RULING: YES, it was prematurely filed hence it should warrant dismissal HOWEVER, by
virtue of BIR Ruling No. DA-489-03, petitioner was granted the exception

Concerning the 120-day period in Section 112 (D) of the NIRC, there was no jurisprudential rule prior
to Aichi interpreting such provision as permitting the premature filing of a judicial claim before the
expiration of the 120-day period. The alleged CTA decisions that entertained the judicial claims despite
their prematurity are not to be relied upon because they are not final decisions of the Supreme Court
worthy of according binding precedence. That Aichi was yet to be promulgated at that time did not
mean that the premature filing of a petition for review before the CTA was a permissible act.

It was only in Aichi that this Court directly tackled the 120-day period in Section 112 (D) of the NIRC
and declared it to be mandatory and jurisdictional. In particular, Aichi brushed aside the contention that
the nonobservance of the 120-day period is not fatal to the filing of a judicial claim as long as both the
administrative and judicial claims are filed within the two-year prescriptive period provided in Section
112 (A) of the NIRC.

The mandatory and jurisdictional nature of the 120-day period first expressed in Aichi, however, is not
a new rule of procedure to be followed in pursuit of a refund claim of unutilized creditable input VAT
attributable to zero-rated sales. As suggested above, the pronouncement in Aichi regarding the
mandatory and jurisdictional nature of the 120-day period was the Court's interpretation of Section 112
(D) of the NIRC. It is that law, Section 112 (D) of the NIRC, that laid the rule of procedure for
maintaining a refund claim of unutilized creditable input VAT attributable to zero-rated sales. In said
provision, the Commissioner has 120 days to act on an administrative claim.

Hence, from the effectivity of the 1997 NIRC on 1 January 1998, the procedure has always been
definite: the 120-day period is mandatory and jurisdictional. Accordingly, a taxpayer can file a judicial
claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the
120-day period, or (2) only within thirty days from the expiration of the 120- day period if the
Commissioner does not act within such period. 13 This is the rule of procedure beginning 1 January
1998 as interpreted in Aichi.

To reiterate, the 120-day and 30-day periods, as held in the case of Aichi, are mandatory and
jurisdictional. Thus, noncompliance with the mandatory 120+ 30-day period renders the petition before
the CTA void. The ruling in said case as to the mandatory and jurisdictional character of said periods
was reiterated in San Roque and a host of succeeding similar cases.

Significantly, a taxpayer can file a judicial claim only within thirty (30) days from the expiration of the
120-day period if the Commissioner does not act within the 120-day period. The taxpayer cannot file
such judicial claim prior to the lapse of the 120-day period, unless the CIR partially or wholly denies
the claim within such period. The taxpayer-claimant must strictly comply with the mandatory period by
filing an appeal to the CTA within thirty days from such inaction; otherwise, the court cannot validly
acquire jurisdiction over it.

In this case, the petitioner timely filed its administrative claims for refund/credit of its unutilized input
VAT for the first quarter of 2004, and for the second to fourth quarters of the same year, on 22
December 2005 and 27 February 2006, respectively, or within the two-year prescriptive period.
Counted from such dates of submission of the claims (with supporting documents), the CIR had 120
days, or until 13 April 2006, with respect to the first administrative claim, and until 27 June 2006, on
the second administrative claim, to decide.

However, the petitioner, without waiting for the full expiration of the 120-day periods and without any
decision by the CIR, immediately filed its petitions for review with the CT A on 30 March 2006, or a
mere ninety-eight (98) days for the first administrative claim; and on 20 June 2006, or only one
hundred thirteen (113) days for the second administrative claim, from the submission of the said
claims. In other words, the judicial claims of the petitioner were prematurely filed as correctly found by
the CTA En Banc.
In the consolidated cases of San Roque, the Court en bane recognized an exception to the mandatory
and jurisdictional nature of the 120+30-day period.1âwphi1 It was noted that BIR Ruling No. DA-489-
03, which expressly stated-

[A] 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.

Is a general interpretative rule issued by the CIR pursuant to its power under Section 4 of the NIRC,
hence, applicable to all taxpayers. Thus, taxpayers can rely on this ruling from the time of its issuance
on 10 December 2003. The conclusion is impelled by the principle of equitable estoppel enshrined in
Section 246 15 of the NIRC which decrees that a BIR regulation or ruling cannot adversely prejudice a
taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal.

In other words, the 120+ 30-day period is generally mandatory and jurisdictional from the effectivity of
the 1997 NIRC on 1 January 1998, up to the present. By way of an exception, judicial claims filed
during the window period from 10 December 2003 to 6 October 2010, need not wait for the exhaustion
of the 120-day period. The exception in San Roque has been applied consistently in numerous
decisions of this Court.

Nippon Express Corp. v. CIR

Difference of VAT receipts and VAT invoice

FACTS: Nippon Express is a domestic corporation registered with the Large Taxpayer District Office
(LTDO) of the Bureau of Internal Revenue (BIR). Revenue Region No. 8-Makati, as a Value Added
Tax (VAT) taxpayer. 1

On 30 March 2005, Nippon Express filed with the LTDO, Revenue Region No. 8, an application for
tax credit of its excess/unused input taxes attributable to zero-rated sales for the taxable year 2004 in
the total amount of ₱27,828,748.95.

By reason of the inaction by the BIR, Nippon Express filed a Petition for Review before the CTA on 31
March 2006.2In its Answer, respondent Commissioner of Internal Revenue (CIR) interposed the
defense, among others, that Nippon Express' excess input VAT paid for its domestic purchases of
goods and services attributable to zero-rated sales for the four quarters of taxable year 2004 was not
fully substantiated by proper documents.

CTA division: After trial, the CTA Division (the court) found that Nippon Express' evidentiary proof of
its zero-rated sale of services to PEZA-registered entities consisted of documents other than official
receipts. Invoking Section 113 of the NIRC, as amended by Section 11 of Republic Act (R.A.) No.
9337, the court held the view that the law provided for invoicing requirements of VAT-registered
persons to issue a VAT invoice for every sale, barter or exchange of goods or properties, and a VAT
official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.
Noting that Nippon Express is engaged in the business of providing services, the court denied the
latter's claim for failure to submit the required VAT official receipts as proof of zero-rated sales.
Affirmed by CTA en banc
ISSUE: Whether Nippon’s documentary evidence other than official receipt is enough proof to
have its refund

RULING: NO, it is not sufficient proof

As stated in our introduction, the burden of a claimant who seeks a refund of his excess or unutilized
creditable input VAT pursuant to Section 112 of the NIRC is two-fold: (1) prove payment of input
VAT to suppliers; and (2) prove zero-rated sales to purchasers. Additionally, the taxpayer-claimant has
to show that the VAT payment made, called input VAT, is attributable to his zero-rated sales.

The CTA En Banc held the view that while Sections 113 and 23 7 used the disjunctive term "or," it
must not be interpreted as giving a taxpayer an unconfined choice to select between issuing an invoice
or an official receipt. 19 To the court a quo, sales invoices must support sales of goods or properties
while official receipts must support sales of services.

The Manila Mining case in fact recognized a difference between the two, to wit:

A "sales or commercial invoice" is a written account of goods sold or services rendered

indicating the prices charged therefor or a list by whatever name it is known which is used in
the ordinary course of business evidencing sale and transfer or agreement to sell or transfer
goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.

Kepco Philippines Corporation v. Commissioner (Kepco): We then declared for the first time that a
VAT invoice is necessary for every sale, barter or exchange of goods or properties while a VAT
official receipt properly pertains to every lease of goods or properties, and for every sale, barter or
exchange of services. Thus, we held that a VAT invoice and a VAT receipt should not be confused as
referring to one and the same thing; the law did not intend the two to be used alternatively. We stated:

[T]he VAT invoice is the seller's best proof of the sale of the goods or services to the buyer while the
VAT receipt is the buyer's best evidence of the payment of goods or services received from the seller.
Even though VAT invoices and receipts are normally issued by the supplier/seller alone, the said
invoices and receipts, taken collectively, are necessary to substantiate the actual amount or quantity of
goods sold and their selling price (proof of transaction), and the best means to prove the input VAT
payments (proof of payment). Hence, VAT invoice and VAT receipt should not be confused as
referring to one and the same thing. Certainly, neither does the law intend the two to be used
alternatively.

In this case, the documentary proofs presented by Nippon Express to substantiate its zero-rated sales of
services consisted of sales invoices and other secondary evidence like transfer slips, credit memos,
cargo manifests, and credit notes.34 It is very clear that these are inadequate to support the petitioner's
sales of services. Consequently, the CT A, albeit without jurisdiction, correctly ruled that Nippon
Express is not entitled to its claim.
 Aichi Forging Co. v. CTA

120/30 day period

FACTS: AICHI is a domestic corporation duly organized and existing under the laws of the
Philippines, and is principally engaged in the manufacture, production, and processing of all kinds of
steel and steel by products, such as closed impression die steel forgings and all automotive steel parts.

On 26 September 2002, AICHI filed with the BIR District Office in San Pedro, Laguna, a written claim
for refund and/or tax credit of its unutilized input VAT credits for the third and fourth quarters of 2000
and the four taxable quarters of 2001. AICHI sought the tax refund/credit of input VAT for the said
taxable quarters in the total sum of P18,030,547.776 representing VAT payments on importation of
capital goods and domestic purchases of goods and services.

As respondent CIR failed to act on the refund claim, and in order to toll the running of the prescriptive
period provided under Sections 229 and 112 (D) of the National Internal Revenue Code (Tax Code),
AICHI filed, on 30 September 2002, a Petition for Review before the CTA Division.

The CIR questioned the partial grant of the refund claim in favor of AICHI. It claimed that the court
did not acquire jurisdiction over the refund claim in view of AICHI's failure to observe the 30-day
period to claim refund/tax credit as specified in Sec. 112 of the Tax Code, i.e., appeal to the CTA may
be filed within 30 days from receipt of the decision denying the claim or after expiration of 120 days
(denial by inaction). With the filing of the administrative claim on 26 September 2002, the CIR had
until 20 January 2003 to act on the matter; and if it failed to do so, AICHI had the right to elevate the
case before the CTA within 30 days from 20 January 2003, or on or before 20 February 2003.
However, AICHI filed its Petition for Review on 30 September 2002, or before the 30-day period of
appeal had commenced. According to the CIR, this period is jurisdictional, thus, AICHI's failure to
observe it resulted in the CTA not acquiring jurisdiction over its appeal.

CTA en banc: Denied the motion of CIR arguing that the judicial claim was well within the 2yr period
required hence it can entertain the judicial claim

ISSUE: Whether the filing of the judicial claim can be made even before the expiration of the
administrative claim

RULING: NO, the expiration of 120 day period is required

The present case stemmed from a claim for refund or tax credit of alleged unutilized input VAT
attributable to zero-rated sales and unutilized input VAT on the purchase of capital goods for the third
and fourth quarters of 2000 and the four taxable quarters of 2001. The refund or tax credit of input
taxes corresponding to the six taxable quarters were combined into one administrative claim filed
before the BIR on 26 September 2002. On the other hand, the judicial claim was filed before the CTA,
through a petition for review, on 30 September 2002, or a mere four days after the administrative claim
was filed. It is not disputed that the administrative claim was not acted upon by the BIR.
The law contemplates two kinds of refundable amounts: (1) unutilized input tax paid on capital goods
purchased, and (2) unutilized input tax attributable to zero-rated sales. The claim for tax refund or
credit is initially filed before the CIR who is vested with the power and primary with jurisdiction to
decide on refunds of taxes, fees or other charges, and penalties imposed in relation thereto.36 In every
case, the filing of the administrative claim should be done within two years. However, the reckoning
point of counting such two-year period varies according to the kind of input tax subject matter of the
claim. For the input tax paid on capital goods, the counting of the two-year period starts from the close
of the taxable quarter when the purchase was made; whereas, for input tax attributable to zero-rated
sale, from the close of the taxable quarter when such zero-rated sale was made (not when the purchase
was made).

From the submission of the complete documents to support the claim, the CIR has a period of one
hundred twenty (120) days to decide on the claim. If the CIR decides within the 120-day period, the
taxpayer may initiate a judicial claim by filing within 30 days an appeal before the CTA. If there is no
decision within the 120-day period, the CIR's inaction shall be deemed a denial of the application.37 In
the latter case, the taxpayer may institute the judicial claim, also by an appeal, within 30 days before
the CTA.

A premature invocation of the court's jurisdiction is fatally defective and is susceptible to dismissal for
want of jurisdiction. Such is the very essence of the doctrine of exhaustion of administrative remedies
under which the court cannot take cognizance of a case unless all available remedies in the
administrative level are first utilized. Whenever granted by law a specific period of time to act, an
administrative officer must be given the full benefit of such period. Administrative remedies are
exhausted upon the full expiration of the period without any action.

Nonetheless, in the subsequent landmark decision of CIR v. San Roque Power Corporation, Taganito
Mining Corporation v. CIR, and Philex Mining Corporation v. CIR (San Roque),42 the Court
recognized an instance when a prematurely filed appeal may be validly taken cognizance of by the
CTA. San Roque relaxed the strict compliance with the 120-day mandatory and jurisdictional period,
specifically for Taganito Mining Corporation, in view of BIR Ruling No. DA-489-03, dated 10
December 2003, which expressly declared 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."
Pertinently, the prematurely filed appeal of San Roque Power Corporation before the CTA was
dismissed because it came before the issuance of BIR Ruling No. DA-489-03. On the other hand,
Taganito Mining Corporation's appeal was allowed because it was taken after the issuance of said BIR
Ruling.

Here, it is not disputed that AICHI had timely filed its administrative claim for refund or tax credit
before the BIR ruling. The records show that the claim for refund/tax credit of input taxes covering the
six separate taxable periods from the 3rd Quarter of 2000 up to the 4th Quarter of 2001 was made on 26
September 2002. Both the CTA Division and CTA En Banc correctly ruled that it fell within the two-
year statute of limitations. However, its judicial claim was filed a mere four days later on 30 September
2002, or before the window period when the taxpayers need not observe the 120-day mandatory and
jurisdictional period. Consequently, the general rule applies.
 Power Sector Assets and Liabilities Management Services v. CIR

Question of jurisdiction between two govt. entities; is involuntary sale VATable?

FACTS: Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a
government-owned and controlled corporation created under Republic Act No. 9136 (RA 9136), also
known as the Electric Power Industry Reform Act of 2001 (EPIRA).4 Section 50 of RA 9136 states
that the principal purpose of PSALM is to manage the orderly sale, disposition, and privatization of the
National Power Corporation (NPC) generation assets, real estate and other disposable assets, and
Independent Power Producer (IPP) contracts with the objective of liquidating all NPC financial
obligations and stranded contract costs in an optimal manner.

PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric
Power Plant (Pantabangan-Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant) on 8
September 2006 and 14 December 2006, respectively. First Gen Hydropower Corporation with its $129
Million bid and SN Aboitiz Power Corporation with its $530 Million bid were the winning bidders for
the PantabanganMasiway Plant and Magat Plant, respectively.

On 28 August 2007, the NPC received a letter5 dated 14 August 2007 from the Bureau of Internal
Revenue (BIR) demanding immediate payment of ₱3,813,080,4726 deficiency value-added tax (VAT)
for the sale of the Pantabangan-Masiway Plant and Magat Plant. The NPC indorsed BIR's demand
letter to PSALM.

DOJ’s decision: When petitioner was created under Section 49 of R.A. No. 9136, for the principal
purpose to manage the orderly sale, disposition, and privatization of NPC generation assets, real estate
and other disposable assets, IPP contracts with the objective of liquidating all NPC financial
obligations and stranded contract costs in an optimal manner, there was, by operation of law, the
transfer of ownership of NPC assets. Such transfer of ownership was not carried out in the ordinary
course of transfer which must be accorded with the required elements present for a valid transfer, but in
this case, in accordance with the mandate of the law, that is, EPIRA. Clearly, the disposition of
Pantabangan-Masiway and Magat Power Plants was not in the regular conduct or pursuit of a
commercial or an economic activity, but was effected by the mandate of the EPIRA upon petitioner to
direct the orderly sale, disposition, and privatization of NPC generation assets, real estate and other
disposable assets, and IPP contracts, and afterward, to liquidate the outstanding obligations of the NPC.

CA’s decision: The Court of Appeals held that the petition filed by PSALM with the DOJ was really a
protest against the assessment of deficiency VAT, which under Section 20414 of the NIRC of 1997 is
within the authority of the Commissioner of Internal Revenue (CIR) to resolve.

ISSUES: Whether DOJ has jurisdiction to the case

RULING: YES, it has jurisdiction

Under Presidential Decree No. 24224 (PD 242), all disputes and claims solely between government
agencies and offices, including government-owned or controlled· corporations, shall be
administratively settled or adjudicated by the Secretary of Justice, the Solicitor General, or the
Government Corporate Counsel, depending on the issues and government agencies involved.

The purpose of PD 242 is to provide for a speedy and efficient administrative settlement or
adjudication of disputes between government offices or agencies under the Executive branch, as well as
to filter cases to lessen the clogged dockets of the courts.

Since this case is a dispute between PSALM arid NPC, both government owned and controlled
corporations, and the BIR, a National Government office, PD 242 clearly applies and the Secretary of
Justice has jurisdiction over this case. In fact, the MOA executed by the BIR, NPC, and PSALM
explicitly provides that "[a] ruling from the Department of Justice (DOJ) that is favorable to
NPC/PSALM shall be tantamount to the filing of an application for refund (in cash)/tax credit
certificate (TCC), at the option of NPC/PSALM."29 Such provision indicates that the BIR and
petitioner PSALM and the NPC acknowledged that the Secretary of Justice indeed has jurisdiction to
resolve their dispute.

To harmonize Section 4 of the 1997 NIRC with PD 242, the following interpretation should be
adopted: (1) As regards private entities and the BIR, the power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the NIRC or other laws administered by the. BIR is vested in the CIR subject to the exclusive
appellate jurisdiction of the CTA, in accordance with Section 4 of the NIRC; and (2) Where the
disputing parties are all public entities (covers disputes between the BIR and other government
entities), the case shall be governed by PD 242.

Furthermore, it should be noted that the 1997 NIRC is a general law governing the imposition of
national internal revenue taxes, fees, and charges.47 On the other hand, PD 242 is a special law that
applies only to disputes involving solely government offices, agencies, or instrumentalities.

ISSUE: Whether the transaction is subject to VAT

RULING: NO, it is not subject to VAT

Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale,
disposition, and privatization of the NPC generation assets, real estate and other disposable assets, and
IPP contracts with the objective of liquidating all NPC financial obligations and stranded contract costs
in an optimal manner.

PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and
Magat Power Plants, is pursuant to PSALM's mandate under the EPIRA law and is not conducted in
the course of trade or business. PSALM cited the 13 May 2002 BIR Ruling No. 020- 02, that PSALM'
s sale of assets is not conducted in pursuit of any commercial or profitable activity as to fall within the
ambit of a VAT-able transaction under Sections 105 and 106 of the NIRC.

The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental
function mandated by law to privatize NPC generation assets. PSALM was created primarily to
liquidate all NPC financial obligations and stranded contract costs in an optimal manner.
PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by
PSALM is not "in the course of trade or business" but purely for the specific purpose of privatizing
NPC assets in order to liquidate all NPC financial obligations. PSALM is tasked to sell and privatize
the NPC assets within the term of its existence.60 The EPIRA law even requires PSALM to submit a
plan for the endorsement by the Joint Congressional Power Commission and the approval of the
President of the total privatization of the NPC assets and IPP contracts.

Thus, it is very clear that the sale of the power plants was an exercise of a governmental function
mandated by law for the primary purpose of privatizing NPC assets in accordance with the guidelines
imposed by the EPIRA law.

In the 2006 case of Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay),61 the
Court ruled that the sale of the vessels of the National Development Company (NDC) to Magsaysay
Lines, Inc. is not subject to VAT since it was not in the course of trade or business, as it was
involuntary and made pursuant to the government's policy of privatization. The Court cited the CT A
ruling that the phrase "course of business" or "doing business" connotes regularity of activity. Thus,
since the sale of the vessels was an isolated transaction, made pursuant to the government's
privatization policy, and which transaction could no longer be repeated or carried on with regularity,
such sale was not in the course of trade or business and was not subject to VAT.

Similarly, the sale of the power plants in this case is not subject to VAT since the sale was made
pursuant to PSALM' s mandate to privatize NPC assets, and was not undertaken in the course of trade
or business. In selling the power plants, PSALM was merely exercising a governmental function for
which it was created under the EPIRA law.

Fort Bonifacio Dev. v. CIR

Claim for transitional input vat

FACTS: Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development
and sale of real property. On 8 February 1995, FBDC acquired by way of sale from the national
government, a vast tract of land that formerly formed part of the Fort Bonifacio military reservation,
located in what is now the Fort Bonifacio Global City (Global City) in Taguig City. Since the sale was
consummated prior to the enactment of Rep. Act No. 7716, no VAT was paid thereon. FBDC then
proceeded to develop the tract of land, and from October, 1996 onwards it has been selling lots located
in the Global City to interested buyers.

Following the effectivity of Rep. Act No. 7716, real estate transactions such as those regularly engaged
in by FBDC have since been made subject to VAT. As the vendor, FBDC from thereon has become
obliged to remit to the Bureau of Internal Revenue (BIR) output VAT payments it received from the
sale of its properties to the Bureau of Internal Revenue (BIR). FBDC likewise invoked its right to avail
of the transitional input tax credit and accordingly submitted an inventory list of real properties it
owned, with a total book value of P71,227,503,200.00.
On 14 October 1996, FBDC executed in favor of Metro Pacific Corporation two (2) contracts to sell,
separately conveying two (2) parcels of land within the Global City in consideration of the purchase
prices at P1,526,298,949.00 and P785,009,018.00, both payable in installments. For the fourth quarter
of 1996, FBDC earned a total of P3,498,888,713.60 from the sale of its lots, on which the output VAT
payable to the BIR was P318,080,792.14. In the context of remitting its output VAT payments to the
BIR, FBDC paid a total of P269,340,469.45 and utilized (a) P28,413,783.00 representing a portion of
its then total transitional/presumptive input tax credit of P5,698,200,256.00, which petitioner allocated
for the two (2) lots sold to Metro Pacific; and (b) its regular input tax credit of P20,326,539.69 on the
purchase of goods and services.

Between July and October 1997, FBDC sent two (2) letters to the BIR requesting appropriate action on
whether its use of its presumptive input VAT on its land inventory. After investigating the matter, the
BIR recommended that the claimed presumptive input tax credit be disallowed. Consequently, the BIR
issued to FBDC a Pre-Assessment Notice (PAN) for deficiency VAT for the 4th quarter of 1996. This
was followed by a letter of respondent Commissioner of Internal Revenue (CIR), addressed to and
received by FBDC on 5 March 1998, disallowing the presumptive input tax credit arising from the land
inventory.

Consequently, FBDC received an Assessment Notice in the amount of P45, 188,708.08, representing
deficiency VAT for the 4th quarter of 1996, including surcharge, interest and penalty. After respondent
Regional Director denied FBDC’s motion for reconsideration/protest, FBDC filed a petition for review
with the Court of Tax Appeals (CTA), the CTA rendered a decision affirming the assessment made by
the respondents.

FBDC assailed the CTA decision through a petition for review filed with the Court of Appeals. On 15
November 2002, the Court of Appeals rendered a decision affirming the CTA decision, but removing
the surcharge, interests and penalties, thus reducing the amount due to P28, 413,783.00.

From said decision, FBDC filed two petitions, The first petition is seeking the reversal of the CTA
decision dated 11 August 2000 and a pronouncement that FBDC is entitled to the
transitional/presumptive input tax credit of P28,413,783.00. This petition has been docketed as G.R.
No. 158885.

The second petition, which is docketed as G.R. No. 170680, involves the same parties and legal issues,
but concerns the claim of FBDC that it is entitled to claim a similar transitional/presumptive input tax
credit, this time for the third quarter of 1997.

ISSUE: Whether petitioner herein is entitled to the transitional input vat

RULING: YES, it is entitled to such remedy

On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real
properties, together with the improvements thereon, in the beginning inventory of goods, materials and
supplies, based on which inventory the transitional input tax credit is computed. It can be conceded that
when it was drafted Section 105 could not have possibly contemplated concerns specific to real
properties, as real estate transactions were not originally subject to VAT. At the same time, when
transactions on real properties were finally made subject to VAT beginning with Rep. Act No. 7716, no
corresponding amendment was adopted as regards Section 105 to provide for a differentiated treatment
in the application of the transitional input tax credit with respect to real properties or real estate dealers.

It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate
transactions subject to VAT for the first time. Prior to the amendment, Section 100 had imposed the
VAT "on every sale, barter or exchange of goods," without however specifying the kind of properties
that fall within or under the generic class "goods" subject to the tax.

Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax (EVAT) law,
expanded the coverage of the VAT by amending Section 100 of the Old NIRC in several respects,
some of which we will enumerate. First, it made every sale, barter or exchange of "goods or properties"
subject to VAT. Second, it generally defined "goods or properties" as "all tangible and intangible
objects which are capable of pecuniary estimation." Third, it included a non-exclusive enumeration of
various objects that fall under the class "goods or properties" subject to VAT, including "[r]eal
properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business."From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the application of the
transitional input tax on them? We see none.

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for
lease in the ordinary course of trade or business" that are subject to the VAT, and not when the real
estate transactions are engaged in by persons who do not sell or lease properties in the ordinary course
of trade or business. It is clear that those regularly engaged in the real estate business are accorded the
same treatment as the merchants of other goods or properties available in the market. In the same way
that a milliner considers hats as his goods and a rancher considers cattle as his goods, a real estate
dealer holds real property, whether or not it contains improvements, as his goods.

Had Section 100 itself supplied any differentiation between the treatment of real properties or real
estate dealers and the treatment of the transactions involving other commercial goods, then such
differing treatment would have constituted the statutory basis for the CIR to engage in such
differentiation which said respondent did seek to accomplish in this case through Section 4.105-1 of
RR 7-95. Yet the amendments introduced by Rep. Act No. 7716 to Section 100, coupled with the fact
that the said law left Section 105 intact, reveal the lack of any legislative intention to make persons or
entities in the real estate business subject to a VAT treatment different from those engaged in the sale
of other goods or properties or in any other commercial trade or business.

There is hardly any constricted definition of “transitional” that will limit its possible meaning to the
shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the transition one
undergoes from not being a VAT-registered person to becoming a VAT-registered person. Such
transition does not take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in
particular. It could also occur when one decides to start a business. Section 105 states that the
transitional input tax credits become available either to (1) a person who becomes liable to VAT; or (2)
any person who elects to be VAT-registered. The clear language of the law entitles new trades or
businesses to avail of the tax credit once they become VAT-registered. The transitional input tax credit,
whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person
such as when a business as it commences operations. If we view the matter from the perspective of a
starting entrepreneur, greater clarity emerges on the continued utility of the transitional input tax credit.

The interpretation proffered by the CTA would exclude goods and properties which are acquired
through sale not in the ordinary course of trade or business, donation or through succession, from the
beginning inventory on which the transitional input tax credit is based. This prospect all but highlights
the ultimate absurdity of the respondents’ position. Again, nothing in the Old NIRC (or even the New
NIRC) speaks of such a possibility or qualifies the previous payment of VAT or any other taxes on the
goods, materials and supplies as a pre-requisite for inclusion in the beginning inventory. It is apparent
that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not
they previously paid taxes in the acquisition of their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit
serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered
taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT.
The transitional input tax credit mitigates this initial diminution of the taxpayer’s income by affording
the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when
the person is yet unable to credit input VAT payments.

On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real
properties, together with the improvements thereon, in the beginning inventory of goods, materials and
supplies, based on which inventory the transitional input tax credit is computed. It can be conceded that
when it was drafted Section 105 could not have possibly contemplated concerns specific to real
properties, as real estate transactions were not originally subject to VAT. At the same time, when
transactions on real properties were finally made subject to VAT beginning with Rep. Act No. 7716, no
corresponding amendment was adopted as regards Section 105 to provide for a differentiated treatment
in the application of the transitional input tax credit with respect to real properties or real estate dealers.

It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate
transactions subject to VAT for the first time. Prior to the amendment, Section 100 had imposed the
VAT "on every sale, barter or exchange of goods," without however specifying the kind of properties
that fall within or under the generic class "goods" subject to the tax.

Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax (EVAT) law,
expanded the coverage of the VAT by amending Section 100 of the Old NIRC in several respects,
some of which we will enumerate. First, it made every sale, barter or exchange of "goods or properties"
subject to VAT. Second, it generally defined "goods or properties" as "all tangible and intangible
objects which are capable of pecuniary estimation." Third, it included a non-exclusive enumeration of
various objects that fall under the class "goods or properties" subject to VAT, including "[r]eal
properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business."From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the application of the
transitional input tax on them? We see none.

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for
lease in the ordinary course of trade or business" that are subject to the VAT, and not when the real
estate transactions are engaged in by persons who do not sell or lease properties in the ordinary course
of trade or business. It is clear that those regularly engaged in the real estate business are accorded the
same treatment as the merchants of other goods or properties available in the market. In the same way
that a milliner considers hats as his goods and a rancher considers cattle as his goods, a real estate
dealer holds real property, whether or not it contains improvements, as his goods.

Had Section 100 itself supplied any differentiation between the treatment of real properties or real
estate dealers and the treatment of the transactions involving other commercial goods, then such
differing treatment would have constituted the statutory basis for the CIR to engage in such
differentiation which said respondent did seek to accomplish in this case through Section 4.105-1 of
RR 7-95. Yet the amendments introduced by Rep. Act No. 7716 to Section 100, coupled with the fact
that the said law left Section 105 intact, reveal the lack of any legislative intention to make persons or
entities in the real estate business subject to a VAT treatment different from those engaged in the sale
of other goods or properties or in any other commercial trade or business.

There is hardly any constricted definition of “transitional” that will limit its possible meaning to the
shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the transition one
undergoes from not being a VAT-registered person to becoming a VAT-registered person. Such
transition does not take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in
particular. It could also occur when one decides to start a business. Section 105 states that the
transitional input tax credits become available either to (1) a person who becomes liable to VAT; or (2)
any person who elects to be VAT-registered. The clear language of the law entitles new trades or
businesses to avail of the tax credit once they become VAT-registered. The transitional input tax credit,
whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person
such as when a business as it commences operations. If we view the matter from the perspective of a
starting entrepreneur, greater clarity emerges on the continued utility of the transitional input tax credit.

The interpretation proffered by the CTA would exclude goods and properties which are acquired
through sale not in the ordinary course of trade or business, donation or through succession, from the
beginning inventory on which the transitional input tax credit is based. This prospect all but highlights
the ultimate absurdity of the respondents’ position. Again, nothing in the Old NIRC (or even the New
NIRC) speaks of such a possibility or qualifies the previous payment of VAT or any other taxes on the
goods, materials and supplies as a pre-requisite for inclusion in the beginning inventory. It is apparent
that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not
they previously paid taxes in the acquisition of their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit
serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered
taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT.
The transitional input tax credit mitigates this initial diminution of the taxpayer’s income by affording
the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when
the person is yet unable to credit input VAT payments.

The dissent, in arguing for the effectivity of Section 4.105-1 of RR 7-95, ratiocinates in this manner:
(1) Section 4.105-1 finds basis in Section 105 of the Old NIRC, which provides that the input tax is
allowed on the "beginning inventory of goods, materials and supplies;" (2) input taxes must have been
paid on such goods, materials and supplies; (3) unlike real property itself, the improvements thereon
were already subject to VAT even prior to the passage of Rep. Act No. 7716; (4) since no VAT was
paid on the real property prior to the passage of Rep. Act No. 7716, it could not form part of the
"beginning inventory of goods, materials and supplies."

This chain of premises have already been debunked. It is apparent that the dissent believes that only
those "goods, materials and supplies" on which input VAT was paid could form the basis of valuation
of the input tax credit. Thus, if the VAT-registered person acquired all the goods, materials and
supplies of the beginning inventory through a sale not in the ordinary course of trade or business, or
through succession or donation, said person would be unable to receive a transitional input tax credit.
Yet even RR 7-95, which imposes the restriction only on real estate dealers permits such other persons
who obtained their beginning inventory through tax-free means to claim the transitional input tax
credit. The dissent thus betrays a view that is even more radical and more misaligned with the language
of the law than that expressed by the CIR.

A final observation. Section 4.105.1 of RR No. 7-95, insofar as it disallows real estate dealers from
including the value of their real properties in the beginning inventory of goods, materials and supplies,
has in fact already been repealed. The offending provisions were deleted with the enactment of
Revenue Regulation No. 6-97 (RR 6-97) dated 2 January 1997, which amended RR 7-95.45 The repeal
of the basis for the present assessments by RR 6-97 only highlights the continuing absurdity of the
position of the BIR towards FBDC.

Philamgen v. Secretary of Finance

Jurisdiction of questions involving the decision fo Secretary of Finance; Transfer with insufficient
consideration

FACTS: Petitioner The Philippine American Life and General Insurance Company (Philamlife) used
to own 498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing
49.89% of the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its
interests in the health maintenance organization industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares
were sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange rate at the time of
the sale, to STI Investments, Inc., who emerged as the highest bidder.3

After the sale was completed and the necessary documentary stamp and capital gains taxes were paid,
Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares.
Months later, petitioner was informed that it needed to secure a BIR ruling in connection with its
application due to potential donor’s tax liability. In compliance, petitioner, on January 4, 2012,
requested a ruling4 to confirm that the sale was not subject to donor’s tax, pointing out, in its request,
the following: that the transaction cannot attract donor’s tax liability since there was no donative intent
and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5
that the shares were sold at their actual fair market value and at arm’s length; that as long as the
transaction conducted is at arm’s length––such that a bona fide business arrangement of the dealings is
done inthe ordinary course of business––a sale for less than an adequate consideration is not subject to
donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open bidding process.

On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner) denied

Philamlife’s request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling
price of the shares thus sold was lower than their book value based on the financial statements of
PhilamCare as of the end of 2008.6 As such, the Commisioner held, donor’s tax became imposable on
the price difference pursuant to Sec. 100 of the National Internal Revenue Code

In view of the foregoing, the Commissioner ruled that the difference between the book value and the
selling price in the sales transaction is taxable donation subject to a 30% donor’s tax under Section
99(B) of the NIRC.7 Respondent Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09],
on which petitioner anchored its claim, has already been revoked by Revenue Memorandum Circular
(RMC) No. 25-2011.8

Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling No.
015-12, but to no avail. For on November 26, 2012, respondent Secretary affirmed the Commissioner’s
assailed ruling in its entirety.

In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals
(CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125),11 as amended, which has
jurisdiction over the issues raised. The outright dismissal, so the CA held, is predicated on the postulate
that BIR Ruling No. 015-12 was issued in the exercise of the Commissioner’s power to interpret the
NIRC and other tax laws. Consequently, requesting for its review can be categorized as "other matters
arising under the NIRC or other laws administered by the BIR," which is under the jurisdiction of the
CTA, not the CA.

ISSUE: Whether Secretary of Finance has jurisdiction to review the decisions of CIR in
interpreting the laws

RULING: YES, it has jurisdiction

Preliminarily, it bears stressing that there is no dispute that what is involved herein is the respondent
Commissioner’s exercise of power under the first paragraph of Sec. 4 of the NIRC––the power to
interpret tax laws. This, in fact, was recognized by the appellate court itself, but erroneously held that
her action in the exercise of such power is appealable directly to the CTA.

As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides that the Commissioner’s
power to interpret the provisions of this Code and other tax laws is subject to review by the Secretary
of Finance. The issue that now arises is this––where does one seek immediate recourse from the
adverse ruling of the Secretary of Finance in its exercise of its power of review under Sec. 4?

Admittedly, there is no provision in law that expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that Sec.
7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law asit vests the CTA, albeit
impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or other
laws administered by the BIR.

Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice
to taxpayers prejudiced by his adverse rulings. To remedy this situation, Weimply from the purpose of
RA 1125 and its amendatory laws that the CTA is the proper forum with which to institute the appeal.
This is not, and should not, in any way, be taken as a derogation of the power of the Office of President
but merely as recognition that matters calling for technical knowledge should be handled by the agency
or quasi-judicial body with specialization over the controversy. As the specialized quasi-judicial
agency mandated to adjudicate tax, customs, and assessment cases, there can be no other court of
appellate jurisdiction that can decide the issues raised inthe CA petition, which involves the tax
treatment of the shares of stocks sold.

The respective teachings in British American Tobacco and Asia International Auctioneers, at first
blush, appear to bear no conflict––that when the validity or constitutionality of an administrative rule or
regulation is assailed, the regular courts have jurisdiction; and if what is assailed are rulings or opinions
of the Commissioner on tax treatments, jurisdiction over the controversy is lodged with the CTA. The
problem with the above postulates, however, is that they failed to take into consideration one crucial
point––a taxpayer can raise both issues simultaneously.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original
jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied
from the mere existence of appellate jurisdiction. Thus, x x x this Court has ruled against the
jurisdiction of courts or tribunals over petitions for certiorari on the ground that there is no law which
expressly gives these tribunals such power. Itmust be observed, however, that x x x these rulings
pertain not to regular courts but to tribunals exercising quasijudicial powers. With respect tothe
Sandiganbayan, Republic Act No. 8249 now provides that the special criminal court has exclusive
original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari,
habeas corpus, injunctions, and other ancillary writs and processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme
Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus.
With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the
appellate court, also in the exercise of its original jurisdiction, the power to issue, among others, a writ
of certiorari, whether or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the power
to issue a writ of certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of
BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA,
Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be
vested in one Supreme Court and in such lower courts as may be established by law and that judicial
power includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not 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.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the
CTA includes that of determining whether or not there has been grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling
within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed
tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as
is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable
reason why the transfer should only be considered as partial, not total.

ISSUE: Whether the transaction is subject to donor’s tax

RULING: YES, it is subject to donor’s tax due to presumption of donative intent despite the
actual absence thereof

Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair market value of the property exceeded the value
of the consideration shall be deemed a gift.1âwphi1 Thus, even if there is no actual donation, the
difference in price is considered a donation by fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the "fair market value" of a sale of stocks. Such issuance was made
pursuant to the Commissioner's power to interpret tax laws and to promulgate rules and regulations for
their implementation.

Dizon v. CTA and CIR

Date-of-death valuation rule

FACTS: On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of
his will5 was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court).[6] The
probate court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and
petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). In a letter7 dated October 13, 1988, Justice Dizon informed
respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the
Estate.

Petitioner alleged that several requests for extension of the period to file the required estate tax return
were granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be
collated, determined and identified. Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized
Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax
return and to represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17,
1990, Atty. Gonzales wrote a letter9 addressed to the BIR Regional Director for San Pablo City and
filed the estate tax return

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification
Nos. 2052[12] and 2053[13] stating that the taxes due on the transfer of real and personal
properties[14] of Jose had been fully paid and said properties may be transferred to his heirs.

Petitioner requested the probate court's authority to sell several properties forming part of the Estate,
for the purpose of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31),
Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking
Corporation (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc.
(P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate was not
included, as it did not file a claim with the probate court since it had security over several real estate
properties forming part of the Estate.

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles
Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the
payment of P66,973,985.40 as deficiency estate tax

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said
estate tax assessment. However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the
request and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate
tax. On May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a petition
for review21 before respondent CTA. Trial on the merits ensued. CTA denied

ISSUE: Whether the estate is liable for tax deficiency

RULING: NO, they are not liable for tax deficiency

It is noteworthy that even in the United States, there is some dispute as to whether the deductible
amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or the
same should be adjusted to reflect post-death developments, such as where a settlement between the
parties results in the reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the
appropriate deduction is the "value" that the claim had at the date of the decedent's death.62 Also, as
held in Propstra v. U.S., 63 where a lien claimed against the estate was certain and enforceable on the
date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not
preclude the estate from deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death developments are not material
in determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be
taken into consideration and the claim should be allowed as a deduction only to the extent of the
amount actually paid.64 Recognizing the dispute, the Service released Proposed Regulations in 2007
mandating that the deduction would be limited to the actual amount paid.65

In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust
date-of-death valuation principle to enforceable claims against the estate. As we interpret Ithaca
Trust, when the Supreme Court announced the date-of-death valuation principle, it was making
a judgment about the nature of the federal estate tax specifically, that it is a tax imposed on the
act of transferring property by will or intestacy and, because the act on which the tax is levied
occurs at a discrete time, i.e., the instance of death, the net value of the property transferred
should be ascertained, as nearly as possible, as of that time. This analysis supports broad
application of the date-of-death valuation rule.67

We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the
U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First. There is no law, nor do we discern
any legislative intent in our tax laws, which disregards the date-of-death valuation principle and
particularly provides that post-death developments must be considered in determining the net value of
the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed,
beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris
against the government.69 Any doubt on whether a person, article or activity is taxable is generally
resolved against taxation.70 Second. Such construction finds relevance and consistency in our Rules on
Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before his death.71
Therefore, the claims existing at the time of death are significant to, and should be made the basis of,
the determination of allowable deductions.

Tolentino v. Secretary of Finance

Motion for reconsideration of the declaration the eVAT law is constitutional

FACTS: 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 the Senate
committee should have 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."

Error no. 2 : 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."

Error no. 3: The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630
are distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's)
contention that because the President separately certified to the need for the immediate enactment of
these measures, his certification was ineffectual and void. The certification had to be made of the
version of the same revenue bill which at the moment was being considered. Otherwise, to follow
petitioners' theory, it would be necessary for the President to certify as many bills as are presented in a
house of Congress even though the bills are merely versions of the bill he has already certified

Error no. 4: The power of conference committee does not include the power to propose amendment to
a bill sent to them

Error no. 5: The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates
Art. VI, §26 (1) of the Constitution which provides that "Every bill passed by Congress shall embrace
only one subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.

Error no. 6: Claims of press freedom and religious liberty. We have held that, as a general proposition,
the press is not exempt from the taxing power of the State and that what the constitutional guarantee of
free press prohibits are laws which single out the press or target a group belonging to the press for
special treatment or which in any way discriminate against the press on the basis of the content of the
publication, and R.A. No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is averred,
"even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."

Error no. 7: 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.

Error no. 8: Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art.
VI, §28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation."

Error no. 9: 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.

1 ISSUE: Whether the power of the lower house in creating a bill regarding taxes bars senate to
st

propose its own version

RULING: NO, senate still has the power to provide amendments

Considering the defeat of the proposal, the power of the Senate to propose amendments must be
understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills are
required to originate exclusively in the House of Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the same subject matter. This follows from
the coequality of the two chambers of Congress.

Considering the defeat of the proposal, the power of the Senate to propose amendments must be
understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills are
required to originate exclusively in the House of Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill is passed and sent over to it by the House,
however, the Senate certainly can pass its own version on the same subject matter. This follows from
the coequality of the two chambers of Congress.

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.

2 ISSUE: Whether RA 7716 was “half-baked” bill considering much of its content originates
nd

from the senate version

RULING: NO, it is not “half-baked”

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates that
the provisions of the Senate bill were precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a
mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on
second and three readings. It was enough that after it was passed on first reading it was referred to the
Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the
House of Representatives before the two bills could be referred to the Conference Committee.

3 ISSUE: Whether the certification of the president of the senate bill was proper
rd

RULING: YES, it is proper

This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:

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.

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.
4 ISSUE: Whether the conference committee has the power to include amendments
th

RULING: YES, it has the power to include amendment

As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion
written by then Justice Cruz, the jurisdiction of the conference committee is not limited to resolving
differences between the Senate and the House. It may propose an entirely new provision. What is
important is that its report is subsequently approved by the respective houses of Congress. This Court
ruled that it would not entertain allegations that, because new provisions had been added by the
conference committee, there was thereby a violation of the constitutional injunction that "upon the last
reading of a bill, no amendment thereto shall be allowed."

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.

5 ISSUE: Whether the title of the bill needs to be explicit and detailed
th

RULING: NO, it does not need to explicit and detailed

It is unnecessary to do this in order to comply with the constitutional requirement, since it is already
stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is
§103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is
required to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in
fact specifically referred to §103 of the NIRC as among the provisions sought to be amended. We are
satisfied that sufficient notice had been given of the pendency of these bills in Congress before they
were enacted into what is now R.A. No. 7716.

To require every end and means necessary for the accomplishment of the general objectives of the
statute to be expressed in its title would not only be unreasonable but would actually render legislation
impossible.

6 ISSUE: Whether the removal of tax exemption entails the freedom of the press and religion
th

RULING: NO, it does not entail the freedom of the press and religion

With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The reason
is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign
prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI.

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."

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.

7 ISSUE: Whether eVAT law is unconstitutional

th

RULING: NO, it is constitutional

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)).

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.

8 ISSUE: Whether it violates the rule of taxation shall be uniform and equitable. The Congress
th

shall evolve a progressive system of taxation.

RULING: NO, it does not violate such rule

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned in
Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds
similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and
regressive in violation of Art. VI, §28(1) of the Constitution."

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.

9 ISSUE: Whether it violates the constitutional right of cooperatives to be exempt from tax
th

RULING: NO, it does not violate such provision

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).

Abakada v. Ermita

The constitutionality of R.A. No. 9337

FACTS: 1/27/05 House bill no. 3555 was approved by house of representative; 2/28/05 House bill no.
3705 was approved by house of representative; 4/13/05 Senate bill no. 1950 which considered the two
house bills was approved by congress; 4/13/05 a bicameral conference was held by the two houses to
harmonize the disagreeing provisions of the bills; 5/23/05 a copy of the harmonized bill was
transmitted to the president and was approved on the following day; 7/1/05 R.A. no. 9337 took effect

G.R. No. 168056 ABAKADA Guro Partylist; Questioning the constitutionality of Sec. 4-6 amending
the sections 106-108 pertaining to VAT; Said sections of the law imposes 10% increase in VAT:

sale of goods and properties; importation of goods; sale of services and use or lease of
properties.

With a provision that upon recommendation of secretary of finance, the president has an authority to
increase from 10% to 12% if the following situations has been met:

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%)

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

Violating the Article VI, Section 28(2) of the 1987 Philippine Constitution.

The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it 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.

G.R. No. 168207 Sen. Pimental et. al petition: Also assailing the validity of Sec. 4-6. Aside from the
authority of the president to fix certain taxes, the law is in violation of due delegation

It also violates the due process clause as it imposes additional tax burden
 The 12% increase is ambiguous because it does not state WON it would return to 10% if the
conditions are no longer met; Unfair and unreasonable because people would not be sure what
VAT to impose yearly; The increase should be based on fiscal adequacy

Violates also Article VI, Section 26(2) of the Constitution

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.

G.R. No. 168461 Association Pilipinas Shell Dealers Inc. case: Assailing the validity of sec. 8 and 12
which limits the input tax to be credited against output tax

Violates the due process clause of the constitution

Input tax partakes as property right, that may not be taken, confiscated or appropriated without
due process of law

Violates the equal protection clause

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.

It is not a progressive tax Article VI, Section 28(1) of the Constitution

G.R. No. 168463 several members of the house of representatives case: Assailing the validity of the
RA 9337:

Sec. 4-6 is an undue delegation of legislative power; Certain sections of the bill did not originate
from the house of representatives as required by the constitution that all appropriation bill shall
originate from the later

ISSUE: Whether the law violates the constitutional mandate the all appropriation bill should
originate from the house of representative (Article VI, Section 24)

RULING: NO, it is constitutional

Any irregularities introduced by the bicameral conference, for changing or deleting the provisions of
the bills is akin to Farias case:

that such is merely internal rules and regulations that it is not found in the ambit of the
constitution
 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. 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.

In the Tolentino vs. Secretary of Finance case held that bicameral conference:

[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.

There being differences and/or disagreements on the foregoing provisions of the House and
Senate bills, the Bicameral Conference Committee was mandated by the rules of both houses of
Congress to act on the same by settling said differences and/or disagreements.

To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may:

adopt the specific provisions of either the House bill or Senate bill

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

try to arrive at a compromise between the disagreeing provisions.

Case at bar the disagreements are:

1. what rate of VAT is to be imposed

2. WON the VAT imposed on electricity generation, transmission not be imposed on consumers
(Senate bill) or VAT imposed on petroleum charges not be imposed on consumers along with
the electricity generation (House Bill)

3. Input tax limitation

4. NIRC provision on income, franchise and excise tax be amended

Bicameral conference solution:

1. VAT would still be 10% and be 12% upon recommendation of DOF and authority of president if
certain conditions are met

2. The VAT imposed on generation of electricity and petroleum charges no longer be imposed on
consumers

3. Input tax credit of the House bill applied

4. Certain amendment on tax in Senate bill applied

ISSUE: Whether it violates the 3 day reading

RULING: NO, it does not violate the 3 day reading

In Tolentino v. SoF:

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.

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.

ISSUE: Whether it violates the rule that appropriation bill should originate from the lower house

RULING: NO, it does not violate such rule

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
Senates power not only to concur with amendments but also to propose amendments.

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.

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.

Thus Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes is
germane to the intent of the house bill

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.

ISSUE: Whether it unduly delegates the legislative power to president

RULING: NO, it does not violate such rule

Permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the
law:

is complete in itself, setting forth therein the policy to be executed, carried out, or implemented
by the delegate

fixes a standard the limits of which are sufficiently determinate and determinable to which the
delegate must conform in the performance of his functions.

People vs. Vera case:

 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.

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 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.

Edu vs. Ericta case: 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.

the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies but the legislature must prescribe sufficient standards,
policies or limitations on their authority.

preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative
function, but is simply ancillary to legislation.

Case at bar: It is simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent.

The use of the word shall connotes a mandatory order.

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.

It is a clear directive to impose the 12% VAT rate when the specified conditions are present.

Secretary of Finance 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.

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.

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.
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.

ISSUE: Whether the increase in VAT is unfair and unnecessary

RULING: NO, it is fair and necessary

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%

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.

It is based on fiscal adequacy: Mounting budget deficit, revenue generation, inadequate fiscal
allocation for education, increased emoluments for health workers, and wider coverage for full value-
added tax benefits these are the reasons why Republic Act No. 9337 (R.A. No. 9337) to raise revenue

ISSUE: Whether it violates the due process and equal protection clause

RULING: NO, it does not violate such rights

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.

The limitation of input tax to 70% does not mean that going above it, it would no longer be credited to
the next tax year

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.

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 law can confiscate, appropriate or limit the credit input tax because it is not a property right vested
in everyone but merely a statutory right

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.
 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.

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 have several transactions with the government, are not based on
real and substantial differences to meet a valid classification.

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.

While the implementation of the law may yield varying end results depending on ones profit margin
and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the
affairs of business.

ISSUE: Whether it violates the rule that tax laws should be uniform and equitable

RULING: NO, it does not violate such rule

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.

Congress also increased the income tax rates of corporations

Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate,
from a previous 32%

Intercorporate dividends of non-resident foreign corporations are still subject to 15% final
withholding tax but the tax credit allowed on the corporations domicile was increased to 20%

The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income
taxes

ISSUE: Whether it is regressive

RULING: YES, it is regressive but our constitution simply frowns upon it, not total denial

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive.

The VAT paid eats the same portion of an income, whether big or small.

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."

Renato Diaz v. Secretary of Finance

VATability of franchise holders particularly tollway operators

FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief1 assailing the validity of the impending imposition of value-added tax (VAT) by the
Bureau of Internal Revenue (BIR) on the collections of tollway operators.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user’s tax," not a
sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.

The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides otherwise; that the Court should seek the
meaning and intent of the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.

ISSUE: Whether toll services are VATable under the law

RULING: YES, they are VATable

The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by x x x services of franchise grantees of electric utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of this Code

It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the
Philippines for a fee, including those specified in the list. The enumeration of affected services is not
exclusive.11 By qualifying "services" with the words "all kinds," Congress has given the term
"services" an all-encompassing meaning. The listing of specific services are intended to illustrate how
pervasive and broad is the VAT’s reach rather than establish concrete limits to its application. Thus,
every activity that can be imagined as a form of "service" rendered for a fee should be deemed included
unless some provision of law especially excludes it.

Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal basis for the services that tollway operators render. Essentially,
tollway operators construct, maintain, and operate expressways, also called tollways, at the operators’
expense. Tollways serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-
moving. In consideration for constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such operators could fully recover
their expenses and earn reasonable returns from their investments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter’s use of the
tollway facilities over which the operator enjoys private proprietary rights12 that its contract and the
law recognize. In this sense, the tollway operator is no different from the following service providers
under Section 108 who allow others to use their properties or facilities for a fee

And not only do tollway operators come under the broad term "all kinds of services," they also come
under the specific class described in Section 108 as "all other franchise grantees" who are subject to
VAT, "except those under Section 119 of this Code."

Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio
and/or television broadcasting companies with gross annual incomes of less than ₱10 million and gas
and water utilities) that Section 11913 spares from the payment of VAT. The word "franchise" broadly
covers government grants of a special right to do an act or series of acts of public concern.

Tollway operators are, owing to the nature and object of their business, "franchise grantees." The
construction, operation, and maintenance of toll facilities on public improvements are activities of
public consequence that necessarily require a special grant of authority from the state. Indeed, Congress
granted special franchise for the operation of tollways to the Philippine National Construction
Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from
Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated
powers under P.D. 1112.17 The franchise in this case is evidenced by a "Toll Operation Certificate."

What the government seeks to tax here are fees collected from tollways that are constructed,
maintained, and operated by private tollway operators at their own expense under the build, operate,
and transfer scheme that the government has adopted for expressways.26 Except for a fraction given to
the government, the toll fees essentially end up as earnings of the tollway operators.

In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.
A tax is imposed under the taxing power of the government principally for the purpose of raising
revenues to fund public expenditures.27 Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the construction, maintenance and
operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees
are charged for the use of public facilities, therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority,
toll fees may be demanded by either the government or private individuals or entities, as an attribute of
ownership.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, 31 VAT is imposed on any person who, in the course of trade
or business, sells or renders services for a fee. In other words, the seller of services, who in this case is
the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the
tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a
"user’s tax." VAT is assessed against the tollway operator’s gross receipts and not necessarily on the
toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make
the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that
one has to pay in order to use the tollways.

CIR v. CA and Commonwealth Management

VATability of entities who are not profit driven

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

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

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

On September 29, 1992, COMASERCO filed with the Court of Tax Appeals a petition for review
4 

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.

CA reversed the ruling of CTA en banc and ruled that COMASERCO is not liable for any deficiency in
VAT

ISSUE: Whether COMASERCO is liable for VAT

RULING: YES, it is liable for VAT

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.

CIR and CTA correctly ruled 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.

CIR v. Magsaysay Lines

Isolated transactions are not subject to VAT

FACTS: 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.

The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and
conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on
the value of the vessels."3 On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay
Lines) offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay
Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc.,
and FIM Limited of the Marden Group based in Hongkong (collectively, private respondents).4 The
bid was approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was
issued to Magsaysay Lines.

On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand,
and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the
contract stipulated that "[v]alue-added tax, if any, shall be for the account of the PURCHASER."5 Per
arrangement, an irrevocable confirmed Letter of Credit previously filed as bidders bond was accepted
by NDC as security for the payment of VAT, if any. By this time, a formal request for a ruling on
whether or not the sale of the vessels was subject to VAT had already been filed with the Bureau of
Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in
behalf of private respondents. Thus, the parties agreed that should no favorable ruling be received from
the BIR, NDC was authorized to draw on the Letter of Credit upon written demand the amount needed
for the payment of the VAT on the stipulated due date, 20 December 1988.

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]

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.

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.

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

ISSUE: Whether the transaction is subject to VAT

RULING: NO, it is not subject to VAT

Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct
relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the
Tax Code and its subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of
goods or services by persons who engage in such activities, in the course of trade or business. These
transactions outside the course of trade or business may invariably contribute to the production chain,
but they do so only as a matter of accident or incident. As the sales of goods or services do not occur
within the course of trade or business, the providers of such goods or services would hardly, if at all,
have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT
collections since the accumulation of output VAT arises in the first place only through the ordinary
course of trade or business.

That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated
by both the CTA and the Court of Appeals, the latter doing so even in its first decision which it
eventually reconsidered.20 We cite with approval the 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.

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.

Mindanao II Geothermal v. CIR

What is considered incidental to work; Summary of the judicial and administrative claim

FACTS: 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.

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.

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

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

2. That input taxes were incurred or paid;

3. That such input VAT payments are directly attributable to zero-rated sales or effectively
zero-rated sales;
 4. That the input VAT payments were not applied against any output VAT liability; and

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

With respect to the fifth requirement, the CTA First Division tabulated the dates of filing of Mindanao
II’s return as well as its administrative and judicial claims, and concluded that Mindanao II’s
administrative and judicial claims were timely filed in compliance with this Court’s ruling in Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (Atlas).

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.

Upon appeal of CIR to CTA: 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 same factual milieu happened with Mindanao I, excluding the issue of Nissan vehicle

ISSUE: Whether the claims filed by the petitioners complied with the period required under Sec.
112

RULING: NO, they did not complied with period

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

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

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

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

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The
taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still
has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only
logical interpretation of Section 112(A) and (C).

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made,
not by a particular taxpayer, but by a government agency tasked with processing tax refunds and
credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of
Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No.
DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where
the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this
Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory
and jurisdictional.

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

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

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

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

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

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.

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.

ISSUE: Whether the sale of Nissan Vehicle of Mindanao II is incidental to its business though it
was an isolated transaction

RULING: YES, it is incidental hence VATable

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

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