THIRD DIVISION
81 (Cebu City North
G.R. No. 175651, September 14, 2016
PILMICO-MAURI
CORP., Petitioner, v. COMMISSIONER OF
REVENUE, Respondent.
R E S OLUTIO N
REYES, J.:
Before the Court is a petition for review on certiorari1 under
Rule 45 of the Rules of Court pursuant to Republic Act (R.A.)
No. 1125,2 Section 19,3 as amended by R.A. No. 9282,4 Section
12.5 The petition filed by Pilmico-Mauri Foods Corp. (PMFC)
against the Commissioner of Internal Revenue (CIR) assails the
Decision6 and Resolution7 of the Court of Appeals (CTA) en
banc, dated August 29, 2006 and December 4, 2006,
respectively, in C.T.A. EB No. 97.
Antecedents
The CTA aptly summed up the facts of
follows:ChanRoblesVirtualawlibrary
[PMFC] is a corporation, organized and existing under the
laws of the Philippines, with principal place of business at
Aboitiz Corporate Center, Banilad, Cebu City.
The books of accounts of [PMFC] pertaining to 1996 were
examined by the [CIR] thru Revenue Officer Eugenio D.
TAX CASES
Maestrado of Revenue District No.
District) for deficiency income, value-added [tax] (VAT) and
withholding tax liabilities.
As a result of the investigation, the following assessment
FOODS notices were issued against [PMFC]:
INTERNAL
chanRoblesvirtualLawlibrary
Assessment Notice No. 81-WT-13-96-98-11-126, dated November 26,
1998, demanding payment for deficiency withholding taxes for the year
(a)
1996 in the sum of P384,925.05 (inclusive of interest and other
penalties);
Assessment Notice No. 81-VAT-13-96-98-11-127, dated November 26,
(b) 1998, demanding payment of deficiency value-added tax in the sum of
P5,017,778.01 (inclusive of interest and other penalties); [and]
Assessment Notice No. 81-IT-13-96[-]98-11-128, dated November 26,
(c) 1998, demanding payment of. deficiency income tax for the year 1996 in
the sum of P4,359,046.96 (inclusive of interest and other penalties).
The foregoing Assessment Notices were all received by
[PMFC] on December 1, 1998. On December 29, 1998,
the case as [PMFC] filed a protest letter against the aforementioned
deficiency tax assessments through the Regional Director,
Revenue Region No. 13, Cebu City.
In a final decision of the [CIR] on the disputed assessments
dated July 3, 2000, the deficiency tax liabilities of [PMFC]
were reduced from P9,761,750.02 to P3,020,259.30,
broken down as follows:
1
chanRoblesvirtualLawlibrarya) Deficiency withholding tax
from P384,925.05 to P197,780.67;
b) Deficiency value-added tax from P5,017,778.01 to
P1,642,145.79; and
c) Deficiency Income Tax from P4,359,046.96 to
P1,180,332.84.
xxxx
On the basis of the foregoing facts[, PMFC] filed its Petition for Review on
August 9, 2000. In the "Joint Stipulation of Facts" filed on March 7, 2001, the
parties have agreed that the following are the issues to be
resolved:ChanRoblesVirtualawlibrary
1. Whether or not [PMFC] is liable for the payment
of deficiency income, value-added, expanded
withholding, final withholding and withholding tax
(on compensation).
2. On the P1,180,382.84 deficiency income tax
1. Whether or not the P5,895,694.66
purchases of raw materials are
unsupported[;]
2. Whether or not the cancelled invoices
and expenses for taxes, repairs and
freight are unsupported[;]
3. Whether or not commission, storage and
trucking charges claimed are deductible[;
and]
4. Whether or not the alleged deficiency
income tax for the year 1996 was
correctly computed.
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xxxx
Whether or not [CIR's] decision on the 1996 internal revenue tax
V.
liabilities of [PMFC] is contrary to law and the facts.
After trial on the merits, the [CTA] in Division rendered the assailed Decision
affirming the assessments but in the reduced amount of P2,804,920.36
(inclusive of surcharge and deficiency interest) representing [PMFC's]
Income, VAT and Withholding Tax deficiencies for the taxable year 1996 plus
20% delinquency interest per annum until fully paid. The [CTA] in Division
ruled as follows:ChanRoblesVirtualawlibrary
"However, [PMFC's] contention that the NIRC of 1977 did
not impose substantiation requirements on deductions
from gross income is bereft of merit. Section 238 of the
1977 Tax Code [now Section 237 of the National Internal
Revenue Code of 1997]
provides:ChanRoblesVirtualawlibrary
SEC. 238. Issuance of receipts or sales or commercial
invoices. - All persons, subject to an internal revenue tax
shall for each sale or transfer of merchandise or for
services rendered valued at P25.00 or more, issue receipts
or sales or commercial invoices, prepared at least in
duplicate, showing the date of transaction, quantity, unit
cost and description of merchandise or nature of service:
Provided, That in the case of sales, receipts or transfers in
the amount of P100.00 or more, or, regardless of amount,
where the sale or transfer is made by persons subject to
value-added tax to other persons, also subject to value-
added tax; or, where the receipt is issued to cover payment
made as rentals, commissions, compensations or fees,
receipts or invoices shall be issued which shall show the
name, business style, if any, and address of the purchaser,
customer, or client. The original of each receipt or invoice
2
shall be issued to the purchaser, customer or client at the
time the transaction is effected, who, if engaged in
business or in the exercise of profession, shall keep and The mere fact that [PMFC] submitted the foregoing sales invoices belies [its]
preserve the same in his place of business for a period of claim that the NIRC of 1977 did not require that deductions must be
three (3) years from the close of the taxable year in which substantiated by adequate records.
such invoice or receipt was issued, while the duplicate
shall be kept and preserved by the issuer, also in his place From the total purchases of P5,893,694.64 which have been disallowed, it
of business for a like period. x x x seems that a portion thereof amounting to P1,280,268.19 (729,663.64 +
550,604.55) has no supporting sales invoices because of [PMFC's] failure to
From the foregoing provision of law, a person who is subject to an internal present said invoices.
revenue tax shall issue receipts, sales or commercial invoices, prepared at
least in duplicate. The provision likewise imposed a responsibility upon the A scrutiny of the invoices supporting the remaining balance of P4,613,426.45
purchaser to keep and preserve the original copy of the invoice or receipt for (P5,893,694.64 less P1,280,268.19) revealed the following:
a period of three years from the close of the taxable year in which such
invoice or receipt was issued. The rationale behind the latter requirement is a)In Sales Invoice No. 2072 marked as Exhibit B-3, the name Pilmico Foods
the duty of the taxpayer to keep adequate records of each and every Corporation was erased and on top of it the name [PMFC] was inserted but
transaction entered into in the conduct of its business. So that when their with a counter signature therein;
books of accounts are subjected to a tax audit examination, all entries
therein, could be shown as adequately supported and proven as legitimate b)For undated Sales Invoice No. 2026, [PMFC] presented two exhibits
business transactions. Hence, [PMFC's] claim that the NIRC of 1977 did not marked as Exhibits B-7 and B-11. Exhibit B-11 is the original sales invoice
require substantiation requirements is erroneous. whereas Exhibit B-7 is a photocopy thereof. Both exhibits contained the word
Mauri which was inserted on top and between the words Pilmico and Foods.
In fact, in its effort to prove the above-mentioned purchases of raw The only difference is that in the original copy (Exhibit B-11), there was a
materials, [PMFC] presented the following sales invoices: counter signature although the ink used was different from that used in the
rest of the writings in the said invoice; while in the photocopied invoice
Exhibit Invoice (Exhibit B-7), no such counter signature appeared. [PMFC] did not explain
Date Gross Amount 10% VAT Net Amount why the said countersignature did not appear in the photocopied invoice
Number No.
considering it was just a mere reproduction of the original copy.
04/18/9
B-3 2072 P2,312,670.00 P210,242.73 P2,102,427.27
6
The sales invoices contain alterations particularly in the name of the
B-7,
purchaser giving rise to serious doubts regarding their authenticity and if
B-11 2026 Undated 2,762,099.10 251,099.92 2,510,999.18 they were really issued to [PMFC]. Exhibit B-11 does not even have any date
indicated therein, which is a clear violation of Section 238 of the NIRC of
P5,074,769.10 P461,342.65 P4,613,426.45 1977 which required that the official receipts must show the date of the

TAX CASES 3
transaction.
Furthermore, [PMFC] should have presented documentary evidence
establishing that Pilmico Foods Corporation did not claim the subject
purchases as deduction from its gross income. After all, the records revealed
that both [PMFC] and its parent company, Pilmico Foods Corporation, have
the same AVP Comptroller in the person of Mr. Eugenio Gozon, who is in-
charge of the financial records of both entities x x x.
Similarly, the official receipts presented by [PMFC] x x x, cannot be
considered as valid proof of [PMFC's] claimed deduction for raw materials
purchases. The said receipts did not conform to the requirements provided
for under Section 238 of the NIRC of 1977, as amended. First the official
receipts were not in the name of [PMFC] but in the name of Golden
Restaurant. And second, these receipts were issued by PFC and not the
alleged seller, JTE.
Likewise, [PMFC's] allegations regarding the offsetting of accounts between
[PMFC], PFC and JTE is untenable. The following circumstances contradict
[PMFC's] proposition: 1) the Credit Agreement itself does not provide for the
offsetting arrangement; 2) [PMFC] was not even a party to the credit
agreement; and 3) the official receipts in question pertained to the year 1996
whereas the Credit Agreement (Exhibit M) and the Real Estate Mortgage
Agreement (Exhibit N) submitted by [PMFC] to prove the fact of the offsetting
of accounts, were both executed only in 1997.
Besides, in order to support its claim, [PMFC] should have presented the
following vital documents, namely, 1) Written Offsetting Agreement; 2) proof
of payment by [PMFC] to Pilmico Foods Corporation; and 3) Financial
Statements for the year 1996 of Pilmico Foods Corporation to establish the
fact that Pilmico Foods Corporation did not deduct the amount of raw
materials being claimed by [PMFC].
Considering that the official receipts and sales invoices presented by [PMFC]
failed to comply with the requirements of Section 238 of the NIRC of 1977,
TAX CASES
the disallowance by the [CIR] of the claimed deduction for raw materials is
proper.
[PMFC] filed a Motion for Partial Consideration on January
21, 2005 x x x but x x x [PMFC's] Motion for
Reconsideration was denied in a Resolution dated May 19,
2005 for lack of merit, x x x.8 (Citation omitted, italics ours
and emphasis in the original)
Unperturbed, PMFC then filed a petition for review before the CTA en banc,
which adopted the CTA First Division's ruling and ratiocinations. Additionally,
the CTA en banc declared that:ChanRoblesVirtualawlibrary
The language of [Section 238] of the 1977 NIRC, as
amended, is clear. It requires that for each sale valued at
P100.00 or more, the name, business style and address of
the purchaser, customer or client shall be indicated and
that the purchaser is required to keep and preserve the
same in his place of business. The purpose of the law in
requiring the preservation by the purchaser of the official
receipts or sales invoices for a period of three years is two-
fold: 1) to enable said purchaser to substantiate his
claimed deductions from the gross income, and 2) to
enable the Bureau of Internal Revenue to verify the
accuracy of the gross income of the seller from external
sources such as the customers of said seller. Hence,
[PMFC's] argument that there was no substantiation
requirement under the 1977 NIRC is without basis.
Moreover, the Supreme Court had ruled that in claiming
deductions for business expenses [,] it is not enough to
4
 prove the business test but a claimant must substantially
prove by evidence or records the deductions claimed
under the law, thus:ChanRoblesVirtualawlibrary
The principle is recognized that when a taxpayer claims a
deduction, he must point to some specific provision of the statute in
which that deduction is authorized and must be able to prove that
he is entitled to the deduction which the law allows. As previously
adverted to, the law allowing expenses as deduction from gross
income for purposes of the income tax is Section 30 (a) (l) of the
National Internal Revenue which allows a deduction of "all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business.["] An item of
expenditure, in order to be deductible under this section of the
statute must fall squarely within its language.
We come, then, to the statutory test of deductibility where it is
axiomatic that to be deductible as a business expense, three
conditions are imposed, namely: (1) the expense must be ordinary
and necessary; (2) it must be paid or incurred within the taxable
year, and (3) it must be paid or incurred in carrying on a trade or
business. In addition, not only must the taxpayer meet the business
test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be
disallowed. The mere allegation of the taxpayer that an item of
expense is ordinary and necessary does not justify its deduction. x x
x Decision, it is clear that compliance with the mandatory
And in proving claimed deductions from gross income, the Supreme Court
held that invoices and official receipts are the best evidence to substantiate
deductible business expenses. x x x
xxxx
TAX CASES
The irregularities found on the official receipts and sales invoices submitted
in evidence by [PMFC], i.e. not having been issued in the name of [PMFC] as
the purchaser and the fact that the same were not issued by the alleged
seller himself directly to the purchaser, rendered the same of no probative
value.
Parenthetically, the "Cohan Rule" which according to [PMFC] was adopted by
the Supreme Court in the case of Visayan Cebu Terminal v. Collector, x x x, is
not applicable because in both of these cases[,] there were natural
calamities that prevented the taxpayers therein to fully substantiate their
claimed deductions. In the Visayan Cebu Terminal case, there was a fire that
destroyed some of the supporting documents for the claimed expenses.
There is no such circumstance in [PMFC's] case, hence, the ruling therein is
not applicable. It is noteworthy that notwithstanding the destruction of
some of the supporting documents in the aforementioned Visayan Cebu
Terminal case, the Supreme Court[,] in denying the appeal[,] issued the
following caveat noting the violation of the provision of the Tax Code
committed by [PMFC] therein:ChanRoblesVirtualawlibrary
"It may not be amiss to note that the explanation to the
effect that the supporting paper of some of those expenses
had been destroyed when the house of the treasurer was
burned, can hardly be regarded as satisfactory, for
appellant's records are supposed to be kept in its offices,
not in the residence of one of its officers." x x x
From the above-quoted portion of the Supreme Court's
record-keeping requirements of the National Internal
Revenue Code should not be taken lightly. Raw materials
are indeed deductible provided they are duly supported by
official receipts or sales invoices prepared and issued in
accordance with the invoicing requirements of the National
Internal Revenue Code. x x x [PMFC] failed to show
compliance with the requirements of Section 238 of the
5
 1977 NIRC as shown by the fact that the sales invoices
presented by [it] were not in its name but in the name of
Pilmico Foods Corporation.
xxxx
In the Joint Stipulation of Facts filed on March 7, 2001, the
parties have agreed that with respect to the deficiency
income tax assessment, the following are the issues to be
resolved:
Whether or not the P5,895,694.66 purchases of raw materials are
unsupported;
xxxx
Clearly, the issue of proper substantiation of the
deduction from gross income pertaining to the purchases
of raw materials was properly raised even before [PMFC]
began presenting its evidence. [PMFC] was aware that the
[CIR] issued the assessment from the standpoint of lack of
supporting documents for the claimed deduction and the
fact that the assessments were not based on the
deductibility of the cost of raw materials. There is no
difference in the basis of the assessment and the issue
presented to the [CTA] in Division for resolution since both
pertain to the issue of proper supporting documents for
ordinary and necessary business expenses. 9(Citation
omitted, italics ours and emphasis in the original)
PMFC moved for reconsideration. Pending its resolution, the CIR issued
Revenue Regulation (RR) No. 15-2006, 10the abatement program of which was
availed by PMFC on October 27, 2006. Out of the total amount of
P2,804,920.36 assessed as income, value-added tax (VAT) and withholding
tax deficiencies, plus surcharges and deficiency interests, PMFC paid the CIR
P1,101,539.63 as basic deficiency tax. The PMFC, thus, awaits the CIR's
approval of the abatement, which can render moot the resolution of the
instant petition.11chanrobleslaw
TAX CASES
Meanwhile, the CTA en banc denied the motion for reconsideration 12
of PMFC, in its Resolution13 dated December 4, 2006.
Issues
In the instant petition, what is essentially being assailed is the CTA en
banc's concurrence with the CTA First Division's ruling, which affirmed but
reduced the CIR's income deficiency tax assessment against PMFC. More
specifically, the following errors are ascribed to the
CTA:ChanRoblesVirtualawlibrary
I
The Honorable CTA First Division
deprived PMFC of due process of law and
the CTA assumed an executive function
when it substituted a legal basis other
than that stated in the assessment and
pleading of the CIR, contrary to law.
II
The decision of the Honorable CTA First Division must
conform to the pleadings and the theory of the action
under which the case was tried. A judgment going outside
the issues and purporting to adjudicate something on
which the parties were not heard is invalid. Since the legal
basis cited by the CTA supporting the validity of the
assessment was never raised by the CIR, PMFC was
deprived of its constitutional right to be apprised of the
legal basis of the assessment.
III
The nature of evidence required to prove an ordinary
6
 expense like raw materials is governed by Section 29 14 of
the 1977 National Internal Revenue Code (NIRC) and not by
Section 238 as found by the
CTA.15chanroblesvirtuallawlibrary
In support of the instant petition, PMFC claims that the deficiency income
tax assessment issued against it was anchored on Sect on 34(A)(l)(b) 16 of
the 1997 NIRC. In disallowing the deduction of the purchase of raw materials
from PMFC's gross income, the CIR never m any reference to Section 238 of
the 1977 NIRC relative to the mandatory requirement of keeping records of
official receipts, upon which the CTA had misplaced reliance. Had
substantiation requirements under Section 23 the 1977 NIRC been made an
issue during the trial, PMFC could have presented official receipts or invoices,
or could have compelled its suppliers to issue the same.17chanrobleslaw
PMFC further argues that in determining the deductibility of the purchase of
raw materials from gross income, Section 29 of the 1977 NIRC is the
applicable provision. According to the said section, for the deduction to be
allowed, the expenses must be (a) both ordinary and necessary; (b) incurred
in carrying on a trade or business; and (c) paid or incurred within the taxable
year. PMFC, thus, claims that prior to the promulgation of the 1997 NIRC, the
law does not require the production of official receipts to prove an
expense.18chanrobleslaw
In its Comment,19 the Office of the Solicitor General (OSG) counters that
the arguments advanced by PMFC are mere reiterations of those raised in
the proceedings below. Further, PMFC was fully apprised of the assailed tax
assessments and had all the opportunities to prove its
claims.20chanrobleslaw
The OSG also avers that in the Joint Stipulation of Facts filed before the CTA
First Division on March 7, 2001, it was stated that one of the issues for
resolution was "whether or not the Php5,895,694.66 purchases of raw
materials are unsupported." Hence, PMFC was aware that the CIR issued the
assessments due to lack of supporting documents for the deductions
claimed. Essentially then, even in the proceedings before the CIR, the
TAX CASES
primary issue has always been the lack or inadequacy of supporting
documents for ordinary and necessary business expenses.21chanrobleslaw
The OSG likewise points out that PMFC failed to satisfactorily discharge the
burden of proving the propriety of the tax deductions claimed. Further, there
were discrepancies in the names of the sellers and purchasers i indicated in
the receipts casting doubts on their authenticity.22chanrobleslaw
Ruling of the Court
The Court affirms but modifies the herein assailed decision and resolution.
Preliminary matters
On December 19, 2006, PMFC filed before the Court a motion for extension
of time to file a petition for review. 23 In the said motion, PMFC informed
the Court that it had availed of the CIR's tax abatement program, the details
of which were provided for in RR No. 15-2006. PMFC paid the CIR the
amount of P1,101,539.63 as basic deficiency tax. PMFC manifested that if the
abatement application would be approved by the CIR, the instant petition
filed before the Court may be rendered superfluous.
According to Section 4 of RR No. 15-2006, after the taxpayer's payment of
the assessed basic deficiency tax, the docket of the case shall forwarded to
the CIR, thru the Deputy Commissioner for Operations Group, for issuance of
a termination letter. However, as of this Resolution's writing, none of the
parties have presented the said termination letter. Hence, the Court cannot
outrightly dismiss the instant petition on the ground of mootness.
On the procedural issues raised by PMFC
The first and second issues presented by PMFC are procedural in nature.
They both pertain to the alleged omission of due process of law by the CTA
since in its rulings, it invoked Section 238 of the 1977 NIRC, while in the
proceedings below, the CIR's tax deficiency assessments issued against PMFC
7
were instead anchored on Section 34 of the 1997 NIRC.
Due process was not violated.
In CIR v. Puregold Duty Free, Inc.,24 the Court is emphatic
that:ChanRoblesVirtualawlibrary
It is well settled that matters that were neither alleged in
the pleadings nor raised during the proceedings below
cannot be ventilated for the first time on appeal and are
barred by estoppel. To allow the contrary would constitute
a violation of the other party's right to due process, and is
contrary to the principle of fair play. x x x
x x x Points of law, theories, issues, and arguments not
brought to the attention of the trial court ought not to be
considered by a reviewing court, as these cannot be raised
for the first time on appeal. To consider the alleged facts
and arguments belatedly raised would amount to
trampling on the basic principles of fair play, justice, and
due process.25cralawred (Citations omitted)
In the case at bar, the CIR issued assessment notices against PMFC for
deficiency income, VAT and withholding tax for the year 1996. PMFC assailed
the assessments before the Bureau of Internal Revenue and late before the
CTA.
In the Joint Stipulation of Facts, dated March 7, 2001, filed before CTA First
Division, the CIR and PMFC both agreed that among the issues for resolution
was "whether or not the P5,895,694.66 purchases of raw materials are
unsupported."26 Estoppel, thus, operates against PMFC anent its argument
that the issue of lack or inadequacy of documents to justify the costs of
purchase of raw materials as deductions from the gross income had not been
presented in the proceedings below, hence, barred for being belatedly raised
only on appeal.
TAX CASES
Further, in issuing the assessments, the CIR had stated the material facts and
the law upon which they were based. In the petition for review filed by PMFC
before the CTA, it was the former's burden to properly invoke the applicable
legal provisions in pursuit of its goal to reduce its tax liabilities. The CTA, on
the other hand, is not bound to rule solely on the basis of the laws cited by
the CIR. Were it otherwise, the tax court's appellate power of review shall be
rendered useless. An absurd situation would arise leaving the CTA with only
two options, to wit: (a) affirming the CIR's legal findings; or (b) altogether
absolving the taxpayer from liability if the CIR relied on misplaced legal
provisions. The foregoing is not what the law intends.
To reiterate, PMFC was at the outset aware that the lack or inadequacy of
supporting documents to justify the deductions claimed from the gross
income was among the issues raised for resolution before the CTA. With
PMFC's acquiescence to the Joint Stipulation of Facts filed before the CTA
and thenceforth, the former's participation in the proceedings with all
opportunities it was afforded to ventilate its claims, the alleged deprivation
of due process is bereft of basis.
On the applicability of Section 29 of the 1977 NIRC
The third issue raised by PMFC is substantive in nature. At its core is the
alleged application of Section 29 of the 1977 NIRC as regards the
deductibility from the gross income of the cost of raw materials purchased
by PMFC.
It bears noting that while the CIR issued the assessments on the basis of
Section 34 of the 1997 NIRC, the CTA and PMFC are in agreement that the
1977 NIRC finds application.
However, while the CTA ruled on the basis of Section 238 of the 1977 NIRC,
PMFC now insists that Section 29 of the same code should be applied
instead. Citing Atlas Consolidated Mining and Development Corporation v.
CIR,27 PMFC argues that Section 29 imposes less stringent requirements
and the presentation of official receipts as evidence of the claimed
8
deductions dispensable. PMFC further posits that the mandatory nature of
the submission of official receipts as proof is a mere innovation in the 19
NIRC, which cannot be applied retroactively.28chanrobleslaw
PMFC's argument fails.
The Court finds that the alleged differences between the requirements of
Section 29 of the 1977 NIRC invoked by PMFC, on one hand, and Section 238
relied upon by the CTA, on the other, are more imagined than real.
In CIR v. Pilipinas Shell Petroleum Corporation,29 the Count enunciated
that:ChanRoblesVirtualawlibrary
It is a rule in statutory construction that every part of the
statute must be interpreted with reference to the context,
i.e., that every part of the statute must be considered
together with the other parts, and kept subservient to the
general intent of the whole enactment. The law must not
be read in truncated parts, its provisions must be read in
relation to the whole law. The particular words, clauses
and phrases should not be studied as detached and
isolated expression, but the whole and every part of the
statute must be considered in fixing the meaning of any of
its parts and in order to produce a harmonious whole. 30
(Citations omitted)
The law, thus, intends for Sections 29 and 238 of the 1977 NIRC to be read
together, and not for one provision to be accorded preference over the
other.
It is undisputed that among the evidence adduced by PMFC on it behalf are
the official receipts of alleged purchases of raw materials. Thus, the CTA
cannot be faulted for making references to the same, and for applying
Section 238 of the 1977 NIRC in rendering its judgment. Required or not, the
official receipts were submitted by PMFC as evidence. Inevitably, the said
receipts were subjected to scrutiny, and the CTA exhaustively explained why
it had found them wanting.
TAX CASES
PMFC cites Atlas31 to contend that the statutory test, as provided in
Section 29 of the 1977 NIRC, is sufficient to allow the deductibility of a
business expense from the gross income. As long as the expense is: (a) both
ordinary and necessary; (b) incurred in carrying a business or trade; and (c)
paid or incurred within the taxable year, then, it shall be allowed as a
deduction from the gross income.32chanrobleslaw
Let it, however, be noted that in Atlas, the Court likewise declared
that:ChanRoblesVirtualawlibrary
In addition, not only must the taxpayer meet the business
test, he must substantially prove by evidence or records
the deductions claimed under the law, otherwise, the same
will be disallowed. The mere allegation of the taxpayer that
an item of expense is ordinary and necessary does not
justify its deduction.33 (Citation omitted and italics ours)
It is, thus, clear that Section 29 of the 1977 NIRC does not exempt the
taxpayer from substantiating claims for deductions. While official receipts are
not the only pieces of evidence which can prove deductible expenses, if
presented, they shall be subjected to examination. PMFC submitted official
receipts as among its evidence, and the CTA doubted their veracity. PMFC
was, however, unable to persuasively explain and prove through other
documents the discrepancies in the said receipts. Consequently, the CTA
disallowed the deductions claimed, and in its ruling, invoked Section 238 of
the 1977 NIRC considering that official receipts are matters provided for in
the said section.
Conclusion
The Court recognizes that the CTA, which by the very nature of its function is
dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be
overturned unless there has been an abuse or improvident exercise of
authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or
9
abuse on the part of the tax court. In the absence of any clear and convincing
proof to the contrary, the Court must presume that the CTA rendered a
decision which is valid in every respect. 34chanrobleslaw

Further, revenue laws are not intended to be liberally construed. Taxes are
the lifeblood of the government and in Holmes' memorable metaphor, the
price we pay for civilization; hence, laws relative thereto must be faithfully
and strictly implemented.35 While the 1977 NIRC required substantiation
requirements for claimed deductions to be allowed, PMFC insists on
leniency, which is not warranted under the circumstances.

Lastly, the Court notes too that PMFC's tax liabilities have been me than
substantially reduced to P2,804,920.36 from the CIR's initial assessment of
P9,761,750.02.36chanrobleslaw

In precis, the affirmation of the herein assailed decision and resolution is in

order.

However, the Court finds it proper to modify the herein assail decision and
resolution to conform to the interest rates prescribed in Nacar v. Gallery
Frames, et al.37 The total amount of P2,804,920.36 to be paid PMFC to the
CIR shall be subject to an interest of six percent (6%) per annum to be
computed from the finality of this Resolution until full payment.

WHEREFORE, the instant petition is DENIED. The Decision dated August

29, 2006 and Resolution dated December 4, 2006 of the Court of Tax Appeals
en banc in C.T.A. EB No. 97 are AFFIRMED. However,
MODIFICATION thereof, the legal interest of six percent (6%) per
annum reckoned from the finality of this Resolution until full satisfaction,
is here imposed upon the amount of P2,804,920.36 to be paid by Pilmico-
Mauri Foods Corporation to the Commissioner of Internal Revenue.

SO ORDERED.

TAX CASES 10
 THIRD DIVISION

G.R. No. 194561, September 14, 2016

DRUGSTORES ASSOCIATION OF THE PHILIPPINES,

INC. AND NORTHERN LUZON DRUG
CORPORATION, Petitioners, v. NATIONAL COUNCIL ON
DISABILITY AFFAIRS; DEPARTMENT OF HEALTH;
DEPARTMENT OF FINANCE; BUREAU OF INTERNAL
REVENUE; DEPARTMENT OF THE INTERIOR AND
LOCAL GOVERNMENT; AND DEPARTMENT OF
SOCIAL WELFARE AND DEVELOPMENT, Respondent.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari1 with a Prayer

for a Temporary Restraining Order and/or Writ of Preliminary
Injunction which seeks to annul and set aside the Decision2 dated
July 26, 2010, and the Resolution3 dated November 19, 2010 of
the Court of Appeals (CA) in CA-G.R. SP No. 109903. The CA
dismissed petitioners' Petition for Prohibition4 and upheld the
constitutionality of the mandatory twenty percent (20%)
discount on the purchase of medicine by persons with disability
(PWD).

The antecedents are as follows:

chanRoblesvirtualLawlibraryOn March 24, 1992, Republic Act

(R.A.) No. 7277, entitled "An Act Providing for the

TAX CASES 11
Rehabilitation, Self-Development and Self-Reliance of Disabled of medicine, and a tax deduction scheme was adopted wherein covered
Persons and their Integration into the Mainstream of Society and establishments may deduct the discount granted from gross income based
for Other Purposes," otherwise known as the "Magna Carta for on the net cost of goods sold or services
rendered:ChanRoblesVirtualawlibrary
Disabled Persons," was passed into law. 5 The law defines
"disabled persons", "impairment" and "disability" as
follows:ChanRoblesVirtualawlibrary
CHAPTER 8. Other Privileges and Incentives. SEC. 32. Persons with disability
SECTION 4. Definition of Terms. - For purposes of this Act, shall be entitled to the following:
these terms are defined as follows:
chanRoblesvirtualLawlibraryx x x x
chanRoblesvirtualLawlibrary(a) Disabled Persons are those
suffering from restriction of different abilities, as a result of At least twenty percent (20%) discount for the purchase of medicines in
a mental, physical or sensory impairment, to perform an (d) all drugstores for the exclusive use or enjoyment of persons with
activity in the manner or within the range considered disability;
normal for a human being;

(b) Impairment is any loss, diminution or aberration of xxxx

psychological, physiological, or anatomical structure of
function; The abovementioned privileges are available only to persons with disability
who are Filipino citizens upon submission of any of the following as proof of
(c) Disability shall mean (1) a physical or mental his/her entitlement thereto:
impairment that substantially limits one or more
psychological, physiological or anatomical function of an
individual or activities of such individual; (2) a record of An identification card issued by the city or municipal mayor or the
(i)
such an impairment; or (3) being regarded as having such barangay captain of the place where the person with disability resides;
an impairment.6chanrob
(ii) The passport of the person with disability concerned; or
lesvirtuallawlibrary
Transportation discount fare Identification Card (ID) issued by the
(ii)
National Council for the Welfare of Disabled Persons (NCWDP).
On April 30, 2007, Republic Act No. 9442 7 was enacted amending R.A. No.
xxxx
7277. The Title of R.A. No. 7277 was amended to read as "Magna Carta for
Persons with Disability" and all references on the law to "disabled persons"
The establishments may claim the discounts granted in subsections (a), (b),
were amended to read as "persons with disability" (PWD).8 Specifically, R.A.
(c), (f) and (g) as tax deductions based on the net cost of the goods sold or
No. 9442 granted the PWDs a twenty (20) percent discount on the purchase

TAX CASES 12
services rendered: Provided, however, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that the
discount is granted: Provided, further, That the total amount of the claimed
tax deduction net of value-added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code
(NIRC), as amended.9chanrob
The Implementing Rules and Regulations (IRR) of R.A. No. 944210 was jointly
promulgated by the Department of Social Welfare and Development
(DSWD), Department of Education, Department of Finance (DOF),
Department of Tourism, Department of Transportation and Communication,
Department of the Interior and Local Government (DILG) and Department of
Agriculture. Insofar as pertinent to this petition, the salient portions of the
IRR are hereunder quoted:11
RULE III. DEFINITION OF TERMS
Section 5. Definition of Terms. For purposes of these Rules
and Regulations, these terms are defined as follows:
chanRoblesvirtualLawlibrary5.1. Persons with Disability -
are those individuals defined under Section 4 of RA 7277
"An Act Providing for the Rehabilitation, Self-Development
and Self-Reliance of Persons with Disability as amended
and their integration into the Mainstream of Society and
for Other Purposes". This is defined as a person suffering
from restriction or different abilities, as a result of a
mental, physical or sensory impairment, to perform an
activity in a manner or within the range considered normal
for human being. Disability shall mean (1) a physical or
mental impairment that substantially limits one or more
psychological, physiological or anatomical function of an
individual or activities of such individual; (2) a record of
such an impairment; or (3) being regarded as having such
an impairment.
TAX CASES
xxxx
RULE IV. PRIVILEGES AND INCENTIVES FOR THE PERSONS
WITH DISABILITY
Section 6. Other Privileges and Incentives. Persons with
disability shall be entitled to the following:
chanRoblesvirtualLawlibraryx x x x
6.1.d. Purchase of Medicine - at least twenty percent (20%) discount on the
purchase of medicine for the exclusive use and enjoyment of persons with
disability. All drugstores, hospital, pharmacies, clinics and other similar
establishments selling medicines are required to provide at least twenty
percent (20%) discount subject to the guidelines issued by DOH and
PHILHEALTH.12chanrobleslaw
xxxx
6.11 The abovementioned privileges are available only to persons with
disability who are Filipino citizens upon submission of any of the following as
proof of his/her entitlement thereto subject to the guidelines issued by the
NCWDP in coordination with DSWD, DOH and DILG.
6.11.1 An identification card issued by the city or municipal mayor or the
barangay captain of the place where the person with disability resides;
6.11.2 The passport of the persons with disability concerned; or
6.11.3 Transportation discount fare Identification Card (ID) issued by the
National Council for the Welfare of Disabled Persons (NCWDP). However,
upon effectivity of this Implementing Rules and Regulations, NCWDP will
already adopt the Identification Card issued by the Local Government Unit
for purposes of uniformity in the implementation. NCWDP will provide the
13
design and specification of the identification card that will be issued by the Assessment School Principal
Local Government Units.13cha
Certificate of Head of the Business Establishment or
Disability Head of Non-Government Organization
6.14. Availmenl of Tax Deductions by Establishment Granting Twenty Percent.
Non-Apparent Medical Licensed Private or Government
20% Discount - The establishments may claim the discounts granted in sub-
Disability Certificate Physician
sections (6.1), (6.2), (6.4), (6.5) and (6.6) as tax deductions based on the net
cost of the goods sold or services rendered: Provided, however, that the cost
of the discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted: Provided, further, That the E. PWD Registration Forms and ID Cards shall be issued and signed by the
total amount of the claimed tax deduction net of value-added tax if City or Municipal Mayor, or Barangay Captain.
applicable, shall be included in their gross sales receipts for tax purposes and
shall be subject to proper documentation and to the provisions of the xxxx
National Internal Revenue Code, as amended.
V. IMPLEMENTING GUIDELINES AND PROCEDURES
Any bonafide person with permanent disability can apply
On April 23, 2008, the National Council on Disability Affairs (NCDA)14 issued for the issuance of the PWD-IDC. His/her caregiver can
Administrative Order (A.O.) No. 1, Series of 2008, 15 prescribing guidelines assist in the application process. Procedures for the
which should serve as a mechanism for the issuance of a PWD Identification issuance of the ID Cards are as follows:
Card (IDC) which shall be the basis for providing privileges and discounts
to bona fide PWDs in accordance with R.A. 9442:ChanRoblesVirtualawlibrary chanRoblesvirtualLawlibraryA. Completion of the
IV. INSTITUTIONAL ARRANGEMENTS Requirements. Complete and/or make available the
1. The Local Government Unit of the City or following requirements:ChanRoblesVirtualawlibrary
Municipal Office shall implement these guidelines
in the issuance of the PWD-IDC 1. Two "1x1" recent ID pictures
with the names, and signatures
xxxx or thumbmarks at the back of
D. Issuance of the appropriate document to confirm the medical condition of the picture
the applicant is as follows:ChanRoblesVirtualawlibrary
Disability Document Issuing Entity 2. One (1) Valid ID
3. Document to confirm the
Apparent Medical Licensed Private or Government medical or disability condition
Disability Certificate Physician (See Section IV, D for the
School Licensed Teacher duly signed by the required document).

TAX CASES 14
On December 9, 2008, the DOF issued Revenue Regulations No. 1-
200916 prescribing rules and regulations to implement R.A. 9442 relative to
the tax privileges of PWDs and tax incentives for establishments granting the
discount. Section 4 of Revenue Regulations No. 001-09 states that drugstores
can only deduct the 20% discount from their gross income subject to some
conditions.17chanrobleslaw
On May 20, 2009, the DOH issued A.O. No. 2009-0011 18 specifically stating
that the grant of 20% discount shall be provided in the purchase of branded
medicines and unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the PWDs. 19 It also detailed the
guidelines for the provision of medical and related discounts and special
privileges to PWDs pursuant to R.A. 9442.20chanrobleslaw
On July 28, 2009, petitioners filed a Petition for Prohibition with application
for a Temporary Restraining Order and/or a Writ of Preliminary
Injunction21 before the Court of Appeals to annul and enjoin the
implementation of the following laws:ChanRoblesVirtualawlibrary
1) Section 32 of R.A. No. 7277 as amended by R.A. No.
9442;
2) Section 6, Rule IV of the Implementing Rules and
Regulations of R.A. No. 9442;
3) NCDA A.O. No. 1;
4) DOF Revenue Regulation No. 1-2009;
5) DOH A.O. No. 2009-0011.
On July 26, 2010, the CA rendered a Decision upholding the constitutionality
of R.A. 7277 as amended, as well as the assailed administrative issuances.
However, the CA suspended the effectivity of NCDA A.O. No. 1 pending proof
of respondent NCDA's compliance with filing of said administrative order
with the Office of the National Administrative Register (ONAR) and its
TAX CASES
publication in a newspaper of general circulation. The dispositive portion of
the Decision states:ChanRoblesVirtualawlibrary
WHEREFORE, the petition is PARTLY GRANTED. The
effectivity of NCDA Administrative Order No. 1 is hereby
SUSPENDED pending Respondent's compliance with the
proof of filing of NCDA Administrative Order No. 1 with the
Office of the National Administrative Register and its
publication in a newspaper of general circulation.
Respondent NCDA filed a motion for reconsideration before the CA to lift the
suspension of the implementation of NCDA A.O. No. 1 attaching thereto
proof of its publication in the Philippine Star and Daily Tribune on August 12,
2010, as well as a certification from the ONAR showing that the same was
filed with the said office on October 22, 2009. 22 Likewise, petitioners filed a
motion for reconsideration of the CA Decision.
In a Resolution dated November 19, 2010, the CA dismissed petitioners'
motion for reconsideration and lifted the suspension of the effectivity of
NCDA A.O. No. 1 considering the filing of the same with ONAR and its
publication in a newspaper of general circulation.
Hence, the instant petition raising the following
issues:ChanRoblesVirtualawlibrary
I. THE CA SERIOUSLY ERRED ON A QUESTION OF
SUBSTANCE WHEN IT RULED THAT THE MANDATED PWD
DISCOUNT IS A VALID EXERCISE OF POLICE POWER. ON THE
CONTRARY, IT IS AN INVALID EXERCISE OF THE POWER OF
EMINENT DOMAIN BECAUSE IT FAILS TO PROVIDE JUST
COMPENSATION TO PETITIONERS AND OTHER SIMILARLY
SITUATED DRUGSTORES;
II. THE CA SERIOUSLY ERRED WHEN IT RULED THAT
SECTION 32 OF RA 7277 AS AMENDED BY RA 9442, NCDA
AO 1 AND THE OTHER IMPLEMENTING REGULATIONS DID
NOT VIOLATE THE DUE PROCESS CLAUSE;
15
 III. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE
DEFINITIONS OF DISABILITIES UNDER SECTION 4(A),
SECTION 4(B) AND SECTION 4(C) OF RA 7277 AS AMENDED
BY RA 9442, RULE 1 OF THE IMPLEMENTING RULES AND
REGULATIONS23 OF RA 7277, SECTION 5.1 OF THE
IMPLEMENTING RULES AND REGULATIONS OF RA 9442,
NCDA AO 1 AND DOH AO 2009-11 ARE NOT VAGUE,
AMBIGUOUS AND UNCONSTITUTIONAL;
IV. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE
MANDATED PWD DISCOUNT DOES NOT VIOLATE THE
EQUAL PROTECTION CLAUSE.
We deny the petition.
The CA is correct when it applied by analogy the case of Carlos Superdrug
Corporation et al. v. DSWD, et al. 24 wherein We pronouced that Section 4 of
R.A. No. 9257 which grants 20% discount on the purchase of medicine of
senior citizens is a legitimate exercise of police
power:ChanRoblesVirtualawlibrary
The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general
welfare for its object. Police power is not capable of an
exact definition, but has been purposely veiled in general
terms to underscore its comprehensiveness to meet all
exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus
assuring the greatest benefits.25cralawredAccordingly, it
has been described as the most essential, insistent and the
least limitable of powers, extending as it does to all the
great public needs.26 It is [t]he power vested in the
legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws,
statutes, and ordinances, either with penalties or without,
not repugnant to the constitution, as they shall judge to be
for the good and welfare of the commonwealth, and of the
TAX CASES
subjects of the same.27chanrobleslaw
For this reason, when the conditions so demand as
determined by the legislature, property rights must bow to
the primacy of police power because property rights,
though sheltered by due process, must yield to general
welfare.28chanrobleslaw
Police power as an attribute to promote the common good
would be diluted considerably if on the mere plea of
petitioners that they will suffer loss of earnings and capital,
the questioned provision is invalidated. Moreover, in the
absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no
basis for its nullification in view of the presumption of
validity which every law has in its
favor.29chanroblesvirtuallawlibrary
Police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property. On the other hand,
the power of eminent domain is the inherent right of the state (and of those
entities to which the power has been lawfully delegated) to condemn private
property to public use upon payment of just compensation. In the exercise of
police power, property rights of private individuals are subjected to restraints
and burdens in order to secure the general comfort, health, and prosperity of
the state.30 A legislative act based on the police power requires the
concurrence of a lawful subject and a lawful method. In more familiar words,
(a) the interests of the public generally, as distinguished from those of a
particular class, should justify the interference of the state; and (b) the
means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals.31chanrobleslaw
R.A. No. 7277 was enacted primarily to provide full support to the
improvement of the total well-being of PWDs and their integration into the
mainstream of society. The priority given to PWDs finds its basis in the
Constitution:ChanRoblesVirtualawlibrary
16
 ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY
xxxx
Section 6. The use of property bears a
social function, and all economic agents
shall contribute to the common good.
Individuals and private groups, including
corporations, cooperatives, and similar
collective organizations, shall have the
right to own, establish, and
operate economic enterprises, subject to
the duty of the State to promote
distributive justice and to intervene when
the common good so
demands.32chanrobleslaw
ARTICLE XIII
SOCIAL JUSTICE AND HUMAN RIGHTS
xxxx
Section 11. The State shall adopt an integrated and
comprehensive approach to health development which
shall endeavor to make essential goods, health and other
social services available to all the people at affordable cost.
There shall be priority for the needsof the underprivileged,
sick, elderly, disabled, women, and children. The State shall
endeavor to provide free medical care to
paupers.33chanroblesvirtuallawlibrary
Thus, R.A. No. 7277 provides:ChanRoblesVirtualawlibrary
TAX CASES
SECTION 2. Declaration of Policy. The grant of the rights
and privileges for disabled persons shall be guided by the
following principles:
chanRoblesvirtualLawlibrary(a). Disabled persons are part
of the Philippine society, thus the Senate shall give full
support to the improvement of the total well-being of
disabled persons and their integration into the mainstream
of society.
Toward this end, the State shall adopt policies ensuring the
rehabilitation, self-development and self-reliance of
disabled persons.
It shall develop their skills and potentials to enable them to
compete favorably for available opportunities.
(b). Disabled persons have the same rights as other people
to take their proper place in society. They should be able to
live freely and as independently as possible. This must be
the concern of everyone - the family, community and all
government and non-government organizations.
Disabled person's rights must never be perceived as
welfare services by the Government.
xxxx
(d). The State also recognizes the role of
the private sector in promoting the
welfare of disabled persons and shall
encourage partnership in programs that
address their needs and
concerns.34chanroblesvirtuallawlibrary
To implement the above policies, R.A. No. 9442 which amended R.A. No.
7277 grants incentives and benefits including a twenty percent (20%)
17
discount to PWDs in the purchase of medicines; fares for domestic air, sea
and land travels including public railways and skyways; recreation and
amusement centers including theaters, food chains and restaurants. 35 This is
specifically stated in Section 4 of the IRR of R.A. No.
9442:ChanRoblesVirtualawlibrary
Section 4. Policies and Objectives - It is the objective of
Republic Act No. 9442 to provide persons with disability,
the opportunity to participate fully into the mainstream
of society by granting them at least twenty percent (20%)
discount in all basic services. It is a declared policy of RA
7277 that persons with disability are part of Philippine
society, and thus the State shall give full support to the
improvement of their total wellbeing and their
integration into the mainstream of society. They have the
same rights as other people to take their proper place in
society. They should be able to live freely and as
independently as possible. This must be the concern of
everyone the family, community and all government and
non-government organizations. Rights of persons with
disability must never be perceived as welfare services.
Prohibitions on verbal, non-verbal ridicule and vilification
against persons with disability shall always be observed at
all times.36chanroblesvirtuallawlib
rary
Hence, the PWD mandatory discount on the purchase of medicine is
supported by a valid objective or purpose as aforementioned. It has a valid
subject considering that the concept of public use is no longer confined to
the traditional notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public convenience. As in the case
of senior citizens,37 the discount privilege to which the PWDs are entitled is
actually a benefit enjoyed by the general public to which these citizens
belong. The means employed in invoking the active participation of the
private sector, in order to achieve the purpose or objective of the law, is
reasonably and directly related.38 Also, the means employed to provide a fair,
TAX CASES
just and quality health care to PWDs are reasonably related to its
accomplishment, and are not oppressive, considering that as a form of
reimbursement, the discount extended to PWDs in the purchase of medicine
can be claimed by the establishments as allowable tax deductions pursuant
to Section 32 of R.A. No. 9442 as implemented in Section 4 of DOF Revenue
Regulations No. 1-2009. Otherwise stated, the discount reduces taxable
income upon which the tax liability of the establishments is computed.
Further, petitioners aver that Section 32 of R.A. No. 7277 as amended by R.A.
No. 9442 is unconstitutional and void for violating the due process clause of
the Constitution since entitlement to the 20% discount is allegedly merely
based on any of the three documents mentioned in the provision, namely: (i)
an identification card issued by the city or municipal mayor or the barangay
captain of the place where the PWD resides; (ii) the passport of the PWD; or
(iii) transportation discount fare identification card issued by NCDA.
Petitioners, thus, maintain that none of the said documents has any relation
to a medical finding of disability, and the grant of the discount is allegedly
without any process for the determination of a PWD in accordance with law.
Section 32 of R.A. No. 7277, as amended by R.A. No. 9442, must be read
with its IRR which stated that upon its effectivity, NCWDP (which is the
government agency tasked to ensure the implementation of RA 7277), would
adopt the IDC issued by the local government units for purposes of
uniformity in the implementation.39 Thus, NCDA A.O. No. 1 provides the
reasonable guidelines in the issuance of IDCs to PWDs as proof of their
entitlement to the privileges and incentives under the law 40 and fills the
details in the implementation of the law.
As stated in NCDA A.O. No. 1, before an IDC is issued by the city or municipal
mayor or the barangay captain,41 or the Chairman of the NCDA, 42 the
applicant must first secure a medical certificate issued by a licensed private
or government physician that will confirm his medical or disability condition.
If an applicant is an employee with apparent disability, a "certificate of
disability" issued by the head of the business establishment or the head of
the non-governmental organization is needed for him to be issued a PWD-
18
IDC. For a student with apparent disability, the "school assessment" issued
by the teacher and signed by the school principal should be presented to
avail of a PWD-ID.
Petitioners' insistence that Part IV (D) of NCDA Administrative Order No. 1 is
void because it allows allegedly non-competent persons like teachers, head
of establishments and heads of Non-Governmental Organizations (NGOs) to
confirm the medical condition of the applicant is misplaced. It must be
stressed that only for apparent disabilities can the teacher or head of a
business establishment validly issue the mentioned required document
because, obviously, the disability is easily seen or clearly visible. It is,
therefore, not an unqualified grant of authority for the said non-medical
persons as it is simply limited to apparent disabilities. For a non-apparent
disability or a disability condition that is not easily seen or clearly visible, the
disability can only be validated by a licensed private or government
physician, and a medical certificate has to be presented in the procurement
of an IDC. Relative to this issue, the CA validly ruled,
thus:ChanRoblesVirtualawlibrary
We agree with the Office of the Solicitor General's (OSG)
ratiocination that teachers, heads of business
establishments and heads of NGOs can validly confirm the
medical condition of their students/employees with
apparent disability for obvious reasons as compared to
non-apparent disability which can only be determined by
licensed physicians. Under the Labor Code, disabled
persons are eligible as apprentices or learnersprovided
that their handicap are not as much as to effectively
impede the performance of their job. We find that heads
of business establishments can validly issue certificates of
disability of their employees because aside from the fact
that they can obviously validate the disability, they also
have medical records of the employees as a pre-requisite
in the hiring of employees. Hence, Part IV (D) of NCDA AO
No. 1 is logical and valid.43cha
TAX CASES
nroblesvirtuallawlibrary
Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines for the
20% discount in the purchase of all medicines for the exclusive use of
PWD.44 To avail of the discount, the PWD must not only present his I.D. but
also the doctor's prescription stating, among others, the generic name of the
medicine, the physician's address, contact number and professional license
number, professional tax receipt number and narcotic license number, if
applicable. A purchase booklet issued by the local social/health office is also
required in the purchase of over-the-counter medicines. Likewise, any single
dispensing of medicine must be in accordance with the prescription issued
by the physician and should not exceed a one (1) month supply. Therefore, as
correctly argued by the respondents, Section 32 of R.A. No. 7277 as
amended by R.A. No. 9442 complies with the standards of substantive due
process.
We are likewise not persuaded by the argument of petitioners that the
definition of "disabilities" under the subject laws is vague and ambiguous
because it is allegedly so general and broad that the person tasked with
implementing the law will undoubtedly arrive at different interpretations and
applications of the law. Aside from the definitions of a "person with
disability" or "disabled persons" under Section 4 of R.A. No. 7277 as
amended by R.A. No. 9442 and in the IRR of RA 9442, NCDA A.O. No. 1 also
provides:ChanRoblesVirtualawlibrary
1. Identification Cards shall be issued to
any bonafide PWD with permanent disabilities
due to any one or more of the following
conditions: psychosocial, chronic illness, learning,
mental, visual, orthopedic, speech and hearing
conditions. This includes persons suffering from
disabling diseases resulting to the person's
limitations to do day to day activities as normally
as possible such as but not limited to those
undergoing dialysis, heart disorders, severe cancer
cases and such other similar cases resulting to
temporary or permanent disability. 45
19
Similarly, DOH A.O. No. 2009-0011 defines the different categories of
disability as follows:ChanRoblesVirtualawlibrary
Rule IV, Section 4, Paragraph B of the Implementing Rules
and Regulations (IRR) of this Act required the Department
of Health to address the health concerns of seven (7)
different categories of disability, which include the
following: (1) Psychological and behavioral disabilities (2)
Chronic illness with disabilities (3)Learning(cognitive or
intellectual) disabilities (4) Mental disabilities (5)
Visual/seeing disabilities (6) Orthopedic/moving, and (7)
communication deficits.46chanroblesvirtuallawlibrary
Elementary is the rule that when laws or rules are clear, when the law is
unambiguous and unequivocal, application not interpretation thereof is
imperative. However, where the language of a statute is vague and
ambiguous, an interpretation thereof is resorted to. A law is deemed
ambiguous when it is capable of being understood by reasonably well-
informed persons in either of two or more senses. The fact that a law admits
of different interpretations is the best evidence that it is vague and
ambiguous.47chanrobleslaw
In the instant case, We do not find the aforestated definition of terms as
vague and ambiguous. Settled is the rule that courts will not interfere in
matters which are addressed to the sound discretion of the government
agency entrusted with the regulation of activities coming under the special
and technical training and knowledge of such agency. 48 As a matter of policy,
We accord great respect to the decisions and/or actions of administrative
authorities not only because of the doctrine of separation of powers but also
for their presumed knowledge, ability, and expertise in the enforcement of
laws and regulations entrusted to their jurisdiction. The rationale for this rule
relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative
agencies for addressing and satisfying those needs; it also relates to the
accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular
statute.49chanrobleslaw
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Lastly, petitioners contend that R.A. No. 7227, as amended by R.A. No. 9442,
violates the equal protection clause of the Constitution because it fairly
singles out drugstores to bear the burden of the discount, and that it can
hardly be said to "rationally" meet a legitimate government objective which
is the purpose of the law. The law allegedly targets only retailers such as
petitioners, and that the other enterprises in the drug industry are not
imposed with similar burden. This same argument had been raised in the
case of Carlos Superdrug Corp., et al. v. DSWD, et al.,50 and We reaffirm and
apply the ruling therein in the case at bar:Ch
anRoblesVirtualawlibrary
The Court is not oblivious of the retail side of the
pharmaceutical industry and the competitive pricing
component of the business. While the Constitution
protects property rights, petitioners must accept the
realities of business and the State, in the exercise of police
power, can intervene in the operations of a business which
may result in an impairment of property rights in the
process.
Moreover, the right to property has a social dimension.
While Article XIII of the Constitution provides the precept
for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the
regulation of contracts and public utilities, continuously
serve as a reminder that the right to property can be
relinquished upon the command of the State for the
promotion of public good.51chanroblesvirtuallawlibrary
Under the equal protection clause, all persons or things similarly situated
must be treated alike, both in the privileges conferred and the obligations
imposed. Conversely, all persons or things differently situated should be
treated differently.52 In the case of ABAKADA Guro Party List, et al. v. Hon.
Purisima, et al.,53 We held:Ch
anRoblesVirtualawlibrary
20
 Equality guaranteed under the equal protection clause is
equality under the same conditions and among persons
similarly situated; it is equality among equals, not similarity
of treatment of persons who are classified based on
substantial differences in relation to the object to be
accomplished. When things or persons are different in fact
or circumstance, they may be treated in law differently.
In Victoriano v. Elizalde Rope Workers' Union, this Court
declared:ChanRoblesVirtualawlibrary
The guaranty of equal protection of the laws is not a
guaranty of equality in the application of the laws upon all
citizens of the State. It is not, therefore, a requirement, in
order to avoid the constitutional prohibition against
inequality, that every man, woman and child should be
affected alike by a statute. Equality of operation of statutes
does not mean indiscriminate operation on persons merely
as such, but on persons according to the circumstances
surrounding them. It guarantees equality, not identity of
rights. The Constitution does not require that things
which are different in fact be treated in law as though
they were the same. The equal protection clause does not
forbid discrimination as to things that are different. It
does not prohibit legislation which is limited either in the
object to which it is directed or by the territory within
which it is to operate.
The equal protection of the laws clause of the Constitution
allows classification. Classification in law, as in the other
departments of knowledge or practice, is the grouping of
things in speculation or practice because they agree with
one another in certain particulars. A law is not invalid
because of simple inequality. The very idea of classification
is that of inequality, so that it goes without saying that the
mere fact of inequality in no manner determines the
TAX CASES
matter of constitutionality. All that is required of a valid
classification is that it be reasonable, which means that
the classification should be based on substantial
distinctions which make for real differences, that it must
be germane to the purpose of the law; that it must not be
limited to existing conditions only; and that it must apply
equally to each member of the class. This Court has held
that the standard is satisfied if the classification or
distinction is based on a reasonable foundation or
rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the
purpose of enacting laws over matters within its
jurisdiction, the state is recognized as enjoying a wide
range of discretion. It is not necessary that the
classification be based on scientific or marked differences
of things or in their relation. Neither is it necessary that the
classification be made with mathematical nicety. Hence,
legislative classification may in many cases properly rest on
narrow distinctions, for the equal protection guaranty does
not preclude the legislature from recognizing degrees of
evil or harm, and legislation is addressed to evils as they
may appear.
The equal protection clause recognizes a valid classification, that is, a
classification that has a reasonable foundation or rational basis and not
arbitrary.54 With respect to R.A. No. 9442, its expressed public policy is the
rehabilitation, self-development and self-reliance of PWDs. Persons with
disability form a class separate and distinct from the other citizens of the
country. Indubitably, such substantial distinction is germane and intimately
related to the purpose of the law. Hence, the classification and treatment
accorded to the PWDs fully satisfy the demands of equal protection. Thus,
Congress may pass a law providing for a different treatment to persons with
disability apart from the other citizens of the country.
21
Subject to the determination of the courts as to what is a proper exercise of
police power using the due process clause and the equal protection clause as
yardsticks, the State may interfere wherever the public interests demand it,
and in this particular, a large discretion is necessarily vested in the legislature
to determine, not only what interests of the public require, but what
measures are necessary for the protection of such interests. 55 Thus, We are
mindful of the fundamental criteria in cases of this nature that all reasonable
doubts should be resolved in favor of the constitutionality of a statute. 56 The
burden of proof is on him who claims that a statute is unconstitutional.
Petitioners failed to discharge such burden of proof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals

dated July 26, 2010, and the Resolution dated November 19, 2010, in CA-
G.R. SP No. 109903 are AFFIRMED.

SO ORDERED.chanR

TAX CASES 22
 We sustain the denial of the appeal.

Antecedents

The petitioner, a domestic corporation engaged in the manufacture of nickel

and/or cobalt mixed sulphide, is a VAT entity registered with the Bureau of
Internal Revenue (BIR). It is also registered with the Philippine Economic
Zone Authority (PEZA) as an Ecozone Export Enterprise at the Rio Tuba
Export Processing Zone under PEZA Certificate of Registration dated
December 27, 2002.1chanrobleslaw

On August 5, 2003,2 the petitioner filed its Amended VAT Return declaring
unutilized input tax from its domestic purchases of capital goods, other than
capital goods and services, for its third and fourth quarters of 2002 totalling
P50,124,086.75. On June 14, 2004,3 it filed with Revenue District Office No.
36 in Palawan its Application for Tax Credits/Refund (BIR Form 1914)
together with supporting documents.

G.R. No. 190506, June 13, 2016
CORAL BAY NICKEL CORPORATION, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
BERSAMIN, J.:
This appeal is brought by a taxpayer whose claim for the refund or credit
pertaining to its alleged unutilized input tax for the third and fourth quarters
of the year 2002 amounting to P50,124,086.75 had been denied by the
Commissioner of Internal Revenue. The Court of Tax Appeals (CTA) En Banc
and in Division denied its appeal.
Due to the alleged inaction of the respondent, the petitioner elevated its
claim to the CTA on July 8, 2004 by petition for review, praying for the refund
of the aforesaid input VAT (CTA Case No. 7022).4chanrobleslaw
After trial on the merits, the CTA in Division promulgated its decision on
March 10, 20085 denying the petitioner's claim for refund on the ground
that the petitioner was not entitled to the refund of alleged unutilized input
VAT following Section 106(A)(2)(a)(5) of the National Internal Revenue Code
(NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus
Investment Code and conformably with the Cross Border Doctrine. In
support of its ruling, the CTA in Division cited Commissioner of Internal
Revenue v. Toshiba Information Equipment (Phils) Inc. (Toshiba)6 and
Revenue Memorandum Circular ("RMC") No. 42-03.7chanrobleslaw
After the CTA in Division denied its Motion for Reconsideration8 on July 2,
2008,9 the petitioner elevated the matter to the CTA En Banc (CTA EB Case

TAX CASES 23
No. 403), which also denied the petition through the assailed decision
promulgated on May 29, 2009.10chanrobleslaw
The CTA En Banc denied the petitioner's Motion for Reconsideration through
the resolution dated December 10, 2009.11chanrobleslaw
Hence, this appeal, whereby the petitioner contends that Toshiba is not
applicable inasmuch as the unutilized input VAT subject of its claim w(as
incurred from May 1, 2002 to December 31, 2002 as a VAT-registered
taxpayer, not as a PEZA-registered enterprise; that during the period subject
of its claim, it was not yet registered with PEZA because it was only on
December 27, 2002 that its Certificate of Registration was issued;12 that
until then, it could not have refused the payment of VAT on its purchases
because it could not present any valid proof of zero-rating to its VAT-
registered suppliers; and that it complied with all the procedural and
substantive requirements under the law and regulations for its entitlement
to the refund.13chanrobleslaw
Issue
Was the petitioner, an entity located within an ECOZONE, entitled to the
refund of its unutilized input taxes incurred before it became a PEZA
registered entity?
Ruling of the Court
The appeal is bereft of merit.
We first explain why we have given due course to the petition for review on
certiorari despite the petitioner's premature filing of its judiqial claim in the
CTA.
The petitioner filed with the BIR on June 10, 2004 its application for tax
refund or credit representing the unutilized input tax for the third and fourth
quarters of 2002. Barely 28 days later, it brought its appeal in the CTA
TAX CASES
contending that there was inaction on the part of the petitioner despite its
not having waited for the lapse of the 120-day period mandated by Section
112 (D) of the 1997 NTRC. At the time of the petitioner's appeal, however,
the applicable rule was that provided under BIR Ruling No. DA-489-03,14
issued on December 10, 2003, to wit:ChanRoblesVirtualawlibrary
It appears, therefore, that it is not necessary for the Commissioner of
Internal Revenue to first act unfavorably on the claim for refund before the
Court of Tax Appeals could validly take cognizance of the case. This is so
because of the positive mandate of Section 230 of the Tax Code and also by
virtue of the doctrine that the delay of the Commissioner in rendering his
decision does not extend the reglementary period prescribed by statute.
Incidentally, the taxpayer could not be faulted for taking advantage of the full
two-year period set by law for filing his claim for refund [with the
Commissioner of Internal Revenue]. Indeed, no provision in the tax code
requires that the claim for refund be fxled at the earliest instance in order to
give the Commissioner an opportunity to rule on it and the court to review
the ruling of the Commissioner of Internal Revenue on appeal. Xxx
As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal
Revenue,15 the exception to the mandatory and jurisdictional compliance
with the 120+30 day-period is when the claim for the tax refund or credit
was filed in the period between December 10, 2003 and October 5, 2010
during which BIR Ruling No. DA-489-03 was still in effect. Accordingly, the
premature filing of the judicial claim was allowed, giving to the CTA
jurisdiction over the appeal.
As to the main issue, we sustain the assailed decision of the CTA En Banc.
The petitioner's insistence, that Toshiba is not applicable because Toshiba
Information Equipment (Phils) Inc., the taxpayer involved thereat, was a
PEZA-registered entity during the time subject of the claim for tax refund or
credit, is unwarranted. The most significant difference between Toshiba and
24
this case is that Revenue Memorandum Circular No. 74-9916 was not yet in
effect at the time Toshiba Information Equipment (Phils) Inc. brought its
claim for refund. Regardless of the distinction, however, Toshiba actually
discussed the VAT implication of PEZA-registered enterprises and ECOZONE-
located enterprises in its entirety, which renders Toshiba applicable to the
petitioner's case.
Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives, namely:
(1) if the PEZA-registered enterprise chose the 5% preferential tax on its
gross income in lieu of all taxes, as provided by Republic Act No. 7916, as
amended, then it was VAT-exempt; and
(2) if the PEZA-registered enterprise availed itself of the income tax holiday
under Executive Order No. 226, as amended, it was subject to VAT at 10%17
(now, 12%).
Based on this old rule, Toshiba allowed the claim for refund or credit on
the part of Toshiba Information Equipment (Phils) Inc.
This is not true with the petitioner. With the issuance of RMC 74-99, the
distinction under the old rule was disregarded and the new circular took into
consideration the two important principles of the Philippine VAT system: the
Cross Border Doctrine and the Destination Principle. Thus, Toshiba opined:
The rule that any sale by a VAT-registered supplier from the Customs
Territory to a PEZA-registered enterprise shall be considered an export sale
and subject to zero percent (0%) VAT was clearly established only on 15
October 1999, upon the issuance of RMC No. 74-99. Prior to the said date,
however, whether or not a PEZA-registered enterprise was VAT-exempt
depended on the type of fiscal incentives availed of by the said enterprise.
This old rule on VAT-exemption or liability of PEZA-registered enterprises,
followed by the BIR, also recognized and affirmed by the CTA, the Court of
Appeals, and even this Court, cannot be lightly disregarded considering the
TAX CASES
great number of PEZA-registered enterprises which did rely on it to
determine its tax liabilities, as well as, its privileges.
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives
the PEZA-registered enterprise the option to choose between two sets of
fiscal incentives: (a) The five percent (5%) preferential tax rate on its gross
income under Rep. Act No. 7916, as amended; and (b) the income tax
holiday provided under Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 1987, as amended.
xxxx
This old rule clearly did not take into consideration the Cross Border Doctrine
essential to the VAT system or the fiction of the ECOZONE as a foreign
territory. It relied totally on the choice of fiscal incentives of the PEZA-
registered enterprise.
Again, for emphasis, the old VAT rule for PEZA-registered enterprises was
based on their choice of fiscal incentives:
(1) If the PEZA-registered enterprise chose the five percent (5%) preferential
tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916,
as amended, then it would be VAT-exempt;
(2) (2) If the PEZA-registered enterprise availed of the income tax holiday
under Exec. Order No. 226, as amended, it shall be subject to VAT at ten
percent (10%).
Such distinction was abolished by RMC No. 74-99, which categorically
declared that all sales of goods, properties, and services made by a VAT-
registered supplier from the Customs Territory to an ECOZONE enterprise
shall be subject to VAT, at zero percent (0%) rate, regardless of the tatter's
type or class of PEZA registration; and, thus, affirming the nature of a PEZA-
registered or an ECOZONE enterprise as a VAT-exempt entity.18
(underscoring and Emphasis supplied)
25

Furthermore, Section 8 of Republic Act No. 7916 mandates that PEZA shall
manage and operate the ECOZONE as a separate customs territory. The
provision thereby establishes the fiction that an ECOZONE is a foreign
tenitory separate and distinct from the customs territory. Accordingly, the
sales made by suppliers from a customs territory to a purchaser located
within an ECOZONE will be considered as exportations. Following the
Philippine VAT system's adherence to the Cross Border Doctrine and
Destination Principle, the VAT implications are that "no VAT shall be imposed
to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority"19 Thus, Toshiba has discussed that:
This Court agrees, however, that PEZA-registered enterprises, which would
necessarily be located within ECQZONES, are VAT-exempt entities, not
because of Section 24 of Rep. Act No. 7916, as amended, which imposes the
five percent (5%) preferential tax rate on gross income of PEZA-registered
enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same
statute which establishes the fiction that ECOZONES are foreign territory.
It is important to note herein that respondent Toshiba is located within an
ECOZONE. An ECOZONE or a Special Economic Zone has been described as
. . . [S]elected areas with highly developed or which have the potential to be
developed into agro-industrial, industrial, tourist, recreational, commercial,
banking, investment and financial centers whose metes and bounds are fixed
or delimited by Presidential Proclamations. An ECOZONE may contain any or
all of the following: industrial estates (IEs), export processing zones (EPZs),
free trade zones and tourist/recreational centers.
The national territory of the Philippines outside of the proclaimed borders of
the ECOZONE shall be referred to as the Customs Territory.
TAX CASES
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall
manage and operate the ECOZONES as a separate customs territory; thus,
creating the fiction that the ECOZONE is a foreign territory. As a result, sales
made by a supplier in the Customs Territory to a purchaser in the ECOZONE
shall be treated as an exportation from the Customs Territory. Conversely,
sales made by a supplier from the ECOZONE to a purchaser in the Customs
Territory shall be considered as an importation into the Customs Territory.20
(underscoring and emphasis are supplied)
The petitioner's principal office was located in Barangay Rio Tuba, Bataraza,
Palawan.21 Its plant site was specifically located inside the Rio Tuba Export
Processing Zone a special economic zone (ECOZONE) created by
Proclamation No. 304, Series of 2002, in relation to Republic Act No. 7916. As
such, the purchases of goods and services by the petitioner that were
destined for consumption within the ECOZONE should be free of VAT; hence,
no input VAT should then be paid on such purchases, rendering the
petitioner not entitled to claim a tax refund or credit. Verily, if the petitioner
had paid the input VAT, the CTA was correct in holding that the petitioner's
proper recourse was not against the Government but against the seller who
had shifted to it the output VAT following RMC No. 42-03,22 which provides:
In case the supplier alleges that it reported such sale as a taxable sale,
the substantiation of remittance of the output taxes of the seller (input
taxes of the exporter-buyer) can only be established upon the thorough
audit of the suppliers' VAT returns and corresponding books and
records. It is, therefore, imperative that the processing office recommends
to the concerned BIR Office the audit of the records of the seller.
In the meantime, the claim for input tax credit by the exporter-buyer
should be denied without prejudice to the claimant's right to seek
reimbursement of the VAT paid, if any, from its supplier.
We should also take into consideration the nature of VAT as an indirect tax.
Although the seller is statutorily liable for the payment of VAT, the amount of
the tax is allowed to be shifted or passed on to the buyejr.23 However,
26
reporting and remittance of the VAT paid to the BIR remained to be the
seller/supplier's obligation. Hence, the proper party to seek the tax refund or
credit should be the suppliers, not the petitioner.

In view of the foregoing considerations, the Court must uphold the rejection
of the appeal of the petitioner. This Court has repeatedly poirited out that a
claim for tax refund or credit is similar to a tax exemption and should be
strictly construed against the taxpayer. The burden of proof to show that he
is ultimately entitled to the grant of such tax refund or credit rests on the
taxpayer.24 Sadly, the petitioner has not discharged its burden.

WHEREFORE, the Court AFFIRMS the decision promulgated on May 29, 2009
in CTA EB Case No. 403; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.

TAX CASES 27
 income tax and VAT arose from the complete disallowance 4 by
the BIR of the petitioner's purchases from Etheria Trading in
FIRST DIVISION 2010 amounting to P4,942,937,053.82. The petitioner replied to
the PAN through its letter dated August 30, 2013.5chanrobleslaw
G.R. No. 215950, June 20, 2016
On September 23, 2013, the petitioner received from the BIR a
TRIDHARMA MARKETING Formal Letter of Demand assessing it with deficiency taxes for
CORPORATION, Petitioner, v. COURT OF TAX APPEALS, the taxable year ending December 31, 2010 amounting to
SECOND DIVISION, AND THE COMMISSIONER OF P4,697,696,275.25, inclusive of surcharge and interest. It filed a
INTERNAL REVENUE, Respondents. protest against the formal letter of demand. Respondent
Commissioner of Internal Revenue (CIR) required the petitioner
DECISION to submit additional documents in support of its protest, and the
petitioner complied.6chanrobleslaw
BERSAMIN, J.:
On February 28, 2014, the petitioner received a Final Decision
In this special civil action for certiorari,1 the taxpayer assails t he on Disputed Assessment worth P4,473,228,667.87, computed as
resolutions issued on July 8, 20142 and December 22, 20143 in follows:7
CTA Case No. 8833 whereby the Court of Tax Appeals (CTA),
Second Division, granted its motion for suspension of the Tax
collection of tax but required it to post a surety bond amounting Basic Tax Surcharge Interest Total
Type
to P4,467,391,881.76.
1,527,100,903. P3,169,257,355.
1. IT 763,550,451.99 878,605,999.55
98 52
The relevant facts follow.
1,298,134,526.2
2. VAT 612,723,525.25 306,361,762.63 379,049,238.36
On August 16, 2013, the petitioner received a Preliminary 4
Assessment Notice (PAN) from the Bureau of Internal Revenue 3.
1,679,413.14 1,048,137.84 2,727,550.98
(BIR) assessing it with various deficiency taxes - income tax WHT
(IT), value-added tax (VAT), withholding tax on compensation
4. DST 534,493.40 336,511.18 871,004.58
(WTC), expanded withholding tax (EWT) and documentary
stamp tax (DST) - totalling P4,640,394,039.97, inclusive of 5.
1,378,127.78 860,102.76 2,238,230.54
surcharge and interest. A substantial portion of the deficiency EWT

TAX CASES 28
 2,143,416,463. 1,069,912,214. 1,259,899,989. 4,473,228,667.8
TOTAL
55 62 69 7
The petitioner filed with the CIR a protest through a Request for
Reconsideration. However, the CIR rendered a decision dated May 26, 2014
denying the request for reconsideration.8chanrobleslaw
Prior to the CIR's decision, the petitioner paid the assessments
corresponding to the WTC, DST and EWT deficiency assessments, inclusive of
interest, amounting to P5,836,786.10. It likewise reiterated its offer to
compromise the alleged deficiency assessments on IT and
VAT.9chanrobleslaw
On June 13, 2014, the petitioner appealed the CIR's decision to the
CTA via its so-called Petition for Review with Motion to Suspend Collection of
Tax, which was docketed as CTA Case No. 8833 and raffled to the CTA Second
Division.10chanrobleslaw
The CTA in Division issued the first assailed resolution on July 8, 2014, stating
thusly:ChanRoblesVirtualawlibrary
In the instant case, petitioner's Financial Statements and
Independent Auditor's Report for December 31, 2013 and
2012, as identified by its witness, indicate that the
company's total equity for the year 2012 and 2013 was
P955,095,301 and P916,768,767, respectively. To yield to
respondent's alleged assessment and collection in the
amount of P4,467,391,881.76 would definitely jeopardize
the normal business operations of petitioner thereby
causing irreparable injury to its ability to continue.
Moreover, considering petitioner's willingness to post
bond, as manifested during the June 19, 2014 hearing, in
TAX CASES
such reasonable amount as may be fixed by this Court,
pursuant to Section 11 of R.A. No. 1125, as amended, this
Court in the interest of substantial justice, resolves to grant
petitioner's Motion.
xxxx
WHEREFORE, considering the urgency of the action to be
enjoined, petitioner's Motion for Suspension of Collection
of Tax in the amount of P4,467,391,881.76 allegedly
representing its deficiency Income Tax and Value Added Tax
for taxable year 2010 is GRANTED. Provided, however, that
petitioner deposits with this Court an acceptable surety
bond equivalent to 150% of the assessment or in the
amount of SIX BILLION SEVEN HUNDRED ONE MILLION
EIGHTY SEVEN THOUSAND EIGHT HUNDRED TWENTY
TWO and 64/100 PESOS (P6,701,087,822.64) within fifteen
(15) days from notice hereof.
Moreover, pursuant to Supreme Court Circular A.M. No.
04-7-02-SC, otherwise known as the "Proposed Guidelines
on Corporate Surety Bonds", petitioner is
hereby ORDERED to submit the following documents with
the surety bond stated above:ChanRoblesVirtualawlibrary
1. Certified copy of a valid Certificate of Accreditation and
Authority issued by the Office of the Court Administrator;
2. Copy of the Certificate of Compliance with Circular No.
66 of the Insurance Commission duly certified by the
Insurance Commission;
29

3. Proof of payment of legal fees under the Rules of Court
and the documentary stamp tax (thirty centavos [P0.30J on
each four pesos [P4.00] or fractional part thereof, of the
premium charged, pursuant to Section 187 Title VII of Rep.
Act No. 8424) and Value Added Tax (VAT) under the
National Internal Revenue Code;
4. Photocopy of the Certificate of Accreditation and
Authority issued by the Court Administrator containing the
photograph of the authorized agent (after presentation to
the Clerk of Court of the original copy thereof as Copy of
the Certificate of Accreditation and Authority containing
the photograph of the agent); and cralawlawlibrary
5. Secretary Certificate containing the specimen signatures
of the agents authorized to transact business with the
courts.
In addition, the said bond must be a continuing bond which
shall remain effective until the above-captioned case is
finally decided, resolved or terminated by this Court
without necessity of renewal on a yearly basis, or its
validity being dependent on the payment of a renewal
premium pursuant to Section 177 of the Insurance Code.
Failure to comply with the above requirements will cause
the setting aside of this Resolution granting petitioner's
motion for the suspension of the collection of the tax
liability.
xxxx
SO ORDERED.11chanroblesvirtuallawlibrary
TAX CASES
The petitioner filed its Motion for Partial Reconsideration praying, among
others, for the reduction of the bond to an amount it could obtain.
On December 22, 2014, the CTA in Division issued its second assailed
resolution reducing the amount of the petitioner's surety bond to
P4,467,391,881.76, which was the equivalent of the BIR's deficiency
assessment for IT and VAT.12chanrobleslaw
Hence, the petitioner has commenced this special civil action for certiorari,
asserting:ChanRoblesVirtualawlibrary
I.
WITH ALL DUE RESPECT, THE CTA
SECOND DIVISION COMMITTED GRAVE
ABUSE OF DISCRETION IN REFUSING TO
CONSIDER, AND IN COMPLETELY
IGNORING, THE PATENT ILLEGALITY OF
THE ASSESSMENT THAT, UNDER LAW
AND JURISPRUDENCE, FULLY JUSTIFIED
DISPENSING WITH THE REQUIREMENT
OF POSTING A BOND.
II.
WITH ALL DUE RESPECT, THE CTA SECOND DIVISION
COMMITTED GRAVE ABUSE OF DISCRETION IN IMPOSING
A GARGANTUAN BOND IN THE AMOUNT OF
P4,467,391,881.76 THAT PETITIONER HAS
DEMONSTRATED BY UNREFUTED EVIDENCE TO BE
FACTUALLY AND LEGALLY IMPOSSIBLE TO PROCURE.
III.
WITH ALL DUE RESPECT, THE CTA SECOND DIVISION
COMMITTEED GRAVE ABUSE OF DISCRETION IN
30
 GRANTING AN ILLUSORY RELIEF, AND IN EFFECTIVELY
DENYING PETITIONER ACCESS TO THE REMEDY PROVIDED
BY LAW. UPON UNCONTRADICTED EVIDENCE, THE
IMPOSITION OF A BOND IS NOT ONLY UNJUST, BUT WILL
CAUSE IRREPARABLE INJURY UPON PETITIONER EVEN
BEFORE IT IS HEARD.13
On February 9, 2015, the Court issued a temporary restraining
order14 enjoining the implementation of July 8, 2014 and December 22, 2014
resolutions of the CTA in Division, and the collection of the deficiency
assessments.
Issue
Did the CTA in Division commit grave abuse of discretion in requiring the
petitioner to file a surety bond despite the supposedly patent illegality of the
assessment that was beyond the petitioner's net worth but equivalent to the
deficiency assessment for IT and VAT?
Ruling of the Court
The petition for certiorari is meritorious.
Section 11 of Republic Act No. 1125 (R.A. No. 1125), 15 as amended by
Republic Act No. 9282 (RA 9282)16it is stated
that:ChanRoblesVirtualawlibrary
Sec. 11. Who may appeal; effect of appeal. x x x
xxxx
No appeal taken to the Court of Tax Appeals from the
decision of the Collector of Internal Revenue or the
Collector of Customs shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for
the satisfaction of his tax liability as provided by existing
TAX CASES
law: Provided, however, That when in the opinion of the
Court the collection by the Bureau of Internal Revenue or
the Commissioner of Customs may jeopardize the interest
of the Government and/or the taxpayer the Court at any
stage of the proceeding may suspend the said collection
and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double
the amount with the Court. (bold Emphasis supplied.)
Clearly, the CTA may order the suspension of the collection of taxes provided
that the taxpayer either: (1) deposits the amount claimed; or (2) files a
surety bond for not more than double the amount.
The petitioner argues that the surety bond amounting to P4,467,391,881.76
greatly exceeds its net worth and makes it legally impossible to procure the
bond from bonding companies that are limited in their risk assumptions. 17 As
shown in its audited financial statements for the year ending December 31,
2013, its net worth only amounted to P916,768,767.00, 18 making the amount
of P4,467,391,881.76 fixed for the bond nearly five times greater than such
net worth.
The surety bond amounting to P4,467,391,881.76 imposed by the CTA was
within the parameters delineated in Section 11 of R.A. 1125, as amended.
The Court holds, however, that the CTA in Division gravely abused its
discretion under Section 11 because it fixed the amount of the bond at
nearly five times the net worth of the petitioner without conducting a
preliminary hearing to ascertain whether there were grounds to suspend the
collection of the deficiency assessment on the ground that such collection
would jeopardize the interests of the taxpayer. Although the amount of
P4,467,391,881.76 was itself the amount of the assessment, it behoved the
CTA in Division to consider other factors recognized by the law itself towards
suspending the collection of the assessment, like whether or not the
assessment would jeopardize the interest of the taxpayer, or whether the
means adopted by the CIR in determining the liability of the taxpayer was
legal and valid. Simply prescribing such high amount of the bond like the
31
initial 150% of the deficiency assessment of P4,467,391,881.76 (or
P6,701,087,822.64), or later on even reducing the amount of the bond to
equal the deficiency assessment would practically deny to the petitioner the
meaningful opportunity to contest the validity of the assessments, and
would likely even impoverish it as to force it out of business.
At this juncture, it becomes imperative to reiterate the principle that the
power to tax is not the power to destroy. In Philippine Health Care Providers,
Inc. v. Commissioner of Internal Revenue,19 the Court has stressed
that:ChanRoblesVirtualawlibrary
As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in
its very nature no limits, so that security against its abuse is
to be found only in the responsibility of the legislature
which imposes the tax on the constituency who is to pay it.
So potent indeed is the power that it was once opined that
the power to tax involves the power to destroy.
Petitioner claims that the assessed DST to date which
amounts to P376 million is way beyond its net worth of
P259 million. Respondent never disputed these assertions.
Given the realities on the ground, imposing the DST on
petitioner would be highly oppressive. It is not the purpose
of the government to throttle private business. On the
contrary, the government ought to encourage private
enterprise. Petitioner, just like any concern organized for a
lawful economic activity, has a right to maintain a
TAX CASES
legitimate business. As aptly held in Roxas, et al. v. CTA, et
al.:ChanRoblesVirtualawlibra
ry
The power of taxation is sometimes
called also the power to destroy.
Therefore it should be exercised with
caution to minimize injury to the
proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly,
lest the tax collector "kill the hen that
lays the golden egg."
Legitimate enterprises enjoy the constitutional protection
not to be taxed out of existence. Incurring losses because
of a tax imposition may be an acceptable consequence but
killing the business of an entity is another matter and
should not be allowed. It is counter-productive and
ultimately subversive of the nation's thrust towards a
better economy which will ultimately benefit the majority
of our people.
32
Moreover, Section 11 of R.A. 1125, as amended, indicates that the
requirement of the bond as a condition precedent to suspension of the
collection applies only in cases where the processes by which the collection
sought to be made by means thereof are carried out in consonance with the
law, not when the processes are in plain violation of the law that they have
to be suspended for jeopardizing the interests of the
taxpayer.20chanrobleslaw
The petitioner submits that the patent illegality of the assessment was
sufficient ground to dispense with the bond requirement because the CIR
was essentially taxing its sales revenues without allowing the deduction of
the cost of goods sold by virtue of the CIR refusing to consider evidence
showing that it had really incurred costs. 21 However, the Court is not in the
position to rule on the correctness of the deficiency assessment, which is a
matter still pending in the CTA. Conformably with the pronouncement
in Pacquiao v. Court of Tax Appeals, First Division, and the Commissioner of
Internal Revenue,22 a ruling that has precedential value herein, the Court
deems it best to remand the matter involving the petitioner's plea against
the correctness of the deficiency assessment to the CTA for the conduct of a
preliminary hearing in order to determine whether the required surety bond
should be dispensed with or reduced.
In Pacquiao, the petitioners were issued deficiency IT and VAT assessments
for 2008 and 2009 in the aggregate amount of P2,261,217,439.92, which
amount was above their net worth of P1,185,984,697.00 as reported in their
joint Statement of Assets, Liabilities and Net Worth (SALN). They had paid
the VAT assessments but appealed to the CTA the IT assessments.
Notwithstanding their appeal, the CIR still initiated collection proceedings
against them by issuing warrants of distraint or levy against their properties,
and warrants of garnishment against their bank accounts. As a consequence,
they went to the CTA through an urgent motion to lift the warrants and to
suspend the collection of taxes. The CTA in Division found the motion to
suspend tax collection meritorious, and lifted the warrant of distraint or levy
and garnishment on the condition that they post a cash bond of
P3,298,514,894.35, or surety bond of P4,947,772,341.53. They thus came to
TAX CASES
the Court to challenge the order to post the cash or surety bond as a
condition for the suspension of collection of their deficiency taxes. In
resolving their petition, the Court held and disposed:ChanRoblesVirtua
lawlibrary
Absent any evidence and preliminary determination by the
CTA, the Court cannot make any factual finding and settle
the issue of whether the petitioners should comply with
the security requirement under Section 11, R.A. No. 1125.
The determination of whether the methods, employed by
the CIR in its assessment, jeopardized the interests of a
taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of
evidence which would serve as basis. In this regard, the
CTA is in a better position to initiate this given its time and
resources. The remand of the case to the CTA on this
question is, therefore, more sensible and proper.
For the Court to make any finding of fact on this point
would be premature. As stated earlier, there is no
evidentiary basis. All the arguments are mere allegations
from both sides. Moreover, any finding by the Court would
pre-empt the CTA from properly exercising its jurisdiction
33
 and settle the main issues presented before it, that is, No pronouncement on costs of suit.
whether the petitioners were afforded due process;
whether the CIR has valid basis for its assessment; and SO ORDERED.
whether the petitioners should be held liable for the
deficiency taxes.

xxxx

In the conduct of its preliminary hearing, the CTA must

balance the scale between the inherent power of the State
to tax and its right to prosecute perceived transgressors of
the law, on one side; and the constitutional rights of
petitioners to due process of law and the equal protection
of the laws, on the other. In case of doubt, the tax court
must remember that as in all tax cases, such scale should
favor the taxpayer, for a citizen's right to due process and
equal protection of the law is amply protected by the Bill of
Rights under the Constitution.23chanroblesvirtuallawlibrary
Consequently, to prevent undue and irreparable damage to the normal
business operations of the petitioner, the remand to the CTA of the questions
involving the suspension of collection and the correct amount of the bond is
the proper course of action.

WHEREFORE, the Court GRANTS the petition

for certiorari; ANNULS and SETS ASIDE the resolutions issued on July 8, 2014
and December 22, 2014 in CTA Case No. 8833 requiring the petitioner to post
a surety bond of P4,467,391,881.76 as a condition to restrain the collection
of the deficiency taxes assessed against it; PERMANENTLY ENJOINS the
enforcement of the resolutions issued on July 8, 2014 and December 22,
2014 in CTA Case No. 8833; and REQUIRES the Court of Tax Appeals, Second
Division, to forthwith conduct a preliminary hearing in CTA Case No. 8833 to
determine and rule on whether the bond required under Section 11 of
Republic Act No. 1125 may be dispensed with or reduced to restrain the
collection of the deficiency taxes assessed against the petitioner.

TAX CASES 34
 SILICON PHILIPPINES, INC. (FORMERLY INTEL
PHILIPPINES MANUFACTURING,
INC.), Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.

DECISION

SERENO, C.J.:

Before us is a Petition for Review on Certiorari under Rule 45 of

the Rules of Court assailing the Court of Tax Appeals (CTA) En
Banc Decision1 dated 18 January 2008 and Resolution2 dated 30
April 2008 in CTA EB No. 298.

The CTA En Banc affirmed the CTA Second Division

Decision3 dated 5 February 2007 and Resolution4dated 29 June
2007 in CTA Case Nos. 6741, 6800 & 6841. That Decision
denied the claim for tax refund or issuance of tax credit
certificates corresponding to petitioner's excess/unutilized input
value-added tax (VAT) for the 2nd, 3rd and 4th quarters of taxable
year 2001. The CTA En Banc Resolution denied petitioner's
motion for reconsideration.

FACTS

Petitioner is a corporation engaged in the business of designing, developing,

G.R. No. 182737, March 02, 2016
manufacturing and exporting integrated circuit components.5 It is a preferred
pioneer enterprise registered with the Board of Investments. 6 It is likewise
registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer by
virtue of its sale of goods and services 7 with a permit to print accounting
documents like sales invoices and official receipts. 8

TAX CASES 35
On 24 July 2001, petitioner filed its 2 nd Quarter VAT Return reporting the
amount of P765,696,325.68 as its zero-rated sales. 9
rd
Its 3 Quarter VAT Return filed on 23 October 2001 indicated zero-rated sales
in the amount of P571,812,011.26. 10 This amount was increased to
P678,418,432.83 in the Amended 3 rd Quarter VAT Return filed on 29 October
2001.11
The 4th Quarter VAT Return filed on 15 January 2002 reported zero-rated
sales in the amount of P1,000,052,659.89. 12 This amount remained
unchanged in the Amended 4th Quarter VAT Return filed on 22 May 2002. 13
Petitioner sought to recover the VAT it paid on imported capital goods for the
2nd quarter of 2001. On 16 October 2001, it filed with the One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center, Department of Finance,
an application for a tax credit/refund in the amount of P9,038,279.56. 14
On 4 September 2002, petitioner also filed for a tax credit/refund of the VAT
it had paid on imported capital goods for the 3 rd and 4th quarters of 2001 in
the amounts of P1,420,813.0415 and P14,582,023.62,16 respectively.
Because of the continuous inaction by respondent on the administrative
claims of petitioner for a tax credit/refund in the total amount of
P25,041,116.22,17 the latter filed separate petitions for review before the
CTA.
CTA Case No. 6741 filed on 30 July 2003 sought to recover P9,038,279.56 for
the 2nd quarter of 2001;18 CTA Case No. 6800 filed on 20 October 2003, the
amount of P1,420,813.04 for the 3 rd quarter of 2001;19 and CTA Case No.
6841 filed on 30 December 2003, P14,582,023.62 for the 4 th quarter of
2001.20
The three cases were consolidated by the CTA Second Division in a
Resolution dated 20 February 2004. 21 Trial on the merits ensued, and the
case was submitted for decision on 23 August 2007.22
TAX CASES
RULING OF THE CTA SECOND DIVISION
In a Decision23 dated 5 February 2007, the CTA Second Division dismissed the
petitions for lack of merit.
It ruled that pursuant to Section 112 of the National Internal Revenue Code
(NIRC), the refund/tax credit of unutilized input VAT is allowed (a) when the
excess input VAT is attributable to zero-rated or effectively zero-rated sales;
and (b) when the excess input VAT is attributable to capital goods purchased
by a VAT-registered person.24
In order to prove zero-rated export sales,25 a VAT-registered person must
present the following: (1) the sales invoice as proof of the sale of goods; (2)
the export declaration or bill of lading/airway bill as proof of actual shipment
of the goods from the Philippines to a foreign country; and (3) bank credit
advice or certificate of remittance or any other document proving payment
for the goods in acceptable foreign currency or its equivalent in goods and
services.26
The CTA Second Division found that petitioner presented nothing more than
a certificate of inward remittances for the entire year 2001, in compliance
with the third requirement only.27 That being the case, petitioner's reported
export sales in the total amount of P2,444,167,418.40 28 cannot qualify as VAT
zero-rated sales.29
On the other hand, a taxpayer claiming a refund/tax credit of input VAT paid
on purchased capital goods must prove all of the following: (1) that it is a
VAT-registered entity; (2) that it paid input VAT on capital goods purchased;
(3) that its input VAT payments on capital goods were duly supported by VAT
invoices or official receipts; (4) that it did not offset or apply the claimed
input VAT payments on capital goods against any output VAT liability; and (5)
that the administrative and judicial claims for a refund were filed within the
two-year prescriptive period.30
The CTA Second Division found that petitioner was able to prove the first and
36
the fifth requisites for the pertinent quarters of the year 2001. 31
However, petitioner was not able to prove the fourth requisite with regard to
the claimed input VAT payments for the 3rd and the 4th quarters of 2001. The
evidence purportedly showing that it had not offset or applied the claimed
input VAT payment against any output VAT liability was denied admission as
evidence for being a mere photocopy.32
Petitioner also failed to prove the second and the third requisite with regard
to the claimed input VAT payment for the 2nd quarter of 2001. Specifically, it
failed to prove that the purchases were capital goods. 33
For purchases to fall under the definition of capital goods or properties, the
following conditions must be present: (1) the goods or properties have an
estimated useful life of more than one year; (2) they are treated as
depreciable assets under Section 29(f) of Revenue Regulations No. 7-95; and
(3) they are used directly or indirectly in the production or sale of taxable
goods or services.34
The CTA Second Division perused the Summary List of Importations on
Capital Goods for the 2nd quarter of 2001 presented by petitioner and found
items therein that could not be considered as depreciable assets. 35 As to the
rest of the items, petitioner failed to present the detailed general ledgers
and audited financial statements to show that those goods were capitalized
in the books of accounts and subjected to depreciation.36
Petitioner filed a Motion for Reconsideration, which was denied in the
Resolution dated 29 June 2007.37It then filed before the CTA En Banc a
petition for review challenging the CTA Second Division Decision and
Resolution.
RULING OF THE CTA EN BANC
The CTA En Banc issued the assailed Decision 38 dated 18 January 2008
TAX CASES
dismissing the petition for lack of merit.
It affirmed the finding of the CTA Second Division that petitioner had failed
to prove its capital goods purchases for the 2nd quarter of the year
2001.39 The CTA En Banc emphasized the evidentiary nature of a claim that a
VAT-registered person made capital goods purchases.40 It is necessary to
ascertain the treatment of the purported capital goods as depreciable assets,
which can only be determined through the examination of the detailed
general ledgers and audited financial statements, including the person's
income tax return.41 In view of petitioner's lack of evidence on this point, the
claim for the refund or the issuance of tax credit certificates must be denied.
Petitioner's Motion for Reconsideration was denied in the challenged
Resolution dated 30 April 2008.42
Issues
Petitioner now comes before us raising the following issues for our
consideration:
chanRoblesvirtualLawlibrary
I.
[WHETHER] THE COURT OF TAX APPEALS
ERRED IN DENYING [PETITIONER'S]
CLAIM FOR REFUND OF ITS EXCESS /
UNUTILIZED INPUT VAT DERIVED FROM
IMPORTATION OF CAPITAL GOODS DUE
TO ITS FAILURE TO PROVE THE EXISTENCE
OF ZERO-RATED EXPORT SALES.
II.
[WHETHER] THE COURT OF TAX APPEALS ERRED IN
FINDING THAT [PETITIONER] FAILED TO COMPLY WITH THE
REQUIREMENTS OF A VALID CLAIM FOR REFUND / TAX
37
 CREDIT OF INPUT VAT PAID ON ITS IMPORTATION OF
CAPITAL GOODS.
III.
[WHETHER] THE COURT OF TAX APPEALS ERRED IN RULING
THAT [PETITIONER] FAILED TO PROVE THAT THE GOODS
IMPORTED ARE CAPITAL GOODS
IV.
[WHETHER] THE INPUT VAT ON THE ALLEGED NON-CAPITAL
GOODS ARE STILL REFUNDABLE BECAUSE THEY ARE
ATTRIBUTABLE TO THE ZERO RATED SALES OF [PETITIONER,
A 100% EXPORT ENTERPRISE]43ChanRoblesVirtualawlibrary
In the Resolution dated 30 July 2008,44 we required respondent to comment
on the petition. The Comment dated 21 January 2009 45 was filed by the
Office of the Solicitor General as counsel.
OUR RULING
The applicable provision of the NIRC, as amended, is Section 112, 46 which
provides:
chanRoblesvirtualLawlibrary
SEC 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-
registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund
TAX CASES
of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
(B) Capital Goods. A VAT-registered person may apply
for the issuance of a tax credit certificate or refund of
input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not
been applied against output taxes. The application may be
made only within two (2) years after the close of the
taxable quarter when the importation or purchase was
made.
(C) Cancellation of VAT Registration. A person whose
registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of
status under Section 106(C) of this Code may, within two
(2) years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax
which may be used in payment of his other internal
revenue taxes.
(D) Period within which Refund or Tax Credit of Input Taxes
38
 shall be Made. In proper cases, the Commissioner shall
grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120)
days from the date of submission of complete
documents in support of the application filed in
accordance with [Subsections] (A) [and (B)] hereof.
In case of full or partial denial of the claim for tax refund or
tax credit, or the failure on the part of the Commissioner
to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court
of Tax Appeals.
(E) Manner of Giving Refund. Refunds shall be made
upon warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the
provisions of the Administrative Code of 1987 to the
contrary notwithstanding: Provided, That refunds under
this paragraph shall be subject to post audit by the
Commission on Audit. (Emphases supplied)
Under the foregoing provision, the administrative claim of a VAT-registered
person for the issuance by respondent of tax credit certificates or the refund
of input taxes paid on zero-rated sales or capital goods imported may be
made within two years after the close of the taxable quarter when the sale
or importation/purchase was made.
In the case of petitioner, its administrative claim for the 2nd quarter of the
year 2001 was filed on 16 October 2001, well within the two-year period
provided by law. The same is true with regard to the administrative claims for
the 3rd and the 4th quarters of 2001, both of which were filed on 4 September
TAX CASES
2002.
Upon the filing of an administrative claim, respondent is given a period of
120 days within which to (1) grant a refund or issue the tax credit certificate
for creditable input taxes; or (2) make a full or partial denial of the claim for a
tax refund or tax credit. Failure on the part of respondent to act on the
application within the 120-day period shall be deemed a denial.
Note that the 120-day period begins to run from the date of submission of
complete documents supporting the administrative claim. If there is no
evidence showing that the taxpayer was required to submit 47 - or actually
submitted - additional documents after the filing of the administrative claim,
it is presumed that the complete documents accompanied the claim when it
was filed.48
Considering that there is no evidence in this case showing that petitioner
made later submissions of documents in support of its administrative claims,
the 120-day period within which respondent is allowed to act on the claims
shall be reckoned from 16 October 2001 and 4 September 2002.
Whether respondent rules in favor of or against the taxpayer - or does not
act at all on the administrative claim - within the period of 120 days from the
submission of complete documents, the taxpayer may resort to a judicial
claim before the CTA.
Section 7 of Republic Act No. (R.A.) 1125 (An Act Creating the Court of Tax
Appeals), as amended, provides:
SECTION 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
39
National Internal Revenue Code or other laws administered by the Bureau of 1 30
Internal Revenue; 4 September 2 January
4th February December 332 days
2002 2003
2003 2003
2. Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relations thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of The judicial claim for the 4th quarter of 2001, while filed within the period 10
Internal Revenue, where the National Internal Revenue Code provides a December 2003 up to 6 October 2010, cannot find solace in BIR Ruling No.
specific period of action, in which case the inaction shall be deemed a DA-489-03. The general interpretative rule allowed the premature filing of
denial; (Emphasis supplied) judicial claims by providing 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
The judicial claim shall be filed within a period of 30 days after the receipt of way of Petition for Review." 52 The rule certainly did not allow the filing of a
respondent's decision or ruling or after the expiration of the 120-day period, judicial claim long after the expiration of the 120+30 day period. 53
whichever is sooner.49
As things stood, the CTA had no jurisdiction to act upon, take cognizance of,
Aside from a specific exception to the mandatory and jurisdictional nature of and render judgment upon the petitions for review filed by petitioner. For
having been rendered without jurisdiction, the decision of the CTA Second
the periods provided by the law,50 any claim filed in a period less than or
Division in this case - and consequently, the decision of the CTA En Banc - is a
beyond the 120+30 days provided by the NIRC is outside the jurisdiction of
total nullity that creates no rights and produces no effect. 54
the CTA.51
As shown by the table below, the judicial claims of petitioner were filed
Section 19 of R.A. 1125 provides that parties adversely affected by a decision
beyond the 120+30 day period:
or ruling of the CTA En Banc may file before us a verified petition for review
on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure. In this
chanRoblesvirtualLawlibrary
case, the assailed CTA rulings are not decisions in contemplation of law 55 that
End of End of can serve as the subject of this Court's exercise of its power of review.
Taxable Number
Administrative the 120- the 30- Judicial
Quarter of Days
Claim Filed day day Claim Filed Given the foregoing, there is no reason for this Court to rule upon the issues
of 2001 Late
Period Period raised by petitioner in the instant petition.chanrobleslaw
13
15 March 30 July WHEREFORE, this Court hereby SETS ASIDE the assailed Court of Tax Appeals
2nd 16 October 2001 February 502 days
2002 2003 En Banc Decision dated 18 January 2008 and Resolution dated 30 April 2008
2002
in CTA EB No. 298; and the Court of Tax Appeals Second Division Decision
1 dated 5 February 2007 and Resolution dated 29 June 2007 in CTA CaseNos.
4 September 2 January 20 October
3rd February 261 days 6741, 6800 & 6841.
2002 2003 2003
2003

TAX CASES 40
The judicial claims filed by petitioner with the Court of Tax Appeals for the
refund of the input value-added tax paid on imported capital goods for the
2nd, 3rd and 4th quarters of 2001 are DISMISSED for lack of jurisdiction.
SO ORDERED.cralawlawlibrary
by the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 844. The
CTA EB affirmed the Decision dated 6 July 2011 4 and Resolution5 dated 13
October 2011 of the Court of Tax Appeals' First Division (CTA 1 st Division) in
CTA Case No. 7880.
In its 6 July 2011 Decision, the CTA 1 st Division ruled in favor of the Bureau of
Internal Revenue (BIR), Commissioner of Internal Revenue (CIR), and the
Regional Director of Revenue Region No. 6 (collectively, respondents) and
against petitioner Philippine Amusement and Gaming Corporation (PAGCOR).
The CTA 1st Division dismissed PAGCOR's petition for review seeking the
cancellation of the Final Assessment Notice (FAN) dated 14 January 2008
which respondents issued for alleged deficiency fringe benefits tax in 2004.
The CTA 1st Division ruled that PAGCOR's petition was filed out of time.

The Facts

The CTA 1st Division recited the facts as follows:chanRoblesvirtualLawlibrary

G.R. No. 208731, January 27, 2016 [PAGCOR] claims that it is a duly organized government-
owned and controlled corporation existing under and by
PHILIPPINE AMUSEMENT AND GAMING virtue of Presidential Decree No. 1869, as amended, with
CORPORATION, Petitioner, v. BUREAU OF INTERNAL business address at the 6th Floor, Hyatt Hotel and Casino,
REVENUE, COMMISSIONER OF INTERNAL REVENUE, Pedro Gil corner M.H. Del Pilar Streets, Malate, Manila. It
AND REGIONAL DIRECTOR, REVENUE REGION NO. was created to regulate, establish and operate clubs and
casinos for amusement and recreation, including sports
6, Respondents.
gaming pools, and such other forms of amusement and
recreation.
DECISION
Respondent [CIR], on the other hand, is the Head of the
CARPIO, J.: [BIR] with authority, among others, to resolve protests on
assessments issued by her office or her authorized
The Case representatives. She holds office at the BIR National Office
Building, Agham Road, Diliman, Quezon City.
G.R. No. 208731 is a petition for review 1 assailing the Decision2 promulgated
on 18 February 2013 as well as the Resolution 3 promulgated on 23 July 2013 [PAGCOR] provides a car plan program to its qualified

TAX CASES 41
 officers under which sixty percent (60%) of the car plan
availment is shouldered by PAGCOR and the remaining
forty percent (40%) for the account of the officer, payable
in five (5) years.
On October 10, 2007, [PAGCOR] received a Post Reporting
Notice dated September 28, 2007 from BIR Regional
Director Alfredo Misajon [RD Misajon] of Revenue Region
6, Revenue District No. 33, for an informal conference to
discuss the result of its investigation on [PAGCOR's] internal
revenue taxes in 2004. The Post Reporting Notice shows
that [PAGCOR] has deficiencies on Value Added Tax (VAT),
Withholding Tax on VAT (WTV), Expanded Withholding Tax
(EWT), and Fringe Benefits Tax (FBT).
Subsequently, the BIR abandoned the claim for deficiency
assessments on VAT, WTV and EWT in the Letter to
[PAGCOR] dated November 23, 2007 in view of the
principles laid down in Commissioner of Internal Revenue
vs. Acesite Hotel Corporation [G.R. No. 147295] exempting
[PAGCOR] and its contractors from VAT. However, the
assessment on deficiency FBT subsists and remains due to
date.
On January 17, 2008, [PAGCOR] received a Final
Assessment Notice [FAN] dated January 14, 2008, with
demand for payment of deficiency FBT for taxable year
2004 in the amount of P48,589,507.65.
On January 24, 2008, [PAGCOR] filed a protest to the FAN
addressed to [RD Misajon] of Revenue Region No. 6 of the
BIR.
On August 14, 2008, [PAGCOR] elevated its protest to
respondent CIR in a Letter dated August 13, 2008, there
being no action taken thereon as of that date.
TAX CASES
Legal Division of Revenue Region No. 6 sustained Revenue
Officer Ma. Elena Llantada on the imposition of FBT against
it based on the provisions of Revenue Regulations (RR) No.
3-98 and that its protest was forwarded to the Assessment
Division for further action.
On November 19, 2008, [PAGCOR] received a letter from
the OIC-Regional Director, Revenue Region No. 6 (Manila),
stating that its letter protest was referred to Revenue
District Office No. 33 for appropriate action.
On March 11, 2009, [PAGCOR] filed the instant Petition for
Review alleging respondents' inaction in its protest on the
disputed deficiency FBT.6ChanRoblesVirtualawlibrary
cralawlawlibrary
The CTA 1st Division's Ruling
The CTA 1st Division issued the assailed decision dated 6 July 2011 and ruled
in favor of respondents. The CTA 1st Division ruled that RD Misajon's issuance
of the FAN was a valid delegation of authority, and PAGCOR's administrative
protest was validly and seasonably filed on 24 January 2008. The petition for
review filed with the CTA 1st Division, however, was filed out of time. The CTA
1st Division stated:chanRoblesvirtualLawlibrary
As earlier stated, [PAGCOR] timely filed its administrative
protest on January 24, 2008. In accordance with Section
228 of the Tax Code, respondent CIR or her duly authorized
representative had 180 days or until July 22, 2008 to act on
the protest. After the expiration of the 180-day period
without action on the protest, as in the instant case, the
taxpayer, specifically [PAGCOR], had 30 days or until August
21, 2008 to assail the non-determination of its protest.
Clearly, the conclusion that the instant Petition for Review
42
 was filed beyond the reglementary period for appeal on
March 11, 2009, effectively depriving the Court of
jurisdiction over the petition, is inescapable.
And as provided in Section 228 of the NIRC, the failure of
[PAGCOR] to appeal from an assessment on time rendered
the same final, executory and demandable. Consequently,
[PAGCOR] is already precluded from disputing the
correctness of the assessment. The failure to comply with
the 30-day statutory period would bar the appeal and
deprive the Court of Tax Appeals of its jurisdiction to
entertain and determine the correctness of the
assessment.
Even assuming in gratia argumenti that the [CTA] has
jurisdiction over the case as claimed by [PAGCOR], the
petition must still fail on the ground that [PAGCOR] is not
exempt from payment of the assessed FBT under its
charter.
xxxx
Since the car plan provided by [PAGCOR] partakes of the
nature of a personal expense attributable to its employees,
it shall be treated as taxable fringe benefit of its
employees, whether or not the same is duly receipted in
the name of the employer. Therefore, [PAGCOR's]
obligation as an agent of the government to withhold and
remit the final tax on the fringe benefit received by its
employees is personal and direct. The government's cause
of action against [PAGCOR] is not for the collection of
income tax, for which [PAGCOR] is exempted, but for the
enforcement of the withholding provision of the 1997
NIRC, compliance of which is imposed on [PAGCOR] as the
withholding agent, and not upon its employees.
Consequently, [PAGCOR's] non-compliance with said
TAX CASES
PAGCOR filed a motion for reconsideration, dated 26 July 2011, of the 6 July
2011 Decision of the CTA 1stDivision. The CIR filed a comment,8 and asked
that PAGCOR be ordered to pay P48,589,507.65 representing deficiency
fringe benefits tax for taxable year 2004 plus 25% surcharge and 20%
delinquency interest from late payment beyond 15 February 2008 until fully
paid, pursuant to Sections 248 and 249 of the National Internal Revenue
Code (NIRC) of 1997.
In the meantime, the CIR sent PAGCOR a letter dated 18 July 2011. 9 The
letter stated that PAGCOR should be subjected to the issuance of a Warrant
of Distraint and/or Levy and a Warrant of Garnishment because of its failure
to pay its outstanding delinquent account in the amount of P46,589,507.65,
which included surcharge and interest. Settlement of the tax liability is
necessary to obviate the issuance of a Warrant of Distraint and/or Levy and a
Warrant of Garnishment.
Subsequently, PAGCOR filed a reply dated 28 September 2011 to ask that an
order be issued directing respondents to hold in abeyance the execution of
the Warrant of Distraint and/or Levy and the Warrant of Garnishment, as
well as to suspend the collection of tax insofar as the 2004 assessment is
concerned. PAGCOR also asked for exemption from filing a bond or
depositing the amount claimed by respondents.10
PAGCOR filed a petition for review with urgent motion to suspend tax
collection11 with the CTA En Banc on 23 November 2011.
The CTA En Banc's Ruling
The CTA En Bane dismissed PAGCOR's petition for review and affirmed the
CTA 1st Division's Decision and Resolution. The CTA En Bane ruled that the
protest filed before the RD is a valid protest; hence, it was superfluous for
PAGCOR to raise the protest before the CIR. When PAGCOR filed its
administrative protest on 24 January 2008, the CIR or her duly authorized
representative had 180 days or until 22 July 2008 to act on the protest. After
43
the expiration of the 180 days, PAGCOR had 30 days or until 21 August 2008
to assail before the CTA the non-determination of its protest.
Moreover, Section 223 of the NIRC merely suspends the period within which
the BIR can make assessments on a certain taxpayer. A taxpayer's request for
reinvestigation only happens upon the BIR's issuance of an assessment
within the three-year prescriptive period. The reinvestigation of the
assessment suspends the prescriptive period for either a revised assessment
or a retained assessment.
PAGCOR filed its Motion for Reconsideration on 22 March 2013, while
respondents filed their Comment/Opposition on 3 June 2013.
The CTA En Banc denied PAGCOR's motion in a Resolution 12 dated 23 July
2013.
PAGCOR filed the present petition for review on 14 October 2013.
Respondents filed their comment through the Office of the Solicitor General
on 20 March 2014. On 23 April 2014, this Court required PAGCOR to file a
reply to the comment within 10 days from notice. This period expired on 26
June 2014. On 15 September 2014, this Court issued another resolution
denying PAGCOR's petition for failure to comply with its lawful order without
any valid cause. On 31 October 2014, PAGCOR filed a motion for
reconsideration of the Court's 15 September 2014 Resolution. We granted
PAGCOR's motion in a Resolution dated 10 December 2014.
The Issues
PAGCOR presented the following issues in its
petition:chanRoblesvirtualLawlibrary
1. Whether or not the CTA En Bane gravely erred in
affirming the CTA 1st Division's Decision
TAX CASES
dismissing the Petition for Review for having been
filed out of time.
2. Whether or not the CTA En Bane seriously erred
when it affirmed the CTA 1st Division's failure to
decide the case on substantive matters, i.e., the
full import of PAGCOR's tax exemption under its
charter which necessarily includes its exemption
from the fringe benefits tax (FBT).
2.1 Assuming that PAGCOR is not exempt from the
FBT, whether or not the car plan extended to its
officers inured to its benefit and it is required or
necessary in the conduct of its business.
2.2 Assuming that PAGCOR is subject to the
alleged deficiency FBT, whether or not it is only
liable for the basic tax, i.e., excluding surcharge
and interest.13
cralawlawlibrary
In their Comment,14 respondents argue that the CTA properly dismissed
PAGCOR's petition because it was filed beyond the periods provided by law.
The Court's Ruling
The petition has no merit. The CTA En Bane and 1 st Division were correct in
dismissing PAGCOR's petition. However, as we shall explain below, the
dismissal should be on the ground of premature, rather than late, filing.
Timeliness of PAGCOR's Petition before the CTA
The CTA 1st Division and CTA En Bane both established that PAGCOR received
44
a FAN on 17 January 2008, filed its protest to the FAN addressed to RD
Misajon on 24 January 2008, filed yet another protest addressed to the CIR
on 14 August 2008, and then filed a petition before the CTA on 11 March
2009. There was no action on PAGCOR's protests filed on 24 January 2008
and 14 August 2008. PAGCOR would like this Court to rule that its protest
before the CIR starts a new period from which to determine the last day to
file its petition before the CTA.
The CIR, on the other hand, denied PAGCOR's claims of exemption with the
issuance of its 18 July 2011 letter. The letter asked PAGCOR to settle its
obligation of P46,589,507.65, which consisted of tax, surcharge and interest.
PAGCOR's failure to settle its obligation would result in the issuance of a
Warrant of Distraint and/or Levy and a Warrant of Garnishment.
The relevant portions of Section 228 of the NIRC of 1997
provide:chanRoblesvirtualLawlibrary
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: x x x.
xxxx
Within a period to be prescribed by implementing rules
and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall
issue an assessment based on his findings.
Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such
form and manner as may be prescribed by implementing
rules and regulations.
TAX CASES
Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty (180)-
day period; otherwise, the decision shall become final,
executory and demandable.
cralawlawlibrary
Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228
above, provides:chanRoblesvirtualLawlibrary
3.1.5. Disputed Assessment. - The taxpayer or his duly
authorized representative may protest administratively
against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of
receipt thereof, x x x.
xxxx
If the taxpayer fails to file a valid protest against the formal
letter of demand and assessment notice within thirty (30)
days from date of receipt thereof, the assessment shall
become final, executory and demandable.
If the protest is denied, in whole or in part, by the
Commissioner, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from the date of receipt of
the said decision, otherwise, the assessment shall become
45
 final, executory and demandable.
In general, if the protest is denied, in whole or in part, by
the Commissioner or his duly authorized representative,
the taxpayer may appeal to the Court of Tax Appeals within
thirty (30) days from date of receipt of the said decision,
otherwise, the assessment shall become final executory
and demandable: Provided, however, that if the taxpayer
elevates his protest to the Commissioner within thirty (30)
days from date of receipt of the final decision of the
Commissioner's duly authorized representative, the latter's
decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by
the Commissioner.
If the Commissioner or his duly authorized representative
fails to act on the taxpayer's protest within one hundred
eighty (180) days from date of submission, by the taxpayer,
of the required documents in support of his protest, the
taxpayer may appeal to the Court of Tax Appeals within
thirty (30) days from the lapse of the said 180-day period,
otherwise the assessment shall become final, executory
and demandable.cralawlawlibrary
Following the verba legis doctrine, the law must be applied exactly as
worded since it is clear, plain, and unequivocal.15 A textual reading of Section
3.1.5 gives a protesting taxpayer like PAGCOR only three
options:chanRoblesvirtualLawlibrary
1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days from
receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days from
TAX CASES
receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest
within 180 days from submission of the required supporting documents,
then the taxpayer may appeal to the CTA within 30 days from the lapse of
the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's
authorized representative may be appealed to the CIR or the CTA. A whole or
partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's
authorized representative's failure to act may be appealed to the CTA. There
is no mention of an appeal to the CIR from the failure to act by the CIR's
authorized representative.
PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR
made separate andsuccessive filings before the RD and the CIR before it filed
its petition with the CTA. We shall illustrate below how PAGCOR failed to
follow the clear directive of Section 228 and Section 3.1.5.
PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day
period prescribed in Section 228 and Section 3.1.5. The RD did not release
any decision on PAGCOR's protest; thus, PAGCOR was unable to make use of
the first option as described above to justify an appeal to the CTA. The effect
of the lack of decision from the RD is the same, whether we consider
PAGCOR's April 2008 submission of documents16 or not.
Under the third option described above, even if we grant leeway to PAGCOR
and consider its unspecified April 2008 submission, PAGCOR still should have
waited for the RD's decision until 27 October 2008, or 180 days from 30 April
2008. PAGCOR then had 30 days from 27 October 2008, or until 26
November 2008, to file its petition before the CTA. PAGCOR, however, did
not make use of the third option. PAGCOR did not file a petition before the
CTA on or before 26 November 2008.
Under the second option, PAGCOR ought to have waited for the RD's whole
46
or partial denial of its protest before it filed an appeal before the CIR. or accrual of a cause of action while the case is pending.
PAGCOR rendered the second option moot when it formulated its own rule Such an action is prematurely brought and is, therefore, a
and chose to ignore the clear text of Section 3.1.5. PAGCOR "elevated an groundless suit, which should be dismissed by the court
appeal" to the CIR on 13 August 2008 without any decision from the RD, upon proper motion seasonably filed by the defendant.
then filed a petition before the CTA on 11 March 2009. A textual reading of The underlying reason for this rule is that a person should
Section 228 and Section 3.1.5 will readily show that neither Section 228 nor not be summoned before the public tribunals to answer for
Section 3.1.5 provides for the remedy of an appeal to the CIR in case of the complaints which are [premature]. As this Court eloquently
RD's failure to act. The third option states that the remedy for failure to act said in Surigao Mine Exploration Co., Inc. v. Harris:
by the CIR or his authorized representative is to file an appeal to the CTA
within 30 days after the lapse of 180 days from the submission of the It is a rule of law to which there is,
required supporting documents. PAGCOR clearly failed to do this. perhaps, no exception, either at law or in
equity, that to recover at all there must
If we consider, for the sake of argument, PAGCOR's submission before the be some cause of action at the
CIR as a separate protest and not as an appeal, then such protest should be commencement of the suit. As observed
denied for having been filed out of time. PAGCOR only had 30 days from 17 by counsel for appellees, there are
January 2008 within which to file its protest. This period ended on 16 reasons of public policy why there should
February 2008. PAGCOR filed its submission before the CIR on 13 August be no needless haste in bringing up
2008. litigation, and why people who are in no
default and against whom there is yet no
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed cause of action should not be summoned
to make use of any of the three options described above. A petition before before the public tribunals to answer
the CTA may only be made after a whole or partial denial of the protest by complaints which are groundless. We say
the CIR or the CIR's authorized representative. When PAGCOR filed its groundless because if the action is
petition before the CTA on 11 March 2009, there was still no denial of [premature], it should not be
PAGCOR's protest by either the RD or the CIR. Therefore, under the first entertained, and an action prematurely
option, PAGCOR's petition before the CTA had no cause of action because it brought is a groundless suit.
was prematurely filed. The CIR made an unequivocal denial of PAGCOR's
protest only on 18 July 2011, when the CIR sought to collect from PAGCOR It is true that an amended complaint and
the amount of P46,589,507.65. The CIR's denial further puts PAGCOR in a the answer thereto take the place of the
bind, because it can no longer amend its petition before the originals which are thereby regarded as
CTA.17chanroblesvirtuallawlibrary abandoned (Reynes vs. Compania
General de Tabacos [1912], 21 Phil.
It thus follows that a complaint whose cause of action has 416; Ruyman and Farris vs. Director of
not yet accrued cannot be cured or remedied by an Lands [1916], 34 Phil. 428) and that "the
amended or supplemental pleading alleging the existence complaint and answer having been

TAX CASES 47
 superseded by the amended complaint permissible. (Italics
and answer thereto, and the answer to ours)18ChanRoblesVirtualawlibrary
the original complaint not having been cralawlawlibrary
presented in evidence as an exhibit, the
trial court was not authorized to take it PAGCOR has clearly failed to comply with the requisites in disputing an
into account." (Bastida vs. Menzi & assessment as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's
Co. [1933], 58 Phil. 188.) But in none of lapses in procedure have made the BIR's assessment final, executory and
these cases or in any other case have we demandable, thus obviating the need to further discuss the issue of the
held that if a right of action did not exist propriety of imposition of fringe benefits tax.
when the original complaint was filed,
one could be created by filing an WHEREFORE, we DENY the petition. The Decision promulgated on 18
amended complaint. In some February 2013 and the Resolution promulgated on 23 July 2013 by the Court
jurisdictions in the United States what of Tax Appeals - En Bane in CTA EB No. 844 are AFFIRMEDwith
was termed an "imperfect cause of the MODIFICATION that the denial of Philippine Amusement and Gaming
action" could be perfected by suitable Corporation's petition is due to lack of jurisdiction because of premature
amendment (Brown vs. Galena Mining & filing. We REMAND the case to the Court of Tax Appeals for the
Smelting Co., 32 Kan., 528; Hooper vs. determination of the final amount to be paid by PAGCOR after the imposition
City of Atlanta, 26 Ga. App., 221) and this of surcharge and delinquency interest.
is virtually permitted in Banzon and
Rosauro vs. Sellner ([1933], 58 Phil. SO ORDERED.chanroblesvirtuallawlibrary
453); Asiatic Potroleum [sic] Co. vs.
Veloso ([1935], 62 Phil. 683); and
recently in Ramos vs. Gibbon (38 Off.
Gaz. 241). That, however, which is no
cause of action whatsoever cannot by
amendment or supplemental pleading be
converted into a cause of action: Nihil de
re accrescit ei qui nihil in re quandojus
accresceret habet.

We are therefore of the opinion, and so

hold, that unless the plaintiff has a valid
and subsisting cause of action at the time
his action is commenced, the defect
cannot be cured or remedied by the
acquisition or accrual of one while the

TAX CASES 48

January 20, 2016
G.R. No. 180434
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
MIRANT PAGBILAO CORPORATION (now TeaM Energy
Corporation),* Respondent.
DECISION
REYES, J.:
This appeal by Petition for Review on Certiorari1 seeks to
reverse and set aside the Decision2 dated September 11, 2007
and Resolution3 dated November 7, 2007 of the Court of Tax
Appeals (CTA) en banc in E.B. Case Nos. 216 and 225,
affirming the Decision4 dated August 31, 2005 of the CTA
Second Division in CTA Case No. 6417, ordering petitioner
Commissioner of Internal Revenue (CIR) to issue a refund or a
tax credit certificate in the amount of Pl18,756,640.97 in favor
of Mirant Pagbilao Corporation5 (MPC).
The Facts
MPC is a duly-registered Philippine corporation located at
Pagbilao Grande Island in Pagbilao, Quezon, and primarily
engaged in the generation and distribution of electricity to the
TAX CASES
National Power Corporation (NAPOCOR) under a Build,
Operate, Transfer Scheme. As such, it is registered with the
Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT)
taxpayer in accordance with Section 236 of the National Internal
Revenue Code (NIRC) of 1997, with Taxpayer Identification No.
0001-726-870, and registered under RDO Control No. 96-600-
002498.6
On November 26, 1999, the BIR approved MPCs application
for Effective Zero-Rating for the construction and operation of
its power plant.7
For taxable year 2000, the quarterly VAT returns filed by MPC
on April 25, 2000, July 25, 2000, October 24, 2000, and August
27, 2001 showed an excess input VAT paid on domestic
purchases of goods, services and importation of goods in the
amount of 127,140,331.85.8
On March 11, 2002, MPC filed before the BIR an administrative
claim for refund of its input VAT covering the taxable year of
2000, in accordance with Section 112, subsections (A) and (B)
of the NIRC. Thereafter, or on March 26, 2002, fearing that the
period for filing a judicial claim for refund was about to expire,
MPC proceeded to file a petition for review before the CTA,
docketed as CTA Case No. 6417,9 without waiting for the CIRs
action on the administrative claim.
On August 31, 2005, the CTA Second Division rendered a
Decision10 partially granting MPCs claim for refund, and
ordering the CIR to grant a refund or a tax credit certificate, but
only in the reduced amount of 118,749,001.55, representing
49
MPCs unutilized input VAT incurred for the second, third and
fourth quarters of taxable year 2000.
The CTA Second Division held that by virtue of NAPOCORs
exemption from direct and indirect taxes as provided for in
Section 1311 of Republic Act No. 6395,12 MPCs sale of services
to NAPOCOR is subject to VAT at 0% rate. The Secretary of
Finance even issued a Memorandum dated January 28, 1998,
addressed to the CIR, espousing the Courts ruling that
purchases by NAPOCOR of electricity from independent power
producers are subject to VAT at 0% rate, to wit:
As explained by the Supreme Court, the rationale for the
[NAPOCORs] tax exemption is to ensure cheaper power. If the
BIRs recent view is to be implemented, the VAT being an
indirect tax, may be passed on by the seller of electricity to
[NAPOCOR]. Effectively, this means that electricity will be sold
at a higher rate to the consumers. Estimates show that a 10%
VAT on electricity which is purchased by [NAPOCOR] from its
independent power producers will increase power cost by about
P1.30 billion a year. The effect on the consumer is an additional
charge of P0.59 per kilowatt-hour. The recognition of
[NAPOCORs] broad privilege will inure to the benefit of the
Filipino consumer.
In view of the foregoing and using the power of review granted
to the Secretary of Finance under Section 4 of Republic Act No.
8424, the DOF upholds the ruling of the Supreme Court that the
[NAPOCOR] is exempt under its charter and subsequent laws
from all direct and indirect taxes on its purchases of petroleum
products and electricity. Thus, the purchases by [NAPOCOR] of
TAX CASES
electricity from independent power producers are subject to VAT
at zero-rate.13
In arriving at the reduced amount of 118,749,001.55, the CTA
Second Division found out that: (a) 2,116,851.79 input taxes
claimed should be disallowed because MPC failed to validate by
VAT official receipts and invoices the excess payment of input
taxes; (b) 6,274,478.51 of input taxes was not properly
documented; and (c) the input taxes of 127,140,331.85 for the
year 2000 were already deducted by MPC from the total
available input VAT as of April 25, 2002 as evidenced by the
2002 first quarterly VAT return. Thus, the input taxes sought to
be refunded were not applied by MPC against its output VAT
liability as of April 25, 2002 and can no longer be used as credit
against its future output VAT liability.14
Undaunted, MPC filed a motion for partial reconsideration and
new trial in view of the additional amount it sought to be
approved.
In an Amended Decision dated August 30, 2006, the CTA
Second Division found that MPC is entitled to a modified
amount of 118,756,640.97 input VAT, upon allowing the
amount of 7,639.42 in addition to the VAT input tax. However,
MPCs motion for new trial was denied. Dissatisfied, MPC
elevated the matter to the CTA en banc, particularly in E.B. Case
No. 216.15
Meanwhile, the CIR filed a motion for reconsideration of the
amended decision. However, on November 13, 2006, the CTA
Second Division issued a Resolution denying the motion.
50
Thereafter, the CIR filed a petition for review before the CTA en
banc, docketed as E.B. Case No. 225.16
In a Decision17 dated September 11, 2007, the CTA en
banc affirmed in toto the assailed amended decision and
resolved the issues presented in E.B. Case Nos. 216 and 225.
In sustaining the decision of the CTA Second Division in E.B.
Case No. 216, the CTA en banc ruled that:
(a) MPCs claim for the refund of 810,047.31 is disallowed for
lack of supporting documents. Tax refunds, being in the nature
of tax exemptions, are construed in strictissimi juris against the
claimant. Thus, a mere summary list submitted by MPC is
considered immaterial to prove the amount of its claimed
unutilized input taxes.18
(b) MPCs claim for the refund of 836,768.00 as input taxes is
denied due to lack of proof of payment. As a rule, "input tax on
importations should be supported with Import Entry and Internal
Revenue Declarations (IEIRDs) duly validated for actual
payment of input tax" and that other documents may be adduced
to determine its payment.19 Here, the IEIRDs presented by MPC
did not show payment of the input taxes and the amounts
indicated therein differed from the bank debit advice. More so,
the bank debit advice did not properly describe the mode of
payment of the input tax which made it difficult to determine
which payee, and to what kind of payment did the bank debit
advices pertain to.20
TAX CASES
(c) The denial of MPCs motion for new trial was correct since it
was pointless to require MPC to submit additional documents in
support of the unutilized input tax of 3,310,109.20, in view of
MPCs admission that the VAT official receipts and invoices
were not even pre-marked and proffered before the court.
Regrettably, without such documents, the CTA could not in any
way properly verify the correctness of the certified public
accountants conclusion.21
As regards E.B. Case No. 225, the CTA en banc upheld the
ruling of the CTA Second Division that VAT at 0% rate may be
imposed on the sale of services of MPC to NAPOCOR on the
basis of NAPOCORs exemption from direct and indirect
taxes.22
Disagreeing with the CTA en bancs decision, both parties filed
their respective motions for reconsideration, which were denied
in the CTA en banc Resolution23 dated November 7, 2007.
Feeling aggrieved by the adverse ruling of the CTA en banc, the
CIR now seeks recourse to the Court via a petition for review
on certiorari.
The Issues
The CIR raises in the petition the sole issue of whether or not the
CTA erred in granting MPCs claim for refund of its excess input
VAT payments on domestic purchases of goods, services and
importation of goods attributable to zero-rated sales for taxable
year 2000.24
51
The Court, however, points out that given the factual
antecedents, the case also raises a jurisdictional issue inasmuch
as MPC instituted the CTA action 15 days from the filing of its
administrative claim for refund and without waiting for the
CIRs action thereon. Thus, towards a full and proper resolution
of the issue on the tax courts action on MPCs case, the Court
finds it necessary to likewise resolve the issue of whether or not
the CTA had jurisdiction to entertain MPCs judicial claim.
Ruling of the Court
The Court shall first address the issue on jurisdiction. While the
matter was not raised by the CIR in its petition, it is settled that a
jurisdictional issue may be invoked by either party or even the
Court motu proprio, and may be raised at any stage of the
proceedings, even on appeal. Thus, the Court emphasized
in Sales, et al. v. Barro:25
It is well-settled that a courts jurisdiction may be raised at any
stage of the proceedings, even on appeal. The reason is that
jurisdiction is conferred by law, and lack of it affects the very
authority of the court to take cognizance of and to render
judgment on the action. x x x [E]ven if [a party] did not raise the
issue of jurisdiction, the reviewing court is not precluded from
ruling that it has no jurisdiction over the case. In this sense,
dismissal for lack of jurisdiction may even be ordered by the
court motu proprio.26 (Citations omitted)
In the present dispute, compliance with the requirements on
administrative claims with the CIR, which are to precede judicial
actions with the CTA, indubitably impinge on the tax courts
TAX CASES
jurisdiction. In CIR v. Aichi Forging Company of Asia, Inc., 27 the
Court ruled that the premature filing of a claim for refund or
credit of input VAT before the CTA warrants a dismissal,
inasmuch as no jurisdiction is acquired by the tax
court.28 Pertinent thereto are the provisions of Section 112 of the
NIRC at the time of MPCs filing of the administrative and
judicial claims, and which prescribe the periods within which to
file and resolve such claims, to wit:
Sec. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales x x x.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes
shall be Made. In proper cases, the Commissioner shall grant
a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on
the application within the period prescribed above, the taxpayer
52
affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the
unacted claim with the [CTA].
xxxx
Contrary to the specified periods, specifically those that are
provided in the second paragraph of Section 112(D), MPC filed
its petition for review with the CTA on March 26, 2002, or a
mere 15 days after it filed an administrative claim for refund
with the CIR on March 11, 2002. It then did not wait for the
lapse of the 120-day period expressly provided for by law within
which the CIR shall grant or deny the application for refund. The
Courts pronouncement in CIR v. San Roque Power
Corporation29 is instructive on the effect of such failure to
comply with the 120-day waiting period, to wit:
1. Application of the 120+30-Day Periods
xxxx
It is indisputable that compliance with the 120-day waiting
period is mandatory and jurisdictional. The waiting period,
originally fixed at 60 days only, was part of the provisions of the
first VAT law, Executive Order No. 273, which took effect on 1
January 1988. The waiting period was extended to 120 days
effective 1 January 1998 under RA 8424 or the Tax Reform Act
of 1997. Thus, the waiting period has been in our statute
books for more than fifteen (15) years before San Roque filed
its judicial claim.
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Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that
the CTA does not acquire jurisdiction over the taxpayers
petition. Philippine jurisprudence is replete with cases upholding
and reiterating these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is
to review on appeal "decisions of the [CIR] in cases involving x
x x refunds of internal revenue taxes." When a taxpayer
prematurely files a judicial claim for tax refund or credit with the
CTA without waiting for the decision of the Commissioner, there
is no "decision" of the Commissioner to review and thus the
CTA as a court of special jurisdiction has no jurisdiction over the
appeal. The charter of the CTA also expressly provides that if the
Commissioner fails to decide within "a specific period"
required by law, such "inaction shall be deemed a denial" of
the application for tax refund or credit. It is the Commissioners
decision, or inaction "deemed a denial," that the taxpayer can
take to the CTA for review. Without a decision or an "inaction x
x x deemed a denial" of the Commissioner, the CTA has no
jurisdiction over a petition for review. 30(Citations omitted,
emphasis in the original and underscoring ours)
The Court explained further:
The old rule that the taxpayer may file the judicial claim,
without waiting for the Commissioners decision if the two-year
prescriptive period is about to expire, cannot apply because that
rule was adopted before the enactment of the 30-day period. The
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30-day period was adopted precisely to do away with the old
rule, so that under the VAT System the taxpayer will always
have 30 days to file the judicial claim even if the
Commissioner acts only on the 120th day, or does not act at
all during the 120-day period. With the 30-day period always
available to the taxpayer, the taxpayer can no longer file a
judicial claim for refund or credit of input VAT without waiting
for the Commissioner to decide until the expiration of the 120-
day period.
To repeat, a claim for tax refund or credit, like a claim for tax
exemption, is construed strictly against the taxpayer. One of the
conditions for a judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day mandatory and
jurisdictional periods. Thus, strict compliance with the 120+30
day periods is necessary for such a claim to prosper, whether
before, during or after the effectivity of the Atlas doctrine,
except for the period from the issuance of BIR Ruling No. DA-
489-03 on 10 December 2003 to 6 October 2010 when
the Aichi doctrine was adopted, which again reinstated the
120+30 day periods as mandatory and jurisdictional. 31 (Citations
omitted and emphasis in the original)
The cited exception to the general rule, which came as a result of
the issuance of BIR Ruling No. DA-489-03, does not apply to
MPCs case as its administrative and judicial claims were both
filed in March 2002.
The doctrine laid down in San Roque was reiterated in
subsequent cases. In CIR v. Aichi Forging Company of Asia,
Inc.,32 the Court cited the general rule that parties must observe
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the mandatory 120-day waiting period to give the CIR an
opportunity to act on administrative claims; otherwise, their
judicial claims are prematurely filed.33 In Team Energy
Corporation (formerly MPC) v. CIR,34 the Court again
emphasized the rule stating that "the 120-day period is crucial in
filing an appeal with the CTA." 35 "[T]he 120-day period is
mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the
expiration of the 120-day period."36
Clearly, MPC's failure to observe the mandatory 120-day period
under the law was fatal to its immediate filing of a judicial claim
before the CTA. It rendered the filing of the CTA petition
premature, and barred the tax court from acquiring jurisdiction
over the same. Thus, the dismissal of the petition is in order.
"[T]ax refunds or tax credits - just like tax exemptions - are
strictly construed against taxpayers, the latter having the burden
to prove strict compliance with the conditions for the grant of
the tax refund or credit."37
With the CTA being barren of jurisdiction to entertain MPC's
petition, the Court finds it unnecessary, even inappropriate, to
still discuss the main issue of MPC's entitlement to the disputed
tax refund. The petition filed by MPC with the CT A instead
warrants a dismissal. It is settled that "a void judgment for want
of jurisdiction is no judgment at all."38
WHEREFORE, the DeCision dated September 11, 2007 and
Resolution dated November 7, 2007 of the Court of Tax
Appeals en banc in E.B. Case Nos. 216 and 225 are SET
ASIDE, as the CTA Case No. 6417 was prematurely filed, and
54
therefore, the CTA lacked jurisdiction to entertain Mirant
Pagbilao Corporation's judicial claim.

SO ORDERED.

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