Philippine American Life and General Insurance
(PHILAMLIFE) vs Secretary of Finance
G.R. No. 198756
January 13, 2015
Facts:
PHILAMLIFE intended to divest its shares from
PHILAMCARE and was then able to sold it to STI
INVESTMENTS, INC. for an amount based on the
prevailing market rate of the shares via public
bidding. However, the book value of the shares sold
is more than the selling price. When the subject
taxpayer applied for the issuance of tax clearance
certificate and Certificate Authorizing Registration,
they were advised to secure a ruling due to the
potential donor’s tax implication.
In the BIR Ruling, the CIR denied the tax
exemption and held that the subject transaction is
subject to donor’s tax. (Dili nalng nato e detail ngano
subject sa donor’s tax ky tax remedies man ang topic).
Petitioner then appealed the ruling of the
CIR to the Finance Secretary who also confirmed the
ruling of the CIR in its entirety. Petitioner ELEVATED
THE CASE TO THE COURT OF APPEALS.
CA dismissed the case for lack of jurisdiction.
It held that CIR’s ruling was in the exercise of his
power under NIRC to interpret tax laws. Hence, a
petition for review for that matter comes within the
jurisdiction of COURT OF TAX APPEALS and not in CA.
Petitioner’s contention:
1. POWER TO INTERPRET TAX LAWS & DECIDE
TAX CASES (note duha ni ka power under
Section 4)
Power to Interpret tax laws – any adverse decisions of
the CIR is appealable to the Finance Secretary
Power to Decide Tax Cases – CTA has the exclusive
and appellate jurisdiction on reviewing matters in the
exercise of this power by CIR.
Petitioner argued that their case does not
fall in the first paragraph of Section 4 of NIRC (power
to interpret tax laws). Their case does not also fall
under the second paragraph (power to decide tax
cases) because according to RA 1125, this relates only
to customs cases. Hence, there is a gap in the law
because it was not indicated clearly where to elevate
the case on the adverse decision of the Finance
Secretary under the Second paragraph.
This gap, petitioner submits, was remedied
by Bristish American Tabacco v. Camacho wherein the
Court ruled that where what is assailed is the validity
or constitutionality of a law, or a rule or regulation
issued by the administrative agency, the regular
courts have jurisdiction to pass upon the same.
2. APPLICABILITY OF SECTION 100 OF THE NIRC
AND RR 06-2008 AND RMC 25-2011. Commented [WU1]:
Petitioner argued that the transaction
cannot be subjected to donor’s tax because it has no
donative intent nor actual donation. The fact that the
shares are sold in an arm’s length transaction is
enough to prove that there was no donation.
Moreover, they alleged that sale thru public bidding
(as in this case) is not among those included
transactions subject to donor’s tax.
Respondent’s contention:
Even assuming that CTA has no jurisdiction
over the case, petitioner should have appealed the
case to the Office of the President as DOF is not
among the agencies enumerated under Rules of
Court whose decisions are subject to petitioner for
review in regular courts. They also use the
constitutional provision that the president exercises
control over executive departments, bureaus and
offices.
Issue:
1. WON CA has jurisdiction in petitions for review on
the decisions/rulings issued by the finance secretary
in relation to the exercise by the CIR of its POWER TO
DECIDE TAX CASES.
2. WON CTA has jurisdiction in deciding the validity of
the Revenue Regulations and Revenue Memorandum
Circulars issued by the Finance Secretary.
Rule:
 1. No.
Admittedly, there is no provision in law that
expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC
provision is appealable to. However,We find that Sec.
7(a)(1) of RA 1125, as amended, addresses the
seeming gap in the law as it vests the CTA, albeit
impliedly, with jurisdiction over the CA petition as
“other matters”arising under the NIRC or other laws
administered by the BIR. As stated:
Sec. 7. Jurisdiction. - The CTA shall exercise:
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 National Internal Revenue or other laws
administered by the Bureau of Internal Revenue.
(emphasis supplied).
Even though the provision suggests that it
only covers rulings of the Commissioner, We hold that
it is, nonetheless, sufficient enough to include appeals
from the Secretary’s review under Sec. 4 of the NIRC.
2. Yes.
The recent case of City of Manila vs Grecia-
Cuerdo over-rules the British American case depicted
by the petitioner.
City of Manila diametrically opposes British
American Tobacco to the effect that it is now within
the power of the CTA, through its power of certiorari,
to rule on the validity of a particular administrative
rule or regulation so long as it is within its appellate
jurisdiction. Hence, it can now rule not only on the
propriety of an assessment or tax treatment of a
certain transaction, but also on the validity of the
revenue regulation or revenue memorandum circular
on which the said assessment is based.
Guided by the doctrinal teaching in resolving
the case at bar, the fact that the CA petition not only
contested the applicability of Sec. 100 of the NIRC
over the sales transaction but likewise questioned the
validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11
does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioner’s arguments.
Commissioner of Internal Revenue v. Court of Tax
Appeals and Petron Corporation, G.R. No.
207843, July 15, 2015
DOCTRINE: The CTA has no jurisdiction to determine
the validity of a ruling issued by the CIR or the COC in
the exercise of their quasi-legislative powers to
interpret tax laws. The phrase "other matters arising
under this Code," as stated in the second paragraph
of Section 4 of the NIRC, should be understood as
pertaining to those matters directly related to the
preceding phrase "disputed assessments, refunds of
internal revenue taxes, fees or other charges,
penalties imposed in relation thereto". It cannot
extend to evaluating the soundness of the
interpretation of tax laws by the CIR.
FACTS: (Short Version)
Petron imports alkylate as a raw material for the
manufacture of motor gasoline. It claims that its
importation of akylate is exempt from excise tax. A
Customs Memorandum Circular (CMC) was issued
stating that Alkylate is subject to excise tax under
Section 148( e) of the NIRC. CIR then issued
assessment to Petron for deficiency tax. filed before
the CTA a petition for review raising the issue of
whether its importation of alkylate is subject to excise
tax as contemplated under Section 148 (e) of the
NIRC. CIR filed a motion to dismiss on the grounds of
lack of jurisdiction and prematurity. CTA ruled in favor
of Petron, stating that (a) the controversy was not
essentially for the determination of the
constitutionality, legality or validity of a law, rule or
regulation but a question on the propriety or
soundness of the CIR's interpretation of Section 148
(e) of the NIRC which falls within the exclusive
jurisdiction of the CTA under Section 4 thereof,
particularly under the phrase "other matters arising
under [the NIRC]";17 and (b) there are attending
circumstances that exempt the case from the rule on
non-exhaustion of administrative remedies, such as
the great irreparable damage that may be suffered by
Petron from the CIR's final assessment of excise tax
on its importation. CIR is now alleging that the CTA
committed grave abuse of discretion because it does
not have jurisdiction to take cognizance of the case.
(Long Version)
Petron, which is engaged in the manufacture and
marketing of petroleum products, imports alkylate as
a raw material or blending component for the
manufacture of ethanol-blended motor gasoline.For
the period January 2009 to August 2011, as well as for
the month of April 2012, Petron transacted an
aggregate of 22 separate importations for which
petitioner the Commissioner of Internal Revenue
(CIR) issued Authorities to Release Imported Goods
(ATRIGs), categorically stating that Petron's
importation of alkylate is exempt from the payment
of the excise tax. In June 2012, Petron imported
12,802,660 liters of alkylate and paid value-added tax
(VAT) in the total amount of 41,657,533.00 as
evidenced by Import Entry and Internal Revenue
Declaration (IEIRD) No. SN 122406532. Based on the
Final Computation, said importation was subjected by
the Collector of Customs of Port Limay, Bataan, upon
instructions of the Commissioner of Customs (COC),
to excise taxes of P4.35 per liter, or in the aggregate
amount of P55,691,571.00, and consequently, to an
additional VAT of 12% on the imposed excise tax in
the amount of P6,682,989.00.
The imposition of the excise tax was supposedly
premised on Customs Memorandum Circular (CMC)
No. 164-2012 dated July 18, 2012, implementing the
Letter dated June 29, 2012 issued by the CIR, which
states that: [A]lkylate which is a product of distillation
similar to that of naphta, is subject to excise tax under
Section 148( e) of the National Internal Revenue Code
(NIRC) of 1997.
In view of the CIR's assessment, Petron filed before
the CTA a petition for review, docketed as CTA Case
No. 8544, raising the issue of whether its importation
of alkylate as a blending component is subject to
excise tax as contemplated under Section 148 (e) of
the NIRC.
CIR filed a motion to dismiss on the grounds of lack of
jurisdiction and prematurity.
CTA gave due course to Petron's petition, finding
that: (a) the controversy was not essentially for the
determination of the constitutionality, legality or
validity of a law, rule or regulation but a question on
the propriety or soundness of the CIR's interpretation
of Section 148 (e) of the NIRC which falls within the
exclusive jurisdiction of the CTA under Section 4
thereof, particularly under the phrase "other matters
arising under [the NIRC]";17 and (b) there are
attending circumstances that exempt the case from
the rule on non-exhaustion of administrative
remedies, such as the great irreparable damage that
may be suffered by Petron from the CIR's final
assessment of excise tax on its importation. CIR
sought immediate recourse to the Court, through the
instant petition, alleging that the CTA committed
grave abuse of discretion when it assumed authority
to take cognizance of the case despite its lack of
jurisdiction to do so
ISSUE/S: WON CTA had jurisdiction - NO
HELD: NO. The case does not fall within the
jurisdiction of the CTA because the phrase "other
matters arising under this Code," as stated in the
second paragraph of Section 4 of the NIRC, should be
understood as pertaining to those matters directly
related to the preceding phrase "disputed
assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation
thereto". It cannot extend to evaluating the
soundness of the interpretation of tax laws by
the CIR. Moreover, Section 4 of the NIRC confers upon
the CIR both: (a) the power to interpret tax laws in the
exercise of her quasi-legislative function; and (b) the
power to decide tax cases in the exercise of her quasi-
judicial function. It also delineates the jurisdictional
authority to review the validity of the CIR's exercise of
the said powers, thus:
SEC. 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by
the Secretary of Finance. The power to decide
disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under this
Code or other laws or portions thereof administered
by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
The CTA is a court of special jurisdiction, with power
to review by appeal decisions involving tax disputes
rendered by either the CIR or the COC. Conversely,
[the CTA] has no jurisdiction to determine the validity
of a ruling issued by the CIR or the COC in the exercise
of their quasilegislative powers to interpret tax laws.
In this case, Petron's tax liability was premised on the
COC's issuance of CMC No. 164-2012, which gave
effect to the CIR's June 29, 2012 Letter interpreting
Section 148 (e) of the NIRC as to include alkylate
among the articles subject to customs duties, hence,
Petron's petition before the CTA ultimately
challenging the legality and constitutionality of the
CIR's aforesaid interpretation of a tax provision.
In line with the foregoing discussion, however, the CIR
correctly argues that the CTA had no jurisdiction to
take cognizance of the petition as its resolution would
necessarily involve a declaration of the validity or
constitutionality of the CIR's interpretation of Section
148 (e) of the NIRC, which is subject to the exclusive
review by the Secretary of Finance and ultimately by
the regular courts.
Hence, as the CIR's interpretation of a tax provision
involves an exercise of her quasi-legislative functions,
the proper recourse against the subject tax ruling
expressed in CMC No. 164-2012 is a review by the
Secretary of Finance and ultimately the regular
courts.
There being no protest ruling by the customs collector
that was appealed to the COC, the filing of the
petition before the CTA was premature as there was
nothing yet to review. Verily, the fact that there is no
decision by the COC to appeal from highlights
Petron's failure to exhaust administrative remedies
prescribed by law. Before a party is allowed to seek
the intervention of the courts, it is a pre-condition
that he avail of all administrative processes afforded
him, such that if a remedy within the administrative
machinery can be resorted to by giving the
administrative officer every opportunity to decide on
a matter that comes within his jurisdiction, then such
remedy must be exhausted first before the court's
power of judicial review can be sought, otherwise, the
premature resort to the court is fatal to one's cause
of action.
DISPOSITIVE: WHEREFORE, the petition is GRANTED.
The Resolutions dated February 13, 2013 and May 8,
2013 of the Court of Tax Appeals (CTA), Second
Division in CTA Case No. 8544 are hereby REVERSED
and SET ASIDE. The petition for review filed by private
respondent Petron Corporation before the CTA is
DISMISSED for lack of jurisdiction and prematurity.
SECRETARY OF FINANCE v ORO MAURA SHIPPING
LINES
Brion; June 15, 2009
Topic: Tariff and Customs
Quick Facts
Glory Shipping Lines owed the Collector of the Port of
Mactan P1,296,710.00 for the importation of M/V
“HARUNA.” Without
notifying the Collector of the Port of Mactan, Glory
sold the M/V “HARUNA” to Oro Maura Shipping Lines.
Oro Maura through
Kariton inquired with the DOF if it could pay the
duties and taxes due on the vessel. The DOF referred
Kariton’s letter which
ended up with the Collector of Customs of the Port of
Manila which accepted the declared value of the
vessel at P1,100,000.00
and assessed duties and taxes amounting to
P149,989.00, which Oro Maura duly paid in 1995.
Upon learning of the sale, the Collector of the Port of
Mactan ordered the forfeiture of the vessel in favor
of the Government.
DOF ordered a reassessment of the dutiable value of
the vessel based on the original entered value,
without allowance for
depreciation.The CA ruled that the earlier assessment
made by the Collector of the Port of Manila had
already become final and
conclusive on all parties, pursuant to Sections 1407
and 1603 of the TCCP.
Doctrine/tax: Section 1603. Finality of Liquidation. –
When articles have been entered and passed free of
duty or final
adjustments of duties made, with subsequent
delivery, such entry and passage free of duty or
settlements of duties will, after
the expiration of one (1) year, from the date of the
final payment of duties, in the absence of fraud or
protest or compliance
audit pursuant to the provisions of this Code, be final
and conclusive upon all parties, unless the liquidation
of the import entry
was merely tentative. Section 2503. Undervaluation,
Misclassification and Misdeclaration of Entry. –
Xxx That an undervaluation, misdeclaration in weight,
measurement or quantity of more than thirty percent
(30%) between the
value, weight, measurement, or quantity declared in
the entry, and the actual value, weight, quantity, or
measurement shall
constitute a prima facie evidence of fraud penalized
under Section 2530 of this Code.
Facts:
In 1992, the Maritime Industry Authority (MARINA)
authorized the importation of M/V “HARUNA”; under
a Bareboat Charter, for a period of 5 years from its
actual delivery to the charterer. The original parties
to the bareboat charter agreement were Haruna
Maritime S.A and Glory Shipping Lines (Glory), the
charterer. The Department of Finance (DOF), allowed
the temporary registration of the M/V “HARUNA” and
its tax and duty-free release to Glory. The Bureau of
Customs (BOC) also required Glory to post a bond in
the amount equal to 150% of the duties, taxes and
other charges due on the importation, conditioned on
the re-exportation of the vessel upon termination of
the charter period, but in no case to extend beyond
the year 1999. Glory posted Ordinary Re-Export Bond
for P1,952,000.00, conditioned on the re-export of
the vessel within a period of one 1 year or, in case of
default, to pay customs duty, tax and other charges
on the importation of the vessel in the amount of
P1,296,710.00. M/V “HARUNA” arrived at the Port of
Mactan with a dutiable value of P6,171,092.00 and
estimated customs duty of P1,296,710.00.
When Glory’s re-export bond expired, Glory sent a
Letter of Guarantee to the Collector guaranteeing to
renew the Re-Export Bond on vessel M/V “HARUNA”
otherwise, it would pay the duties and taxes on said
vessel. Glory Shipping Lines never complied with its
Letter of Guarantee; neither did it pay the duties and
taxes and other charges due on the vessel
(P1,952,000.00) despite repeated demands made by
the Collector of the Port of Mactan.
Without informing or notifying the Collector of the
Port of Mactan, Haruna Maritime S.A. and Glory
Shipping Lines sold the M/V “HARUNA” to Oro Maura
Shipping Lines. Kariton and Company (Kariton),
representing Oro Maura, inquired with the DOF if it
could pay the duties and taxes due on the vessel. The
DOF referred Kariton’s letter which ended up with the
Collector of Customs of the Port of Manila which
accepted the declared value of the vessel at
P1,100,000.00 and assessed duties and taxes
amounting to P149,989.00, which Oro Maura duly
paid in 1995.
In 1997, after discovery of the sale, the Collector of
the Port of Mactan sent Oro Maura a demand letter
for the unpaid customs duties and charges of Glory
Shipping Lines. It later ordered the forfeiture of the
vessel in favor of the Government, after finding that
both Glory Shipping Lines and the respondent acted
fraudulently in the transaction.
The Collector of the Port of Mactan found that the
respondent defrauded the BOC of the proper customs
duty, but the District Collector of Cebu held otherwise
on appeal and absolved the respondent from any
participation in the fraud committed by Glory
Shipping Lines. These factual findings and conclusion
were affirmed by the Commissioner of Customs, by
the CTA and, ultimately, by the CA. Although in
agreement with the conclusion, DOF, however,
ordered a reassessment of the dutiable value of the
vessel based on the original entered value, without
allowance for depreciation.
The CA ruled that the earlier assessment made by the
Collector of the Port of Manila had already become
final and conclusive on all parties, pursuant to
Sections 1407 and 1603 of the TCCP.
Hence to SC:
DOF arguments:
1. The Commissioner and the Secretary may at any
time direct the re assessment of dutiable articles and
order the collection of deficiency duties. Even
assuming that Sections 1407 and 1603 of the TCCP
apply to the present case, the one-year limitation
does not run where the article was misdeclared or
undervalued, until a deficiency assessment has been
issued and settled in full.
2. Oro Maura being a direct and actual party to the
importation, should have ensured that the imported
article was properly declared and assessed the
correct duties.
Oro Maura’s arguments:
1. The appraisal of the Collector can only be altered
or modified within a year from payment of duties, per
Sections 1407 and 1603 of the TCCP; it is only when
there is fraud or protest or when the import entry was
merely tentative that settlement of duties will not
attain finality.
2. Allegation that there was misdeclaration or
undervaluation of the vessel is not supported by the
evidence.
ISSUE:
WON the Secretary of Finance can order a re-
assessment of the vessel M/V “HARUNA.”
HELD: Yes
Ratio:
A closer scrutiny of the surrounding circumstances of
the case and the respondent’s actions reveal the
existence of fraud. Our finding of fraud leads us to
conclude that the assessment of the Collector of the
Port of Manila cannot become final and conclusive
pursuant to Section 1603 of the TCCP, which states:
Section 1603. Finality of Liquidation. – When articles
have been entered and passed free of duty or final
adjustments of duties
made, with subsequent delivery, such entry and
passage free of duty or settlements of duties will,
after the expiration of one
(1) year, from the date of the final payment of duties,
in the absence of fraud or protest or compliance audit
pursuant to the
provisions of this Code, be final and conclusive upon
all parties, unless the liquidation of the import entry
was merely tentative.
An undisputed given in the facts of the case is the
valuation of P6,171,092.00 that Glory Shipping Lines
gave when the vessel first entered the country. When
Oro Maura made its request with the MARINA for
authorization to import the same vessel after a span
of only 19 months, the respondent proposed an
acquisition cost of only P1,100,000.00. Consistent
with this proposal, the respondent, through Kariton,
gave the vessel the same declared value in its own
Import Entry filed with the Collector of the Port of
Manila. Thus, in a little over a year and a half, the
declared value of the vessel decreased by
P5,000,000.00, or an astonishing 80% of its original
price. We find this drop in value within a short period
of 19 months to be too fantastic to be accepted
without question, even allowing for depreciation.
Equally fantastic is the change in the customs duties,
taxes and other charges due which fell from
P1,296,710.00 in March 1993 to P149,989.00 in
January 1995, all because of the sale, the new
application by the vendee, and the change in the Port
where the assessment and collection were made.
The drop alone from the undisputed original entry
valuation of P6,171,092.00 to the respondent’s new
valuation of P1,100,000.00 (or a decrease of 80%
from the original valuation) is already a prima facie
evidence of fraud that the rulings below did not
properly appreciate simply because they disregarded
the records of the original entry of the vessel through
the Port of Mactan. Section 2503 of the TCCP provides
in this regard that: Section 2503. Undervaluation,
Misclassification and Misdeclaration of Entry. –
Xxx That an undervaluation, misdeclaration in weight,
measurement or quantity of more than thirty percent
(30%) between the
value, weight, measurement, or quantity declared in
the entry, and the actual value, weight, quantity, or
measurement shall
constitute a prima facie evidence of fraud penalized
under Section 2530 of this Code.
The 80% drop in valuation existing in this case renders
the consideration and application of Section 2503
unavoidable. Significantly, Oro Maura never
explained the considerable disparity between the
dutiable value declared by Glory Shipping Lines and
the dutiable value it declared – difference of
P5,000,000.00 – so as to overturn or contradict this
prima facie finding of fraud.
The respondent, being in the shipping business,
should have known the standard prices of vessels and
that the value it proposed to MARINA, is
extraordinarily low compared to the vessel’s
originally declared valuation. Oro Maura’s Complicity
Oro Maura fully participated in moves to defraud the
BOC. With the knowledge that the vessel was
released under a reexport bond, the respondent
should have known that this original entry was
subject to specific conditions, among them, the
obligation to guarantee the re-export of the vessel
within a given period, or otherwise to pay the
customs duties on the vessel.
It should have known, too, of the conditions of the
vessel’s release under the re-export bond and of the
state of Glory Shipping Lines’ status of compliance.
There was an original but incomplete importation by
Glory Shipping Lines that the respondent could not
have simply disregarded proceeds from knowledge of
the vessel’s history and the application of the relevant
law. In this respect, Section 1202 of the TCCP
provides:
Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
intention to unlade therein. Importation is deemed
terminated upon payment of the duties, taxes and
other charges due upon the articles, or secured to be
paid, at a port of entry and the legal permit for
withdrawal shall have been granted, or in case said
articles are free of duties, taxes and other charges,
until they have legally left the jurisdiction of the
customs.
Nature of a tax lien
Section 1204. Liability of Importer for Duties. – Unless
relieved by laws or regulations, the liability for duties,
taxes, fees and other charges attaching on
importation constitutes a personal debt due from the
importer to the government which can be discharged
only by payment in full of all duties, taxes, fees and
other charges legally accruing. It also constitutes a
lien upon the articles imported which may be
enforced while such articles are in custody or subject
to the control of the government. Consequently,
when the respondent bought the vessel from Glory
Shipping Lines on December 2, 1994, the obligation to
pay the BOC P1,296,710.00 as customs duties had
already attached to the vessel and the non-renewal
of the re-export bond made this liability due and
demandable. The subsequent transfer of ownership
of the vessel from Glory Shipping Lines to the
respondent did not extinguish this liability. We find in
favor of DOF and uphold his order for the re-
assessment of the value of the vessel based on the
entered value, which in this case should follow the
unpaid assessment made by the Collector of Customs
of the Port of Mactan.