VALUE-ADDED TAX (VAT)

1. Abakada Guro Party List vs. Ermita, GR Nos. 168056, 168207, 168461, 168463, 168730, September 1, 2005
Ponente: Austria-Martinez, J.
Nature of the Case: This case is a special civil action in the Supreme Court.
R.A. No. 9337 is an act amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148,
151, 236, 237 and 288 of the National Internal Revenue Code (NIRC) of 1997, as amended, and for other purposes
 Also referred to as the VAT Reform Act

FACTS:
 R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill
No. 1950
 On April 13, 2005, the Senate agreed to the request of the House of Representatives for a committee conference
on the disagreeing provisions of the proposed bills
o After having met and discussed in full free and conference, the Conference Committee on the Disagreeing
Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950 recommended the
approval of its report
 The enrolled copy of the consolidated House and Senate version was transmitted to the President, who signed
the same into law on May 24, 2005.
 Thus, came R.A. No. 9337. (Refer to ‘Notes’ below for the reasons why RA NO. 9337 was enacted)
 Effectivity date of RA No. 9337: July 1, 2005
o However, when said date came, the Court issued a temporary restraining order (TRO), effective
immediately and continuing until further orders, enjoining respondents from enforcing and
implementing the law.
 On July 14, 2005, oral arguments were held.
o Significantly, during the hearing, the Court speaking through Mr. Justice Artemio V. Panganiban, voiced
the rationale for its issuance of the TRO on July 1, 2005
o Among those reasons:
 Confusion in the implementation of E-VAT (Expanded Value-Added Tax)
 There was a lot of complaints aired on television and on radio regarding price hike on gas,
electric bills, domestic air carrier fares, and other products
 Other products being arbitrarily increased by 10%

G.R. No. 168056

 Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on
May 27, 2005.
 They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC.
o Section 4 imposes a 10% VAT on sale of goods and properties
o Section 5 imposes a 10% VAT on importation of goods
o Section 6 imposes a 10% VAT on sale of services and use or lease of properties
 These questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the conditions have
been satisfied
i. VAT collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
ii. National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 1/2%)
 Petitioners’ contention
o The law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the
rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution

G.R. No. 168207

 On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337

Petitioner’s contentions
o The so-called stand-by authority of the President to increase the VAT rate to 12% amounts to an undue
delegation of legislative power
o The increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the
due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and
additional tax burden on the people
(1) The 12% increase is ambiguous because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied;
(2) The rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year
to year; and
(3) The increase in the VAT rate, which is supposed to be an incentive to the President to raise the
VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal
adequacy.
o The inclusion of a stand-by authority granted to the President by the Bicameral Conference Committee is
a violation of the “no-amendment rule” upon last reading of a bill laid down in Article VI, Section 26(2) of
the Constitution

G.R. No. 168461

 On June 29, 2005, a petition for prohibition was filed by the Association of Pilipinas Shell Dealers, Inc., et al.,
assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC – requiring that the input tax on depreciable goods shall
be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One
Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC – imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of properties) of the NIRC.

Petitioners’ contentions
o The above-cited provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
 Premised on the constitutional right of non-deprivation of life, liberty or property without due
process of law under Article III, Section 1 of the Constitution
 The contested sections impose limitations on the amount of input tax that may be claimed.
 The input tax partakes the nature of a property that may not be confiscated, appropriated,
or limited without due process of law
  Like any other property or property right, the input tax credit may be transferred or
disposed of, and that by limiting the same, the government gets to tax a profit or value-
added even if there is no profit or value-added
 The provisions also violate the constitutional guarantee of equal protection of the law under
Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if:
(1) The entity has a high ratio of input tax; or
(2) Invests in capital equipment; or
(3) Has several transactions with the government
 Not based on real and substantial differences to meet a valid classification
o The 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and
 It is the smaller businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners make

G.R. No. 168463

 On June 30, 2005, several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed
this petition for certiorari
 They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;

2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No. 3705; and

3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125, 148,
151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the
House of Representatives


G.R. No. 168730

 On July 20, 2005, Governor Enrique T. Garcia filed a petition for certiorari and prohibition
 Alleged the unconstitutionality of the law on the ground:
o That the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a
portion of the taxes they collect, thus violating the principle that tax collection and revenue should be
solely allocated for public purposes and expenditures.
 And that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article
VI, Section 28(1) of the Constitution

Respondents’ Comment (filed by the Office of the Solicitor General [OSG] in behalf of respondents)
 R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its validity.
 As to the procedural issues raised by petitioners:
o Legality of the bicameral proceedings, exclusive origination of revenue measures and the power of the
Senate concomitant thereto – these have already been settled
 As to the undue delegation of legislative power to the President – respondents contend that the law is complete
and leaves no discretion to the President but to increase the rate to 12% once any of the two conditions provided
therein arise
 Refute petitioner’s argument that the increase to 12%, as well as the 70% limitation on the creditable input tax,
the 60-month amortization on the purchase or importation of capital goods exceeding P1,000,000.00, and the 5%
final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others
 Finally, they manifested that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda.
o REFORM IN THE VALUE-ADDED SYSTEM OF TAXATION is the core revenue measure that will tilt the
balance towards a sustainable macroeconomic environment necessary for economic growth
Prelude to the Court’s Ruling: GENERAL PRINCIPLES and CONCEPTS of VAT
 The VAT is a tax on spending or consumption.
o It is levied on the sale, barter, exchange or lease of goods or properties and services.
 Being an INDIRECT TAX on expenditure, the seller of goods or services may pass on the amount of tax paid to the
buyer, with the seller acting merely as a tax collector.
o The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.

 In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in,
without transferring the burden to someone else.
o Examples are individual and corporate income taxes, transfer taxes, and residence taxes
 In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode.
o Prior to 1978, the system was a single-stage tax computed under the “cost deduction method” and was
payable only by the original sellers.
o The single-stage system was subsequently modified, and a mixture of the “cost deduction method” and
“tax credit method” was used to determine the value-added tax payable.
o Under the ”tax credit method,” an entity can credit against or subtract from the VAT charged on its sales
or outputs the VAT paid on its purchases, inputs and imports

 It was only in 1987, when President Corazon C. Aquino issued E.O. No. 273, that the VAT system was rationalized
by imposing a multi-stage tax rate of 0% or 10% on all sales using the “tax credit method”
 The present R.A. No. 9337 is also referred to as the VAT Reform Act

MAIN ISSUE: Is R.A. No. 9337 unconstitutional?

Or stated differently: Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate Section 28(1 and 2), Article VI of the Constitution?

RULING:
 No. R.A. No. 9337 is not unconstitutional.
 The assailed provisions of R.A. No. 9337 do not violate Section 28 (1 and 2) of Article VI of the Constitution (kindly
refer below).
 There was no undue delegation of legislative power (refer to Issue 1 below)
 The 12% increase VAT rate does not impose an unfair and unnecessary additional tax burden (refer to Issue 2
below)

Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation.
Section 28. (2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the Government.

(Refer to ‘Notes’ below for the assailed provisions of R.A. No. 9337.)

ISSUE 1: Was there undue delegation of legislative power?

RULING 1:
 No. There was no undue delegation of legislative power.
 Brief summary of petitioner’s allegations in relation to the issue
o Petitioners ALLEGE that the grant of the stand-by authority to the President to increase the VAT rate is
a virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution
o They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as
on the sale or exchange of services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to
the government and usually imposed on goods or merchandise imported or exported.
o Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism.
 They insist that accountability, responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision to impose taxes.
o They also argue that the law also effectively nullified the President’s power of control, which includes the
authority to set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating
the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.
o Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
o Petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12% rate
would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation.

 Re: the PRINCIPLE OF NON-DELEGATION OF POWERS

o The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.
o A logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers,
as expressed in the Latin maxim: potestas delegata non delegari potest which means “what has been
delegated, cannot be delegated.”
o This doctrine is based on the ethical principle that such as delegated power constitutes not only a right
but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.
o With respect to the Legislature, Section 1 of Article VI of the Constitution provides that “the Legislative
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives.”
o The powers which Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative.
 Purely legislative power, which can never be delegated, has been described as the authority to
make a complete law – complete as to the time when it shall take effect and as to whom it shall
be applicable – and to determine the expediency of its enactment.
 Thus, the rule is that in order that a court may be justified in holding a statute unconstitutional as
a delegation of legislative power, it must appear that the power involved is purely legislative in
nature – that is, one appertaining exclusively to the legislative department.
 It is the nature of the power, and not the liability of its use or the manner of its exercise, which
determines the validity of its delegation.
GENERAL RULE barring delegation of legislative powers is subject to the following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;

(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;

(3) Delegation to the people at large;

(4) Delegation to local governments; and

 (5) Delegation to administrative bodies.


 In every case of permissible delegation, there must be a showing that the delegation itself is valid.
 It is valid only if the law:
a) Is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the
delegate; and
b) Fixes a standard – the limits of which are sufficiently determinate and determinable – to which the
delegate must conform in the performance of his functions.
 A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies
the public agency to apply it.
o It indicates the circumstances under which the legislative command is to be effected.
o Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a power essentially legislative.
 Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority.
 While the POWER TO TAX cannot be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including the power to determine the existence
of facts on which its operation depends.
o RATIONLE FOR THIS is that: The preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation.
o Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity
which the legislature may perform through its members, or which it may delegate to others to perform.

APPLICATION:
 In this present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which
reads as follows:
o That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value- added tax to twelve percent (12%), after any of the following conditions
has been satisfied:
i. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or

ii. National government deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 1/2%).
 [Emphasis supplied]
 The case before the Court is not a delegation of legislative power.
 It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase
rate under the law is contingent.
 The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified
fact or condition.
o It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive.
 No discretion would be exercised by the President
o Highlighting the absence of discretion is the fact that the word ‘shall’ is used in the common proviso.
o The use of the word shall connotes a mandatory order.
 Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.
o Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have
no choice but to see to it that the mandate is obeyed.
 Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress.
o This is a duty which cannot be evaded by the President.
 o Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not
come into play.
o It is a clear directive to impose the 12% VAT rate when the specified conditions are present.
 The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a person or body other
than the legislature itself.
FURTHER:
 In the present case, in making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate.
 In such instance, he is not subject to the power of control and direction of the President.
 He is acting as the agent of the legislative department, to determine and declare the event upon which its
expressed will is to take effect.
 The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and has a much broader perspective
to properly evaluate them.
o His function is to gather and collate statistical data and other pertinent information and verify if any of
the two conditions laid out by Congress is present.
o His personality in such instance is in reality but a projection of that of Congress.
o Thus, being the agent of Congress and not of the President, the President cannot alter or modify or
nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former
for that of the latter.
 Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%).
o If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must
submit such information to the President.
o Then the 12% VAT rate must be imposed by the President effective January 1, 2006.
 There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
o This is constitutionally permissible.


 The Court finds no merit to the contentions of the petitioners.

 Congress does not abdicate its functions or unduly delegate power when it describes what job must be done,
who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in
which the legislative process can go forward.

As regards REPUBLICANISM:
 Congress did not delegate the power to tax but the mere implementation of the law.
 The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply
execute the legislative policy.
 That Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task
being to interpret the law

ISSUE 2: Does the 12% increase VAT rate impose an unfair and unnecessary additional tax burden?

RULING 2: (In relation to the contentions of Pimentel, et. al in G.R. No. 168207 – refer above)
 No. The 12% increase VAT rate does not impose an unfair and unnecessary additional tax burden.
 Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein
are satisfied, the President shall increase the VAT rate to 12%.
  The provisions of the law are clear.
 It does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is
increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not exceed 1 1/2%.
 Therefore, no statutory construction or interpretation is needed.
o Neither can conditions or limitations be introduced where none is provided for
o Rewriting the law is a forbidden ground that only Congress may tread upon

Application
 In the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none,
petitioners’ argument is, at best, purely speculative.
 There is no basis for petitioners’ fear of a fluctuating VAT rate because the law itself does not provide that the
rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present.
 The rule is that where the provision of the law is clear and unambiguous, so that there is no occasion for the
court’s seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction.

ISSUE 3: Should the increase in the VAT rate, which was allegedly an incentive to the President to raise the VAT collection
to at least 2 4/5 of the GDP of the previous year, be based on fiscal adequacy?

RULING 3: (In relation to the ‘conditions’ in G.R. No. 168056 – refer above)
 No. The petitioners obviously overlooked that increase in VAT collection is not the only condition.
o There is another condition, i.e., the national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 1/2%)
 The FIRST condition amounts to an incentive to the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly to
raise revenue.
 In fact, fiscal adequacy dictated the need for a raise in revenue.
o The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam
Smith
 It simply means that sources of revenues must be adequate to meet government expenditures
and their variations
o The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe.
 During the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
country’s gloomy state of economic affairs
 In this case, the Court will not dawdle on the purpose of Congress or the executive policy, given that it is not for
the judiciary to “pass upon questions of wisdom, justice or expediency of legislation.

ISSUE 4: Does Section 8 of RA No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC, and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate Section 28(1), Article VI and Section 1, Article III of the Constitution?

RULING 4:
 No. These are not violative of the aforementioned Constitutional provisions.

 FIRST. These do not violate the due process and equal protection clauses? (In relation to petitioners’ contentions
in G.R. No. 168461 – Refer above)
 o Where the due process and equal protection clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such persuasive character as would lead to such
a conclusion.
o Absent such a showing, the presumption of validity must prevail

 Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax
that may be credited against the output tax.
o It states, in part: “Provided, that the input tax inclusive of the input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output
VAT....”

Distinction between INPUT TAX and OUTPUT TAX:

 Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a
VAT-registered person on the importation of goods or local purchase of good and services, including lease or use
of property, in the course of trade or business, from a VAT- registered person
 Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under the law.

 While the petitioner’s claim that the contested sections impose limitations on the amount of input tax that may
be claimed – in effect, a portion of the input tax that has already been paid cannot now be credited against the
output tax, the petitioner’s argument is not absolute.
o It merely assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess
of 70% remains uncredited.
o However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input
tax is still creditable.
 More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains creditable
in the succeeding quarter/s.
o This is explicitly allowed by Section 110(B), which provides that “if the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters.”
 In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been applied against the output
taxes.
o Such unused input tax may be used in payment of his other internal revenue taxes.
 The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend.
o Their analysis of the effect of the 70% limitation is incomplete and one-sided.
o It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
through a tax credit certificate under Section 112(B)
 Hence, the petitioner’s argument should be rejected.

On the other hand, in relation to G.R. No. 168730 (Refer above):

 It appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax.
 The input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
 Output tax meanwhile is the tax due to the person when he sells goods.
 In computing the VAT payable, three possible scenarios may arise:
o First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes
that he paid and passed on by the suppliers, then no payment is required;
o Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has
to be paid to the Bureau of Internal Revenue (BIR)

 o Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter
or quarters.
 Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess
over the output taxes shall instead be refunded to the taxpayer or credited against other internal
revenue taxes, at the taxpayer’s option

 Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.
o Thus, a person can credit his input tax only up to the extent of 70% of the output tax.
o In layman’s term, the VAT that a person/taxpayer paid and passed on to him by a seller can only be
credited up to 70% of the value-added taxes that is due to him on a taxable transaction.
o There is no retention of any tax collection because the person/taxpayer has already previously paid the
input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party directly
liable for the payment of the tax is the seller.
o What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced
by receipts, against his output taxes

FURTHER: (In relation to the contention in G.R. No. 168461 that the input tax partakes of the nature of a property that
may be confiscated, appropriated, or limited without due process of law)
 Input tax is not a property or a property right within the constitutional purview of the due process clause.
 A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
 The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested
rights in statutory privileges.
 The state may change or take away rights, which were created by the law of the state, although it may not take
away property, which was vested by virtue of such rights
 Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue.
 When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting
of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the
output tax was introduced.
 This was adopted by the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424)
 The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also
the law can remove, or in this case, limit.

SUPPORTING ISSUES to ISSUE 4:

ISSUE 5: Is Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, arbitrary, oppressive, excessive and
confiscatory?

RULING 5:
 No. It is not arbitrary, oppressive, excessive nor confiscatory.
 Section 110(A) of the NIRC imposes a 60-month period within which to amortize the creditable input tax on
purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT
component.
 Petitioners allege that such spread out only poses a delay in the crediting of the input tax.
o However, petitioners’ argument is without basis because the taxpayer is not permanently deprived of his
privilege to credit the input tax.
  It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts
to a 4-year interest-free loan to the government.
 In the same breath, Congress also justified its move by saying that the provision was designed to raise an annual
revenue of 22.6 billion.
 The legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign
investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5% non-
creditable VAT, foreign investments were not deterred
 For whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.

With regard to the 5% creditable withholding tax: (Section 12 of R.A. No. 9337, which amended Section 114 of the
NIRC)
 Section 114. Return and Payment of Value-Added Tax
 Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system.
 The government in this case is constituted as a withholding agent with respect to their payments for goods
and services.
 The Court need not explore the rationale behind the provision.
 It is clear that Congress intended to treat differently taxable transactions with the government.
 This is supported by the fact that under the old provision, the 5% tax withheld by the government remains
creditable against the tax liability of the seller or contractor.

ISSUE 6: Did the government gets to tax a profit or value-added even if there is no profit or value-added, by imposing a
limitation on the creditable input tax?

RULING 6:
 No. The petitioner’s argument, in this case, is purely hypothetical, argumentative, and again, one-sided.
 Petitioner’s contention assumes the proposition that there is no profit or value-added.
o It need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added.
o It cannot be overstressed that a business is created precisely for profit.

ISSUE 7: Is there violation of the Equal Protection Clause?

RULING 7:
 No. There is no violation of the equal protection clause.
 The power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established.
 Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of
validity.
 As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
 The equal protection clause does not require the universal application of the laws on all persons or things without
distinction.
o This might in fact sometimes result in unequal protection.
 What the clause requires is EQUALITY AMONG EQUALS as determined according to a valid classification.
  By classification is meant the grouping of persons or things similar to each other in certain particulars and different
from all others in these same particulars.

Re UNIFORMITY AND EQUITABILITY OF TAXATION

ISSUE 8: Does the law violate the uniformity and equitability of taxation?

RULING 8:
 No. The law is uniform and equitable.
 Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate.
 Different articles may be taxed at different amounts provided that the rate is uniform on the same class
everywhere with all people at all times

Application
 In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services.
 Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for
a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease
of properties.
 These same sections also provide for a 0% rate on certain sales and transaction.
 Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on
the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government.
 It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify subjects
of taxation, and only demands uniformity within the particular class.

 R.A. No. 9337 is also equitable.

 The law is equipped with a threshold margin.
 The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts
not exceeding P1,500,000.00.
 Also, basic marine and agricultural food products in their original state are still not subject to the tax, thus ensuring
that prices at the grassroots level will remain accessible.

FURTHER:
 It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those
with high profit margins.
 Congress was not oblivious to this.
 Thus, to equalize the weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax
on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million.
 This acts as an equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.

 Congress also provided mitigating measures to cushion the impact of the imposition of the tax on those
previously exempt. Among those are the following: [not all inclusive]
o Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic carriers
was removed.
o Power producers are now exempt from paying franchise tax.
Other matters:
Re PROGRESSIVITY OF TAXATION [VAT is REGRESSIVE]
 Progressive taxation is built on the principle of the taxpayer’s ability to pay.
 Taxation is progressive when its rate goes up depending on the resources of the person affected.
 The VAT is an antithesis of progressive taxation.
o By its very nature, it is regressive.
o The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by
the consumer or business for every goods bought or services enjoyed is the same regardless of income.
In other words, the VAT paid eats the same portion of an income, whether big or small.
o The disparity lies in the income earned by a person or profit margin marked by a business, such that the
higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT.
o A converso, the lower the income or profit margin, the bigger the part that the VAT eats away.
o At the end of the day, it is really the lower income group or businesses with low-profit margins that is
always hardest hit.
 Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
 What it simply provides is that Congress shall “evolve a progressive system of taxation.”

Disposition: RA No. 9337 is not unconstitutional. Petitions are dismissed. There being no constitutional impediment to
the full enforcement and implementation of R.A. No. 9337, the TRO issued by the Court on July 1, 2005 is lifted upon
finality of herein decision.

Notes:
Reasons why RA No. 9337 was enacted:
 Mounting budget deficit
 Revenue generation
 Inadequate fiscal allocation for education
 Increased emoluments for health workers, and
 Wider coverage for full value-added tax benefits

REASONS, the WISDOM of which, the Court even with its extensive constitutional power of review, cannot probe.
 However, the petitioners in these cases, question not only the wisdom of the law, but also perceived constitutional
infirmities in its passage.
 Every law enjoys in its favor the presumption of constitutionality.
o The petitioner’s arguments notwithstanding, failed to justify their call for the invalidity of the law.
o Hence, R.A. No. 9337 is not unconstitutional.

Assailed Sections of R.A. 9337

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange
of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or
gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor: provided, that the President, upon the recommendation of the Secretary of
 Finance, shall, effective January 1, 2006, raise the rate of value- added tax to twelve percent (12%),
after any of the following conditions has been satisfied.
i. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or

ii. National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1⁄2%).


SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from customs custody: Provided,
That where the customs duties are determined on the basis of the quantity or volume of the goods,
the value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that
the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%) after any of the following conditions
has been satisfied.
i. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or

ii. National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1⁄2%).


SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties·
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to
ten percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the
President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions
has been satisfied.
i. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
ii. National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).
(Emphasis supplied)

SEC. 110. Tax Credits.

(A) Creditable Input Tax.-
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P1,000,000.00):

Provided, however, That if the estimated useful life of the capital goods is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period:

Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable
 to the purchaser, lessee or license upon payment of the compensation, rental, royalty or fee.

Section 114. Return and Payment of Value-added Tax. -

(B) Withholding of Value-added Tax. –
The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final
value-added tax at the rate of five percent (5%) of the gross payment thereof:
Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject
to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in
control of the payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.

2. Abakada Guro vs Ermita (October 18 2005)

FACTS:
 For resolution are the following motions for reconsideration of the Courts Decision dated September 1, 2005
upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act
o 1. Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following
grounds:
A. THE DELETION OF THE NO PASS ON PROVISIONS FOR THE SALE OF PETROLEUM
PRODUCTS AND POWER GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION ON THE PART OF THE BICAMERAL
CONFERENCE COMMITTEE
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ON
EXCLUSIVE ORIGINATION OF REVENUE BILLS UNDER 24, ARTICLE VI, 1987 PHILIPPINE
CONSTITUTION
C. REPUBLIC ACT NO. 9337S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE
VAT RATE, ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED
TO THE SECRETARY OF FINANCE, CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.

o 2. Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr.,
with the argument that burdening the consumers with significantly higher prices under a VAT regime vis-
-vis a 3% gross tax renders the law unconstitutional for being arbitrary, oppressive and inequitable.
o 3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461,
on the grounds that:
I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section
110(B) of the NIRC, as amended by the EVAT Law, imposing limitations on the amount of input
VAT that may be claimed as a credit against output VAT, as well as Section 114(C) of the NIRC, as
amended by the EVAT Law, requiring the government or any of its instrumentalities to withhold
a 5% final withholding VAT on their gross payments on purchases of goods and services, and
finding that the questioned provisions:
A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of
property without due process of law in violation of Article III, Section 1 of the 1987
Philippine Constitution;
 B. do not violate the equal protection clause prescribed under Article III, Section 1
of the 1987 Philippine Constitution; and
C. apply uniformly to all those belonging to the same class and do not violate Article
VI, Section 28(1) of the 1987 Philippine Constitution
II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as
amended by the EVAT Law, imposing a limitation on the amount of input VAT that may be claimed
as a credit against output VAT notwithstanding the finding that the tax is not progressive as
exhorted by Article VI, Section 28(1) of the 1987 Philippine Constitution.
 Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.
ISSUES:
G.R. No. 168463, Escudero, et al:
WHETHER or not R.A. No. 9337s stand- by authority to the Executive to increase the VAT rate, especially on
account of the recommendatory power granted to the Secretary of Finance, constitutes undue delegation of
legislative power.
RULING: NO
 There is no merit in this contention.
 The Court reiterates that in making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is
acting as the agent of the legislative department, to determine and declare the event upon which its expressed
will is to take effect.
 The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and has a much broader perspective
to properly evaluate them.
 His function is to gather and collate statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present.
 Congress granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a percentage of GDP of the previous year exceeds two and
four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1%).
 If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006.
 Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which
the legislative process can go forward. There is no undue delegation of legislative power but only of the discretion
as to the execution of a law.
 This is constitutionally permissible. Congress did not delegate the power to tax but the mere implementation of
the law. The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is
to simply execute the legislative policy.
 That Congress chose to use the GDP as a benchmark to determine economic growth is not within the province of
the Court to inquire into, its task being to interpret the law.
ISSUE:
G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr
Whether or not the burdening of consumers with significantly higher prices under a VAT regime vis--vis a 3% gross
tax renders the law unconstitutional for being arbitrary, oppressive and inequitable.
RULING: NO
 The Court recognizes the burden that the consumers will be bearing with the passage of R.A. No. 9337. But as was
also stated by the Court, it cannot strike down the law as unconstitutional simply because of its yokes.
  The legislature has spoken and the only role that the Court plays in the picture is to determine whether the law
was passed with due regard to the mandates of the Constitution.
 Inasmuch as the Court finds that there are no constitutional infirmities with its passage, the validity of the law
must therefore be upheld.
ISSUE:
Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461
ISSUE: Whether or not the court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amended
by the EVAT Law, imposing a limitation on the amount of input VAT that may be claimed as a credit against output VAT
notwithstanding the finding that the tax is not progressive as exhorted by Article VI, Section 28(1) of the 1987 Philippine
Constitution.
RULING:
 The glitch in petitioners arguments is that it presents figures based on an event that is yet to happen. Their
illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains theoretical.
 Theories have no place in this case as the Court must only deal with an existing case or controversy that is
appropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory.
 The Court will not intervene absent an actual and substantial controversy admitting of specific relief through
a decree conclusive in nature, as distinguished from an opinion advising what the law would be upon a
hypothetical state of facts.
 The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and
operates its business. Market forces, strategy and acumen will dictate their moves. With or without these VAT
provisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in
the competition. The arguments posed are within the realm of business, and the solution lies also in business.
ISSUE: Whether or not input tax is a property right
RULING: No
 In the same breath, the Court reiterates its finding that it is not a property or a property right, and a VAT-
registered persons entitlement to the creditable input tax is a mere statutory privilege
ISSUE: Whether or not input VAT has already evolve into a vested right
RULING: NO
 As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the
enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable
from the taxes payable.
 With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then that
the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons
against the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The
Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a
privilege created by law, a privilege that also the law can limit.
 It should be stressed that a person has no vested right in statutory privileges.
 The concept of vested right is a consequence of the constitutional guaranty of due process that expresses a
present fixed interest which in right reason and natural justice is protected against arbitrary state action; it
includes not only legal or equitable title to the enforcement of a demand but also exemptions from new
obligations created after the right has become vested.
 Rights are considered vested when the right to enjoyment is a present interest, absolute, unconditional, and
perfect or fixed and irrefutable
 More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. So
long as there is a public end for which R.A. No. 9337 was passed, the means through which such end shall be
accomplished is for the legislature to choose so long as it is within constitutional bounds
DISPOSITION: WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary
restraining order issued by the Court is LIFTED.
Notes:
Regarding the deletion of no pass on provisions for the sale of petroleum products and power generation services
constituted grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the bicameral conference
committee.
 Note that the rules of both houses of Congress provide that a conference committee shall settle the differences
in the respective bills of each house. Verily, the fact that a no pass-on provision is present in one version but
absent in the other, and one version intends two industries, i.e., power generation companies and petroleum
sellers, to bear the burden of the tax, while the other version intended only the industry of power generation,
transmission and distribution to be saddled with such burden, clearly shows that there are indeed differences
between the bills coming from each house, which differences should be acted upon by the bicameral conference
committee. It is incorrect to conclude that there is no clash between two opposing forces with regard to the no
pass-on provision for VAT on the sale of petroleum products merely because such provision exists in the House
version while it is absent in the Senate version. It is precisely the absence of such provision in the Senate bill and
the presence thereof in the House bills that causes the conflict. The absence of the provision in the Senate bill
shows the Senates disagreement to the intention of the House of Representatives make the sellers of petroleum
bear the burden of the VAT. Thus, there are indeed two opposing forces: on one side, the House of Representatives
which wants petroleum dealers to be saddled with the burden of paying VAT and on the other, the Senate which
does not see it proper to make that particular industry bear said burden. Clearly, such conflicts and differences
between the no pass-on provisions in the Senate and House bills had to be acted upon by the bicameral
conference committee as mandated by the rules of both houses of Congress.
 Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance with the very
nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on spending or
consumption, thus, the burden thereof is ultimately borne by the end-consumer.

3. CIR vs SEAGATE TECHNOLOGY (Philippines)

NATURE: PETITION for review on certiorari of a decision of the Court of Appeals.
Panganiban, J.
 Business companies registered in and operating from the Special Economic Zone in Naga, Cebu –like herein
respondent – are entities exempt from all internal revenue taxes and he implementing rules relevant thereto,
including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are
nonetheless zerorated. Hence, in the present case, the distinction between exempt entities and exempt
transactions has little significance, because the net result is that the taxpayer is not liable for the VAT.
FACTS: The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
 SEAGATE TECHNOLOGY PH
 is a resident foreign corporation duly registered with the Securities and Exchange Commission to do
business in the Philippines
 Principal office address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an,
Naga, Cebu
 is registered with the Philippine Export Zone Authority (PEZA) to engage in the manufacture of recording
components primarily used in computers for export
 April, 2 1997 – VAT Registered
 June 6, 1997 – Registered with PEZA
 April 1, 1998 to June 30, 1999 – Filed VAT Returns
 October 4, 1999 – An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38
with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for
Review) with Revenue District Office No. 83, Talisay Cebu
 No final action from BIR on claim for VAT refund
  On July 21, 2000, Seagate elevated the case to the CTA by way of Petition for Review in order to toll the running
of the two-year prescriptive period.
 Special and Affirmative Defenses of BIR:
 The claim for tax refund/credit is subject to administrative routinary investigation/examination by the BIR
 Since “taxes are presumed to have been collected in accordance with laws and regulations,” the
[respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally
collected
 Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer. This is due to the
fact that claims for refund/credit [partake of] the nature of an exemption from tax.
 Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered
Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No.
([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As [respondent’s] business is not
subject to VAT, the capital goods and services it alleged to have purchased are considered not used in VAT
taxable business. Thus, it is not entitled to refund of input taxes on such capital goods pursuant to Section
4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103
of said regulations.
 [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code
on filing of a written claim for refund within two (2) years from the date of payment of tax.
 CTA: Tax Court granted the claim for refund in the reduced amount of P12,122,922.66.
 This sum represented the unutilized but substantiated input VAT paid on capital goods purchased for the
period covering April 1, 1998 to June 30, 1999.
 CA affirmed the decision
 Hence this petition
ISSUE: Is a VAT-Registered PEZA enterprise entitled to a refund?
RULING: YES
 No doubt, as a PEZA-registered enterprise within a special economic zone, respondent is entitled to the fiscal
incentives and benefits provided for in either PD 66 or EO 226.
 It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227
and 7844.
MAIN ISSUE: WON Seagate Technology, a VAT-Registered PEZA Enterprise, is entitled to the refund.
RULING: YES
 If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall not be
subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries,
spare parts and wares, except those prohibited by law, brought into the zone to be stored, broken up, repacked,
assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used
directly or indirectly in such activities.
 Even so, respondent would enjoy a net-operating loss carry over; accelerated depreciation; foreign
exchange and financial assistance; and exemption from export taxes, local taxes and licenses
 Comparatively, the same exemption from internal revenue laws and regulations applies if EO 226 is chosen. Under
this law, respondent shall further be entitled to an income tax holiday; additional deduction for labor expense;
simplification of customs procedure; unrestricted use of consigned equipment; access to a bonded manufacturing
warehouse system; privileges for foreign nationals employed; tax credits on domestic capital equipment, as well
as for taxes and duties on raw materials; and exemption from contractors’ taxes, wharfage dues, taxes and duties
on imported capital equipment and spare parts, export taxes, duties, imposts and fees, local taxes and licenses,
and real property taxes.
 A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of raw
materials, capital and equipment 18 ·is, ipso facto, also accorded to the Zone under RA 7916.
 RA 7916 extends to that zone the provision stating that no local or national taxes shall be imposed therein.
 No exchange control policy shall be applied; and free markets for foreign exchange, gold, securities and
future shall be allowed and maintained
  Banking and finance shall also be liberalized under minimum Bangko Sentral regulation with the
establishment of foreign currency depository units of local commercial banks and offshore banking units
of foreign banks
 In the same vein, respondent benefits under RA 7844 from negotiable tax credits for locally-produced materials
used as inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also
enjoys preferential credit facilities and exemption from PD 1853
 APPLICATION: From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax
treatment. It is not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT
on capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the transactions
involving such tax are not exempt, petitioner as a VAT-registered person, however, is entitled to their credits.
ISSUE: What is the nature of the VAT?
RULING:
 Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every
importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange
or lease of goods or properties or on each rendition of services in the course of trade or business as they pass
along the production and distribution chain, the tax being limited only to the value added to such goods,
properties or services by the seller, transferor or lessor.
 It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services. As such, it should be understood not in the context of the person or entity that is primarily, directly and
legally liable for its payment, but in terms of its nature as a tax on consumption. In either case, though, the same
conclusion is arrived at.
ISSUE: Zero-Rated Transactions vs Effectively Zero-rated transactions
RULING:
 Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated
transactions as to their source.
 Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at
zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.
 Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to persons or entities
whose exemption under special laws or international agreements to which the Philippines is a signatory effectively
subjects such transactions to a zero rate. Again, as applied to the tax base, such rate does not yield any tax
chargeable against the purchaser. The seller who charges zero output tax on such transactions can also claim a
refund of or a tax credit certificate for the VAT previously charged by suppliers.
ISSUE: Zero Rating vs Exemption
RULING:
 In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results
from either one of them is not.
 Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be
enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive
by allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating, on the
contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the
VAT, will ultimately bear the burden of the tax shifted by the suppliers.
 In both instances of zero rating, there is total relief for the purchaser from the burden of the tax. But in an
exemption there is only partial relief, because the purchaser is not allowed any tax refund of or credit for input
taxes paid.
ISSUE: Exempt Transaction vs Exempt Party
RULING:
 The object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction.
 An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed
in and expressly exempted from the VAT under the Tax Code, without regard to the tax status·VAT-exempt or
not·of the party to the transaction. Indeed, such transaction is not subject to the VAT, but the seller is not allowed
any tax refund of or credit for any input taxes paid.
  An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special
law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable
transactions become exempt from the VAT. Such party is also not subject to the VAT, but may be allowed a tax
refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
 As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the
seller to the purchaser of the goods, properties or services. While the liability is imposed on one person, the
burden may be passed on to another. Therefore, if a special law merely exempts a party as a seller from its direct
liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect burden of
the VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt. Applying this principle
to the case at bar, the purchase transactions entered into by respondent are not VAT-exempt
ISSUE: Is respondent exempted from internal revenue laws and regulations?
RULING: YES
 Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue laws
and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT
as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed
on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor
indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit,
nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
 Moreover, the exemption is both express and pervasive for the following reasons:
 First, RA 7916 states that “no taxes, local and national, shall be imposed on business establishments
operating within the ecozone.” Since this law does not exclude the VAT from the prohibition, it is deemed
included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in cases not
excepted; that is, a thing not being excepted must be regarded as coming within the purview of the
general rule.
 Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real
property taxes that presently are imposed on land owned by developers.
 Third, foreign and domestic merchandise, raw materials, equipment and the like “shall not be subject to
x x x internal revenue laws and regulations” under PD 66 83 – the original charter of PEZA (then EPZA)
that was later amended by RA 7916. 84 No provisions in the latter law modify such exemption.
 Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise – except those
prohibited by law·”shall not be subject to x x x internal revenue laws and regulations x x x” if brought to
the ecozone’s restricted area for manufacturing by registered export enterprises,of which respondent is
one.
 Fifth, export processing zone enterprises registered with the Board of Investments (BOI) under EO 226
patently enjoy exemption from national internal revenue taxes on imported capital equipment reasonably
needed and exclusively used for the manufacture of their products; on required supplies and spare part
for consigned equipment; and on foreign and domestic merchandise, raw materials, equipment and the
like·except those prohibited by law·brought into the zone for manufacturing.
 Sixth, the exemption from local and national taxes granted under RA 7227 are ipso facto accorded to
ecozones. In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor
of the ecozone.
 And seventh, the tax credits under RA 7844·given for im-ported raw materials primarily used in the
production of export goods, and for locally produced raw materials, capital equipment and spare parts
used by exporters of non-traditional products – shall also be continuously enjoyed by similar exporters
within the ecozone.
ISSUE: WON respondent is subject to VAT
RULING: NO
 Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden
of proving the factual basis of their claims; and of showing, by words too plain to be mistaken, that the legislature
intended to exempt them. In the present case, all the cited legal provisions are teeming with life with respect to
the grant of tax exemptions too vivid to pass unnoticed. In addition, respondent easily meets the challenge.
 APPLICATION: Respondent, which as an entity is exempt, is different from its transactions which are not exempt.
The end result, however is that it is not subject to the VAT. The non-taxability of transactions that are otherwise
 taxable is merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the
transactions themselves
ISSUE: WON respondent is exempt from payment of income tax
RULING: YES, but only from the payment of income tax for a certain number of years, depending on its registration
as a pioneer or a non-pioneer enterprise.
 Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the tax refund or credit
is in order.
 As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over
those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax
regime.
 The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, for EO 226 149 also
has provisions to contend with. These two regimes are in fact incompatible and cannot be availed of
simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it
from all taxes.
 APPLICATION: Therefore, respondent can be considered exempt, not from the VAT, but only from the payment
of income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise.
Besides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local and national taxes
imposable upon business establishments within the ecozone cannot outrightly determine a VAT exemption. Being
subject to VAT, payments erroneously collected thereon may then be refunded or credited.
DISPOSITIVE: Petition denied, judgment affirmed.
NOTES:
RE REGISTRATION
 Registration is an indispensable requirement under our VAT law.
 The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue laws
and regulations the equipment·including capital goods· that registered enterprises will use, directly or indirectly,
in manufacturing. EO 226 even reiterates this privilege among the incentives it gives to such enterprises Petitioner
merely asserts that by virtue of the PEZA registration alone of respondent, the latter is not subject to the VAT.
Consequently, the capital goods and services respondent has purchased are not considered used in the VAT
business, and no VAT refund or credit is due. This is a non sequitur. By the VAT’s very nature as a tax on
consumption, the capital goods and services respondent has purchased are subject to the VAT, although at zero
rate. Registration does not determine taxabil-ity under the VAT law.
 The BIR regulations additionally requiring an approved prior application for effective zero rating cannot
prevail over the clear VAT nature of respondent’s transactions
 First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot
purport to do any more than interpret the latter.
 Second, grantia argumenti that such an application is required by law, there is still the presumption of
regularity in the performance of official duty.
 Third, even though such an application was not made, all the special laws we have tackled exempt
respondent not only from internal revenue laws but also from the regulations issued pursuant thereto.
RE COMPLIANCE OF VAT REFUND/CREDIT REQUIREMENTS
 As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or
credit.
 First, respondent is a VAT-registered entity.
 Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not
been offset against any output taxes.
 And third, no question as to either the filing of such claims within the prescriptive period or the validity of the VAT
returns has been raised.
ADDITIONAL RULINGS RE EXEMPT TRANSACTION AND EXEMPT PARTY
 Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that those falling
under PD 66 are not. PD 66 is the precursor of RA 7916· the special law under which respondent was registered.
The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT;
respondent is required to register.
 Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent, depending
again on the application of the destination principle.
 Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption
under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate, because the ecozone within
which it is registered is managed and operated by the PEZA as a separate customs territory. This means that in
such zone is created the legal fiction of foreign territory. Under the cross-border principle of the VAT system being
enforced by the Bureau of Internal Revenue (BIR), 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. If exports of goods and services
from the Philippines to a foreign country are free of the VAT, then the same rule holds for such exports from the
national territory·except specifically declared areas·to an ecozone.
 Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports
to a foreign country; conversely, sales by a PEZAregistered entity to a VAT-registered person in the customs
territory are deemed imports from a foreign country. An ecozone·indubitably a geographical territory of the
Philippines·is, however, regarded in law as foreign soil. This legal fiction is necessary to give meaningful effect to
the policies of the special law creating the zone. If respondent is located in an export processing zone within that
ecozone, sales to the export processing zone, even without being actually exported, shall in fact be viewed as
constructively exported under EO 226. Considered as export sales, such purchase transactions by respondent
would indeed be subject to a zero rate.
SUMMARY
 To summarize, special laws expressly grant preferential tax treatment to business establishments registered and
operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is
exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the
income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its
registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for
export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the
effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with
all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased,
respondent is entitled to such VAT refund or credit.

4. CIR vs Benguet Corp

G.R. Nos. 134587 & 134588 July 8, 2005

• This is a petition for the review of a consolidated Decision of the Former Fourteenth Division of the Court of
Appeals ordering the CIR to award tax credits to Benguet Corporation in the amount corresponding to the input value
added taxes that the latter had incurred in relation to its sale of gold to the Central Bank during the period of 01 August
1989 to 31 July 1991.

• Respondent Benguet Corporation is a domestic corporation organized and existing by virtue of Philippine laws, engaged
in the exploration, development and operation of mineral resources, and the sale or marketing thereof to various
entities. They are a value added tax (VAT) registered enterprise.

• Under Sec. 99 of the National Internal Revenue Code (NIRC), as amended by Executive Order (E.O.) No. 273 s. 1987, then
in effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods is liable for output VAT at rates of either 10% or
0% ("zero-rated") depending on the classification of the transaction under Sec. 100 of the NIRC. Persons registered
under the VAT system7 are allowed to recognize input VAT, or the VAT due from or paid by it in the course of its trade
or business on importation of goods or local purchases of goods or service, including lease or use of properties, from
a VAT-registered person.8
FACTS:

• The transactions in question occurred during the period between 1988 and 1991.

• In January of 1988, respondent applied for and was granted by the BIR zero-rated status on its sale of gold to Central
Bank.

• On 28 August 1988, the CIR issued VAT Ruling No. 3788-88, which declared that "[t]he sale of gold to Central Bank is
considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by Executive Order
No. 273."

• The BIR came out with at least six (6) other issuances reiterating the zero-rating of sale of gold to the Central
Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February 1990.

• Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank during the period of
1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject
sales of gold.

• It then filed applications for tax refunds/credits corresponding to input VAT for the amounts of ₱46,177,861.12,
₱19,218,738.44, and ₱84,909,247.96.

• Respondent’s applications were either unacted upon or expressly disallowed by petitioner. In addition, petitioner issued
a deficiency assessment against respondent when, after applying respondent’s creditable input VAT costs against the
retroactive 10% VAT levy, there resulted a balance of excess output VAT.18

• The express disallowance of respondent’s application for refunds/credits and the issuance of deficiency assessments
against it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated 23 January 1992-that was issued subsequent to
the consummation of the subject sales of gold to the Central Bank which provides that sales of gold to the Central Bank
shall not be considered as export sales and thus, shall be subject to 10% VAT. In addition, BIR VAT Ruling No. 008-92
withdrew, modified, and superseded all inconsistent BIR issuances. The relevant portions of the ruling provides, thus:

1. In general, for purposes of the term "export sales" only direct export sales and foreign currency denominated sales, shall
be qualified for zero-rating.

....

4. Local sales of goods, which by fiction of law are considered export sales (e.g., the Export Duty Law considers sales of
gold to the Central Bank of the Philippines, as export sale). This transaction shall not be considered as export sale for VAT
purposes.

....

[A]ll Orders and Memoranda issued by this Office inconsistent herewith are considered withdrawn, modified or
superseded." (Emphasis supplied)

• The BIR also issued VAT Ruling No. 059-92 and Revenue Memorandum Order No. 22-92 which decreed that the
revocation of VAT Ruling No. 3788-88 by VAT Ruling No. 008-92 would not unduly prejudice mining companies and,
thus, could be applied retroactively.

• Respondent filed three separate petitions for review with the Court of Tax Appeals (CTA).
• In the three cases:

Respondent’s contentions:

1. retroactive application of BIR VAT Ruling No. 008-92 would violate Sec. 246 of the NIRC, which mandates the non-
retroactivity of rulings or circulars issued by the Commissioner of Internal Revenue that would operate to prejudice
the taxpayer.

2. then discussed in detail the manner and extent by which it was prejudiced by this retroactive application.

Petitioner on the other hand

3. maintained that BIR VAT Ruling No. 008-92 is, firstly, not void and entitled to great respect, having been issued by the
body charged with the duty of administering the VAT law

4. secondly, it may validly be given retroactive effect since it was not prejudicial to respondent.

• In three separate decisions, the CTA dismissed respondent’s respective petitions. It held, with Presiding Judge Ernesto
D. Acosta dissenting, that no prejudice had befallen respondent by virtue of the retroactive application of BIR VAT Ruling
No. 008-92, and that, consequently, the application did not violate Sec. 246 of the NIRC.

• The CTA decisions were appealed by respondent to the Court of Appeals. The Court of Appeals, after evaluating the
arguments of the parties, rendered the questioned Decision reversing the Court of Tax Appeals insofar as the latter had
ruled that BIR VAT Ruling No. 008-92 did not prejudice the respondent and that the same could be given retroactive
effect.

The Court of appeals in its in its decision:

• They held that respondent suffered financial damage equivalent to the sum of the disapproved claims. It stated that had
respondent known that such sales were subject to 10% VAT, which rate was not the prevailing rate at the time of the
transactions, respondent would have passed on the cost of the input taxes to the Central Bank.

• It also ruled that the remedies which the CTA supposed would eliminate any resultant prejudice to respondent were not
sufficient palliatives as the monetary values provided in the supposed remedies do not approximate the monetary
values of the tax credits that respondent lost after the implementation of the VAT ruling in question. It cited Manila
Mining Corporation v. Commissioner of Internal Revenue,23 in which the Court of Appeals held24 that BIR VAT Ruling No.
008-92 cannot be given retroactive effect.

• Lastly, the Court of Appeals observed that R.A. 7716, the "The New Expanded VAT Law," reveals the intent of the
lawmakers with regard to the treatment of sale of gold to the Central Bank since the amended version therein of Sec.
100 of the NIRC expressly provides that the sale of gold to the Bangko Sentral ng Pilipinas is an export sale subject to 0%
VAT rate. The appellate court thus allowed respondent’s claims, decreeing in its dispositive portion, viz:

• (WHEREFORE, the appealed decision is hereby REVERSED. The respondent Commissioner of Internal Revenue is ordered
to award tax credits to petitioner.)

• Dissatisfied with the above ruling, petitioner filed the instant Petition for Review questioning the determination of the
Court of Appeals that the retroactive application of the subject issuance was prejudicial to respondent and could not be
applied retroactively.
ISSUES:

1 Whether or not Benguet’s sale of gold to the Central Bank during the
period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after the
consummation of the transactions involved;

RULING1: NO.
During the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by
Benguet ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for relying on the
BIRs interpretation of the said laws and regulations.

While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on account of
the errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous
interpretation of law, these principles must give way to
exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the ABS-CBN case).

ISSUE 2: Whether or not there was prejudice to Benguet Corp due to the new BIR VAT Ruling.

• RULING: YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the
amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a
zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10%
rate. Thus, it is clear that Benguet suffered economic prejudice when it consummated sales of gold to the Central
Bank were taken out of the zero-rated category. The change in the VAT rating of Benguet’s transactions with the
Central Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover
input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central
Bank, with the total prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the
Central Bank.

• Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this relief
would only address Benguet’s overpayment of income tax but not the other burdens discussed above. Verily, this
remedy is not a feasible option for Benguet because the very reason why it was issued a deficiency tax assessment is
that its input VAT
• was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and
cumbersome refund process is prejudice enough.

Important notes:

In a long line of cases, this Court has affirmed that the rulings, circular, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the
taxpayers. In fact, both petitioner and respondent agree that the retroactive application of VAT Ruling No. 008-92 is valid
only if such application would not be prejudicial to the respondent– pursuant to the explicit mandate under Sec. 246 of
the NIRC, thus:

• Sec. 246. Non-retroactivity of rulings.- Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Section or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to
the taxpayers except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from
his return on any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different form the facts on which the ruling is based; or (c)
where the taxpayer acted in bad faith.
• In that regard, petitioner submits that respondent would not be prejudiced by a retroactive application; respondent
maintains the contrary. Consequently, the determination of the issue of retroactivity hinges on whether respondent
would suffer prejudice from the retroactive application of VAT Ruling No. 008-92.

• VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, exchange or lease of
goods or properties and rendition of services in the course of trade or business, or the importation of goods. It is an
indirect tax, which may be shifted to the buyer, transferee, or lessee of the goods, properties, or services. However,
the party directly liable for the payment of the tax is the seller.

• In transactions taxed at a 10% rate, when at the end of any given taxable quarter the output VAT exceeds the input
VAT, the excess shall be paid to the government; when the input VAT exceeds the output VAT, the excess would be
carried over to VAT liabilities for the succeeding quarter or quarters.37 On the other hand, transactions which are
taxed at zero-rate do not result in any output tax. Input VAT attributable to zero-rated sales could be refunded or
credited against other internal revenue taxes at the option of the taxpayer.38

• To illustrate, in a zero-rated transaction, when a VAT-registered person ("taxpayer") purchases materials from his
supplier at ₱80.00, ₱7.3039 of which was passed on to him by his supplier as the latter’s 10% output VAT, the taxpayer
is allowed to recover ₱7.30 from the BIR, in addition to other input VAT he had incurred in relation to the zero-rated
transaction, through tax credits or refunds. When the taxpayer sells his finished product in a zero-rated transaction, say,
for ₱110.00, he is not required to pay any output VAT thereon. In the case of a transaction subject to 10% VAT, the
taxpayer is allowed to recover both the input VAT of ₱7.30 which he paid to his supplier and his output VAT of ₱2.70
(10% the ₱30.00 value he has added to the ₱80.00 material) by passing on both costs to the buyer. Thus, the buyer pays
the total 10% VAT cost, in this case ₱10.00 on the product.

• In both situations, the taxpayer has the option not to carry any VAT cost because in the zero-rated transaction, the
taxpayer is allowed to recover input tax from the BIR without need to pay output tax, while in 10% rated VAT, the
taxpayer is allowed to pass on both input and output VAT to the buyer. Thus, there is an elemental similarity between
the two types of VAT ratings in that the taxpayer has the option not to take on any VAT payment for his transactions by
simply exercising his right to pass on the VAT costs in the manner discussed above.

• Proceeding from the foregoing, there appears to be no upfront economic difference in changing the sale of gold to the
Central Bank from a 0% to 10% VAT rate provided that respondent would be allowed the choice to pass on its VAT costs
to the Central Bank.

APPLICATION:

• In this case, the retroactive application of VAT Ruling No. 008-92 unilaterally forfeited or withdrew this option of
respondent. The adverse effect is that respondent became the unexpected and unwilling debtor to the BIR of the
amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a
zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate.

• Thus, it is clear that respondent suffered economic prejudice when its consummated sales of gold to the Central Bank
were taken out of the zero-rated category. The change in the VAT rating of respondent’s transactions with the Central
Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT,
and at the same time subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total
prejudice in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.

DISPOSITIVE PORTION:

• WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals is AFFIRMED. No
pronouncement as to costs. SO ORDERED.
5. Contex Corporation vs CIR (effects re VAT exempt status)
Nature: The CTA had ordered the Commissioner of Internal Revenue (CIR) to refund the sum of P683,061.90 to
petitioner as erroneously paid input value-added tax (VAT) or in the alternative, to issue a tax credit certificate for said
amount. Petitioner also assails
the appellate court’s Resolution, dated December 19, 2001, denying the motion for reconsideration.

FACTS:
 Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments
and other hospital supplies for export.
o Its place of business is at the Subic Bay Freeport Zone (SBFZ).
o It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport
Enterprise.
 As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes except for
the preferential tax provided for in Section 12 (c) of Rep. Act No. 7227.
 Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer.
 From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in
the conduct of its manufacturing business.
o The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items, which led the
petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998,
respectively.
 Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No.
7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto Carlos,
revenue district officer of BIR RDO No. 19, denied the first application letter.
 Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this time
directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4.
o The second letter sought a refund or issuance of a tax credit certificate in the amount of P1,108,307.72,
representing erroneously paid input VAT for the period January 1, 1997 to November 30, 1998.
 When no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to the
Court of Tax Appeals.
o Petitioner stressed that Section 112(A) if read in relation to Section 106(A)(2)(a) of the National Internal
Revenue Code, as amended and Section 12(b) and (c) of Rep. Act No. 7227 would show that it was not
liable in any way for any value-added tax.
o Petitioner stressed that Section 112(A) if read in relation to Section 106(A)(2)(a) of the National Internal
Revenue Code, as amended and Section 12(b) and (c) of Rep. Act No. 7227 would show that it was not
liable in any way for any value-added tax.
 The CTA partially granted the petition.
o In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of
the Tax Code.
o The tax court stressed that these provisions apply only to those entities registered as VAT taxpayers
whose sales are zero-rated. Petitioner does not fall under this category, since it is a non-VAT taxpayer as
evidenced by the Certificate of Registration RDO Control No. 95-180-000133 issued by RDO Rosemarie
Ragasa of BIR RDO No. 18 of the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant to
Rep. Act No. 7227, said the CTA.
o Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its
purchases of supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the
Implementing Rules and Regulations of the Bases Conversion and Development Act of 1992, all that
petitioner is required to pay as a SBFZ registered enterprise is a 5% preferential tax.
o The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being
barred by the two-year prescriptive period under Section 229 of the Tax Code. The tax court also limited
 the refund only to the input VAT paid by the petitioner on the supplies and materials directly used by
the petitioner in the manufacture of its goods.
 Respondent CIR then filed a petition for review of the CTA decision by the Court of Appeals.
o Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was limited only to
direct taxes and not to indirect taxes such as the input component of the VAT.
o The Commissioner pointed out that from its very nature, the value-added tax is a burden passed on by a
VAT registered person to the end users; hence, the direct liability for the tax lies with the suppliers and
not Contex.
 The CA reversed the decision of the CTA.
o In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the
importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No.
7227 and its implementing rules covers only “the VAT imposable under Section 107 of the [Tax Code],
which is a direct liability of the importer, and in no way includes the value-added tax of the seller
exporter the burden of which was passed on to the importer as an additional costs of the goods.”
o This was because the exemption granted by Rep. Act No. 7227 relates to the act of importation and
Section 107 of the Tax Code specifically imposes the VAT on importations.
o The appellate court applied the principle that tax exemptions are strictly construed against the taxpayer.
o The Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the
exemption of SBFZ-registered enterprises from internal revenue taxes is qualified as pertaining only to
those for which they may be directly liable. It then stated that apparently, the legislative intent behind
Rep. Act No. 7227 was to grant exemptions only to direct taxes, which SBFZ registered enterprise may
be liable for and only in connection with their importation of raw materials, capital, and equipment as
well as the sale of their goods and services.
 Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied.
 Hence, the instant petition.

ISSUE: WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE TAXES PROVIDED IN
REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON
ITS PURCHASES OF SUPPLIES AND MATERIALS.

RULING: YES
 Petitioner argues that the appellate court’s restrictive interpretation of petitioner’s VAT exemption as limited to
those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis.
o It contends that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local
and national taxes shall be imposed upon SBFZregistered firms and hence, said law should govern the
case.
o Petitioner calls our attention to regulations issued by both the SBMA and BIR clearly and categorically
providing that the tax exemption provided for by Rep. Act No. 7227 includes exemption from the
imposition of VAT on purchases of supplies and materials.
 Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the
transaction can have preferential treatment in the following ways:
o VAT Exemption. An exemption means that the sale of goods or properties and/or services and the use
or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on
VAT (input tax) previously paid.
 This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale,
barter or exchange of the goods or properties).
 The person making the exempt sale of goods, properties or services shall not bill any output tax
to his customers because the said transaction is not subject to VAT.
 On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services
which are exempt from VAT is not entitled to any input tax on such purchase despite the
issuance of a VAT invoice or receipt.
 o Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the
tax burden is not passed on to the purchaser.
 A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax.
 However, the input tax on his purchases of goods, properties or services related to such zero-
rated sale shall be available as tax credit or refund in accordance with these regulations.
 Under Zero-rating, all VAT is removed from the zerorated goods, activity or firm.
 In contrast, exemption only removes the VAT at the exempt stage, and it will actually increase, rather than
reduce the total taxes paid by the exempt firm’s business or nonretail customers.
 It is for this reason that a sharp distinction must be made between zero-rating and exemption in designating a
value-added tax.
APPLICATION:
 Apropos, the petitioner’s claim to VAT exemption in the instant case for its purchases of supplies and raw
materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them from
all national and local internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No.
1-95.
 On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the
respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration issued by the
BIR.
 As such, it is exempt from VAT on all its sales and importations of goods and services.

ISSUE: Whether or not the petitioner may claim a refund on the Input VAT erroneously passed on to it by its suppliers.

RULING: NO
 Petitioner’s claim, however, for exemption from VAT for its purchases of supplies and raw materials is
incongruous with its claim that it is VAT-Exempt, for only VATRegistered entities can claim Input VAT
Credit/Refund.
 While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its
supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to
claim such VAT refund.
 Section 4.100-2 of BIR’s Revenue Regulations 7-95, as amended, or the “Consolidated Value-Added Tax
Regulations” provide:
o Sec. 4.100-2. Zero-rated Sales.·A zero-rated sale by a VATregistered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund
in accordance with these regulations.
The following sales by VAT-registered persons shall be subject to 0%:
A. Export Sales
“Export Sales” shall mean
...
5. Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227,
otherwise known as the Bases Conversion and Development Act of 1992.
...
C. Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly
registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development
Authority (CDA), R.A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements,
e.g. Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the Philippines
is a signatory effectively subject such sales to zero-rate.”
 Since the transaction is deemed a zero-rated sale, petitioner’s supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.
  As an exempt VAT taxpayer it is not allowed any tax credit on VAT (input tax) previously paid. In fine, even if we
are to assume that exemption from the burden of VAT on petitioner’s purchases did exist, petitioner is still not
entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VAT taxpayer.
 Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and accordingly refund
the petitioner of the VAT erroneously passed on to the latter.
 Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that
petitioner’s VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller
and hence, it cannot claim any refund or exemption for any input VAT it paid, if any, on its purchases of raw
materials and supplies.

DISPOSITION: WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court
of Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No pronouncement
as to costs.
SO ORDERED.

NOTES:
 At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods,
properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or
lessor to the buyer, transferee or lessee.
o Unlike a direct tax, such as the income tax, which primarily taxes an individual’s ability to pay based on
his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or
certain transactions involving the same.
o The VAT, thus, forms a substantial portion of consumer expenditures.
 Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the
tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer.
o What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or
including the VAT due to the selling price, the seller remains the person primarily and legally liable for
the payment of the tax.
o What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the
tax.
o Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the
VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax.
o It is the final purchaser or consumer of such goods or services who, although not directly and legally
liable for the payment thereof, ultimately bears the burden of the tax.

6. CIR vs Cebu Toyo (0 rated vs tax exempt)

Facts:

 Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various
optical components used in television sets, cameras, compact discs and other similar devices. Its principal office
is located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a subsidiary of Toyo Lens
Corporation, a non-resident corporation organized under the laws of Japan.
o Respondent is a zone export enterprise registered with the Philippine Economic Zone Authority
(PEZA). It is also registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.
 As an export enterprise, respondent sells 80% of its products to its mother corporation, the Japan-based Toyo
Lens Corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing
business in the MEPZ.
 Inasmuch as both sales are considered export sales subject to Value-Added Tax (VAT) at 0% rate under Section
106(A)(2)(a) of the National Internal Revenue Code, as amended, respondent filed its quarterly VAT returns from
April 1, 1996 to December 31, 1997 showing a total input VAT of P4,462,412.63.
 respondent filed with the Tax and Revenue Group of the One-Stop Inter-Agency Tax Credit and Duty Drawback
Center of the Department of Finance, an application for tax credit/refund of VAT paid for the period April 1,
1996 to December 31, 1997 amounting to P4,439,827.21 representing excess VAT input payments.
 Respondent, however, did not bother to wait for the Resolution of its claim by the CIR. Instead, on June 26,
1998, it filed a Petition for Review with the CTA to toll the running of the two-year prescriptive period pursuant
to Section 230 of the Tax Code.
 The respondent posits that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0% on its
export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods
and services related to such zero-rated activities are available as tax credits or refunds.
 The petitioners position is that respondent was not entitled to a refund or tax credit since:
o (1) it failed to show that the tax was erroneously or illegally collected;
o (2) the taxes paid and collected are presumed to have been made in accordance with law; and
o (3) claims for refund are strictly construed against the claimant as these partake of the nature of tax
exemption.
 the CTA denied the petition for insufficiency of evidence.
o The tax court sustained respondents argument that it was a VAT-registered entity. It also found that the
petition was timely, as it was filed within the prescription period.
o also ruled that the respondents sales to Toyo Lens Corporation and to certain establishments in the
Mactan Export Processing Zone were export sales subject to VAT at 0% rate. It found that the input VAT
covered by respondents claim was not applied against any output VAT.
o However, the tax court decreed that the petition should nonetheless be denied because of the
respondents failure to present documentary evidence to show that there were foreign currency
exchange proceeds from its export sales. The CTA also observed that respondent failed to submit the
approval by BSP of its Agreement of Offsetting with Toyo Lens Corporation and the certification of
constructive inward remittance.
 respondent filed MR arguing that:
o (1) proof of its inward remittance was not required by law;
o (2) BSP and BIR regulations do not require BSP approval on its Agreement of Offsetting nor do they
require certification on the amount constructively remitted;
o (3) it was not legally required to prove foreign currency payments on the remaining sales to MEPZ
enterprises; and
o (4) it had complied with the substantiation requirements under Section 106(A)(2)(a) of the Tax Code.
Hence, it was entitled to a refund of unutilized VAT input tax.
 TAX COURT PARTLY GRANTED the MR.
o Respondent is hereby ordered to refund or to issue a tax credit certi to petitioner
o the tax court found that there was no need for BSP approval of the Agreement of Offsetting since the
same may be categorized as an inter-company open account offset arrangement. Hence, the respondent
need not present proof of foreign currency exchange proceeds from its sales to MEPZ enterprises
pursuant to Section 106(A)(2)(a) of the Tax Code.
o However, the CTA stressed that respondent must still prove that there was an actual offsetting of
accounts to prove that constructive foreign currency exchange proceeds were inwardly remitted as
required under Section 106(A)(2)(a).
o It found that only the amount of Y274,043,858.00 covering respondents sales to Toyo Lens Corporation
and purchases from said mother company for the period August 7, 1996 to August 26, 1997 were
actually offset against respondents related accounts receivable and accounts payable as shown by the
Agreement for Offsetting dated August 30, 1997. Resort to the respondents Accounts Receivable and
Accounts Payable subsidiary ledgers corroborated the amount.
o The tax court also found that out of the total export sales for the period April 1, 1996 to December 31,
1997 amounting to Y700,654,606.15, respondents sales to MEPZ enterprises amounted only
to Y136,473,908.05 of said total. Thus, allocating the input taxes supported by receipts to the export
sales, the CTA determined that the refund/credit amounted to only P2,158,714.46.
 Petitioner filed a MR on June 21, 2000 based on the following theories:
 o (1) that respondent being registered with the PEZA as an ecozone enterprise is not subject to VAT
pursuant to Sec. 24 of Rep. Act No. 7916; and
o (2) since respondents business is not subject to VAT, the capital goods it purchased are considered not
used in a VAT taxable business and therefore is not entitled to a refund of input taxes.
 CTA denied MR.
o grounds relied upon were only raised for the first time and
o that Section 24 of Rep. Act No. 7916 was not applicable since respondent has availed of the income tax
holiday incentive under EO No. 226 or the Omnibus Investment Code of 1987 pursuant to Section 23 of
Rep. Act No. 7916.
o The tax court pointed out that E.O. No. 226 granted PEZA-registered enterprises an exemption from
payment of income taxes for 4 or 6 years depending on whether the registration was as a pioneer or as
a non-pioneer enterprise, but subject to other national taxes including VAT.
 The petitioner then filed a Petition for Review with the CA, praying for the reversal of the CTA Resolutions and
reiterating its claim that respondent is not entitled to a refund of input taxes since it is VAT-exempt. CA decided
in favor of respondents.
o found no reason to set aside the conclusions of the Court of Tax Appeals.
o It agreed with the ruling of the tax court that respondent had two options under Section 23 of Rep. Act
No. 7916, namely:
 (1) to avail of an income tax holiday under E.O. No. 226 and be subject to VAT at the rate of 0%;
or
 (2) to avail of the 5% preferential tax under P.D. No. 66 and enjoy VAT exemption.
 Since respondent availed of the incentives under E.O. No. 226, then the 0% VAT rate would be
applicable to it and any unutilized input VAT should be refunded to respondent upon proper
application with and substantiation by the BIR.
 Hence this petition
 CIR and the OSG argue that respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from
national and local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus,
they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on input taxes it
previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95, notwithstanding its
registration as a VAT taxpayer.
 The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August
7, 1995 making it exempt from income tax but not from other taxes such as VAT.
o According to respondent, its export sales are not exempt from VAT, contrary to petitioners claim, but its
export sales is subject to 0% VAT. Moreover, it argues that it was able to establish through a report
certified by an independent CPA that the input taxes it incurred from April 1, 1996 to December 31,
1997 were directly attributable to its export sales. Since it did not have any output tax against which said
input taxes may be offset, it had the option to file a claim for refund/tax credit of its unutilized input
taxes.

Issue: Whether or not respondent is subject to VAT at 0% rate and is entitled to a refund or credit of the unutilized input
taxes?
Ruling: YES.
 Petitioners contention that respondent is not entitled to refund for being exempt from VAT is untenable.
 This argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23
of Rep. Act No. 7916.
 Note that under said statute, the respondent had two options with respect to its tax burden.
o 1. It could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from
income taxes for a number of years but not from other internal revenue taxes such as VAT; or
o 2. it could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under Rep. Act No. 7916.
o Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the income tax
holiday for 4 years starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual
 Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under
E.O. No. 226.
 Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is
engaged in taxable rather than exempt transactions.
 Taxable transactions are those transactions which are subject to value-added tax either at the rate of 10% or 0%.
In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and
leases of goods, properties or services.
 An exemption means that the sale of goods, properties or services and the use or lease of properties is not
subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The
person making the exempt sale of goods, properties or services shall not bill any output tax to his customers
because the said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods, properties or
services that are VAT-exempt, is not entitled to any input tax on such purchases despite the issuance of a VAT
invoice or receipt.
 It must be recalled that generally, sale of goods and supply of services performed in the Philippines are taxable
at the rate of 10%. However, export sales, or sales outside the Philippines, shall be subject to value-added tax at
0% if made by a VAT-registered person.
 Under the value-added tax system, a zero-rated sale by a VAT-registered person, which is a taxable transaction
for VAT purposes, shall not result in any output tax. However, the input tax on his purchase of goods, properties
or services related to such zero-rated sale shall be available as tax credit or refund.
 In principle, the purpose of applying a 0% rate on a taxable transaction is to exempt the transaction completely
from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free of
VAT. While the zero rating and the exemption are computationally the same, they actually differ in several
aspects, to wit:
o (a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted
transaction is not subject to the output tax;
o (b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as
tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or receipt.
o (c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register
while registration is optional for VAT-exempt persons.

Application:
 In this case, it is undisputed that respondent is engaged in the export business and is registered as a VAT
taxpayer per Certificate of Registration of the BIR. Further, the records show that the respondent is subject to
VAT as it availed of the income tax holiday under E.O. No. 226. Perforce, respondent is subject to VAT at 0% rate
and is entitled to a refund or credit of the unutilized input taxes, which the Court of Tax Appeals computed
at P2,158,714.46, but which we find after recomputation should be P2,158,714.52.
 WHEREFORE, the petition is DENIED for lack of merit.

7. CIR vs American Express Intl (Destination Principle)

G.R. No. 152609 June 29, 2005
PANGANIBAN, J.:

FACTS:
 Respondent is a Philippine branch of American Express International, Inc., a corporation duly organized and
existing under and by virtue of the laws of the State of Delaware, U.S.A., with office in the Philippines
o It is a servicing unit of American Express International, Inc. - Hongkong Branch (Amex-HK) and is engaged
primarily to facilitate the collections of Amex-HK receivables from card members situated in the
Philippines and payment to service establishments in the Philippines.
  Amex Philippines registered itself with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer
effective March 1988 and was issued VAT Registration Certificate No. 088445 bearing VAT Registration No. 32A-
3-004868.
 For the period January 1, 1997 to December 31, 1997, [respondent] filed with the BIR its quarterly VAT
 "On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess input taxes
in the amount of ₱3,751,067.04.
o amount was arrived at after deducting from its total input VAT paid of ₱3,763,060.43 its applied output
VAT liabilities only for the third and fourth quarters of 1997 amounting to ₱5,193.66 and ₱6,799.43,
respectively.
 There being no immediate action on the part of the [petitioner], [respondent’s] petition was filed on April 15,
1999.
 "In support of its Petition for Review, the following arguments were raised by [respondent]:
 Export sales by a VAT-registered person, the consideration for which is paid for in acceptable foreign currency
inwardly remitted to the Philippines and accounted for in accordance with existing regulations of the Bangko
Sentral ng Pilipinas, are subject to [VAT] at zero percent (0%).
 According to [respondent], being a VAT-registered entity, it is subject to the VAT imposed under Title IV of the
Tax Code
 In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent portion of which
reads as follows:
o
as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted
inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central
[B]ank of the Philippines, your service income is automatically zero rated effective January 1, 1998.
[Section 102(a)(2) of the Tax Code as amended].
o For this, there is no need to file an application for zero-rate.
 "[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and Affirmative Defenses that:
o The claim for refund is subject to investigation by the Bureau of Internal Revenue;
o Taxes paid and collected are presumed to have been made in accordance with laws and regulations,
hence, not refundable.
o Claims for tax refund are construed strictly against the claimant as they partake of the nature of tax
exemption from tax and it is incumbent upon the [respondent] to prove that it is entitled thereto under
the law and he who claims exemption must be able to justify his claim by the clearest grant of organic or
statu[t]e law.
 From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a decision7 in favor of
the herein respondent holding that its services are subject to zero-rate pursuant to Section 108(b) of the Tax
Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations 5-96.
 Ruling of the Court of Appeals
o In affirming the CTA, the CA held that respondent’s services fell under the first type enumerated in
Section 4.102-2(b)(2) of RR 7-95, as amended by RR 5-96.
o the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring that
respondent’s services be consumed abroad in order to be zero-rated, petitioner went beyond the
sphere of interpretation and into that of legislation.
o Even granting that it is valid, the ruling cannot be given retroactive effect, for it will be harsh and
oppressive to respondent, which has already relied upon VAT Ruling No. 080-89 for zero rating.
 Hence, this Petition.

ISSUE: Whether or not the destination principle applies?

 No, this case falls squarely as one exception to the destination principle.
 The VAT is a tax on consumption expressed as a percentage of the value added to goods or services purchased
by the producer or taxpayer.
 As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all
kinds of services conducted in the course of trade or business in the Philippines.
  These services must be regularly conducted in this country; undertaken in pursuit of a commercial or an
economic activity; for a valuable consideration; and not exempt under the Tax Code, other special laws, or any
international agreement.
 As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the
tax.
o Goods and services are taxed only in the country where they are consumed.
o Thus, exports are zero-rated, while imports are taxed.
 The law clearly provides for an exception to the destination principle;
o that is, for a zero percent VAT rate for services that are performed in the Philippines, paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP].
o Thus, for the supply of service to be zero-rated as an exception, the law merely requires that first, the
service be performed in the Philippines; second, the service fall under any of the categories in Section
102(b) of the Tax Code; and, third;,it be paid in acceptable foreign currency accounted for in accordance
with BSP rules and regulations.
 The law neither makes a qualification nor adds a condition in determining the tax situs of a
 zero-rated service.
 Under this criterion, the place where the service is rendered determines the jurisdiction to impose the VAT.
 Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to
have a substantial connection to it, in order to enforce a zero rate.
 The place of payment is immaterial; much less is the place where the output of the service will be further or
ultimately used.
APPLICATION:
 Indeed, these three requirements for exemption from the destination principle are met by respondent.
 Its facilitation service is performed in the Philippines.
 It falls under the second category found in Section 102(b) of the Tax Code, because it is a service other than
"processing, manufacturing or repacking of goods" as mentioned in the provision.
 Undisputed is the fact that such service meets the statutory condition that it be paid in acceptable foreign
currency duly accounted for in accordance with BSP rules.
 Thus, it should be zero-rated.

ISSUE: Whether or not the respondent’s income earned from parent company is zero-rated?
RULING:
 Yes, respondent’s income earned is zero rated.
 Under the last paragraph quoted above, services performed by VAT-registered persons in the Philippines (other
than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines),
when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BSP, are zero-rated.
 Respondent is a VAT-registered person that facilitates the collection and payment of
 receivables belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in conformity with BSP rules and regulations.
 Certainly, the service it renders in the Philippines is not in the same category as processing, manufacturing or
repacking of good and should, therefore, be zero-rated. In reply to a query of respondent, the BIR opined in VAT
Ruling No. 080-89 that the income respondent earned from its parent company’s regional operating centers
(ROCs) was automatically zero-rated effective January 1, 1988.

DISPOSITIVE PORTION: WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No
pronouncement as to costs.
NOTES:
 As a general rule, the value-added tax (VAT) system uses the destination principle.
 However, our VAT law itself provides for a clear exception, under which the supply of service shall be zero-rated
when the following requirements are met:
o the service is performed in the Philippines;
o the service falls under any of the categories provided in Section 102(b) of the Tax Code;
o it is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of
the Bangko Sentral ng Pilipinas.
o Since respondent’s services meet these requirements, they are zero-rated. Petitioner’s Revenue
Regulations that alter or revoke the above requirements are ultra vires and invalid.

 ‘Section 102.(sic) Value-added tax on sale of services.- (a) Rate and base of tax. - There shall be levied, assessed
and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in
the sale of services. The phrase "sale of services" means the performance of all kinds of services for others for a
fee, remuneration or consideration, including those performed or rendered by construction and service
contractors: stock, real estate, commercial, customs and immigration brokers; lessors of personal property;
lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of whether o[r] not the performance thereof calls for
the exercise or use of the physical or mental faculties: Provided That the following services performed in the
Philippines by VAT-registered persons shall be subject to 0%:
o (1) x x x
o (2) Services other than those mentioned in the preceding subparagraph, the consideration is paid for in
acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in
accordance with the rules and regulations of the BSP. x x x.’

8. CIR vs TOSHIBA( Cross Border Doctrine)

FACTS:
 Respondent Toshiba was organized and established as a domestic corporation, duly-registered with the
Securities and Exchange Commission, with the primary purpose of engaging in the business of manufacturing
and exporting of electrical and mechanical machinery, equipment, systems, accessories, parts, components,
materials and goods of all kinds, including, without limitation, to those relating to office automation and
information technology, and all types of computer hardware and software, such as HDD, CD-ROM and personal
computer printed circuit boards.
 It registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer and a withholding agent.
 Toshiba filed its VAT returns for the first and second quarters of taxable year 1996, reporting input VAT in the
amount of P13,118,542.00 and P5,128,761.94, respectively, or a total of P18,247,303.94. It alleged that the said
input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet
engaged in any business activity or transaction for which it may be liable for any output VAT.
 Toshiba filed with DOF applications for tax credit/refund of its unutilized input VAT. To toll the running of the
two-year prescriptive period for judicially claiming a tax credit/refund Toshiba, filed with the CTA a Petition for
Review.
 CTA ordered CIR to refund, or in the alternative, to issue a tax credit certificate to Toshiba in the amount of
P16,188,045.44.
 CA AFFIRMED.
ISSUE: Whether or not Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods
and services.
RULING: YES.
  An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by persons from the
Customs Territory to ECOZONE enterprises shall be subject to VAT at zero percent (0%).
 It would seem that CIR failed to differentiate between VAT-exempt transactions from VAT-exempt entities.
o An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax
status – VAT-exempt or not – of the party to the transaction…
o An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a
special law or an international agreement to which the Philippines is a signatory, and by virtue of which
its taxable transactions become exempt from VAT…
 CIR, bases its argument on VAT-exempt transactions. Since such transactions are not subject to VAT, the sellers
cannot pass on any output VAT to the purchasers of goods, properties, or services, and they may not claim tax
credit/refund of the input VAT they had paid thereon.
 This cannot apply to transactions of Toshiba because although the transactions covered by special laws may be
exempt from VAT, those falling under Presidential Decree No. 66 (EPZA) are not.
 The Philippine VAT system adheres to the Cross Border Doctrine, according to which, 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. Hence, actual export of goods and services from the Philippines to a foreign country must be free of
VAT; while, those destined for use or consumption within the Philippines shall be imposed with ten percent
(10%) VAT.
 No output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt entity. The VAT treatment
of sales to it, however, varies depending on whether the supplier from the Customs Territory is VAT-registered
or not.
 Sales of goods, properties and services by a VAT-registered supplier from the Customs Territory to an ECOZONE
enterprise shall be treated as export sales. If such sales are made by a VAT-registered supplier, they shall be
subject to VAT at zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not pass on any
output VAT to the ECOZONE enterprise, and at the same time, shall be entitled to claim tax credit/refund of its
input VAT attributable to such sales. Zero-rating of export sales primarily intends to benefit the exporter (i.e.,
the supplier from the Customs Territory), who is directly and legally liable for the VAT, making it internationally
competitive by allowing it to credit/refund the input VAT attributable to its export sales.
 Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered supplier would only be exempt
from VAT and the supplier shall not be able to claim credit/refund of its input VAT.
 Even conceding, however, that respondent Toshiba, as a PEZA-registered enterprise, is a VAT-exempt entity that
could not have engaged in a VAT-taxable business, this Court still believes, given the particular circumstances of
the present case, that it is entitled to a credit/refund of its input VAT.
 The sale of capital goods by suppliers from the Customs Territory to Toshiba took place way before the issuance
of RMC No. 74-99, and when the old rule was accepted and implemented by no less than the BIR itself.
o Since Toshiba opted to avail itself of the income tax holiday under Exec. Order No. 226, as amended,
then it was deemed subject to the ten percent (10%) VAT.
o It was very likely therefore that suppliers from the Customs Territory had passed on output VAT to
Toshiba, and the latter, thus, incurred input VAT.
 Accordingly, this Court gives due respect to and adopts herein the CTA’s findings that the suppliers of capital
goods from the Customs Territory did pass on output VAT to Toshiba and the amount of input VAT which
Toshiba could claim as credit/refund.

DISPOSITION: WHEREFORE, based on the foregoing, this Court AFFIRMS the decision of the Court of Appeals in CA-G.R.
SP. No. 59106, and the order of the CTA in CTA Case No. 5593, ordering said petitioner CIR to refund or, in the
alternative, to issue a tax credit certificate to respondent Toshiba, in the amount of P16,188,045.44, representing
unutilized input VAT for the first and second quarters of 1996.

9. CIR vs BURMEISTER
NATURE: PETITION for review on certiorari of a decision of the Court of Appeals.
Carpio, J.
FACTS: The CTA summarized the facts, which the Court of Appeals adopted, as follows:
  Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Respondent)
 is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines
with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City
 a foreign consortium composed of BSWC-Denmark, Mitsui Engineering & Shipping, Ltd. and Mitsui & Co.,
Ltd entered into a contract with NAPOCOR for the operation and maintenance of NAPOCOR’s two power
barges.
 The Consortium appointed BWSC-Denmark as its coordination manager.
 BWSC-Denmark established BWSC-Mindanao which subcontracted the actual operation and maintenance
of NAPOCOR’s two power barges as well as the performance of other duties and acts which necessarily
have to be done in the Philippines
 NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen and Peso)
 The freely convertible non-Peso component is deposited directly to the Consortium’s bank accounts in
Denmark and Japan, while the Peso-denominated component is deposited in a separate and special
designated bank account in the Philippines.
 The Consortium pays BWSC-Mindanao in foreign currency inwardly remitted to the Philippines through the
banking system.
 Respondent sought a ruling from the BIR which responded that if [respondent] chooses to register as a VAT person
and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at
zero-rate.
 Respondent chose to register as a VAT taxpayer
 For the year 1996, respondent seasonably filed its quarterly VAT Returns reflecting, among others, a total
zerorated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14.
 On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR.
 Revenue Regulations No. 5-96 provides in part thus: SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of
Revenue Regulations No. 795 are hereby amended to read as follows: Section 4.102-2(b)(2)·”Services
other than processing, manufacturing or repacking for other persons doing business outside the
Philippines for goods which are subsequently exported, as well as services by a resident to a non-resident
foreign client such as project studies, information services, engineering and architectural designs and
other similar services, the consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP.” x x x x x x x x x x.
 In conformity, respondent subjected its sale of services to the Consortium to the 10% VAT in the total amount of
P103,558,338.11 representing April to December 1996 sales since said Revenue Regulations No. 5-96 became
effective only on April 1996
 The sum of P43,893,951.07, representing January to March 1996 sales was subjected to zero rate.
 Respondent filed its 1996 amended VAT return consolidating therein the VAT output and input taxes for the four
calendar quarters of 1996.
 It paid the amount of P6,994,659.67 through BIR’s collecting agent, PCIBank, as its output tax liability for
the year 1996
 On January 7,1999, respondent was able to secure VAT Ruling No. 003-99 from the VAT Review Committee which
reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services being rendered by BWSCMI is subject to
VAT at zero percent (0%).”
 Respondent on April 22, 1999, filed a claim for the issuance of a tax credit certificate. It believed that it erroneously
paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP) of the BIR.
 On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the running of the two
year prescriptive period under the Tax Code.
 CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of respondent.
 Petitioner filed a petition for review with CA
 CA dismissed the petition for lack of merit and affirmed CTA decision
 Hence this petition
ISSUE: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year 1996
RULING: PARTIALLY. Respondent is entitled to the refund but only for the period covered prior the filing of CIR’s Answer
in the CTA.
 The Tax Code not only requires that the services be other than “processing, manufacturing or repacking of goods”
and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules.
Another essential condition for qualification to zero-rating under Section 102(b)(2) is that the recipient of such
services is doing business outside the Philippines. While this requirement is not expressly stated in the second
paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed
services must be “for other persons doing business outside the Philippines.” The phrase “for other persons doing
business outside the Philippines” not only refers to the services enumerated in the first paragraph of Section
102(b), but also pertains to the general term “services” appearing in the second paragraph of Section 102(b). In
short, services other than processing, manufacturing, or repacking of goods must likewise be performed for
persons doing business outside the Philippines.
 When Section 102(b)(2) stipulates payment in “acceptable foreign currency” under BSP rules, the law clearly
envisions the payer-recipient of services to be doing business outside the Philippines. Only those not doing
business in the Philippines can be required under BSP rules to pay in acceptable foreign currency for their purchase
of goods or services from the Philippines. In a domestic transaction, where the provider and recipient of services
are both doing business in the Philippines, the BSP cannot require any party to make payment in foreign
currency. Services covered by Section 102(b) (1) and (2) are in the nature of export sales since the payer-recipient
of services is doing business outside the Philippines. Under BSP rules, the proceeds of export sales must be
reported to the Bangko Sentral ng Pilipinas.
 Thus, there is reason to require the provider of services under Section 102(b) (1) and (2) to account for the foreign
currency proceeds to the BSP. The same rationale does not apply if the provider and recipient of the services
are both doing business in the Philippines since their transaction is not in the nature of an export sale even if
payment is denominated in foreign currency.
 APPLICATION: Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s power
barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign
currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted
and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT.
 As the Court held in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine
Branch), 462 SCRA 197 (2005), the place of payment is immaterial, much less is the place where the
output of the service is ultimately used. An essential condition for entitlement to 0% VAT under Section
102(b)(1) and (2) is that the recipient of the services is a person doing business outside the Philippines.
 In this case, the recipient of the services is the Consortium, which is doing business not outside, but within
the Philippines because it has a 15-year contract to operate and maintain NAPOCOR’s two 100-megawatt
power barges in Mindanao.
 The Court recognizes the rule that the VAT system generally follows the “destination principle” (exports are zero-
rated whereas imports are taxed). However, as the Court stated in American Express, there is an exception to this
rule. This exception refers to the 0% VAT on services enumerated in Section 102 and performed in the
Philippines. For services covered by Section 102(b)(1) and (2), the recipient of the services must be a person doing
business outside the Philippines. Thus, to be exempt from the destination principle under Section 102(b)(1) and
(2), the services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines;
and (c) paid in acceptable foreign currency accounted for in accordance with BSP rules.
 In seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-99, which reconfirmed BIR
Ruling No. 023-95 “insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent
(0%).” Respondent’s reliance on these BIR rulings binds petitioner. Petitioner’s filing of his Answer before the
CTA challenging respondent’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR
Ruling No. 023-95. However, such revocation cannot be given retroactive effect since it will prejudice respondent.
Changing respondent’s status will deprive respondent of a refund of a substantial amount representing excess
output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal
Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is
no showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.
DISPOSITIVE: WHEREFORE, the Court DENIES the petition. SO ORDERED.
NOTES:
 Section 102(b) of the Tax Code, the applicable provision in 1996 when respondent rendered the services and paid
the VAT in question, enumerates which services are zerorated, thus: (b) Transactions subject to zero-rate. – The
following services performed in the Philippines by VATregistered persons shall be subject to 0%:
1. Processing, manufacturing or repacking goods for other persons doing business outside the Philippines
which goods are subsequently exported, where the services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the preceding sub-paragraph, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
3. Services rendered to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects the supply of such services to zero rate;
4. Services rendered to vessels engaged exclusively in international shipping; and
5. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
 Under the value-added tax system, a zero-rated sale by a VAT-registered person, which is a taxable transaction
for VAT purposes, shall not result in any output tax, but the input tax on his purchase of goods, properties or
services related to such zero-rated sale shall be available as tax credit or refund. In principle, the purpose of
applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction completely from VAT
previously collected on inputs. (Commissioner of Internal Revenue vs. Cebu Toyo Corporation, 451 SCRA 447
[2005])
 The VAT is a tax on spending or consumption·it is levied on the sale, barter, exchange or lease of goods or
properties and services. Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer. (Abakada Guro Party List vs. Ermita, 469 SCRA 1 [2005])

10. CIR vs Magsaysay Lines

G.R. No. 146984 July 28, 2006

FACTS:

• Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in its wholly-
owned subsidiary the National Marine Corporation (NMC).

• The NDC decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker,
"Kloeckner" type vessels.

• The vessels were constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring
Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat
basis, to the NMC.

• The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the
public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels.”

• On 3 June 1988, Magsaysay Lines offered to buy the shares and the vessels for P168,000,000.00. The bid was made by
Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and
FIM Limited of the Marden Group based in Hongkong (collectively, private respondents).
 • The bid was approved and a Notice of Award was issued to Magsaysay Lines.

• On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and Magsaysay
Lines, Baliwag Navigation, and FIM Limited, on the other.

• By this time, a formal request for a ruling on whether or not the sale of the vessels was subject to VAT had already been
filed with the BIR by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in behalf of private respondents.

• Thus, the parties agreed that should no favorable ruling be received from the BIR, NDC was authorized to draw on the
Letter of Credit upon written demand the amount needed for the payment of the VAT on the stipulated due date, 20
December 1988.

• In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December 1988 from
the BIR, holding that the sale of the vessels was subject to the 10% VAT.

• The ruling cited the fact that NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal
VAT registered activity of leasing out personal property including sale of its own assets that are movable, tangible
objects which are appropriable or transferable are subject to the 10% [VAT]."

• Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88 (dated
18 August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry from the Chairman
of the Senate Blue Ribbon Committee.

• Their motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier
VAT rulings.

• At this point, NDC drew on the Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid
on 16 March 1989.

• On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a Supplemental
Petition for Review. They prayed for the reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as the refund of
the VAT payment made amounting to P15,120,000.00.

• The Commissioner of Internal Revenue (CIR) opposed the petition:

• first arguing that private respondents were not the real parties in interest as they were not the transferors or
sellers as contemplated in Sections 99 and 100 of the then Tax Code.

• also squarely defended the VAT rulings holding the sale of the vessels liable for VAT, especially citing Section 3
of Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that "[VAT] is imposed on any sale or transactions
‘deemed sale’ of taxable goods (including capital goods, irrespective of the date of acquisition)."

• The CIR argued that the sale of the vessels were among those transactions "deemed sale," as enumerated in
Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the Regulation, which
classified "change of ownership of business" as a circumstance that gave rise to a transaction "deemed sale."

• The CTA rejected the CIR’s arguments and granted the petition.
 • The CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDC’s
business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in
the course of trade or business.

• The CTA further held that the sale of the vessels could not be "deemed sale," and thus subject to VAT, as the
transaction did not fall under the enumeration of transactions deemed sale as listed either in Section 100(b) of
the Tax Code, or Section 4 of R.R. No. 5-87.

• Finally, the CTA ruled that any case of doubt should be resolved in favor of private respondents since Section 99
of the Tax Code which implemented VAT is not an exemption provision, but a classification provision which
warranted the resolution of doubts in favor of the taxpayer.

ISSUE:

Whether the sale by the National Development Company(NDC) of five (5) of its vessels to the private respondents is
subject to value-added tax (VAT) under the National Internal Revenue Code of 1986 (Tax Code) then prevailing at the time
of the sale.

RULING: NO. The sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both
the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered. We cite
with approval the CTA’s explanation on this point:

• In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term "carrying on
business" does not mean the performance of a single disconnected act, but means conducting, prosecuting and
continuing business by performing progressively all the acts normally incident thereof; while "doing business" conveys
the idea of business being done, not from time to time, but all the time. ”Course of business" is what is usually done in
the management of trade or business.

• What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing business" connotes
regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with
regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property.21

• Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT.

• A brief reiteration of the basic principles governing VAT is in order:

• VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed
percentage.15 It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability
therefrom is passed on to the end users by the providers of these goods or services16 who in turn may credit their own
VAT liability (or input VAT) from the VAT payments they receive from the final consumer (or output VAT).17 The final
purchase by the end consumer represents the final link in a production chain that itself involves several transactions
and several acts of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level
of consumption,18 yet assuages the manufacturers or providers of goods and services by enabling them to pass on their
respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability.

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

• This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the
primary purpose of selling real property.

Important Notes:

• Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the CIR, is
captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be levied, assessed and collected
on every sale, barter or exchange of goods, a value added tax x x x." Section 100 should be read in light of Section 99,
which lays down the general rule on which persons are liable for VAT in the first place and on what transaction if at all.
It may even be noted that Section 99 is the very first provision in Title IV of the Tax Code, the Title that covers VAT in
the law. Before any portion of Section 100, or the rest of the law for that matter, may be applied in order to subject a
transaction to VAT, it must first be satisfied that the taxpayer and transaction involved is liable for VAT in the first place
under Section 99.

• APPLICATION:

• In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court finds the
discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those involving "change of
ownership of business."

• However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the Tax Code, clarifies that such "change of ownership"
is only an attending circumstance to "retirement from or cessation of business[, ] with respect to all goods on hand [as]
of the date of such retirement or cessation."25

• Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the "change of ownership of business" as only a
"circumstance" that attends those transactions "deemed sale," which are otherwise stated in the same section.26

• WHEREFORE, the petition is DENIED. No costs. SO ORDERED.

11. CIR vs Gotamco (WHO Exemption)

Nature: The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3%
contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it realized from the
construction of the World Health Organization office building in Manila.

FACTS:
 The World Health Organization (WHO for short) is an international organization which has a regional office in
Manila.
o As an international organization, it enjoys privileges and immunities which are defined more specifically
in the Host Agreement entered into between the Republic of the Philippines and the said Organization
on July 22,1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets,
income and other properties shall be: (a) exempt from all direct and indirect taxes. It is understood,
 however, that the Organization will not claim exemption from taxes which are, in fact, no more than
charges for public utility services; . . ."
 When the WHO decided to construct a building to house its own offices, as well as the other United Nations
offices stationed in Manila, it entered into a further agreement with the Government of the Republic of the
Philippines on November 26, 1957. This agreement contained the following provision (Article III, paragraph 2):
"The Organization may import into the country materials and fixtures required for the construction free from all
duties and taxes and agrees not to utilize any portion of the international reserves of the Government."
 Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22,1951 which
granted the Organization exemption from all direct and indirect taxes.
o In inviting bids for the construction of the building, the WHO informed the bidders that the building to
be constructed belonged to an international organization with diplomatic status and thus exempt from
the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account
and should not include items for such taxes, licenses and other payments to Government agencies."
 The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on
February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price
reached a total of P452,544.00.
 Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue
stating that "as the 3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross
receipts derived by contractors from their contracts with the WHO for the construction of its new building, are
exempt from tax in accordance with . . . the Host Agreement." Subsequently, however, on June 3, 1958, the
Commissioner of Internal Revenue reversed his opinion and stated that "as the 3% contractor's tax is not a
direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not
covered by. . . the Host Agreement.''
 On January 2,1960, the WHO issued a certification stating, inter alia,:
"When the request for bids for the construction of the World Health Organization office building was called for,
contractors were informed that there would be no taxes or fees levied upon them for their work in connection
with the construction of the building as this will be considered an indirect tax to the Organization caused by the
increase of the contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal Revenue
and it can be stated that the contractors submitted their bids in good faith with the exemption in mind. The
undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the condition stated above,
should be exempted from any taxes in connection with the construction of the World Health Organization office
building."
 On January 17,1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding
payment of P16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received
from the WHO in the construction of the latter's building.
 Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial
rendered a decision, in favor of Gotamco and reversed the Commissioner's decision.
 Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid
and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview.
Petitioner's position is that the contractor's tax "is in the nature of an excise tax which is a charge imposed upon
the performance of an act, the enjoyment of a privilege or the engaging in an occupation . . . It is a tax due
primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the
WHO, it cannot be deemed an indirect taxation upon it."

ISSUE: Whether or not the certification issued by the WHO, sought exemption of the contractor, Gotamco, from any
taxes in connection with the construction of the WHO office building.

RULING: YES
 We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:
o "In context, direct taxes are those that are demanded from the very person who, it is intended or
desired, should pay them; while indirect taxes are those that are demanded in the first instance from
 one person in the expectation and intention that he can shift the burden to someone else. (Pollock vs.
Farmers, L & T Co., 1957 US 429,15 S. Ct. 673, 39 Law. Ed. 759.)
o The contractor's tax is of course payable by the contractor but in the last analysis it is the owner of the
building that shoulders the burden of the tax because the same is shifted by the contractor to the owner
as a matter of self preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because,
although it is payable by the petitioner, the latter can shift its burden on the WHO.
o In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly
cannot be said that 'this tax has no bearing upon the World Health Organization.' "
 Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal
Revenue, et al., the 3% contractor's tax falls directly on Gotamco and cannot be shifted to the WHO. The Court
of Tax Appeals, however, held that the said case is not controlling in this case, since the Host Agreement
specifically exempts the WHO from "indirect taxes."
 We agree. The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid by
the manufacturer or producer; the fact that the manufacturer or producer might have added the amount of the
tax to the price of the goods did not make the sales tax "a tax on the purchaser."
o The Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made
to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government,
and to the Voice of America, an agency of the United States Government.
 The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which,
although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it.
This is made clear in Section 12 of the Host Agreement which provides:
o "While the Organization will not, as a general rule, in the case of minor purchases, claim exemption
from excise duties, and from taxes on the sale of movable and immovable property which form part of
the price to be paid, nevertheless, when the Organization is making important purchases for official
use of property on which such duties and taxes have been charged or are chargeable the Government
of the Republic of the Philippines shall make appropriate administrative arrangements for the
remission or return of the amount of duty or tax." (Italics supplied).
 The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear
intention of the Agreement to exempt the WHO from "indirect" taxation.
 The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco,
from any taxes in connection with the construction of the WHO office building.
o The 3% contractor's tax would be within this category and should be viewed as a form of an "indirect
tax" on the Organization, as the payment thereof or its inclusion in the bid price would have meant an
increase in the construction cost of the building.

DISPOSITION: Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed
decision is hereby affirmed. SO ORDERED.

NOTES:
 In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending
that the Host Agreement is null and void, not having been ratified by the Philippine Senate as required by the
Constitution. We find no merit in this contention. While treaties are required to be ratified by the Senate under
the Constitution, less formal types of international agreements may be entered into by the Chief Executive and
become binding without the concurrence of the legislative body.1 The Host Agreement comes within the latter
category; it is a valid and binding international agreement even without the concurrence of the Philippine
Senate.
 The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this
Court as legally binding on Philippine authorities.

12. PSALM vs CIR

Facts:
  PSALM is a government-owned and controlled corporation created under RA 9136, also known as the EPIRA of
2001. Section 50 of RA 9136 states that the principal purpose of PSALM is to manage the orderly sale, disposition,
and privatization of the NPC generation assets, real estate and other disposable assets, and IPP contracts with the
objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.
 PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant
and Magat Hydroelectric Power Plant on 8 September 2006 and 14 December 2006, respectively. First Gen
Hydropower Corporation with its $129 Million bid and SN Aboitiz Power Corporation with its $530 Million bid
were the winning bidders for the Pantabangan-Masiway Plant and Magat Plant, respectively.
 On 28 August 2007, the NPC received a letter dated 14 August 2007 from the BIR demanding immediate payment
of ₱3,813,080,472 deficiency value-added tax (VAT) for the sale of the Pantabangan-Masiway Plant and Magat
Plant. The NPC indorsed BIR's demand letter to PSALM.
 the BIR, NPC, and PSALM executed a MOA, wherein they agreed that:
o A) NPC/PSALM shall remit under protest to the BIR the amount of Php 3,813,080,472.00, representing
basic VAT as shown in the BIR letter dated August 14, 2007, upon execution of this MOA. xxx
 In compliance with the MOA, PSALM remitted under protest to the BIR the amount of ₱3, 813, 080, 472,
representing the total basic VAT due.
 PSALM filed with the DOJ a petition for the adjudication of the dispute with the BIR to resolve the issue of whether
the sale of the power plants should be subject to VAT.
 DOJ ruled in favor of PSALM
o The instant petition is an original petition involving only [a] question of law on whether or not the sale of
the Pantabangan-Masiway and Magat Power Plants to private entities under the mandate of the EPIRA is
subject to VAT.
o Such transfer of ownership was not carried out in the ordinary course of transfer which must be accorded
with the required elements present for a valid transfer, but in this case, in accordance with the mandate
of the law, that is, EPIRA. Thus, respondent cannot assert that it was NPC who was the actual seller of the
Pantabangan-Masiway and Magat Power Plants, because at the time of selling the aforesaid power plants,
the owner then was already the petitioner and not the NPC. Consequently, petitioner cannot also be
considered a successor-in-· interest of NPC.
o Since it was petitioner who sold the Pantabangan-Masiway and Magat Power Plants and not the NPC,
through a competitive and public bidding to the private entities, Section 24(A) of R.A. No. 9337 cannot be
applied to the instant case. Neither the grant of exemption and revocation of the tax exemption accorded
to the NPC, be also affected to petitioner. xxx
o Xxx Verily, to subject the sale of generation assets in accordance with a privatization plan submitted to
and approved by the President, which is a one time sale, to VAT would run counter to the purpose of
obtaining optimal proceeds since potential bidders would necessarily have to take into account such extra
cost of VAT.
 BIR moved for reconsideration, alleging that the DOJ had no jurisdiction since the dispute involved tax laws
administered by the BIR and therefore within the jurisdiction of the CTA. Furthermore, the BIR stated that the sale
of the subject power plants by PSALM to private entities is in the course of trade or business, as contemplated
under Section 105 of the NIRC of 1997, which covers incidental transactions. Thus, the sale is subject to VAT. DOJ
denied the motion
 BIR filed with the CA a petition for certiorari, seeking to set aside the DOJ's decision for lack of jurisdiction. In a
Resolution dated 23 April 2009, the CA dismissed the petition for failure to attach the relevant pleadings and
documents. Upon motion for reconsideration, the CA reinstated the petition in its Resolution dated 10 July 2009.
o petition filed by PSALM with the DOJ was really a protest against the assessment of deficiency VAT, which
under Section 204 of the NIRC of 1997 is within the authority of the CIR to resolve. In fact, PSALM's
objective in filing the petition was to recover the ₱3,813,080,472 VAT which was allegedly assessed
erroneously and which PSALM paid under protest to the BIR.

Issue: Whether or not the sale of the Pantabangan-Masiway and Magat Power Plants by petitioner PSALM to private
entities is subject to VAT?
Ruling: NO. sale was an exercise of governmental function mandated by law.
 To resolve the issue of whether the sale of the Pantabangan-Masiway and Magat Power Plants by petitioner
PSALM to private entities is subject to VAT, the Court must determine whether the sale is "in the course of trade
or business" as contemplated under Section 105 of the NIRC, which reads:
“SEC 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports .goods shall be
subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act
7716.
The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person regardless
of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective
of the disposition of its net income and whether or not it sells exclusively to members or their guests),
or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered
in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of
trade or business. (Emphasis supplied)”
 Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition, and
privatization of the NPC generation assets, real estate and other disposable assets, and IPP contracts with the
objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.

PSALM Contention:
 PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and Magat Power
Plants, is pursuant to PSALM's mandate under the EPIRA law and is not conducted in the course of trade or
business. PSALM cited the 13 May 2002 BIR Ruling No. 020- 02, that PSALM' s sale of assets is not conducted in
pursuit of any commercial or profitable activity as to fall within the ambit of a VAT-able transaction under Sections
105 and 106 of the NIRC.
CIR Contention:
 On the other hand, the CIR argues that the previous exemption of NPC from VAT under Section 13 of RA 6395 was
expressly repealed by Section 24 of RA 9337, which reads:
SEC. 24. Repealing Clause. - The following laws or provisions of laws are hereby repealed and the
persons and/or transactions affected herein are made subject to the value-added tax subject to the
provisions of Title IV of the National Internal Revenue Code of 1997, as amended:
(A) Section 13 of R.A. No. 6395 on the exemption from value-added tax of National Power
Corporation (NPC);
(B) Section 6, fifth paragraph of R.A. No. 9136 on the zero VAT rate imposed on the sale of
generated power by generation companies; and
(C) All other laws, acts, decrees, executive orders, issuances and rules and regulations or parts
thereof which are contrary to and inconsistent with any provisions of this Act are hereby repealed,
amended or modified accordingly.
o As a consequence, the CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-
02 is also deemed revoked since PSALM is a successor-in-interest of NPC.
o The CIR avers that prior to the sale, NPC still owned the power plants and not PSALM, which is just
considered as the trustee of the NPC properties. Thus, the sale made by NPC or its successors-in-interest
of its power plants should be subject to the 10% VAT beginning 1 November 2005 and 12% VAT beginning
1 February 2007.
Court:
 Court DOES NOT agree with CIR. PSALM is not a successor-in-interest. And the repeal by RA 9337 of NPC’s VAT
Exemption does not affect PSALM.
 The sale of the power plants is not "in the course of trade or business" as contemplated under Section 105 of the
NIRC, and thus, not subject to VAT. The sale of the power plants is not in pursuit of a commercial or economic
activity but a governmental function mandated by law to privatize NPC generation assets. PSALM was created
primarily to liquidate all NPC financial obligations and stranded contract costs in an optimal manner.
 PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is not "in
the course of trade or business" but purely for the specific purpose of privatizing NPC assets in order to liquidate
all NPC financial obligations. PSALM is tasked to sell and privatize the NPC assets within the term of its existence.
The EPIRA law even requires PSALM to submit a plan for the endorsement by the Joint Congressional Power
Commission and the approval of the President of the total privatization of the NPC assets and IPP contracts.
 Thus, it is very clear that the sale of the power plants was an exercise of a governmental function mandated by
law for the primary purpose of privatizing NPC assets in accordance with the guidelines imposed by the EPIRA
law.
 In the 2006 case of Commissioner of Internal Revenue v. Magsaysay Lines, Inc., the Court ruled that the sale of the
vessels of the National Development Company to Magsaysay Lines, Inc. is not subject to VAT since it was not in
the course of trade or business, as it was involuntary and made pursuant to the government's policy of
privatization. The Court cited the CTA ruling that the phrase "course of business" or "doing business" connotes
regularity of activity. Thus, since the sale of the vessels was an isolated transaction, made pursuant to the
government's privatization policy, and which transaction could no longer be repeated or carried on with regularity,
such sale was not in the course of trade or business and was not subject to VAT.
 Similarly, the sale of the power plants in this case is not subject to VAT since the sale was made pursuant to PSALM'
s mandate to privatize NPC assets, and was not undertaken in the course of trade or business. In selling the power
plants, PSALM was merely exercising a governmental function for which it was created under the EPIRA law.
 The CIR argues that the Magsaysay case, which involved the sale in 1988 of NDC vessels, is not applicable in this
case since it was decided under the 1986 NIRC. The CIR maintains that under Section 105 of the 1997 NIRC, which
amended Section 9962 of the 1986 NIRC, the phrase "in the course of trade or business" was expanded, and now
covers incidental transactions. Since NPC still owns the power plants and PSALM may only be considered as trustee
of the NPC assets, the sale of the power plants is considered an incidental transaction which is subject to VAT.
 We disagree with the CIR's position. PSALM owned the power plants which were sold. PSALM's ownership of the
NPC assets is clearly stated under Sections 49, 51, and 55 of the EPIRA law.
 Under the EPIRA law, the ownership of the generation assets, real estate, IPP contracts, and other disposable
assets of the NPC was transferred to PSALM. Clearly, PSALM is not a mere trustee of the NPC assets but is the
owner thereof. Precisely, PSALM, as the owner of the NPC assets, is the government entity tasked under the EPIRA
law to privatize such NPC assets.
 In the more recent case of Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue, which was
decided under the 1997 NIRC, the Court held that the sale of a fully depreciated vehicle that had been used in
Mindanao II's business was subject to VAT, even if such sale may be considered isolated. The Court ruled that it
does not follow that an isolated transaction cannot be an incidental transaction for VAT purposes. The Court then
cited Section 105 of the 1997 NIRC which shows that a transaction "in the course of trade or business" includes
"transactions incidental thereto." Thus, the Court held that the sale of the vehicle is an incidental transaction
made in the course of Mindanao II's business which should be subject to VAT.
 The CIR alleges that the sale made by NPC and/or its successors-in-interest of the power plants is an incidental
transaction which should be subject to VAT. This is erroneous. As previously discussed, the power plants are
already owned by PSALM, not NPC.
 Under the EPIRA law, the ownership of these power plants was transferred to PSALM for sale, disposition, and
privatization in order to liquidate all NPC financial obligations. Unlike the Mindanao II case, the power plants in
this case were not previously used in PSALM's business. The power plants, which were previously owned by NPC
were transferred to PSALM for the specific purpose of privatizing such assets. The sale of the power plants cannot
be considered as an incidental transaction made in the course of NPC's or PSALM's business. Therefore, the sale
of the power plants should not be subject to VAT.
  Hence, we agree with the Decisions dated 13 March 2008 and 14 January 2009 of the Secretary of Justice in OSJ
Case No. 2007-3 that it was erroneous for the BIR to hold PSALM liable for deficiency VAT in the amount of
₱3,813,080,472 for the sale of the Pantabangan-Masiway and Magat Power Plants. The ₱3,813,080,472 deficiency
VAT remitted by PSALM under protest should therefore be refunded to PSALM.
 We Grant the petition

13. MINDANAO II GEOTHERMAL PARTNERSHIP v CIR

G.R. No. 193301 March 11, 2013
CARPIO, J.:

 G.R. No. 193301 is a petition for review1 assailing the Decision promulgated on 10 March 2010 as well as the
Resolution promulgated on 28 July 2010 by the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 513.
o The CTA En Banc affirmed the 22 September 2008 Decision as well as the 26 June 2009 Amended
Decision of the First Division of the Court of Tax Appeals (CTA First Division) in CTA Case Nos. 7227,
7287, and 7317.
o The CTA First Division denied Mindanao II Geothermal Partnership’s (Mindanao II) claims for refund or
tax credit for the first and second quarters of taxable year 2003 for being filed out of time (CTA Case
Nos. 7227 and 7287).
o The CTA First Division, however, ordered the Commissioner of Internal Revenue (CIR) to refund or credit
to Mindanao II unutilized input value-added tax (VAT) for the third and fourth quarters of taxable year
2003 (CTA Case No. 7317).

FACTS:

 On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer (BOT) contract with the
Philippine National Oil Corporation – Energy Development Company (PNOC-EDC) for finance, engineering,
supply, installation, testing, commissioning, operation, and maintenance of a 48.25 megawatt geothermal
power plant.
 PNOC-EDC shall supply and deliver steam to Mindanao II at no cost.
o In turn, Mindanao II shall convert the steam into electric capacity and energy for PNOC-EDC and shall
deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC.
o Mindanao II alleges that its sale of generated power and delivery of electric capacity and energy of
Mindanao II to NPC for and in behalf of PNOC-EDC is its only revenue-generating activity which is in the
ambit of VAT zero-rated sales under the EPIRA Law.
o Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated
power by generation companies from ten (10%) percent to zero (0%) percent.
 In the course of its operation, Mindanao II makes domestic purchases of goods and services and accumulates
therefrom creditable input taxes.
 Pursuant to the provisions of the National Internal Revenue Code (NIRC), Mindanao II alleges that it can use its
accumulated input tax credits to offset its output tax liability.
 Considering, however that its only revenue-generating activity is VAT zero-rated under RA No. 9136, Mindanao
II’s input tax credits remain unutilized.
 Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-rating of the
EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns.
 Considering that it has accumulated unutilized creditable input taxes from its only income-generating activity,
Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR’s Revenue
District Office at Kidapawan City on April 13, 2005 for the four quarters of 2003.
 To date (September 22, 2008), the application for refund by Mindanao II remains unacted upon by the CIR.
  Hence, these three petitions filed on April 22, 2005 covering the 1st quarter of 2003; July 7, 2005 for the 2nd
quarter of 2003; and September 9, 2005 for the 3rd and 4th quarters of 2003.
o At the instance of Mindanao II, these petitions were consolidated on March 15, 2006 as they involve the
same parties and the same subject matter.
o The only difference lies with the taxable periods involved in each petition.
 The Court of Tax Appeals’ Ruling: Division
o In its 22 September 2008 Decision, the CTA First Division found that Mindanao II satisfied the twin
requirements for VAT zero rating under EPIRA: (1) it is a generation company, and (2) it derived sales
from power generation. The CTA First Division also stated that Mindanao II complied with five
requirements to be entitled to a refund:

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

2. That input taxes were incurred or paid;
3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-
rated sales;
4. That the input VAT payments were not applied against any output VAT liability; and
5. That the claim for refund was filed within the two-year prescriptive period.

o The CTA First Division found that Mindanao II is entitled to a refund in the modified amount of
₱7,703,957.79, after disallowing ₱522,059.91 from input VAT16 and deducting ₱18,181.82 from
Mindanao II’s sale of a fully depreciated ₱200,000.00 Nissan Patrol.
 The input taxes amounting to ₱522,059.91 were disallowed for failure to meet invoicing
requirements, while the input VAT on the sale of the Nissan Patrol was reduced by ₱18,181.82
because the output VAT for the sale was not included in the VAT declarations.
 Mindanao II filed a motion for partial reconsideration.
 The CIR also filed a motion for partial reconsideration.
 The CTA First Division denied Mindanao II’s motion for partial reconsideration, found the CIR’s motion for partial
reconsideration partly meritorious, and rendered an Amended Decision.
o The two-year prescriptive period in Section 229 was denominated as a mandatory statute of limitations.
o Therefore, Mindanao II’s claims for refund for the first and second quarters of 2003 had already
prescribed.
 Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the CTA En Banc.
 On 10 March 2010, the CTA En Banc rendered its Decision23 in CTA EB No. 513 and denied Mindanao II’s petition.

ISSUE: Whether the reckoning date for counting the two-year prescriptive period in Section 112 should be counted from
the end of the taxable quarter when the sales were made (Mirant) or the date of filing the return (Atlas)?
RULING:
 Prescriptive Period for the Filing of Administrative Claims Section 112(A) of the 1997 Tax Code was the
applicable law at the time of filing of the claims in issue, therefore the claims needed to have been filed
within two (2) years after the close of the taxable quarter when the sales were made.

 Mindanao I and IIs administrative claims for the first quarter of 2003 had prescribed, but their claims for the
second, third and fourth quarters of 2003 were filed on time.
 Prescriptive Period for the Filing of Judicial Claims In determining whether the claims for the second, third and
fourth quarters of 2003 had been properly appealed, there is still see no need to refer to either Atlas or Mirant,
or even to Sec. 229.
o The second paragraph of Sec. 112(C) is clear that the taxpayer can appeal to the CTA within thirty (30)
days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period.
o The 120+30 day periods are mandatory and jurisdictional.
  The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioners decision within
the 120-day period, because otherwise there would be no decision or deemed a denial decision for the CTA to
review.
 Moreover, Sec. 112(C) expressly grants a 30-day period to appeal to the CTA, and this period need not
necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within such
time.
 The said prescriptive period does not refer to the filing of the judicial claim with the CTA, but to the
administrative claim with the Commissioner.
 San Roque: Recognition of BIR Ruling No. DA-489-03BIR Ruling No. DA-489-03 provided that the taxpayer-
claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA.
 In the consolidated cases of CIR v. San Roque, however, the Supreme Court En Banc held that the taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners decision within the 120-day
jurisdictional period.
 Notwithstanding, the Court also held in San Roque that BIR Ruling No. DA-489-03 constitutes equitable estoppel
in favor of taxpayers.
 Being a general interpretative rule, it can be relied on by all taxpayers from the time of its issuance on 10
December 2003 up to its reversal by the Court in Commissioner of Internal Revenue v. Aichi Forging Company of
Asia, Inc. (Aichi) on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional.
 Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 April 2005.
 Counting 120 days after filing of the administrative claim (11 August 2005) and 30 days after the CIRs denial by
inaction, the last day for filing a judicial claim with the CTA for the second, third, and fourth quarters of 2003
was on 12 September 2005.
 However, the judicial claim could not be filed earlier than 11 August 2005, which was the expiration of the 120-
day period for the Commissioner to act.
 Mindanao II filed its judicial claim for the second quarter before the expiration of the 120-day period; it was
thus prematurely filed.
 However, pursuant to San Roque, the claim qualifies under the exception to the strict application of the
120+30 day periods.
 Its judicial claims for the third quarter and fourth quarter of 2003 were filed on time.
 Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April 2005.
o Counting 120 days after filing of the administrative claim with the CIR (2 August 2005) and 30 days after
the CIRs denial by inaction, the last day for filing a judicial claim was on 1 September 2005.
o However, the judicial claim cannot be filed earlier than 2 August 2005, which is the expiration of the
120-day period for the Commissioner to act on the claim.
o Mindanao I prematurely filed its judicial claim for the second quarter of 2003 but claim qualifies under
the exception in San Roque. Its judicial claims for the third and fourth quarters of 2003, however, were
filed after the prescriptive period.

DISPOSITIVE PORTION: For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first quarter of
2003 is DENIED while its claims for the second, third, and fourth quarters of 2003 are GRANTED. For G.R. No. 19463 7,
the claims of Mindanao I Geothermal Partnership for the first, third, and fourth quarters of 2003 are DENIED while its
claim for the second quarter of 2003 is GRANTED. SO ORDERED.

14. CIR v Manila Mining Corp

Facts:
 Respondent, a mining corporation is registered with the (BIR) as a VAT-registered enterprise
 In 1991, respondents sales of gold to the Central Bank amounted to P200,832,364.70
 On April 22, 1991, July 23, 1991, October 21, 1991 and January 20, 1992, it filed its VAT Returns for the 1st, 2nd,
3rd and 4th quarters of 1991, respectively, with the BIR
 Respondent, relying on a letter dated October 10, 1988 from then BIR Deputy Commissioner Victor Deoferio that:
o xxx under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is considered an export sale which
under Section 100(a)(1) of the NIRC, as amended by E.O. 273, is subject to zero-rated if such sale is made
by a VAT-registered person
 Respondent filed on April 7, 1992 with the Commissioner of Internal Revenue (CIR), an application for tax
refund/credit of the input VAT it paid from July 1- December 31, 1999 in the amount of P8,173,789.60
 Petitioner subsequently filed on March 5, 1991 another application for tax refund/credit of input VAT it paid the
amount of P5,683,035.04 from January 1 June 30, 1991.
 As the CIR failed to act upon respondents application within sixty (60) days from the dates of filing, it filed on
March 22, 1993 a Petition for Review against the CIR before the CTA seeking the issuance of tax credit certificate
or refund in the amount of P5,683,035.04 covering its input VAT payments for the 1st and 2nd quarters of 1991
 And it filed on May 24, 1993 another Petition for Review, seeking the issuance of tax credit certificates in the
amount of P8,173,789.60 covering its input VAT payments for the 3rd and 4th quarters of 1991
 CIR filed its Answer admitting that respondent filed its VAT returns for the 1st and 2nd quarters of 1991 and an
application for credit/refund of input VAT payment.
o It, however, specifically denied the veracity of the amounts stated in respondents VAT returns and
application for credit/refund as the same continued to be under investigation.
 The CIR filed on August 16, 1993 its Answer, it averring that sales of gold to the Central Bank may not be legally
considered export sales for purposes of Section 100(a) in relation to Section 100(a)(1)[21] of the Tax Code; and
that assuming that a refund is proper, respondent must demonstrate that it complied with the provisions of
Section 204(3) in relation to Section 230 of the Tax Code
 Through its Chief Accountant Danilo Bautista, respondent claimed that in 1991, it sold a total of 20,288.676 ounces
of gold to the Central Bank valued at P200,832,364.70, as certified by the Director of the Mint and Refinery
Department of the Central Bank and that in support of its application for refund filed with the BIR, it submitted
copies of all invoices and official receipts covering its input VAT payments to the VAT Division of the BIR, the
summary and schedules of which were certified by its external auditor, the Joaquin Cunanan & Co
 Senior Audit Manager of Joaquin Cunanan & Co., Irene Ballesteros, who was also presented by respondent,
declared that she conducted a special audit work for respondent for the purpose of determining its actual input
VAT payments for the second semester of 1991 and examined every original suppliers invoice, official receipts,
and other documents supporting the payments; and that there were no discrepancies or errors between the
summaries and schedules of suppliers invoices prepared by respondent and the VAT invoices she examined
 The CTA held that said sales are not subject to 10% output VAT, citing Atlas Consolidated Mining and Development
Corporation v. Court of Appeals, Manila Mining Corporation v. Commissioner of Internal Revenue, and Benguet
Corporation v. Commissioner of Internal Revenue.
 Nonetheless, the CTA denied respondents claim for refund of input VAT for failure to prove that it paid the
amounts claimed as such for the year 1991, no sales invoices, receipts or other documents as required under
Section 2(c)(1) of Revenue Regulations No. 3-88 having been presented
o The CTA explained that a mere listing of VAT invoices and receipts, even if certified to have been previously
examined by an independent certified public accountant, would not suffice to establish the truthfulness
and accuracy of the contents of such invoices and receipts unless offered and actually verified by it (CTA)
in accordance with CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which requires that
photocopies of invoices, receipts and other documents covering said accounts of payments be pre-marked
by the party concerned and submitted to the court
 The Court of Appeals reversed the decision of the CTA and granted respondents claim for refund or issuance of
tax credit certificates in the amounts of P5,683,035.04 for CTA Case No. 4968 and P8,173,789.60 for CTA Case No.
4991
o The appellate court held that there was no need for respondent to present the photocopies of the
purchase invoices or receipts evidencing the VAT paid in view of Rule 26, Section 2 of the Revised Rules
of Court and the Resolutions of the CTA holding that the matters requested in respondents Request for
Admissions in CTA No. 4968 were deemed admitted by the CIR in light of its failure to file a verified reply
thereto.
  Hence, the present petition for review
 The CIR arguing that respondents failure to submit documentary evidence to confirm the veracity of its claims is
fatal; and that the CTA, being a court of record, is not expected to go out of its way and dig into the records of the
BIR to supply the insufficient evidence presented by a party, and in fact it may set a definite rule that only evidence
formally presented will be considered in deciding cases before it
 Respondent, in its Comment, avers that it complied with the provisions of Section 2(c)(1) of Revenue Regulation
No. 3-88 when it submitted the original receipts and invoices to the BIR, which fact of submission had been
deemed admitted by petitioner, as confirmed by the CTA in its Resolutions in both cases granting respondents
Requests for Admissions therein
 To respondents Comment the Office of the Solicitor General (OSG), on behalf of petitioner, filed its Reply, arguing
that the documents required to be submitted to the BIR under Revenue Regulation No. 3-88 should likewise be
presented to the CTA to prove entitlement to input tax credit.
 In addition, it argues that, contrary to respondents position, a certification by an independent Certified Public
Accountant (CPA) as provided under CTA Circulars 1-95 and 10-97 does not relieve respondent of the onus of
adducing in evidence the invoices, receipts and other documents to show the input VAT paid on its purchase of
goods and services

ISSUE:
Did respondent adduce sufficient evidence to prove its claim for refund of its input VAT for taxable year 1991 in the
amounts of P5,683,035.04 and P8,173,789.60?

RULING:
 NO
 In Commissioner of Internal Revenue v. Benguet Corporation, this Court had the occasion to note that as early as
1988, the BIR issued several VAT rulings to the effect that sales of gold to the Central Bank by a VAT-registered
person or entity are considered export sales
o The transactions in question occurred during the period from 1988 and 1991. Under Sec. 99 of the
National Internal Revenue Code (NIRC), as amended by Executive Order (E.O.) No. 273 s. 1987, then in
effect, any person who, in the course of trade or business, sells, barters or exchanges goods, renders
services, or engages in similar transactions and any person who imports goods is liable for output VAT at
rates of either 10% or 0% (zero rated) depending on the classification of the transaction under Sec. 100 of
the NIRC. Xxx
o In January of 1988, respondent applied for and was granted by the BIR zero-rated status on its sale of gold
to the Central Bank. On 28 August 1988, Deputy Commissioner of Internal Revenue Eufracio D. Santos
issued VAT Ruling No. 3788-88, which declared that [t]he sale of gold to Central Bank is considered as
export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by Executive Order
No. 273. The BIR came out with at least six (6) other issuances, reiterating the zero-rating of sale of gold
to the Central Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February 1990.
 As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it as purchaser.
Zero rating is primarily intended to be enjoyed by the seller respondent herein, which charges no output VAT but
can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers.
 For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered
entity and that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by purchase
invoices or official receipts.
 This respondent failed to do.
 Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming tax
credits/refunds.
o Sec.2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows:
o Sec. 16. Refunds or tax credits of input tax
 o (a) Zero-rated sales of goods and services Only a VAT-registered person may be granted a tax credit or
refund of value-added taxes paid corresponding to the zero-rated sales of goods and services, to the
extent that such taxes have not been applied against output taxes, upon showing of proof of compliance
with the conditions stated in Section 8 of these Regulations

For export sales, the application should be filed with the Bureau of Internal Revenue within two years
from the date of exportation. For other zero-rated sales, the application should be filed within two years
after the close of the quarter when the transaction took place

o (c) Claims for tax credits/refunds. - Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form
No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal
place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.
o A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted
together with the application. The original copy of the said invoice/receipt, however, shall be presented
for cancellation prior to the issuance of the Tax Credit Certificate or refund.
 Under Section 8 of RA 1125, the CTA is described as a court of record. As cases filed before it are litigated de novo,
party litigants should prove every minute aspect of their cases. No evidentiary value can be given the purchase
invoices or receipts submitted to the BIR as the rules on documentary evidence require that these documents
must be formally offered before the CTA.
 This Court thus notes with approval the following findings of the CTA:
o xxx [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not
ipso facto mean that [the seller] is entitled to the amount of refund sought as it is required by law to
present evidence showing the input taxes it paid during the year in question. What is being claimed in the
instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of goods and
services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the said input taxes
during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not adduce in
evidence the sales invoice, receipts or other documents showing the input value added tax on the
purchase of goods and services. [55]
 Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of
Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where the
parties must present their evidence accordingly if they desire the Court to take such evidence into consideration
 A sales or commercial invoice is a written account of goods sold or services rendered indicating the prices charged
therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale
and transfer or agreement to sell or transfer goods and services
 A receipt on the other hand is a written acknowledgment of the fact of payment in money or other settlement
between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer
 These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quantity
of goods sold and their selling price, and taken collectively are the best means to prove the input VAT payments.
 Respondent contends, however, that the certification of the independent CPA attesting to the correctness of the
contents of the summary of suppliers invoices or receipts which were examined, evaluated and audited by said
CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its claims
 There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either expressly
or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an independent
CPA, suffice as evidence of input VAT payments
 The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-consuming
procedure of presenting, identifying and marking of documents before the Court. It does not relieve respondent
of its imperative task of pre-marking photocopies of sales receipts and invoices and submitting the same to the
court after the independent CPA shall have examined and compared them with the originals. Without presenting
these pre-marked documents as evidence from which the summary and schedules were based, the court cannot
verify the authenticity and veracity of the independent auditors conclusions
  There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to confirm
whether they are VAT invoices. Under Section 21 of Revenue Regulation No. 5-87, all purchases covered by
invoices other than a VAT invoice shall not be entitled to a refund of input VAT.
 Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent
certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof
unless offered and actually verified by this Court. CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
requires that the photocopies of invoices, receipts and other documents covering said accounts or payments must
be pre-marked by the party and submitted to this Court.

APPLICATION:
 The records show that respondent miserably failed to substantiate its claim for input VAT refund for the first
semester of 1991. Except for the summary and schedules of input VAT payments prepared by respondent itself,
no other evidence was adduced in support of its claim
 As for respondents claim for input VAT refund for the second semester of 1991, it employed the services of Joaquin
Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that:
o We have examined the information shown below concerning the input tax payments made by the Makati
Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination
included inspection of the pertinent suppliers invoices and official receipts and such other auditing
procedures as we considered necessary in the circumstances.
 As the certification merely stated that it used auditing procedures considered necessary and not auditing
procedures which are in accordance with generally accepted auditing principles and standards, and that the
examination was made on input tax payments by the Manila Mining Corporation, without specifying that the said
input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and
regard it as sufficient proof of respondents input VAT payments for the second semester.
 Finally, respecting respondents argument that it need not prove the amount of input VAT it paid for the first
semester of taxable year 1991 as the same was proven by the implied admission of the CIR, which was confirmed
by the CTA when it admitted its Request for Admission, the same does not lie.
 Respondents Requests for Admission do not fall within Section 2 Rule 26 of the Revised Rules of Court.[68] What
respondent sought the CIR to admit are the total amount of input VAT payments it paid for the first and second
semesters of taxable year 1991, which matters have already been previously alleged in respondents petition and
specifically denied by the CIR in its Answers dated May 10, 1993 and August 16, 1993 filed in CTA Case Nos. 4869
and 4991, respectively.
 For failure of respondent then not only to strictly comply with the rules of procedure but also to establish the
factual basis of its claim for refund, this Court has to deny its claim. A claim for refund is in the nature of a claim
for exemption and should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority

15. Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue

Nature: This is a petition for review of the Decision dated 19 June 2000 and the Resolution dated 24 November 2000 of
the Court of Appeals in CA-G.R. SP No. 50068.

FACTS:

 Petitioner Atlas Consolidated Mining and Development Corporation (petitioner) is a domestic corporation
engaged in the business of mining, production, and sale of various mineral products consisting principally of
copper concentrates and gold.
 Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) entity with
Registration No. 32-A-6-002224.
 In 1988, petitioner filed VAT returns for the four quarters of 1988.
 Petitioner submitted corresponding applications for excess input VAT refunds resulting from the claimed zero-
VAT nature of its sales of gold to the Bangko Sentral ng Pilipinas (BSP), copper concentrates to the Philippine
Smelting and Refining Corporation (PASAR), and pyrite to the
Philippine Phosphate, Inc. (Philphos).
 When BIR failed to act on its request, petitioner filed with the Court of Tax Appeals (CTA) four separate petitions
corresponding to the four quarters in 1988, reiterating its claims for refund. Petitioner claimed the following
amounts representing its excess input VAT:
(1) P33,489,768 for the first quarter of 1988;
(2)P54,633,476.07 for the second quarter of 1988;
(3)P30,190,111.06 for the third quarter of 1988; and
(4) P49,048,911.76 for the fourth quarter of 1988.
 The four cases were later consolidated.
 On Sept 11 1998, the CTA granted petitioner’s claim for refund or tax credit but only up to the amount of
P13,451,536.15, because this was clearly admitted by the respondent in her Answer in CTA Case No. 4416 and
therefore need not be proven.
o The rest of the claims is denied due to insufficiency of evidence.
 Petitioner and the Commissioner of Internal Revenue (respondent) separately filed their motions for
reconsideration.
 In a Resolution dated 3 December 1998, the CTA modified its Decision in favor of the respondent and denying
petitioner’s claim for refund stating that the tax credit previously granted by the Court in the amount of
P13,451,536.15 has already been given by respondent and the rest of the claim was denied due to insufficiency
of evidence.
 Petitioner appealed to the Court of Appeals.
 On 19 June 2000, the Court of Appeals dismissed the petition and affirmed the CTA Resolution dated 3 December
1998.
 Petitioner filed a motion for reconsideration, which the Court of Appeals denied in its Resolution dated 24
November 2000.
 Hence, this petition for review.
 The Ruling of the Court of Tax Appeals
o The CTA held that the sale of gold, copper concentrates, and pyrite to BSP, PASAR, and Philphos,
respectively, is exempt from the 10% VAT output tax.
o However, the exemption does not automatically entitle petitioner to the amount of refund sought
because petitioner is required by law to present evidence showing payment of the input taxes during the
period for which petitioner is claiming refund.
o The CTA found that petitioner failed to show proof that it had paid input taxes in 1988. Section 2(c)(1) of
Revenue Regulations No. 3-88 requires that a photocopy of the purchase invoice or receipt evidencing the
VAT paid should be submitted with the application for tax credit or refund.
o Petitioner failed to submit such evidence which prevented the CTA from confirming the veracity of the
amount claimed by petitioner as excess input VAT payments.
o However, since respondent already admitted in his Answer that petitioner is entitled to VAT credit for the
first quarter of 1988 in the amount of P13,451,536.15, the CTA granted petitioner’s claim for refund for
this amount.
o Upon motion for reconsideration, the CTA modified its decision to reflect respondent’s payment to
petitioner on 28 March 1990 of the amount of P13,451,536.15 through Tax Credit Certificate No. SN-
000026.
 The Ruling of the Court of Appeals
o The Court of Appeals agreed with the CTA that petitioner failed to substantiate its claim of overpayment
to the BIR of input VAT for zero-rated transactions.
 o The Court of Appeals found that the lists of alleged VAT documents and the report of petitioner’s
independent auditor were made without the examination of the actual invoices and receipts which would
support petitioner’s claims.
o The Court of Appeals quoted the letter of the accounting firm which petitioner hired for independent
audit in which it admitted that it did not compare the total of the input tax claimed for the quarter against
the pertinent VAT returns and books of accounts.
o The Court of Appeals concluded that the listing and the report made by petitioner’s independent auditor
are unreliable proofs of petitioner’s claims.
o Likewise, the Summary Amount of VAT Listings submitted by petitioner cannot be relied upon in the
absence of the actual receipts and invoices which petitioner never offered as evidence.

ISSUE: Whether or not the 0% rate applies to the total sale of raw material or packaging materials to an export-oriented
enterprise and not just the percentage of the sale in proportion to the actual exports of the enterprise.

RULING: YES
 Under Section 2 of Revenue Regulations No. 2-88, zero rated sales also apply to sales of raw materials to BOI
registered exporters, whose export sales exceed 70% of it total annual production. Revenue Regulations No. 7-95,
promulgated to implement the VAT provisions of the National Internal Revenue Code, amended previous revenue
regulations by providing that the sale of raw materials or packaging materials by VAT-registered persons to an
export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production shall be
subject to zero percent (0%) rate. This provision is now incorporated in Section 106(A)(2)(a)(3) of the National
Internal Revenue Code of 1997.
 Petitioner submits that the zero-rating of sales to export-oriented entities applies in its entirety and should not be
limited merely to the proportion of the sales to the actual exports of the export-oriented entities. Petitioner
alleges that the Court of Appeals failed to rule on this issue.
 The Court of Appeals may have deemed this issue superfluous considering petitioner’s failure to offer as evidence
the purchase invoices or receipts to substantiate its claim for refund.
 Nevertheless, the Court has already resolved this issue in Atlas Consolidated Mining & DevÊt Corp. v. CIR, which
incidentally involves the same parties as in this case. The Court held:
o “[A]n examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to Section 102(b) of the Tax
Code shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its
annual production are to be zero-rated, provided the seller complies with other requirements, like
registration with the BOI and the EPZA. The said regulation does not even hint, much less expressly
mention, that only a percentage of the sales would be zero-rated. The Internal Revenue Commissioner
cannot, by administrative fiat, amend the law by making compliance therewith more burdensome.”
 Thus, the 0% rate applies to the total sale of raw materials or packaging materials to an export-oriented enterprise
and not just the percentage of the sale in proportion to the actual exports of the enterprise.

DISPOSITION: WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 19 June 2000 and the Resolution dated
24 November 2000 of the Court of Appeals in CA-G.R. SP No. 50068.
SO ORDERED.

NOTES:
Submission of Purchase Invoices or Receipts
 Petitioner asserts that it has adduced sufficient evidence to support its claim for input VAT refund.
 Petitioner claims that CTA Circular No. 1-95 requires only the submission of a summary listing of the invoices and
receipts and a certification of an independent certified public accountant (CPA) attesting to the correctness of the
summary listing in lieu of the presentation of voluminous documentary evidence.
  We disagree with petitioner’s contention.
 CTA Circular No. 1-95 clearly requires that photocopies of the receipts or invoices must be pre-marked and
submitted to the CTA to verify the correctness of the summary listing and the CPA certification. CTA Circular No.
1-95, issued on 25 January 1995, reads:
XXX
The method of individual presentation of each and every receipt or invoice or other documents for marking,
identification and comparison with the originals thereof need not be done before the Court or the Commissioner
anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and
other documents covering the said accounts or payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check
and verify the correctness of the summary and CPA certification. However, the originals of the said receipts,
invoices or documents should be ready for verification and comparison in case doubt on the authenticity of the
particular documents presented is raised during the hearing of the case.
 The submission of photocopies of purchase invoices and receipts is indispensable when applying for tax credit or
refund. In fact, the original copy of the invoices or receipts must be presented for cancellation prior to the issuance
of a tax credit certificate or refund. The requisites for claiming refunds or tax credits for input tax are set forth in
Section 2 of Revenue Regulations No. 3-88:
“SECTION 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows:
Section 16. Refunds or tax credits of input tax.–
(a) Zero-rated sales of goods and services.·Only a VAT-registered person may be granted a tax credit or refund of
value-added taxes paid corresponding to zero-rated sales of goods or services, to the extent that such taxes have
not been applied against output taxes, upon showing of proof of compliance with the conditions stated in Section
8 of these Regulations. For export sales, the application should be filed within two years after the close of the
quarter when the transaction took place.
xxxx
(c) Claims for tax credits/refunds.·Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552)
shall be filed with the Revenue District Office of the city or municipality where the principal place of business of
the applicant is located or directly with the Commissioner, Attention: VAT Division. A photocopy of the purchase
invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The
original copy of said invoice-receipt, however, shall be presented for cancellation prior to the issuance of the
Tax Credit certificate or refund. x x x” (Emphasis supplied)
 Petitioner’s failure to adduce evidence to support its claims for refund cannot be countenanced. We find no
plausible reason to remand the case to the CTA for presentation of additional evidence. The invoices and receipts
do not constitute newly discovered evidence which would warrant a new trial.

16. Hitachi vs CIR (effect no “TIN, 0 rated” printed on invoice)

Facts:
 Hitachi is a domestic corporation engaged in the business of manufacturing and exporting computer products,
and is registered with the BIR as a VAT taxpayer, evidenced by Certificate of Registration No. 94-570-000298 and
Taxpayer Identification No. 003-877-830 (VAT) issued on 28 June 1994. Hitachi is also registered with the Export
Processing Zone Authority as an Ecozone Export Enterprise.
 On 4 August 2000, Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before
the BIR, involved ₱25,023,471.84 representing excess input VAT attributable to Hitachi’s zero-rated export sales
for the four taxable quarters of 1999.
 Due to BIR’s inaction, Hitachi filed a petition for review with the CTA
 CTA First Division denied Hitachi’s claim for refund
o denied Hitachi’s claim for refund or tax credit because of Hitachi’s failure to comply with the mandatory
invoicing requirements.
 o Hitachi’s export sales invoices did not have pre-printed taxpayer’s identification number (TIN) followed
by the word VAT nor did the invoices bear the imprinted word "zero-rated" as required in Section
113(A) of the NIRC and Section 4.108-1 of Revenue Regulation No. 7-95 (RR 7-95).
o also found that Hitachi’s export sales invoices were not duly registered with the BIR as required under
Section 237 of the NIRC and there was no BIR authority to print the invoices or BIR permit number
indicated in the invoices.
o Therefore, the CTA First Division did not consider Hitachi’s export sales invoices as valid evidence of
zero-rated sales of goods for VAT purposes and, consequently, denied Hitachi’s claim for a refund or tax
credit.
 Hitachi filed a MR, but was denied
 Hitachi filed a petition for review with the CTA en banc, and it affirmed CTA first division’s resolution
o affirmed the findings of the CTA First Division that Hitachi failed to comply with the mandatory invoicing
requirements under the NIRC and RR 7-95.
o agreed with the CTA First Division that Hitachi failed to substantiate its alleged zero-rated sales because
its export sales invoices were not duly registered with the BIR. Neither did the export sales invoices
indicate Hitachi’s TIN nor did they state that Hitachi was a VAT registered person.
o Likewise, the word "zero-rated" was not imprinted on Hitachi’s export sales invoices. According to the
CTA En Banc, the VAT law is clear that only transactions evidenced by VAT official receipts or sales
invoices will be considered as VAT transactions for purposes of the input and output tax.
 Hence this petition

Hitachi’s arguments
 Hitachi argues that Section 4.108-1 of RR 7-95 cannot expand the invoicing requirements prescribed by Section
113(A) of the NIRC, in relation to Sections 237 and 106(A)(2)(a)(1), by imposing the additional requirement of
printing the word "zero-rated" on the invoices of a VAT registered taxpayer.
 Hitachi also submits that the non-observance of the requirements of (1) printing "zero-rated;" (2) BIR authority
to print; (3) BIR permit number; and (4) registration of such receipts with the BIR cannot result in the outright
invalidation of its claim for refund.

Issue: Whether Hitachi’s failure to comply with the requirements prescribed under Section 4.108-1 of RR 7-95 is
sufficient to invalidate Hitachi’s claim for VAT refund for taxable year 1999?

Ruling: YES.

 We already settled the issue of printing the word "zero-rated" on the sales invoices in Panasonic v.
Commissioner of Internal Revenue.13 In that case, we denied Panasonic’s claim for refund of the VAT it paid as a
zero-rated taxpayer on the ground that its sales invoices did not state on their face that its sales were "zero-
rated." We said:
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March
1999, the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added
Tax Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on January 1,
1996. It already required the printing of the word "zero-rated" on invoices covering zero-rated sales. When
R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the
tax code. This conversion from regulation to law did not diminish the binding force of such regulation with
respect to acts committed prior to the enactment of that law.

1avvphil
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance
under Section 245 of the 1997 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and
 of course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT
from the covered sales of goods and services. As aptly explained by the CTA’s First Division, the appearance of
the word "zero-rated" on the face of the invoices covering zero-rated sales prevents buyers from falsely claiming
input VAT from their purchases when no VAT was actually paid. If absent such word, a successful claim for input
VAT is made, the government would be refunding money it did not collect. (Emphasis supplied)

Likewise, in this case, when Hitachi filed its claim for refund or tax credit, RR 7-95 was already in force. Section 4.108-1
of RR 7-95 specifically required the following to be reflected in the invoice:
Sec.4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods
or properties or services, issue duly registered receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
xxxx
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their
invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other
than a "VAT invoice" shall not give rise to any input tax. (Emphasis supplied)

Application
 Both the CTA First Division and the CTA En Banc found that Hitachi’s export sales invoices did not indicate
Hitachi’s Tax Identification Number (TIN) followed by the word VAT. The word "zero-rated" was also not
imprinted on the invoices. Moreover, both the CTA First Division and the CTA En Banc found that the invoices
were not duly registered with the BIR.

 Being a specialized court, the CTA has necessarily developed an expertise in the subject of taxation that this
Court has recognized time and again. For this reason, the findings of fact of the CTA are generally conclusive on
this Court absent grave abuse of discretion or palpable error, which are not present in this case.

 Besides, tax refunds, like tax exemptions, are construed strictly against the taxpayer. The claimants have the
burden of proof to establish the factual basis of their claim for refund or tax credit. In this case, Hitachi failed to
establish the factual basis of its claim for refund or tax credit.
 We deny petition

17. J.R.A. Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 177127, October 11, 2010
[Effect of failure to print “zero-rated” on invoice]

Ponente: Del Castillo, J.

Nature of the Case: This case is a petition for review on certiorari under Rule 45 of Rules of Court, which seeks to set aside
the decision and resolution of the Court of Tax Appeals (CTA) En Banc
FACTS:
 Petitioner J.R.A. Philippines, Inc., a domestic corporation, is engaged in the manufacture and wholesale export
of jackets, pants, trousers, overalls, shirts, polo shirts, ladies’ wear, dresses and other wearing apparel.
 It is registered with the following:
o Bureau of Internal Revenue (BIR) as a VAT taxpayer and
o Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise
 On separate dates, petitioner filed with the Revenue District Office (RDO) No. 54 of the BIR, Trece Martires City,
applications for tax credit/refund of unutilized input VAT on its zero-rated sales for the taxable quarters of 2000
in the total amount of P8,228,276.34, broken down as follows:
o 1st quarter P 2,369,060.97
o 2 quarter
nd
2,528,126.02
o 3rd quarter 1,918,015.38
o 4th quarter 1,413,073.97
 However, the claim for credit/refund remained unacted by the respondent.
 Hence, petitioner was constrained to file a petition before the CTA.

Proceedings before the Second Division of the CTA

 On April 16, 2002, petitioner filed a Petition for Review with the CTA for the refund/credit of the same input VAT
– this was raffled to the Second Division of the CTA
 The following were among the special and affirmative defenses interposed by the respondent CIR:
o In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure
to do so is fatal to the claim for refund/ credit
o Claims for refund are construed strictly against the claimant for the same partake the nature of exemption
from taxation
 After trial, the CTA Second Division DENIED the petitioner’s claim for refund/credit of input VAT attributable to its
zero-rated sales due to the failure of petitioner to indicate the following:
o Its Taxpayer’s Identification Number-VAT (TIN-V) and
o The word “zero-rated” on its invoices
 Aggrieved by the decision, the petitioner filed a Motion for Reconsideration to which respondent filed an
Opposition.
o Petitioner, in turn, tendered a Reply
 CTA Second division stood firm on its decision and denied the petitioner’s motion for lack of merit
 Hence, petitioner elevated the matter to the CTA En Banc

Ruling of the CTA En Banc

 Denied the petition, reiterating that failure to comply with invoicing requirements results in the denial of a claim
for refund.
 Petitioner sought reconsideration, but it was likewise denied.
 Hence this petition.

Petitioner’s Arguments, among others:

 The invoicing requirements under the 1997 Tax Code do not require that invoices and/or receipts issued by a VAT-
registered taxpayer, such as the petitioner, should be imprinted with the word “zero-rated”
 The invoicing requirements prescribed by the 1997 Tax Code and the requirement that the words “zero-rated” be
imprinted on the sales invoices/official receipts under Revenue Regulations No. 7-95 are not evidentiary rules and
the absence thereof is not fatal to a taxpayer’s claim for refund
 That it presented substantial evidence that unequivocally proved its zero-rated transactions for the year 2000
 No prejudice can result to the government by reason of the failure of petitioner to imprint the word “zero-rated”
on its invoices
 o Petitioner’s clients for its zero-rated transactions cannot unduly benefit from its “omission” considering
that they are non-resident foreign corporations that are not covered by the Philippine VAT system

Respondent’s Arguments:
 Emphasizing that tax refunds are in the nature of tax exemptions which are strictly construed against the
claimant, respondent seeks the affirmance of the assailed Decision and Resolution of the CTA En Banc
 Insists that the denial of petitioner’s claim for tax credit/refund is justified because it failed to comply with the
invoicing requirements under Section 4.108-1 of Revenue Regulations No. 7-95

[In relation to Topic]

ISSUE: Whether the failure to print the word “zero-rated” on the invoices/receipts is fatal to a claim for credit/refund of
input VAT on zero-rated sales.

RULING:
 Yes. The failure to print the word “zero-rated” on the invoices/receipts is FATAL to a claim for credit/refund of
input VAT on zero-rated sales.
 The question of whether the absence of the word “zero- rated” on the invoices/receipts is fatal to a claim for
credit/ refund of input VAT is not novel.
 In the case of Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business
Machine Corporation of the Philippines) vs. CIR:
o The Court sustained the denial of petitioner’s claim for tax credit/refund for non-compliance with Section
4.108-1 of Revenue Regulations No. 7-95, which requires the word “zero rated” to be printed on the
invoices/receipts covering zero-rated sales.
xxx
o Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance
under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax
code and of course its amendments.
o The requirement is reasonable and is in accord with the efficient collection of VAT from the covered
sales of goods and services.
o As aptly explained by the CTA’s First Division, the appearance of the word “zero-rated” on the face of
invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases
when no VAT was actually paid.
o If, absent such word, a successful claim for input VAT is made, the government would be refunding money
it did not collect.
o FURTHER:
 The printing of the word “zero-rated” on the invoice helps segregate sales that are subject to
10% (now 12%) VAT from those sales that are zero-rated.
 Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its
claim for refund.

Application:
 Consistent with the foregoing jurisprudence, petitioner’s claim for credit/refund of input VAT for the taxable
quarters of 2000 must be denied.
 Failure to print the word “zero-rated” on the invoices/receipts is fatal to a claim for credit/refund of input VAT
on zero-rated sales.

Disposition: Petition denied. Assailed decision and resolution of the CTA En Banc are hereby affirmed.
Notes:
Re: Stare Decisis
 Stare decisis et non quieta movere

 Courts are bound by prior decisions.
 Thus, once a case has been decided one way, courts have no choice but to resolve subsequent cases involving the
same issue in the same manner.
 We ruled then, as we rule now, that failure to print the word “zero-rated” in the invoices/receipts is fatal to a
claim for credit/refund of input value-added tax (VAT) on zero-rated sales.

18. AT & T Communications vs CIR (req for tax refund in 0 rated transactions)

Facts:
 Petitioner AT&T Communications Services Philippines, Inc. is a domestic corporation primarily engaged in the
business of providing information, promotional, supportive and liaison services to foreign corporations such as
AT&T Communications Services International Inc., AT&T Solutions, Inc., AT&T Singapore, Pte. Ltd.,, AT&T Global
Communications Services, Inc. and Acer, Inc., an enterprise registered with the Philippine Economic Zone
Authority (PEZA).
 Under Service Agreements forged by petitioner with the above-named corporations, remuneration is paid in
U.S. Dollars and inwardly remitted in accordance with the rules and regulations of the BSP.
 For the calendar year 2002, petitioner incurred input VAT when it generated and recorded zero-rated sales in
connection with its Service Agreements in the peso equivalent of ₱56,898,744.05, and also incurred input VAT
from purchases of capital goods and other taxable goods and services, and importation of capital goods.
 Despite the application of petitioner’s input VAT against its output VAT, an excess of unutilized input VAT in the
amount of ₱2,050,736.69 remained. As petitioner’s unutilized input VAT could not be directly and exclusively
attributed to either of its zero-rated sales or its domestic sales, an allocation of the input VAT was made which
resulted in the amount of ₱1,801,826.82 as petitioner’s claim attributable to its zero-rated sales.
 Petitioner filed with respondent CIR an application for tax refund and/or tax credit of its excess/unutilized input
VAT from zero-rated sales in the said amount of ₱1,801,826.82. To prevent the running of the prescriptive
period, petitioner subsequently filed a petition for review with the CTA First Division.
 In support of its claim, petitioner presented documents including its Summary of Zero-Rated Sales with
corresponding supporting documents; VAT invoices on which were stamped "zero-rated" and bank credit
advices; copies of Service Agreements; and report of the commissioned certified public accountant.
 After petitioner presented its evidence, respondent did not, despite notice, proffer any opposition to it and
eventually declared to have waived his right to present evidence.
 The CTA First Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales,
nevertheless denied petitioner’s claim "for lack of substantiation,".
o considering that the subject revenues pertain to gross receipts from services rendered by
petitioner, valid VAT official receipts and not mere sales invoices should have been submitted in support
thereof.
o Without proper VAT official receipts, the foreign currency payments received by petitioner from services
rendered for the 4 quarters of taxable year 2002 in the sum of US$1,102,315.48 with the peso
equivalent of ₱56,898,744.05 cannot qualify for zero-rating for VAT purposes.
o The claimed input VAT payments allegedly attributable thereto in the amount of ₱1,801,826.82 cannot
be granted. It is clear from the provisions of Section 112 (A) of the NIRC of 1997 that there must be zero-
rated or effectively zero-rated sales in order that a refund of input VAT could prosper.
 CTA en Banc affirmed CTA First Division

Issue: What are the requirements to apply for a tax refund in zero-rated transactions?
Ruling:
 A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for
unutilized input VAT, subject to the following requirements:
o (1) the taxpayer is engaged in sales which are zero-rated (i.e., export sales) or effectively zero-rated;
o (2) the taxpayer is VAT-registered;
o (3) the claim must be filed within two years after the close of the taxable quarter when such sales were
made;
o (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been applied against the output tax; and
o (5) in case of zero-rated sales under Section 106 (A) (2) (a) (1) and (2), Section 106 (B) and Section 108
(B) (1) and (2), the acceptable foreign currency exchange proceeds thereof have been duly accounted
for in accordance with BSP rules and regulations.
 Commissioner of Internal Revenue v. Seagate Technology teaches that petitioner, as zero-rated seller, hence,
directly and legally liable for VAT, can claim a refund or tax credit certificate.
 Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at
zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax but can claim a refund or a tax credit certificate for the VAT
previously charged by suppliers. x x x
 Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be
enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive
by allowing the refund or credit of input taxes that are attributable to export sales.
 Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming tax
credits/refunds:
Sec. 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows: x x x
(c) Claims for tax credits/refunds – Application for Tax Credit/Refund of Value-Added Tax Paid
(BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality
where the principal place of business of the applicant is located or directly with the
Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however
shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. x
x x (emphasis and underscoring supplied)
 Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt.
Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. –
(A) Invoicing Requirements. – A VAT-registered person shall, for every sale, issue an invoice or
receipt. In addition to the information required under Section 237, the following information shall be
indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s
identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax. (emphasis, italics and underscoring supplied)
 Section 110 of the 1997 Tax Code in fact provides:
Section 110. Tax Credits –
A. Creditable Input Tax. –
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance
with Section 113 hereof on the following transactions shall be creditable against the output tax:
(b) Purchase of services on which a value-added tax has actually been paid.
(emphasis, italics and underscoring supplied)
  Parenthetically, to determine the validity of petitioner’s claim as to unutilized input VAT, an invoice would
suffice provided the requirements under Sections 113 and 237 of the Tax Code are met.1avvphi1
 Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs
that a business transaction has been concluded, hence, should not be considered bereft of probative value. Only
the preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for
tax refund proper.
 IN FINE, the Court finds that petitioner has complied with the substantiation requirements to prove entitlement
to refund/tax credit. The Court is not a trier of facts, however, hence the need to remand the case to the CTA for
determination and computation of petitioner’s refund/tax credit.

19. Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue (Voluminous
Records. Evidence)

Facts:
 Under Section 100 of the Tax Code of the Philippines, petitioner is a zero-rated Value Added Tax (VAT) person for
being an exporter of copper concentrates.
 According to petitioner, on January 20, 1994, it filed its VAT return for the fourth quarter of 1993, showing a total
input tax of P863,556,963.74 and an excess VAT credit of P842,336,291.60 and, on January 25, 1996, it applied for
a tax refund or a tax credit certificate for the latter amount with respondent Commissioner of Internal Revenue
(CIR).
 On the same date, petitioner filed the same claim for refund with the Court of Tax Appeals (CTA), claiming that
the two-year prescriptive period provided for under Section 230 of the Tax Code for claiming a refund was about
to expire.
 The CIR failed to file his answer with the CTA; thus, the former declared the latter in default.
 The CTA rendered its Decision denying petitioner's claim for refund due to petitioner's failure to comply with the
documentary requirements prescribed under Section 16 of Revenue Regulations No. 5-87, as amended by
Revenue Regulations No. 3-88
 Petitioner filed a Motion for Reconsideration praying for the reopening of the case in order for it to present the
required documents, together with its proof of non-availment for prior and succeeding quarters of the input VAT
subject of petitioner's claim for refund.
 The CTA granted the motion in its Resolution
 The CTA's Decision and Resolution were questioned in the CA. However, the CA affirmed in toto the said Decision
and Resolution, disposing the case.
ISSUE: Whether or not the petitioner presented the necessary documents or copies thereof with the CTA that would prove
that it is entitled to a tax refund.

RULING: NO.
 It must be remembered that when claiming tax refund/credit, the VAT-registered taxpayer must be able to
establish that it does have refundable or creditable input VAT, and the same has not been applied against its
output VAT liabilities information which are supposed to be reflected in the taxpayers VAT returns. Thus, an
application for tax refund/credit must be accompanied by copies of the taxpayers VAT return/s for the taxable
quarter/s concerned.[18] The CTA and the CA, based on their appreciation of the evidence presented, committed
no error when they declared that petitioner failed to prove that it is entitled to a tax refund and this Court, not
being a trier of facts, must defer to their findings.

 In the case of Atlas Consolidated Mining and Development Corporation v. CIR:

 o SECTION 16. Refunds or tax credits of input tax.

(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form
No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal
place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted
together with the application. The original copy of the said invoice/receipt, however, shall be presented
for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:

3. Effectively zero-rated sale of goods and services.

i) photocopy of approved application for zero-rate if filing for the first time.
ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods
or services were delivered, date of delivery, amount of consideration, and description of
goods or services delivered.
iii) evidence of actual receipt of goods or services.

4. Purchase of capital goods.

i) original copy of invoice or receipt showing the date of purchase, purchase price,
amount of value-added tax paid and description of the capital equipment locally
purchased.
ii) with respect to capital equipment imported, the photocopy of import entry document
for internal revenue tax purposes and the confirmation receipt issued by the Bureau of
Customs for the payment of the value-added tax.

5. In applicable cases,
where the applicants zero-rated transactions are regulated by certain government
agencies, a statement therefrom showing the amount and description of sale of goods
and services, name of persons or entities (except in case of exports) to whom the goods
or services were sold, and date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the
value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the
period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services,
and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the
aforementioned transactions, the following formula shall be used to determine the creditable or
refundable input tax for zero-rated sale:

Amount of Zero-rated Sale

 Total Sales
x
Total Amount of Input Taxes
= Amount Creditable/Refundable

In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR,
and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition
for Review before the CTA. If the taxpayers claim is supported by voluminous documents, such as receipts,
invoices, vouchers or long accounts, their presentation before the CTA shall be governed by CTA Circular
No. 1-95, as amended, reproduced in full below

In the interest of speedy administration of justice, the Court hereby promulgates the
following rules governing the presentation of voluminous documents and/or long
accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts
pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated
in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8
of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must,
after motion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers, dates
and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a
Certification of an independent Certified Public Accountant attesting to the correctness
of the contents of the summary after making an examination, evaluation and audit of the
voluminous receipts and invoices. The name of the accountant or partner of the firm in
charge must be stated in the motion so that he/she can be commissioned by the Court to
conduct the audit and, thereafter, testify in Court relative to such summary and
certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account
for marking, identification and comparison with the originals thereof need not be done
before the Court or Clerk of Court anymore after the introduction of the summary and
CPA certification. It is enough that the receipts, invoices, vouchers or other documents
covering the said accounts or payments to be introduced in evidence must be pre-marked
by the party concerned and submitted to the Court in order to be made accessible to the
adverse party who desires to check and verify the correctness of the summary and CPA
certification. Likewise, the originals of the voluminous receipts, invoices or accounts must
be ready for verification and comparison in case doubt on the authenticity thereof is
raised during the hearing or resolution of the formal offer of evidence.

DISPOSITION: WHEREFORE, the Petition is hereby DENIED for lack of merit. The Decision and Resolution of the Court of
Appeals, dated April 19, 2001 and August 6, 2003, respectively, are hereby AFFIRMED.
20. CIR vs AICHI FORGING COMPANY OF ASIA, INC. (Claim for refund)

G.R. No. 184823 October 6, 2010

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his
favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases,
a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process as non-
observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the
denial of his claim.

FACTS:

• Aichi Forging Company of Asia, Inc., a corporation organized and existing under the laws of the Philippines, is engaged
in the manufacturing, producing, and processing of steel and its by-products.

• It is registered with the BIR as a VAT entity.

• On September 30, 2004, Aichi filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30,
2002 in the total amount of ₱3,891,123.82 with the CIR through the Department of Finance (DOF) One-Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center.

• It also filed a Petition for Review with the CTA for the same.

• The CIR filed his Answer.

• Trial ensued, and the Second Division of the CTA rendered a Decision partially granting Aichi’s claim for refund/credit.

• Dissatisfied with the above-quoted Decision, the CIR filed a Motion for Partial Reconsideration, but was denied.

• CIR thus elevated the matter to the CTA En Banc via a Petition for Review.

• CIR sought reconsideration but the CTA En Banc denied his Motion for Reconsideration.

CIR’s arguments:

• Insists that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit
provided for under Sections 112(A) and 229 of the NIRC.

• Reason: Since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was
beyond the two-year period, which expired on September 29, 2004. Basis: Article 13 of the Civil Code, which
provides that when the law speaks of a year, it is equivalent to 365 days.

• Also argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229
of the NIRC.

• A prior filing of an administrative claim is a "condition precedent" before a judicial claim can be filed. His rationale of of
such requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the
CTA is an appellate body which exercises the power of judicial review over administrative actions of the BIR.

Aichi’s contentions:
• For the period July 1, 2002 to September 30, 2002, it generated and recorded zero-rated sales in the amount of
₱131,791,399.00, which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue
Code of 1997 (NIRC);

• That for the said period, it incurred and paid input VAT amounting to ₱3,912,088.14 from purchases and importation
attributable to its zero-rated sales;

• In its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center,
it only claimed the amount of ₱3,891,123.82.

• Claims is entitled to a refund/credit of its unutilized input VAT for the period July 1, 2002 to September 30, 2002 as a
matter of right because it has substantially complied with all the requirements provided by law.

• Applies Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax refund/credit. It believes
that Section 112(A) of the NIRC must be read together with Section 114(A) of the same Code.

ISSUE: Whether Aichi’s judicial and administrative claims for tax refund/credit were filed within the two-year
prescriptive periodas provided in Sections 112(A) and 229 of the NIRC.

RULING: No. The two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002
expired on September 30, 2004. Aichi’s administrative claim was timely filed but the filing of the judicial claim was
premature. However, notwithstanding the timely filing of the administrative claim, the SC is constrained to deny
respondent’s claim for tax refund/credit for having been filed in violation of Section 112(D). Section 112(D) of the NIRC
clearly provides that the CIR has “120 days, from the date of the submission of the complete documents in support of
the application [for tax refund/credit],” within which to grant or deny the claim. In case of full or partial denial by the
CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR.
However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously, Aichi
did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing of the
judicial claim with the CTA premature. The premature filing of respondent’s claim for refund/credit of input VAT before
the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of
the CTA applied Section 112(A) of the NIRC, which states:

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, 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.

The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments
not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the
close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said
tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive
period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT
was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a
year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized
creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for
the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996,
any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September
30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim for refund or tax credit filed on December
10, 1999 had already prescribed.

Dispositive: WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008
Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is
DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.

21. CIR vs SAN ROQUE POWER CORPORATION (3 Consolidated Cases)

Carpio, J.
NATURE: PETITIONS for review on certiorari of the decisions and resolutions of the Court of Tax Appeals
1. CIR vs SAN ROQUE POWER CORP (GR No 187485)
FACTS:
 CIR is empowered to act upon and approve claims for refund or tax credit with office at the BIR National Office
Building, Diliman, QC
 San Roque is a domestic corporation incorporated in October 1997 to design, construct, erect, assemble, own,
commission and operate power-generating plants and related facilities pursuant to and under contract with the
Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
government-owned or controlled corporation, or other entity engaged in the development, supply, or distribution
of energy.
 Duly registered with BIR and Board of Investments on a preferred pioneer status to engage in the design,
construction, erection, assembly, as well as to own, commission, and operate electric power-generating
plants and related activities
 On October 11, 1997, San Roque entered into a Power Purchase Agreement with the National Power
Corporationby building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan.
 The PPA provides that San Roque shall be responsible for the design, construction, installation, completion, testing
and commissioning of the Power Station
 It shall operate and maintain the same, subject to NPC instructions.
  During the cooperation period of twenty-five (25) years commencing from the completion date of the
Power Station, NPC will take and pay for all electricity available from the Power Station.
 On the construction and development of the San Roque Multi-Purpose Project which comprises of the dam,
spillway and power plant, San Roque allegedly incurred, excess input VAT in the amount of P559,709,337.54 for
taxable year 2001
 It was declared in its Quarterly VAT Returns filed for the same year
 San Roque filed with the BIR separate claims for refund in the total amount of P559,709,337.54,
representing unutilized input taxes as declared in its VAT returns for taxable year 2001.
 San Roque filed amended Quarterly VAT Returns for the year 2001 since it increased its unutilized input VAT to
the amount of P560,200,283.14.
 It filed with the BIR on even date, separate amended claims for refund in the aggregate amount of
P560,200,283.14.
 San Roque filed a petition for review with the CTA
 CTA Second Division initially denied San Roque’s claim.
 It required San Roque to show that it complied with the following requirements of Section 112(B) of
Republic Act No. 8424 (RA 8424) to be entitled to a tax refund or credit of input VAT attributable to capital
goods imported or locally purchased: (1) it is a VATregistered entity; (2) its input taxes claimed were paid
on capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply the
claimed input VAT payments on capital goods against any output VAT liability; and (4) its claim for refund
was filed within the two-year prescriptive period both in the administrative and judicial levels.
 The CTA Second Division found that San Roque complied with the first, third, and fourth requirements.
 San Roque filed a Motion for New Trial and/or Reconsideration in its 29 November 2007 Amended Decision
 The CTA Second Division found legal basis to partially grant San Roque’s claim
 It ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of
P483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases of capital goods
and services for the taxable year 2001.
 The Commissioner filed a Motion for Partial Reconsideration which was denied for lack of merit
 The Commissioner filed a Petition for Review before the CTA En Banc praying for the denial of San Roque’s claim
for refund or tax credit in its entirety
 CTA En Banc dismissed the CIR’s petition for review and affirmed the challenged decision and resolution.
ISSUE: WON San Roque is entitled to tax refund
RULING: NO
 San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner
to decide whether to grant or deny San Roque’s application for tax refund or credit.
 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. 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 taxpayer’s 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
Commissioner of Internal Revenue 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 Commissioner’s 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
 APPLICATION: San Roque’s failure to comply with the 120-day mandatory period renders its petition for review
with the CTA void. Article 5 of the Civil Code provides, “Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity.” San Roque’s void petition for
review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void
petition cannot be legitimized “except when the law itself authorizes [its] validity.” There is no law authorizing the
petition’s validity.
 ADDITIONAL RULINGS: This Court cannot disregard mandatory and jurisdictional conditions mandated by law
simply because the Commissioner chose not to contest the numerical correctness of the claim for tax refund or
credit of the taxpayer. Noncompliance with mandatory periods, non-observance of prescriptive periods, and
non-adherence to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or credit, whether
or not the Commissioner questions the numerical correctness of the claim of the taxpayer. This Court should not
establish the precedent that non-compliance with mandatory and jurisdictional conditions can be excused if the
claim is otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render
meaningless compliance with mandatory and jurisdictional requirements, for then every tax refund case will have
to be decided on the numerical correctness of the amounts claimed, regardless of noncompliance with mandatory
and jurisdictional conditions.
 Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer
 San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed
its petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did
not exist at the time San Roque failed to comply with the 120-day period. Thus, San Roque cannot invoke the Atlas
doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine merely
stated that the two-year prescriptive period should be counted from the date of payment of the output VAT, not
from the close of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine does
not interpret, expressly or impliedly, the 120+30 day periods.
 In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court
in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the taxpayer
to appeal to the CTA from the decision or inaction of the Commissioner. Thus, the Atlas doctrine cannot
be invoked by anyone to disregard compliance with the 30-day mandatory and jurisdictional period.
Also, the difference between the Atlas doctrine on one hand, and the Mirant doctrine on the other hand,
is a mere 20 days. The Atlas doctrine counts the two-year prescriptive period from the date of payment
of the output VAT, which means within 20 days after the close of the taxable quarter. The output VAT at
that time must be paid at the time of filing of the quarterly tax returns, which were to be filed “within 20
days following the end of each quarter.”
 NOTE: Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after
the close of the taxable quarter. Had the two-year prescriptive period been counted from the “close of the taxable
quarter” as expressly stated in the law, the tax refund claims of Atlas would have already prescribed. In contrast,
the Mirant doctrine counts the two-year prescriptive period from the “close of the taxable quarter when the sales
were made” as expressly stated in the law, which means the last day of the taxable quarter. The 20-day difference
between the Atlas doctrine and the later Mirant doctrine is not material to San Roque’s claim for tax refund.
 Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue
in the present case is San Roque’s non-compliance with the 120-day mandatory and jurisdictional period, which
is counted from the date it filed its administrative claim with the Commissioner. The 120-day period may extend
beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period. However, San Roque’s fatal mistake is that it did not wait for the Commissioner to decide
within the 120-day period, a mandatory period whether the Atlas or the Mirant doctrine is applied.
  Section 112(C) also expressly grants the taxpayer a 30day period to appeal to the CTA the decision or inaction of
the Commissioner, thus: x x x 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. (Emphasis supplied)
 This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal
the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s decision, or if the
Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer may appeal to the
CTA within 30 days from the expiration of the 120-day period.

2. TAGANITO MINING CORP vs CIR (GR No 196113)

FACTS:
 Taganito Mining Corporation, is a corporation duly organized and existing under Philippine laws, organized for the
purpose of mining etc.
 It is a VAT-registered entity
 It is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel silicate and chromite ores
 Respondent is the duly appointed Commissioner of Internal Revenue vested with authority to exercise the
functions of the said office, including inter alia, the power to decide refunds of internal revenue taxes, fees and
other charges, penalties imposed in relation thereto
 In 2005, Taganito reported zero-rated sales amounting to P1,446,854,034.68; input VAT on its domestic purchases
and importations of goods (other than capital goods) and services amounting to P2,314,730.43; and input VAT on
its domestic purchases and importations of capital goods amounting to P6,050,933.95.
 In 2006, it filed with CIR a letter claiming tax credit/refund of its suppose input VAT amounting to 8 Million for the
period of January 2004 – December 2005.
 On the same date, Taganito filed an Application for Tax Credits/Refunds for the period January 1, 2005 – December
31, 2005 for the same amount
 On November 29, 2006, Taganito sent again another letter dated Nov 29, 2004 to CIR, to correct the period of the
above claim for tax credit/refund in the said amount of P8,365,664.38 as actually referring to the period January
1, 2005 – December 31, 2005
 As the statutory period within which to file a claim for refund for the said input VAT is about to lapse without
action on the part of the CIR, Taganito filed the instant Petition for Review on February 17, 2007.
 CIR’s Special and Affirmative Defenses:
 The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the
part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which provides,
thus: Section 112. Refunds or Tax Credits of Input Tax.― xxx xxx xxx (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 (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 cases of full or partial denial 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. (Emphasis supplied.)
 As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on
November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously the 120
days given to the Commissioner to decide on the claim has not yet lapsed when the petition was filed. The
petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.
  The CTA Second Division partially granted Taganito’s claim; found that Taganito complied with the requirements
of Section 112(A) of RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to
zero-rated or effectively zero-rated sales.
 The Commissioner filed a Motion for Partial Reconsideration
 Taganito, in turn, filed a Comment/Opposition on the Motion for Partial Reconsideration
 The CTA Second Division denied the CIR’s motion. The CTA Second Division ruled that the legislature did not
intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in isolation from Section 229
(Recovery of Tax Erroneously or Illegally Collected) or vice versa.
 The Commissioner filed a Petition for Review before the CTA EB
 The CTA EB granted the CIR’s petition for review and reversed and set aside the challenged decision and
resolution.
 Taganito filed its Motion for Reconsideration; The Commissioner filed an Opposition
 The CTA EB denied for lack of merit Taganito’s motion in a Resolution. It did not see any justifiable reason to
depart from this Court’s rulings in Aichi and Mirant.
ISSUE: WON Taganito is entitled to tax refund
RULING: NO
 Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to
lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine. Taganito
filed a Petition for Review on 14 February 2007 with the CTA. This is almost four months before the adoption of
the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque―both cannot claim being misled,
misguided, or confused by the Atlas doctrine.
 However, Taganito can invoke BIR Ruling No. DA-4890357 dated 10 December 2003, which expressly ruled that
the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of Petition for Review.” Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-
489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have
filed its judicial claim with the CTA on time.

3. PHILEX MINING CORP vs CIR (GR No 197156)

FACTS:
 Philex is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is
principally engaged in the mining business
 On October 21, 2005, Philex filed its Original VAT Return for the third quarter of taxable year 2005 and Amended
VAT Return for the same quarter on December 1, 2005.
 On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of P23,956,732.44 with the One
Stop Shop Center of the Department of Finance.
 Due to CIR’s failure to act on such claim, Philex filed a Petition for Review
 CIR’s Special and Affirmative defenses:
 Claims for refund are strictly construed against the taxpayer as the same partake the nature of an
exemption;
 The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the part
of [Philex] to prove the same is fatal to its cause of action;
 [Philex] should prove its legal basis for claiming for the amount being refunded
 CTA Second Division denied Philex’s claim due to prescription
 ruled that the two-year prescriptive period specified in Section 112(A) of RA 8424, as amended, applies
not only to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim
with the CTA.
  Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was
timely filed, while its judicial claim filed on 17 October 2007 was filed late and therefore barred by
prescription.
 CTA Second Division denied Philex’s Motion for Reconsideration
 Philex filed a Petition for Review before the CTA EB
 CTA EB denied Philex’s petition and affirmed the CTA Second Division’s Decision and Resolution.
ISSUE: WON CTA En Banc erred in denying the petition due to alleged prescription.
RULING: NO
 Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed on
20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its Petition for Review
with the CTA. The close of the third taxable quarter in 2005 is 30 September 2005, which is the reckoning date in
computing the two-year prescriptive period under Section 112(A).
 Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the
two-year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex
still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The Commissioner
had until 17 July 2006, the last day of the 120-day period, to decide Philex’s claim. Since the Commissioner did not
act on Philex’s claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period,
to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial
claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-
six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial
claim.
 APPLICATION: Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA
within 30 days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of
the 120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT
were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
 The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philex’s claim during the 120-day period is, by express provision of law, “deemed a denial” of Philex’s claim. Philex
had 30 days from the expiration of the 120day period to file its judicial claim with the CTA. Philex’s failure to do
so rendered the “deemed a denial” decision of the Commissioner final and inappealable. The right to appeal to
the CTA from a decision or “deemed a denial” decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions
attached by the statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear
the consequences.

DISPOSITIVE: WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R.
No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; (2) GRANTS the
petition of Taganito Mining Corporation in G.R. No. 196113 for a tax refund or credit of P8,365,664.38; and (3) DENIES
the petition of Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44. SO ORDERED.

NOTES:

RE TAX CREDIT/REFUND
 Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer “may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit “within two (2) years,” which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-
year prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace
period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit
is barred by prescription.
 Section 112(C) provides that the Commissioner shall decide the application for refund or credit “within one
hundred twenty (120) days from the date of submission of complete documents in support of the application filed
in accordance with Subsection (A).” The reference in Section 112(C) of the submission of documents “in support
of the application filed in accordance with Subsection A” means that the application in Section 112(A) is the
administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year
prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim
for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the
judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi,
the “phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for
refund/credit with the CIR and not to appeals made to the CTA.”
 If the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730
days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-
year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in
the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his
administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day
to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can
no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has
lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless,
even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive
period.
 From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is “erroneously, x
x x illegally, x x x excessively or in any manner wrongfully collected.” In short, there must be a wrongful payment
because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should “apply only
to instances of erroneous payment or illegal collection of internal revenue taxes.” Erroneous or wrongful payment
includes excessive payment because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the “excess” input VAT is “excessively or in any manner wrongfully collected.” In
fact, if the “excess” input VAT is an “excessively” collected tax under Section 229, then the taxpayer claiming to
apply such “excessively” collected input VAT to offset his output VAT may have no legal basis to make such
offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such “excessively”
collected tax, and thus there will no longer be any “excess” input VAT. This will upend the present VAT System as
we know it.
 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.
 Under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day period
is deemed a denial of the claim.
 Thus, Section 4.106-2(c) states that “if no action on the claim for tax refund/credit has been taken by the
Commissioner after the sixty (60) day period,” the taxpayer “may” already file the judicial claim even long
 before the lapse of the two-year prescriptive period. Prior to the amendment by RA 7716, the taxpayer
had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act on
the claim.
 With the amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is
about to expire before filing the judicial claim because mere inaction by the Commissioner during the 60-
day period is deemed a denial of the claim. This is the meaning of the phrase “but before the lapse of
the two (2) year period” in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can
be filed only “after the sixty (60) day period,” this period remains mandatory and jurisdictional. Clearly,
Section 4.106-2(c) did not amend Section 106(d) but merely faithfully implemented it.

RE VAT and INPUT VAT

 The input VAT is not “excessively” collected as understood under Section 229 because at the time the input VAT
is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-
registered seller of goods, properties or services used as input by another VAT-registered person in the sale of his
own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer
as part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the
one who applies the input VAT as credit for his own output VAT. If the input VAT is in fact „excessively‰ collected
as understood under Section 229, then it is the first VAT-registered person―the taxpayer who is legally liable and
who is deemed to have legally paid for the input VAT―who can ask for a tax refund or credit under Section 229
as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will
have no input VAT to offset against his own output VAT.
 As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of
transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the
taxpayer, but on the entire selling price of his goods, properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services.
The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services
that he actually sells.
 Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when
the taxpayer is expressly “zero-rated or effectively zero-rated” under the law, like companies generating power
through renewable sources of energy. Thus, a non zero-rated VAT-registered taxpayer who has no output VAT
because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even
if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his
“excess” input VAT under the VAT System. He can only carryover and apply his “excess” input VAT against his
future output VAT. If such „excess‰ input VAT is an „excessively‰ collected tax, the taxpayer should be able to
seek a refund or credit for such “excess” input VAT whether or not he has output VAT. The VAT System does not
allow such refund or credit. Such “excess” input VAT is not an “excessively” collected tax under Section 229. The
“excess” input VAT is a correctly and properly collected tax. However, such “excess” input VAT can be applied
against the output VAT because the VAT is a tax imposed only on the value added by the taxpayer. If the input
VAT is in fact “excessively” collected under Section 229, then it is the person legally liable to pay the input VAT,
not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT
under the VAT System, who can file the judicial claim under Section 229.

RE COMMISSIONER’S INTERPRETATION
 Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas
doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit
they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
 prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative
rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively.

RE JUDGMENTS
 There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court
or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA
decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents, forming
part of the Philippine legal system.

RE LIFEBLOOD DOCTRINE
 Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency collection
for the longest time with minimal success. Consequently, the Philippines has suffered the economic adversities
arising from poor tax collections, forcing the government to continue borrowing to fund the budget deficits. This
Court cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not comply
with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a
pittance. Many other companies stand to gain if this Court were to rule otherwise. The dissenting opinions will
turn on its head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.

SEPARATE DISSENTING OPINION OF SERENO, C.J.

 In Miranda, et al. v. Imperial, et al., 77 Phil. 1073 (1947), (Miranda case) while the Court had ruled: “only decisions
of this Honorable Court establish jurisprudence or doctrines in this jurisdiction,” decisions of the Court of Appeals
(CA) which cover points of law still undecided in the Philippines may still serve as judicial guides or precedents to
lower courts. Indeed, decisions of the CA have a persuasive juridical effect. And they may attain the status of
doctrines if after having been subjected to test in the crucible of analysis and revision, the Supreme Court should
find the same to have merits and qualities sufficient for their consecration as rules of jurisprudence. If unreversed
decisions of the CA are given weight in applying and interpreting the law, Court of Tax Appeals (CTA) decisions
must also be accorded the same treatment considering they are both appellate courts, apart from the fact that
the CTA is a highly specialized body specifically created for the purpose of reviewing tax cases. This is especially
the case when the doctrine and practice in the CTA has to do only with a procedural step.
 Although I recognize the well-settled rule in taxation that tax refunds or credit, just like tax exemptions, are strictly
construed against taxpayers, reason dictates that such strict construction properly applies only when what is being
construed is the substantive right to refund of taxpayers. When courts themselves have allowed for procedural
liberality, then they should not be so strict regarding procedural lapses that do not really impair the proper
administration of justice. After all, the higher objective of procedural rule is to insure that the substantive rights
of the parties are protected.
 We find it violative of the right to procedural due process of taxpayers when the Court itself allowed the
taxpayers to believe that they were observing the proper procedural periods and, in a sudden jurisprudential
turn, deprived them of the relief provided for and earlier relied on by the taxpayers. It is with this reason and in
the interest of substantial justice that the strict application of the 120+ <30 day period should be applied
prospectively to claims for refund or credit of excess input VAT. To apply these rules retroactively would be
tantamount to punishing the public for merely following interpretations of the law that have the imprimatur of
this Court. To do so creates a tear in the public order and sow more distrust in public institutions. We would be
fostering uncertainty in the minds of the public, especially in the business community, if we cannot guarantee our
own obedience to these rules.
22. CBK Power Co LTD v CIR

Facts
 CBK Power Company Limited filed two petitions for review assailing the dismissal of its judicial claim for tax credit
of unutilized input taxes on the ground of premature filing
 The first petition was filed on July 16, 2012, docketed as G.R. No. 202066. This involves a tax credit claim for
₱58,802,85 l.18 covering the period of January 1, 2007 to December 31, 2007
 The other petition was filed on March 4, 2013, docketed as G.R. No. 205353. This involves a tax credit claim for
₱43,806,549.72 covering the period of January 1, 2006 to December 31, 2006
 CBK Power Company Limited is a VAT-registered domestic partnership with the sole purpose of engaging in "all
aspects of (a) the design, financing, construction, testing, commissioning, operation, maintenance, management
and ownership of Kalayaan II pumped-storage hydroelectric power plant, the new Caliraya Spillway, and other
assets located in the Province of Laguna, and (b) the rehabilitation, upgrade, expansion, testing, commissioning,
operation, maintenance and management of the Caliraya, Botocan · and Kalayaan I hydroelectric powerplants and
their related facilities
 The Bureau of Internal Revenue Ruling No. DA-146-2006 was issued on March 17, 2006, stating that "petitioner is
an entity engaged in hydropower generation, and that its billings and fees for the sale of electricity to NPC are
subject to VAT at zero percent (0%) rate under Section 108(B)(7) of the Tax Code of 1997, as amended by R.A. No.
9337."
G.R. No. 202066
 On March 26, 2009, petitioner filed an administrative claim with the Bureau of Internal Revenue Laguna Regional
District Office No. 55 for the issuance of a tax credit certificate for 58,802,851.18. This amount represented
"unutilized input taxes on its local purchases and/or importation of goods and services, capital goods and
payments for services rendered by non-residents, which were all attributable to petitioner’s zero-rated sales for
the period of January 1, 2007 to December 31, 2007, pursuant to Section 112 (A) of the Tax Code of 1997, as
amended."
 The next day, March 27, 2009, petitioner filed a petition for review with the Court of Tax Appeals since respondent
had not yet issued a final decision on its administrative claim.10 Respondent raised prematurity of judicial claim
as one of its defenses in its answer
 "Petitioner presented documentary and testimonial evidence to support its claim during trial, while respondent
filed a Motion to Dismiss
 In the January 28, 2011 resolution, the Court of Tax Appeals Third Division15 granted respondent’s motion and
dismissed the petition for having been prematurely filed
 In the February 1, 2012 decision,19 the Court of Tax Appeals En Banc dismissed the petition and affirmed the Third
Division’s resolutions
 Hence, CBK Power Company Limited filed the instant petition docketed as G.R. No. 202066. Petitioner argues that
Section 112(C)24 of the Tax Code, as amended, "is directory and permissive, and not mandatory nor jurisdictional,
as long as it is made within the two (2)-year prescriptive period prescribed under Section 22925 of the same Code,"
citing cases such as Atlas Consolidated Mining and Development Corp. v. Commissioner of Internal Revenue and
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation
 Petitioner submits that the recent cases of Silicon Philippines Inc. v. Commissioner of Internal Revenue and
Southern Philippines Power Corp. v. Commissioner of Internal Revenue should have been considered. These are
inconsistent with the ruling in the earlier case of Commissioner of Internal Revenue v. Aichi Forging Company of
Asia; thus, Aichi should not be applied
 Petitioner further asserts that assuming arguendo that the interpretations in Aichi and Mirant Pagbilaoon the two-
year prescription period were those intended by law, the lower court would have erred in retroactively applying
such ruling to the instant case.
  Lastly, petitioner faults the lower court for not considering "the huge negative financial impact on the petitioner
and other businesses and the business community as a whole of the denial of refunds or issuance of tax credit
certificates for unutilized input taxes."
 Respondent counters that Aichi and Mirant merely interpreted Section 112 of the Tax Code. Consequently, these
formed part of the law at the time of its original enactment and properly applied to petitioner. Respondent is
bound by the Aichi ruling
G.R. No. 205353
 Petitioner filed its original and amended quarterly VAT returns for the four quarters of 2006 on the following
dates:
2006 Taxable Quarter Original VAT Return Amended VAT Return
(date filed) (date filed)
1st April 25, 2006 December 28, 2007
March 31, 2008
2nd July 25, 2006 April 18, 2008
3rd October 20, 2006 May 7, 2008
4th January 24, 2007 July 21, 2008
 The amended returns reported zero-rated sales and input tax credits as follows:
Zero-Rated Sales for the period of January 01 to December 31, 2006
2006 Taxable Quarter Zero-Rated Sales/Receipts
1st 1,583,390,407.46
2nd 1,648,748,033.50
3rd 1,599,882,354.64
4th 1,547,858,529.27
TOTAL 6,379,879,324.87
 From the total reported input tax of 49,347,433.70 for 2006, petitioner sought tax credit certificates in the amount
of 43,806,549.72
 On March 31, 2008, petitioner filed an administrative claim with the Bureau of Internal Revenue for the issuance
of a tax credit certificate for 7,559,943.44, representing unutilized input tax for the period of January 1, 2006 to
March 31, 2006.45
 On April 23, 2008, petitioner filed a petition for review with the Court of Tax Appeals Division, alleging
respondent’s inaction on its administrative claim
 On July 23, 2008, petitioner filed another administrative claim with the Bureau of Internal Revenue for the
issuance of a tax credit certificate for 36,246,606.28, representing unutilized input tax for the period of April 1,
2006 to December 31, 2006.
 The next day, July 24, 2008, petitioner filed a petition for review with the Court of Tax Appeals Division on the
same claim
 The Court of Tax Appeals Division consolidated these two petitions on judicial claims for unutilized input tax
covering the taxable year of 2006. Petitioner adduced evidence during trial while respondent rested its case
without presenting any
Consolidated Cases:
 On December 3, 2010, the Court of Tax Appeals Third Division dismissed the consolidated cases for having been
prematurely filed
 Hence, CBK Power Company Limited filed the instant petition, docketed as G.R. No. 205353, raising substantially
the same arguments made in its earlier petition docketed as G.R. No. 202066
  In its consolidated comment, respondent explained that the two-year period pertains to administrative claims
with the Commissioner of Internal Revenue, while judicial claims with the Court of Tax Appeals must be made
within 30 days reckoned from either receipt of the Commissioner’s decision or after the lapse of the 120-day
period for the Commissioner to act on the administrative claim. Observance of the 120-day period under Section
112 of the Tax Code is mandatory and jurisdictional, and non-compliance results in the denial of the claim.59
Respondent submits that Aichi and Mirant Pagbilao apply.

ISSUE:
When may the taxpayer appeal the denial or the inaction of the CIR?

Ruling:
 The main issue in these consolidated cases involves the timeliness of petitioner’s judicial claims for the issuance
of tax credit certificates considering Section 112(C) ofthe Tax Code, as amended:
 Section 112. Refunds or Tax Credits of Input Tax.—
o (C) 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 Subsection (A) hereof.
o 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.
 A simple reading of the provision quoted above reveals that the taxpayer may appeal the denial or the inaction of
the Commissioner of Internal Revenue only within thirty (30) days from receipt of the decision that denied the
claim or the expiration of the 120-day period given to the Commissioner to decide the claim
 In the fairly recent case of Commissioner of Internal Revenue v. San Roque Power Corporation, this court En Banc
affirmed with qualification the decision of its First Division in Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. This court held that compliance with the 120-day and the 30-day periods under Section 112
of the Tax Code, save for those Value-added Tax refund cases that were prematurely (i.e., before the lapse of the
120-day period) filed with the Court of Tax Appeals between December 10, 2003 (when the Bureau of Internal
Revenue Ruling No. DA- 489-03 was issued) and October 6, 2010,is mandatory and jurisdictional.
 This court also declared that, following Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, claims
for refund or tax credit of excess input tax are governed not by Section 229 but only by Section 112 of the 1997
National Internal Revenue Code.
 In San Roque, a motion for reconsideration and supplemental motion for reconsideration in G.R. No. 187485 were
filed, arguing for the prospective application of the 120-day and 30-day mandatory and jurisdictional periods. This
court denied the motion for reconsideration with finality in the resolution dated October 10, 2013. The same
resolution also denied the Commissioner’s motion for reconsideration in G.R. No. 196113 assailing the validity of
Ruling No. DA-489-03.67
APPLICATION:
 In G.R. No. 202066, petitioner filed its judicial claim on March 27, 2009, only a day after it had filed its
administrative claim on March 26, 2009
 In G.R. No. 205353, petitioner filed its judicial claim on April 23, 2008 for the taxable period of January 1, 2006 to
March 31, 2006, just 23 days after it had filed its administrative claim on March 31, 2008. Petitioner also filed its
judicial claim on July 24, 2008 for the taxable period of April 1, 2006 to December 31, 2006, only a day after it had
filed its administrative claim on July 23, 2008.
 Clearly, petitioner failed to comply with the 120-day waiting period, the time expressly given by law to the
Commissioner of Internal Revenue to decide whether to grant or deny its application for tax refund or credit.
 Nevertheless, since the judicial claims were filed within the window created in San Roque, the petitions are
exempted from the strict application of the 120-day mandatory period.
  In G.R. No. 205353, the Court of Tax Appeals En Banc ruled that the administrative claim for the second quarter
of 2006 was belatedly filed on July 23, 2008. This is consistent with Section 112(A) of the Tax Code, as amended,
reckoning the two-year period from the close of the taxable quarter when the sales were made:
o Sec. 112. Refunds or Tax Credits of Input Tax. –
o (A) Zero-Rated or Effectively Zero-Rated Sales. – Any VATregistered 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, 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 zerorated 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 of [sic] 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 volumes of sales. . . . (Emphasis supplied) With the
close of the second taxable quarter of 2006 being June 30, 2006, petitioner should have filed its
administrative claim for this quarter on or before June 30, 2008, and not on July23, 2008. This applies the
clear text of Section 112(A).
 The June 8, 2007 case of Atlas Consolidated Mining v. Commissioner of Internal Revenue explained that "it is more
practical and reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input VAT
on zero-rated sales from the date of filing of the return and payment of the tax due which, according to the law
then existing, should be made within 20 days from the end of each quarter."
 The September 12, 2008 case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation abandoned
Atlas when it ruled that "[t]he reckoning frame would always be the end of the quarter when the pertinent sales
or transaction was made, regardless when the input VAT was paid," applying Section 112(A) of the Tax Code and
not other provisions that pertain to erroneous tax payments
 Thus, the 2013 San Roque case clarified the effectivity of the Atlas and Mirant doctrines on when to reckon the
two-year prescriptive period as follows:
o The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007
until its abandonment on 12 September 2008 in Mirant.1âwphi1 The Atlas doctrine was limited to the
reckoning of the twoyear prescriptive period from the date of payment of the output VAT. Prior to the
Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be
governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas
doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year
prescriptive period in claiming refund or credit of input VAT.72 (Emphasis supplied)
 Since July 23, 2008 falls within the window of effectivity of Atlas, petitioner’s administrative claim for the second
quarter of 2006 was filed on time considering that petitioner filed its original VAT return for the second quarter
on July 25, 2006.

DISPOSITION:
WHEREFORE, the petitions docketed as G.R. Nos. 202066 and 205353 are GRANTED. Accordingly, the Court of Tax Appeals
En Banc’s February 1, 2012 decision and May 24, 2012 resolution assailed in the petition docketed as G.R. No. 202066,
and the Court of Tax Appeals En Banc’s October 4, 2012 decision and January 15, 2013 resolution assailed in the petition
docketed as G.R. No. 205353, are REVERSED and SET ASIDE.

The consolidated cases are REMANDED to the Court of Tax Appeals for the determination and computation of the amounts
valid for refund or the issuance of a tax credit certificate.
23. SILICON PHILIPPINES vs CIR

FACTS:
 SPI, formerly known as Intel Philippines Manufacturing, Inc., is a corporation duly organized and existing under
Philippine laws, and engaged in the business of designing, developing, manufacturing, and exporting advance
and large-scale integrated circuit components, commonly referred to in the industry as Integrated Circuits or
"ICs." It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer and with the Board of
Investments as a preferred pioneer enterprise enjoying a six-year income holiday, in accordance with the
provisions of the Omnibus Investments Code.
 SPI filed on May 6, 1999 with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance an Application for Tax Credit/Refund of Value-Added Tax Paid covering the Third Quarter
of 1998.5 SPI sought the tax credit/refund of input VAT for the said tax period in the sum of P25,531,312.83,
broken down as follows:
Amount
Tax paid on Imported/Locally Purchased Capital
Equipment P 2,425,764.00
Total VAT Paid on Purchases per Invoices Received
During the Period for which this Application
is Filed 23,105,548.83
Amount of Tax Credit/Refund Applied For P 25,531,312.83
 When respondent Commissioner of Internal Revenue (CIR) failed to act upon its aforesaid Application for Tax
Credit/Refund, SPI filed on September 29, 2000 a Petition for Review before the CTA Division, which was
docketed as CTA Case No. 6170.
 The CTA Division rendered a Decision on November 24, 2003 only partially granting the claim of SPI for tax
credit/refund.
o The CTA Division disallowed the claim of SPI for tax credit/refund of input VAT in the amount of
P23,105,548.83 for failure of SPI to properly substantiate the zero-rated sales to which it attributed said
taxes.
o The CTA Division particularly pointed out the failure of SPI to comply with invoicing requirements under
Sections 113, 237, and 238 of the National Internal Revenue Code of 1997 (1997 Tax Code) and Section
4.108-1 of Revenue Regulations No. 7-95, i.e., registration of receipts or sales or commercial invoices
with the BIR; securing an authority to print receipts or sales or commercial invoices from the BIR; and
imprinting the words "zero-rated" on the invoices covering zero-rated sales. As for the claim of SPI for
tax credit/refund of input VAT on its purchases of capital goods in the amount of P2,425,764.00, the CTA
Division held that Section 112(B) of the 1997 Tax Code did not require that such a claim be attributable
to zero-rated sales; and that SPI was able to comply with all the requirements under said provision. The
CTA Division decreed in the end:
 SPI filed a Motion for Reconsideration but said Motion was denied for lack of merit by the CTA en banc in a
Resolution dated June 26, 2006.
 SPI now comes before this Court via the instant Petition for Review.

ISSUE: Whether or not the 120/30-day prescriptive periods on claiming refund are mandatory and jurisdictional.

RULING: YES
 During the pendency of the present Petition, this Court en banc promulgated on February 12, 2013 its Decision
in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal
Revenue10 (hereinafter collectively referred to as San Roque). In San Roque, the Court settled the rules on the
prescriptive periods for claiming credit/refund of input VAT under Section 112 of the 1997 Tax Code.
The pertinent provisions of the 1997 Tax Code11 provided:
o SEC. 110. Tax Credits. –
xxxx
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of
capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112.
o 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, 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.
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 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. (Emphases
supplied.)
 The Court interpreted the aforequoted provisions, as well as the seemingly conflicting jurisprudence and
administrative rulings on the same provisions, in San Roque, thus:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the
taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x 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." Following the verba legis doctrine, this law must be applied exactly as
worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without
waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will
have no jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner
for the CTA to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its
 administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-
day period, and it cannot blame anyone but itself.
 Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction
of the Commissioner, thus:
x x x 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.
 This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be
applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he
wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s
decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer
may appeal to the CTA within 30 days from the expiration of the 120-day period.
xxxx
 Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he
files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on
the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the
CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C).
xxxx
 The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following
the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT.
xxxx
 When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from 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," the law does not make the 120+30 day periods optional just
because the law uses the word "may." The word "may" simply means that the taxpayer may or may not appeal
the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the
expiration of the 120- day period. x x x.
xxxx
 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.
xxxx
 BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code.
BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review." Prior to this ruling, the BIR
held, as shown by its position in the Court of Appeals, that the expiration of the 120-day period is mandatory
and jurisdictional before a judicial claim can be filed.
xxxx
 Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.12 (Emphasis
supplied, citations omitted.)
 In the subsequent case of Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership,13 the Court
summarized the rules on prescriptive periods for claiming credit/refund of input VAT, to wit:
o SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A.Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when
the relevant sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September
2008. Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted from the date of filing of the VAT return and payment
of the tax. (San Roque)
B.120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days
from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San
Roque)
4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003
and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force.
(San Roque)
 The Court proceeds to apply the prescriptive periods set forth in Section 112 of the 1997 Tax Code, as construed
by the Court in the aforementioned cases.
 SPI filed on May 6, 1999 its administrative claim for tax credit/refund of the input VAT attributable to its zero-
rated sales and on its purchases of capital goods for the Third Quarter of 1998. The two-year prescriptive period
for filing an administrative claim, reckoned from the close of the taxable quarter, prescribed on September 30,
2000. Therefore, the herein administrative claim of SPI was timely filed. For the 120/30-day prescriptive periods,
the relevant dates are presented in table form below:
Tax Date of End of 120- End of 30-day Date of Actual No. of Days:
Period Filing of Day Period for Period to File Filing of End of 120-day
1998 Administrative CIR to Decide Appeal with Judicial Claim Period to Filing
Claim CTA of Judicial
Claim

Third May 6, 1999 September 3, October 4, September 29, 391 days2000

Quarter 1999 199914 2000

 Evidently, SPI belatedly filed its judicial claim. It filed its Petition for Review with the CTA 391 days after the
lapse of the 120-day period without the CIR acting on its application for tax credit/refund, way beyond the 30-
day period under Section 112 of the 1997 Tax Code. SPI herein is in exactly the same position as Philex Mining
in San Roque. Thus, the declarations of the Court on the judicial claim of Philex Mining in San Roque are just as
applicable to that of SPI:
 o Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT under
Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in
this case. The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philex’s
claim. Since the Commissioner did not act on Philex’s claim on or before 17 July 2006, Philex had until 17
August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August
2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for
Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day
of filing. In short, Philex was late by one year and 61 days in filing its judicial claim. As the CTA EB
correctly found:
 Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x.
 Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within
30 days after the expiration of the 120- day period. Philex filed its judicial claim long after the expiration of
the 120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
 The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner
on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s
claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA.
Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable.
The right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a
statutory privilege, not a constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise. Philex failed to comply with the
statutory conditions and must thus bear the consequences.15 (Emphases supplied, citations omitted.)

APPLICATION:
 Because the 30-day period for filing its judicial claim had already prescribed by the time SPI filed its Petition for
Review with the CTA Division, the CTA Division never acquired jurisdiction over the said Petition. The CTA
Division had absolutely no jurisdiction to act upon, take cognizance of, and render judgment upon the Petition
for Review of SPI in CTA Case No. 6170, regardless of the merit of the claim of SPI.
 The Court stresses that the 120/30-day prescriptive periods are mandatory and jurisdictional, and are not mere
technical requirements. The Court should not establish the precedent that noncompliance with mandatory and
jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in claims for tax
refunds or credit. Such precedent will render meaningless compliance with mandatory and jurisdictional
requirements.16
 The Court reiterates its pronouncements in a previously decided case which also involved SPI and similar claims
for tax credit/refund but for different tax periods:
Courts are bound by prior decisions. Thus, once a case has been decided one way, courts have no choice
but to resolve subsequent cases involving the same issue in the same manner. As this Court has repeatedly
emphasized, a tax credit or refund, like tax exemption, is strictly construed against the taxpayer. The taxpayer
claiming the tax credit or refund has the burden of proving that he is entitled to the refund by showing that he
has strictly complied with the conditions for the grant of the tax refund or credit. Strict compliance with the
mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and
necessary for such claim to prosper. Noncompliance with the mandatory periods, nonobservance of the
prescriptive periods, and nonadherence to exhaustion of administrative remedies bar a taxpayer’s claim for tax
refund or credit, whether or not the CIR questions the numerical correctness of the claim of the taxpayer. For
 failure of Silicon to comply with the provisions of Section 112(C) of the NIRC, its judicial claims for tax refund or
credit should have been dismissed by the CTA for lack of jurisdiction.
 It is not lost upon the Court that the prescription of the judicial claim has not been raised as an issue by any of
the parties whether before the CTA Division, CTA en banc, or this Court. Nonetheless, the 120/30-day
prescriptive periods are mandatory and jurisdictional, and the matter of jurisdiction cannot be waived because it
is conferred by law and is not dependent on the consent or objection or the acts or omissions of the parties or
any one of them.18 In addition, when a case is on appeal, the Court has the authority to review matters not
specifically raised or assigned as error if their consideration is necessary in reaching a just conclusion of the
case.19 More importantly, courts have the power to motu proprio dismiss an action that already prescribed.
According to Rule 9, Section 1 of the Revised Rules of Court:
SECTION 1. Defenses and objections not pleaded - Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is another action pending between
the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations,
the court shall dismiss the claim.
The second sentence of the foregoing provision does not only supply exceptions to the rule that defenses not
pleaded either in a motion to dismiss or in the answer are deemed waived, it also allows courts to dismiss
cases motu proprio on any of the enumerated grounds - (1) lack of jurisdiction over the subject matter; (2) litis
pendentia; (3) res judicata; and (4) prescription - provided that the ground for dismissal is apparent from the
pleadings or the evidence on record.20

DISPOSITION: WHEREFORE, premises considered, the Decision dated January 27, 2006 and Resolution dated June 26,
2006 of the Court of Tax Appeals en bane in CTA EB Case No. 24, which affirmed the Decision dated November 24, 2003
and Resolution dated August 10, 2004 of the Court of Tax Appeals Division in CTA Case No. 6170, are REVERSED and SET
ASIDE. The Petition for Review of Silicon Philippines, Inc. seeking tax credit/refund of the input Value-Added Tax
attributable to its zero-rated sales and on its purchases of capital goods for the Third Quarter of 1998, docketed as CTA
Case No. 61 70 before the Court of Tax Appeals Division, is DISMISSED for being filed out of time.
SO ORDERED.

24. CIR vs Toledo Power Company GR No 195175 August 10, 2015 (Sec 112, 120 + 30 days = rules)
Toledo Power vs CIR GR No 199645
Facts:
 Toledo Power Company (TPC) is engaged in the business of power generation and subsequent sale thereof to
the National Power Corporation (NPC), Cebu Electric Cooperative III (CEBECO), Atlas Consolidated Mining and
Development Corporation, and Atlas Fertilizer Corporation.
 Pursuant to Section 6, Chapter II of R.A. No. 9136, otherwise known as the Electric Power Industry Reform Act of
2001 (EPIRA), value-added tax (VAT) on sales of generated power by generation companies are zero-rated.

CTA EB No. 589

 On December 23, 2004 TPC filed a claim for refund with the BIR, Revenue District Office (RDO) No. 83, for
alleged unutilized input VAT for the four quarters of 2004 in the total amount of P17,443,855.22.
 TPC’s claim was elevated to the CTA on April 24, 2006 and docketed as C.T.A. Case No. 7471.
 The CTA First Division partly granted the Petition and ordered the refund of P8,617,425.41 to TPC.
 In its Motion for Reconsideration, the CIR raised the issue of failure to submit the legally required documents in
its administrative application for a refund; but on 15 September 2010, the CTA En Banc denied the CIR’s appeal.
o The court ruled that the non-submission of supporting documents to the administrative level is not fatal
to the claim for a refund. Since the CTA is a court of record, cases filed before it are litigated de novo,
and party litigants should prove every minute aspect of their cases.
 o Finally, the appellate court found that the issue of non-submission of complete documents was
belatedly raised by the CIR in its Motion for Reconsideration of the Decision of the CTA First Division.
The appellate court held that parties cannot be permitted to change their theory on appeal, because to
do so will be unfair to the adverse party.

C.T.A. EB No. 708

 On December 23, 2004, TPC filed with BIR RDO No. 83 an administrative claim for the refund of the alleged
unutilized input VAT for the four quarters of 2003 in the total amount of P15,838,539.48.
 On April 22, 2005, TPC filed the first Petition with the CTA for the refund of unutilized input VAT in the amount
of P3,907,783.80 for the first quarter of 2003. (C.T.A. Case No. 7233)
 Also filed by TPC on July 22, 2005 was another Petition docketed as C.T.A. Case No. 7294. Claimed therein was
the refund of alleged unutilized input VAT for the second quarter of 2003 in the total amount of P2,124,847.14.

 The two Petitions filed by TPC were consolidated. On 15 December 2009, the First Division partly granted the
refund, but only in the amount of P185,395.11 (original Decision).

 Upon Motion for Reconsideration of both parties, the Special First Division rendered an Amended Decision on 1
December 2010. The original Decision was set aside and the Motion for Reconsideration of the CIR was granted.
o Citing CIR v. Aichi Forging Company of Asia, Inc. (Aichi), the CTA Special First Division ruled that it had no
jurisdiction over TPC’s Petitions, which were thus dismissed.

 The appeal of TPC to the CTA En Banc was also dismissed on July 7, 2011.
o The appellate court ruled that in accordance with this Court’s Decision in Aichi, the Petition in C.T.A.
Case No. 7233 was considered prematurely filed, while that in C.T.A. Case No. 7294 was filed late.

The Petitions
 The CIR filed a Petition before this Court assailing the Decision of the CTA En Banc in C.T.A. EB No. 589 (GR
195175)
o The CIR mainly points out that the law requires the submission of complete supporting documents to
the BIR before the 120-day audit period shall apply, and before the taxpayer can avail itself of the
judicial remedies provided for by law.
o In this case, TPC failed to submit complete documents in support of its application for a tax refund. To
the CIR, such disregard of a mandatory requirement warranted the denial of TPC’s claim for a refund.

 On the other hand, TPC appealed the denial of its claim in C.T.A. EB No. 708 (GR 199645)
o TPC alleged that Section 229 of the NIRC of 1997, which gives taxpayers two years within which to claim
a refund, should be applied to this case, considering that the prevailing rule at the time the Petitions
were filed was that the 120-30 day period was neither mandatory nor compulsory.
o Also, TPC posits that Aichi should not be applied retroactively, and that there are differences between
the factual milieu of this case and that of Aichi.

Issue: Whether TPC is entitled to the refund of its alleged unutilized input VAT for the 1st and 2nd quarters of taxable year
2003, as well as for the 4 quarters of taxable year 2004?

Ruling: TPC is entitled to the refund only in the 1st quarter of taxable year 2003.

 The consolidated cases involve a claim for input VAT pursuant to Section 112 of the NIRC of 1997. Pursuant to
this provision, the requisites for claiming unutilized/excess input VAT, except transitional input VAT, are as
follows:
 1) The taxpayer-claimant is VAT registered;
2) The taxpayer-claimant is engaged in zero-rated or effectively zero-rated sales;
3) There are creditable input taxes due or paid attributable to the zero-rated or effectively zero-rated sales;
4) This input tax has not been applied against the output tax; and
5) The application and the claim for a refund have been filed within the prescribed period.

 With regard to the first and the second requisites, it is undisputed that TPC is VAT-registered and is engaged in
the sale of generated power, which is effectively zero-rated.
 The third and the fourth requisites are purely factual and the CTA has the jurisdiction to determine compliance
therewith.

 As to the prescriptive period, the Court in the consolidated tax cases Commissioner of Internal Revenue v. San
Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining
Corporation v. Commissioner of Internal Revenue (hereby collectively referred as San Roque),13 ruled that the
observance of the 120+30 day period is mandatory and jurisdictional.

 A summary of rules on prescriptive periods involving claims for the refund of input VAT was provided
in Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue and Mindanao I Geothermal
Partnership v. Commissioner of Internal Revenue14 as follows:

Summary of Rules on Prescriptive Periods Involving VAT

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

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

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

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

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

Considering that the date of filing of the Petitions will have an effect on the jurisdiction of the courts over taking cognizance
of a claim for a refund, the Court shall first discuss the timeliness of the judicial claims.

G.R. No. 195175

 Since the filing of the administrative and judicial claims was done in 2004 and 2006, respectively, it would seem
that compliance with the prescriptive period in this case falls within the exception period within which the Court
recognizes the validity of BIR Ruling No. DA-489-03. However, records would show that TPC will have the same
fate as Philex in San Roque.
 It is not disputed that the administrative claim for a refund of unutilized input VAT for all quarters of taxable
year 2004 was filed on 23 December 2004. Claiming that TPC made zero-rated or effectively zero-rated sales
within the four quarters of 2004, the administrative claim for the refund of unutilized input VAT attributable to
the sales in those periods was timely filed on 23 December 2004. That date was clearly within two years from
the close of the taxable quarters when the sales were made.

 Theoretically, from 23 December 2004, the CIR had 120 days or until 22 April 2005 within which to decide the
administrative claim. Thereafter, since it rendered no decision within the 120-day period, TPC had until 22 May
2005 to file its Petition to the CTA.

 In this case, however, since the filing of the administrative claim was done within the period where BIR Ruling
No. DA-489-03 was recognized valid, TPC is not compelled to observe the 120-day waiting period. Nevertheless,
it should have filed the Petition within 30 days after the expiration of the 120-day period.

 San Roque recognized BIR Ruling No. DA-489-03 which allowed the premature filing of a judicial claim as an
exception to the mandatory observance of the 120-day period. By virtue of the doctrines laid down in San
Roque, TPC should have filed its judicial claim from 23 December 2004 until 22 May 2005; however, it filed its
Petition to the CTA only on 24 April 2006.

 Just like Philex, TPC’s situation is not a case of premature filing of a judicial claim, but of late filing. The Court
explained thus:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not
file any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA
within 30 days after the expiration of the 120-day period.
Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse
of the 120-day period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether the two-
year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT
were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, “deemed a
denial” of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its judicial
claim with the CTA. Philex’s failure to do so rendered the “deemed a denial” decision of the Commissioner
final and inappealable. The right to appeal to the CTA from a decision or “deemed a denial” decision of
the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory
privilege requires strict compliance with the conditions attached by the statute for its exercise. Philex
failed to comply with the statutory conditions and must thus bear the consequences.

x x x x

Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed very late
filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion
of the 120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the
benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it
long after the lapse of the 30-day period following the expiration of the 120-day period. In fact, Philex
filed its judicial claim 426 days after the lapse of the 30-day period. (Emphasis in the original)
  TPC lost its right to claim a refund or credit of its alleged excess input VAT attributable to zero-rated or
effectively zero-rated sales for taxable year 2004 by virtue of its own failure to observe the prescriptive
periods.

G.R. No. 199645

 In both C.T.A. Case Nos. 7233 and 7294, the administrative claim for the refund of unutilized input VAT
attributable to the zero-rated or effectively zero-rated sales was timely filed on 23 December 2004, which was
within two years from the close of the first and the second quarters of 2003 when the sales were made.

 Similarly, this case also falls within the exception period by virtue of BIR Ruling No. DA-489-03 as recognized
in San Roque.

 In C.T.A. Case No. 7233, TPC filed its judicial claim on 22 April 2005. In theory, the CTA does not have jurisdiction
over the Petition, since it was filed on the last day of the 120-day period for the CIR, or without waiting for the
expiration of the aforesaid period.
 However, BIR Ruling No. DA-489-03 allows this premature filing.
 TPC may claim the benefits of that ruling in its Petition in C.T.A. Case No. 7233 for the refund of the unutilized
input VAT attributable to zero-rated or effectively zero-rated sales for the first quarter of 2003.

 The other issues raised by TPC as regards the applicability of Aichi, Mirant and Atlas, were already settled by this
Court in San Roque.
o In accordance with San Roque, TPC cannot rely on Atlas and Mirant, since these cases were promulgated
only on 8 June 2007 and 12 September 2008, respectively, three to four years after TPC had filed its
administrative and judicial claims.
o More important, Atlas and Mirant referred only to the reckoning of the prescriptive period of
administrative claims.
o The doctrine in Atlas, which reckons the two-year period from the date of filing of the return and
payment of the tax, does not interpret - expressly or impliedly - the 120+30 day periods.
o On the other hand, the Mirant doctrine counts the two-year prescriptive period from the “close of the
taxable quarter when the sales were made” as expressly stated in the law, which means the last day of
the taxable quarter.
o Verily, Atlas and Mirant are not material to the claim of TPC for a refund, since its administrative claim is
well within the period prescribed by the NIRC.

 With regard to TPC’s argument that Aichi should not be applied retroactively, we reiterate that even without
that ruling, the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period.

 Philex is likewise applicable to the Petition filed in C.T.A. Case No. 7294.
o As earlier discussed, TPC had until 22 May 2005 to file its appeal with the court since there was, on the
part of the CIR, an inaction deemed to be a denial of the claim. The judicial claim though, was filed only
on 22 July 2005, which was 61 days late.

 Again, TPC lost it right to claim a refund of its unutilized input VAT attributable to zero-rated or effectively
zero-rated sales for the second quarter of 2003.

 In sum, the CTA has jurisdiction over the Petition of TPC, but only in C.T.A. Case No. 7233 or the claim for refund
of unutilized input VAT attributable to zero-rated or effectively zero-rated sales for the first quarter of 2003.

 However, considering that the original Decision of the CTA First Division did not separate the computation of the
refundable amount of input VAT for the first and the second quarters of 2003, we cannot determine the actual
amount that may be attributed to the first quarter of 2003. Thus, a remand of the case to the CTA is necessary.
  The Court finds, in view of the absence of jurisdiction of the Court of the Tax Appeals over the judicial claims of
TPC in C.T.A. Case Nos. 7471 and 7294, that there is no need to discuss the other issues raised.

WHEREFORE, premises considered, the Petition in G.R. No. 195175 is DENIED, while the Petition in G.R. No. 199645
is PARTLY GRANTED. Accordingly, the case in G.R. No. 199645 is hereby REMANDED to the Court of Tax Appeals insofar
as the Petition in C.T.A. Case No. 7233, for the purpose of the computation of the refundable input VAT attributable to
the zero-rated or effectively zero-rated sales of Toledo Power Corporation for the first quarter of 2003.

25. CE Luzon Geothermal Power Company, Inc. vs. Commissioner of Internal Revenue (CIR), G.R. Nos. 200841-42, August
26, 2015
[Section 112, 120 + 30 days = rules]

Ponente: Perlas-Bernabe, J.

Nature of the Case: This case is a petition for review on certiorari of the decision and resolution of the Court of Tax Appeals
En Banc – which set aside the amended decision of the CTA Division – and dismissed the petitioner CE Luzon Geothermal
Power Company, Inc.’s (CE Luzon) claim for refund of unutilized input value-added tax (VAT) for being prematurely filed

FACTS:
 CE Luzon is a domestic corporation duly organized and existing under Philippine laws engaged in the business of
power generation.
 It is a VAT-registered entity with Tax Identification No. 003-924-356-000
 As such, it filed its quarterly VAT returns for the year 2005 on April 25, 2005, July 25, 2005, October 25, 2005, and
January 25, 2006, which reflected an overpayment of P20,546,004.87
 CE Luzon maintained that its overpayment was due to the following:
o Its domestic purchases of non-capital goods and services,
o Services rendered by nonresidents, and
o Importation of noncapital goods
 On November 30, 2006, CE Luzon filed an administrative claim for refund of its unutilized input VAT in the amount
of P20,546,004.87 before the Bureau of Internal Revenue (BIR)
 On January 3, 2007, it filed a judicial claim for refund, by way of a petition for review, before the CTA

Respondent CIR’s contentions, among others:

 That the amount being claimed by CE Luzon as unutilized input VAT was not properly documented and
 That the filing of its petition for review was premature and, hence, should be denied.

CTA Divisions’ Ruling

 Partially granted CE Luzon’s claim for tax refund, and thereby ordered the CIR to issue a tax credit certificate in
the reduced amount of P14,879,312.65, representing its unutilized input VAT which was attributable to its VAT
zero-rated sales for the year 2005.
 It found that while CE Luzon timely filed its administrative and judicial claims within the two (2)-year prescriptive
period, it, however, failed to duly substantiate the remainder of its claim for unutilized input VAT, resulting in the
partial denial thereof.

 Dissatisfied, both parties moved for partial reconsideration.

 CIR maintained the following:
 o
That CE Luzon failed to show that its purchases were made in the regular course of its trade and business,
and
o That they were not supported by VAT invoices and official receipts.
 Meanwhile, CE Luzon claimed that the CTA Division erred in disallowing the rest of its refund claim.

 In an amended decision, CTA Division partially granted CE Luzon’s motion for reconsideration, and consequently
directed the CIR to issue a tax credit certificate in the reduced amount of P17,277,938.47 – finding that CE Luzon
has sufficiently proven that it is entitled to an additional input VAT in the amount of P2,398,625.82.
 On the other hand, the CTA Division denied the CIR’s motion for reconsideration for lack of merit.
 CIR again moved for partial reconsideration, which was, however, denied.
 Hence, CE Luzon and CIR respectively appealed to the CTA En Banc

CTA En Banc’s Ruling

 Set aside CTA Division’s findings, holding that CE Luzon’s premature filing of its claim divested the CTA of
jurisdiction.
 It ruled that the filing of a judicial claim must be made within thirty (30) days to be computed from either:
(a) The receipt of the CIR’s decision; or
(b) After the expiration of the 120-day period for the CIR to act.
 It noted that CE Luzon’s petition was filed on January 3, 2007, or only after the lapse of 34 days from the time it
filed its administrative claim with the BIR on November 30, 2006.
 Thus, considering that CE Luzon hastily filed its petition, its judicial claim must be dismissed for being filed
prematurely.
 Aggrieved, CE Luzon moved for reconsideration, which was denied.
 Hence, this instant petition.

[In relation to Topic]

ISSUE: Whether or not the CTA En Banc correctly ordered the outright dismissal of CE Luzon’s claims for tax refund of
unutilized input VAT on the ground of prematurity.

RULING:
 No. The CTA En Banc erred when it ordered the outright dismissal of CE Luzon’s petition – for the claim of tax
refund of unutilized input VAT – on the ground of prematurity.

On the Procedural Aspect

 At the outset, the Court deems it proper to address CE Luzon’s claim that the CIR filed a “second” motion for
reconsideration of the CTA Division’s January 19, 2010 Amended Decision.
o Considering that a second motion for reconsideration is a prohibited pleading and, thus, did not toll the
period to file an appeal, CE Luzon maintained that the June 24, 2009 Decision had long become final and
executory.
 Under Section 3, Rule 14 of the Revised Rules of the Court of Tax Appeals, an amended decision is issued when
there is any action modifying or reversing a decision of the CTA En Banc or in Division.
 Based on these parameters, it is clear that the CIR’s motions for partial reconsideration, i.e. –
(a) Motion for partial reconsideration of the June 24, 2009 Decision; and
(b) Motion for partial reconsideration of the January 19, 2010 Amended Decision –
assailed separate and distinct decisions that were rendered by the CTA Division
  Notably, its amended decision modified and increased CE Luzon’s entitlement to a refund or tax credit certificate
in the amount of P17,277,938.47.
 Essentially, it was therefore a different decision and, hence, the proper subject of a motion for reconsideration
anew on the part of the CIR.
 Thus, CE Luzon’s procedural objection must fail.

On the Substantive Aspect

 It should be first pointed out that the rule governing a taxpayer’s claim for refund of unutilized input VAT is found
in Section 112 of the National Internal Revenue Code (NIRC), as amended by Republic Act No. 9337.
 The pertinent portion of which reads:
o 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, except transitional input tax, to the extent that
such input tax has not been applied against output tax: x x x.
xxx x
 (C) 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 Subsection (A) 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.
x x x x (Emphases and underscoring supplied)

 In the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi):

o It was held that the observance of the 120-day period is a mandatory and jurisdictional requisite to the
filing of a judicial claim for refund before the CTA.
o As such, its nonobservance would warrant the dismissal of the judicial claim for lack of jurisdiction.
o Withal, it was clarified in Aichi that the two (2)-year prescriptive period is only applicable to administrative
claims, and not to judicial claims.
o Accordingly, once the administrative claim is filed within the two (2)-year prescriptive period, the
taxpayer-claimant must wait for the lapse of the 120-day period and, thereafter, he has a 30-day period
within which to file his judicial claim before the CTA, even if said 120-day and 30-day periods would
exceed the aforementioned two (2)-year prescriptive period.

 Nevertheless, in the seminal case of CIR v. San Roque Power Corporation (San Roque):
o The Court recognized an EXCEPTION to the mandatory and jurisdictional nature of the 120-day period.
o San Roque enunciated that BIR Ruling No. DA-489-03 dated December 10, 2003 – which expressly
declared that the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review” – provided a valid claim for equitable
estoppel under Section 246 of the NIRC.

 In the more recent case of Taganito Mining Corporation v. CIR:

o The Court reconciled the pronouncements in Aichi and San Roque
o It held that from December 10, 2003 to October 6, 2010 which refers to the interregnum when BIR Ruling
No. DA-489-03 was issued until the date of promulgation of Aichi, taxpayer-claimants need not observe
 the stringent 120-day period before it could file a judicial claim for refund of excess input VAT before the
CTA
o But BEFORE and AFTER said window period, the mandatory and jurisdictional nature of the 120-day
period remained in force.

Application:
 In this case, records show that CE Luzon’s administrative and judicial claims were filed on November 30, 2006 and
January 3, 2007, respectively, or during the period of effectivity of BIR Ruling No. DA-489-03.
 Thus, it fell within the window period stated in San Roque, i.e., when taxpayer-claimants need not wait for the
expiration of the 120-day period before seeking judicial relief.
 Verily, the CTA En Banc erred when it outrightly dismissed CE Luzon’s petition on the ground of prematurity.
 This notwithstanding, the Court is not wont to instantly grant CE Luzon’s refund claim in the amount of
P20,546,004.87 which allegedly represented unutilized input VAT for the year 2005.
o This is because the determination of CE Luzon’s entitlement to such claim, if any, would necessarily
involve factual issues and, thus, are evidentiary in nature which are beyond the pale of judicial review
under a Rule 45 petition where only pure questions of law, not of fact, may be resolved.
o Accordingly, the prudent course of action is to remand the case to the CTA En Banc for resolution on the
merits, consistent with the Court’s ruling in Panay Power Corporation v. CIR.

Disposition: Petition partly granted. CTA En Banc decision and resolution are set aside. The case is remanded to the CTA
En Banc for its resolution on the merits.

26. Cargill Philippines Inc vs CIR (Applicability)

Facts:

 Cargill is a domestic corporation duly organized and existing under Philippine laws whose primary purpose is to
own, operate, run, and manage plants and facilities for the production, crushing, extracting, or otherwise
manufacturing and refining of coconut oil, coconut meal, vegetable oil, lard, margarine, edible oil, and other
articles of similar nature and their by- products. It is a VAT-registered entity
 As such, it filed its quarterly VAT returns for the second quarter of calendar year 2001 up to the third quarter of
fiscal year 2003, covering the period April 1, 2001 to February 28, 2003, which showed an overpayment of
44,920,350.92 and, later, its quarterly VAT returns for the fourth quarter of fiscal year 2003 to the first quarter
of fiscal year 2005, covering the period March 1, 2003 to August 31, 2004 which reflected an overpayment of
31,915,642.26.
 Cargill maintained that said overpayments were due to its export sales of coconut oil, the proceeds of which
were paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP and, thus, are zero-rated for VAT purposes.
 Cargill filed an administrative claim for refund of its unutilized input VAT in the amount of 26,122,965.81 for the
period of April 1, 2001 to February 28, 2003 (first refund claim) before the BIR. Thereafter, it filed a judicial
 claim for refund, by way of a petition for review, before the CTA. It subsequently filed a supplemental
application with the BIR increasing its claim for refund of unutilized input VAT to the amount of 27,847,897.72.
 Cargill filed a second administrative claim for refund of its unutilized input VAT in the amount of 22,194,446.67
for the period of March 1, 2003 to August 31, 2004 (second refund claim) before the BIR. On even date, it filed a
petition for review before the CTA.
 Respondent CIR claimed, inter alia, that the amounts being claimed by Cargill as unutilized input VAT in its first
and second refund claims were not properly documented and, hence, should be denied.
 the CTA Division partially granted Cargill’s claims for refund of unutilized input VAT
o It found that while Cargill timely filed its administrative and judicial claims within the 2-year prescriptive
period, as held in the case of CIR v. Mirant Pagbilao Corp., it, however, failed to substantiate the
remainder of its claims for refund of unutilized input VAT, resulting in the partial denial thereof.
o however, the CTA Division superseded and consequently reversed its August 24, 2010 Decision. Citing
the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi), it held that the 120-day period provided
under Section 112 (D) of the National Internal Revenue Code (NIRC) must be observed prior to the filing
of a judicial claim for tax refund. As Cargill failed to comply therewith, the CTA Division, without ruling
on the merits, dismissed the consolidated cases for being prematurely filed.
 CTA En Banc affirmed the CTA Division decision

Issue: Whether or not the CTA En Banc correctly affirmed the CTA Division’s outright dismissal of Cargill’s claims for refund
of unutilized input VAT on the ground of prematurity?

Ruling:
 Allowing the refund or credit of unutilized input VAT finds its genesis in EO No. 273, series of 1987, which is
recognized as the "Original VAT Law." Thereafter, it was amended through the passage of Republic Act No.
RA7716, RA 8424, and, finally by RA 9337, which took effect on November 1, 2005. Considering that Cargill’s
claims for refund covered periods before the effectivity of RA 9337, Section 112 of the NIRC, as amended by RA
8424, should, therefore, be the governing law.
 In the landmark case of Aichi, it was held that the observance of the 120-day period is a mandatory and
jurisdictional requisite to the filing of a judicial claim for refund before the CTA. As such, its non-observance
would warrant the dismissal of the judicial claim for lack of jurisdiction. It was, withal, delineated in Aichi that
the 2-year prescriptive period would only apply to administrative claims, and not to judicial claims. Accordingly,
once the administrative claim is filed within the 2-year prescriptive period, the taxpayer-claimant must wait for
the lapse of the 120- day period and, thereafter, he has a 30-day period within which to file his judicial claim
before the CTA, even if said 120-day and 30-day periods would exceed the aforementioned 2-year prescriptive
period.
 Nevertheless, the Court, in the case of CIR v. San Roque Power Corporation, recognized an exception to the
mandatory and jurisdictional nature of the 120-day period. San Roque enunciated that BIR Ruling No. DA-489-03
dated December 10, 2003, which expressly declared that the "taxpayer-claimant need not wait for the lapse of
the 120-day period before it could seek judicial relief with the CTA by way of petition for review," provided a
valid claim for equitable estoppel under Section 246 of the NIRC.
 In the more recent case of Taganito Mining Corporation v. CIR, the Court reconciled the pronouncements in
Aichi and San Roque, holding that from December 10, 2003 to October 6, 2010 which refers to the interregnum
when BIR Ruling No. DA-489-03 was issued until the date of promulgation of Aichi, taxpayer-claimants need not
observe the stringent 120-day period; but before and after said window period, the mandatory and jurisdictional
nature of the 120-day period remained in force, viz.:
o Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that
during the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010
(when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period
before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after the
aforementioned period (i.e., December 10, 2003 to October 6, 2010), the observance of the 120-day
period is mandatory and jurisdictional to the filing of such claim.
Application
 In this case, records disclose that anent Cargill’s first refund claim, it filed its administrative claim with the BIR
on June 27, 2003, and its judicial claim before the CTA on June 30, 2003, or before the period when BIR Ruling
No. DA-489-03 was in effect, i.e., from December 10, 2003 to October 6, 2010.
o As such, it was incumbent upon Cargill to wait for the lapse of the 120-day period before seeking relief
with the CTA, and considering that its judicial claim was filed only after three (3) days later, the CTA En
Banc, thus, correctly dismissed Cargill’s petition in CTA Case No. 6714 for being prematurely filed.
 In contrast, records show that with respect to Cargill’s second refund claim, its administrative and judicial claims
were both filed on May 31, 2005, or during the period of effectivity of BIR Ruling NO. DA-489-03, and, thus, fell
within the exemption window period contemplated in San Roque, i.e., when taxpayer-claimants need not wait
for the expiration of the 120-day period before seeking judicial relief. Verily, the CTA En Banc erred when it
outrightly dismissed CTA Case No. 7262 on the ground of prematurity.
 This notwithstanding, the Court finds that Cargill’s second refund claim in the amount of 22,194,446.67 which
allegedly represented unutilized input VAT covering the period March 1, 2003 to August 31, 2004 should not be
instantly granted.
o This is because the determination of Cargill’s entitlement to such claim, if any, would necessarily involve
factual issues and, thus, are evidentiary in nature which are beyond the pale of judicial review under a
Rule 45 petition where only pure questions of law, not of fact, may be resolved.
o Accordingly, the prudent course of action is to remand CTA Case No. 7262 to the CTA Division for
resolution on the merits, consistent with the Court’s ruling in Panay Power Corporation v. CIR.

27. Pilipinas Total Gas, Inc. vs CIR

FACTS:
 Petitioner, engaged in the business of selling industrial gas, gas equipment and other related goods, filed on May
15, 2008 an administrative claim for refund of unutilized input VAT for the first two quarters of taxable year 2007.
On January 23, 2009 Total Gas elevated the matter to the Court of Tax Appeals in view of the inaction of the CIR.
 The CTA Division dismissed the petition for being prematurely filed. It explained that Total Gas failed to complete
the necessary documents to substantiate the claim for refund enumerated under Revenue Memorandum Order
(RMO) No. 53-98, including the Summary List of Local Purchases and the certifications from several government
agencies that the taxpayer had not filed any similar claim for refund covering the same period.
 Ruling that Total petitioner failed to complete the necessary substantiation, the CTA held that the 120-day period
allowed for the CIR to decide its claim under Section 112 (C) of the National Internal Revenue Code of 1997, had
not even started to run. With this, the CTA held that the petition for review was prematurely filed because Total
Gas failed to exhaust administrative remedies.
 Total Gas sought for reconsideration from the CTA Division, but its motion was denied. The CTA reiterated that
the complete supporting documents should be submitted to the BIR before the 120-day period for the
Commissioner to decide the claim for refund shall commence to run. It is only upon the lapse of the 120-day
period that the taxpayer can appeal to the CTA.
 The CTA En Banc denied the petition for review of Total Gas. It ruled that the CTA Division had no jurisdiction over
the case. Counting from the date it filed its administrative claim on May 15, 2008, it explained that the CIR had
120 days to act on the claim (until September 12, 2008), and Total Gas had 30 days from then, or until October
12, 2008, to go to the CTA. Total Gas only filed its petition on January 23, 2009. For the CTA, the 120-day period
could not commence on the day Total Gas filed its last supporting document on August 28, 2008, because to allow
such would give the taxpayer unlimited discretion to indefinitely extend the 120-day period by simply filing the
required documents piecemeal.
 Further, the CTA En Banc affirmed the CTA Division that Total Gas failed to submit the complete supporting
documents as provided for under RMO No. 53-98. It likewise concurred in its finding that the judicial claim of Total
 Gas was prematurely filed because the 120-day period for the CIR to decide the claim had yet to commence to
run due to the lack of essential documents.
 Total Gas filed a motion for reconsideration, but was denied. Hence, the present petition.

ISSUES:
1. Whether or not petitioner’s judicial claim for refund was belatedly filed.
2. Whether or not RMO No. 53-98 provided a checklist of documents to be used in determining whether the taxpayer had
submitted complete supporting documents.
3. Whether or not the submission of incomplete documents at the administrative level (BIR) renders the judicial claim
premature and dismissible for lack of jurisdiction.
RULING:
1. NO.
 The CIR has 120 days from the date of submission of complete documents to decide a claim for tax credit or refund
of creditable input taxes.
 Prior to the issuance of RMC 54-2014 dated June 11, 2004, it is the taxpayer who ultimately determines when
complete documents have been submitted for the purpose of commencing and continuing the running of the 120-
day period. From the date an administrative claim is filed, a taxpayer has thirty (30) days within which to submit
the documentary requirements sufficient to support his claim, unless given further extension by the CIR. In all
cases, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year
period under Section l 12(A) of the NIRC.
 However, under the current rule provided in RMC 54-2014, the reckoning of the 120-day period has been
withdrawn from the taxpayer, since it requires him at the time he files his claim to complete his supporting
documents and attest that he will no longer submit any other document to prove his claim. Further, the taxpayer
is barred from submitting additional documents after he has filed his administrative claim.
 Nonetheless, the foregoing issuance cannot be applied rectroactively to the case at bar since it imposes new
obligations upon taxpayers in order to perfect their administrative claim, as provided under Section 246 of the
Tax Code.
 Applying the foregoing in the present case, it is observed that the CIR made no effort to question the inadequacy
of the documents submitted by petitioner. Neither did it give notice to Total Gas that its documents were
inadequate, nor ruled to deny its claim for failure to adequately substantiate its claim. Thus, the 120-day period
should be reckoned from August 28, 2008, the date when Total Gas made its "submission of complete documents
to support its application”. Consequently, counting from this later date, the BIR had 120 days to decide the claim
or until December 26, 2008. With absolutely no action or notice on the part of the BIR for 120 days, Total Gas had
until January 25, 2009 to file its judicial claim. Thus, it timely filed its judicial claim on January 23, 2009.
2. NO
 The Court ruled that nothing stated in the issuance would show that it was intended to be a benchmark in
determining whether the documents submitted by a taxpayer are actually complete to support a claim for tax
credit or refund of excess unutilized excess VAT.
3. NO.
 First, the 120-day period had commenced to run and the 120+30 day period was, in fact, complied with. Second,
the CIR sent no written notice informing Total Gas that the documents were incomplete or required it to submit
additional documents. By failing to inform Total Gas of the need to submit any additional document, the BIR
cannot now argue that the judicial claim should be dismissed because it failed to submit complete documents.
Lastly, the appeal made by Total Gas to the CTA cannot be said to be premature on the ground that it did not
observe the otherwise mandatory and jurisdictional 120+30 day period. When Total Gas filed its appeal with the
CTA on January 23, 2009, it simply relied on BIR Ruling No. DA-489-03, which, at that time, was not yet struck
down by the Court's ruling in the case of CIR v. Aichi Forging Company of Asia.
DISPOSITION: WHEREFORE, the petition is PARTIALLY GRANTED. The October 11, 2012 Decision and the May 8, 2013
Resolution of the Court of Tax Appeals En Banc, in CTA EB No. 776 are REVERSED and SET ASIDE.

The case is REMANDED to the CTA Third Division for trial de novo.

28. SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.) vs CIR

G.R. No. 182737, March 02, 2016 (120+30 table)

FACTS:

• Petitioner is a corporation engaged in the business of designing, developing, manufacturing and exporting integrated
circuit components. It is a preferred pioneer enterprise registered with the Board of Investments. It is likewise registered
with the BIR as a VAT taxpayer by virtue of its sale of goods and services with a permit to print accounting documents
like sales invoices and official receipts.

• On 24 July 2001, petitioner filed its 2nd Quarter VAT Return reporting the amount of P765,696,325.68 as its zero-rated
sales.

• Its 3rd Quarter VAT Return filed on 23 October 2001 indicated zero-rated sales in the amount of P571,812,011.26.
• This amount was increased to P678,418,432.83 in the Amended 3rd 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.

• 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.

• On 4 September 2002, petitioner also filed for a tax credit/refund of the VAT it had paid on imported capital goods for
the 3rd and 4th quarters of 2001 in the amounts of P1,420,813.04 and P14,582,023.62,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, the latter filed separate petitions for review before the CTA.

1. CTA Case No. 6741 filed on 30 July 2003 sought to recover P9,038,279.56 for the 2nd quarter of 2001;
2. CTA Case No. 6800 filed on 20 October 2003, the amount of P1,420,813.04 for the 3rd quarter of 2001;19
3. and CTA Case No. 6841 filed on 30 December 2003, P14,582,023.62 for the 4th quarter of 2001.

• The three cases were consolidated by the CTA Second Division in a Resolution dated 20 February 2004.21Trial on the
merits ensued, and the case was submitted for decision on 23 August 2007.22

• Petitioner sought to recover the VAT it paid on imported capital goods for the 2nd, 3rd and 4th quarters of 2001,
therefore, it filed for a tax credit / refund to the CIR. However, the Supreme Court has ruled that the judicial claims
were filed beyond the 120+30 day period.

chanRoblesvirtualLawlibrary
ISSUE: Whether or not the CTA has acquired jurisdiction in this case.

RULING: No. The judicial claims of petitioner were filed beyond the 120+30 day period. Section 7 of Republic Act No.
(R.A.) 1125 (An Act Creating the Court of Tax Appeals), as amended, provides that the judicial claim shall be filed within a
period of 30 days after the receipt of respondent's decision or ruling or after the expiration of the 120-day period,
whichever is sooner. Aside from a specific exception to the mandatory and jurisdictional nature of the periods provided
by the law, any claim filed in a period less than or beyond the 120+30 days provided by the NIRC is outside the
jurisdiction of the CTA.

• 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 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 submit47 - 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:
chanRoblesvirtualLawlibrary
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 National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue;

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 Internal Revenue, where the National Internal Revenue Code provides
a specific period of action, in which case the inaction shall be deemed a denial; (Emphasis supplied)
The judicial claim shall be filed within a period of 30 days after the receipt of respondent's decision or ruling or after the
expiration of the 120-day period, whichever is sooner.49

• Aside from a specific exception to the mandatory and jurisdictional nature of the periods provided by the law, any claim
filed in a period less than or beyond the 120+30 days provided by the NIRC is outside the jurisdiction of the CTA.
• As shown by the table below, the judicial claims of petitioner were filed beyond the 120+30 day period:
chanRoblesvirtualLawlibrary
Taxable
Administrative End of the 120- End of the 30- Judicial Number of
Quarter of
Claim Filed day Period day Period Claim Filed Days Late
2001

13 February 30 July
2nd 16 October 2001 15 March 2002 502 days
2002 2003

4 September 1 February 20 October

3rd 2 January 2003 261 days
2002 2003 2003

30
4 September 1 February
4th 2 January 2003 December 332 days
2002 2003
2003

• The judicial claim for the 4th quarter of 2001, while filed within the period 10 December 2003 up to 6 October 2010,
cannot find solace in BIR Ruling No. DA-489-03. The general interpretative rule allowed the premature filing of 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 way of Petition for Review."52 The rule certainly did not allow the filing of a judicial
claim long after the expiration of the 120+30 day period.

• As things stood, the CTA had no jurisdiction to act upon, take cognizance of, and render judgment upon the petitions
for review filed by petitioner. For having been rendered without jurisdiction, the decision of the CTA Second Division
in this case - and consequently, the decision of the CTA En Banc - is a total nullity that creates no rights and produces
no effect.

• Section 19 of R.A. 1125 provides that parties adversely affected by a decision 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 case, the
assailed CTA rulings are not decisions in contemplation of law55 that can serve as the subject of this Court's exercise of
its power of review.

• Given the foregoing, there is no reason for this Court to rule upon the issues raised by petitioner in the instant
petition.chanrobleslaw

DISPOSTIVE: WHEREFORE, this Court hereby SETS ASIDE the assailed Court of Tax Appeals En Banc Decision dated 18
January 2008 and Resolution dated 30 April 2008 in CTA EB No. 298; and the Court of Tax Appeals Second Division Decision
dated 5 February 2007 and Resolution dated 29 June 2007 in CTA CaseNos. 6741, 6800 & 6841.

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

Notes:

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 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 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.

Doctrine:

CIR 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 claims. If there is no evidence showing that the taxpayer was required to submit – 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.
The judicial claim shall be filed within a period of 30 days after the receipt of respondent’s decision or ruling or after the
expiration of the 120-day period, whichever is sooner.

Aside from a specific exception to the mandatory and jurisdictional nature of the periods provided by the law, any claim
filed in a period less than or beyond the 120+30 days provided by the NIRC is outside the jurisdiction of the CTA.

29. MINDANAO I GEOTHERMAL PARTNERSHIP vs CIR

Caguioa, J.
NATURE: Petition for Review on Certiorari
FACTS:
 MI entered into a Build-Operate-Transfer contract with the Philippine National Oil Company-Energy Development
Corporation (PNOC-EDC) for the finance, design, construction, testing, commissioning, operation, maintenance,
and repair of a 47-megawatt geothermal power plant
 provided that PNOC-EDC shall supply and deliver steam to [Ml] at no cost
 Ml shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the
National Power Corporation (NPC) for and in behalf of PNOC-EDC.
 [Ml's] 47-megawatt geothermal power plant project has been accredited by the Department of Energy (DOE) as a
Private Sector Generation Facility (EO No. 215)
 In order to facilitate the operations and management of the said geothermal plant, MI entered into an Operations
and Maintenance Agreement with Marubeni Energy Services Corporation (MESC).
 MI filed its Quarterly VAT for the 2nd to 4th quarters of taxable year 2004
 On August 16, 2005, [Ml] filed a letter-request for the issuance of [TCC] with the BIR Large Taxpayers Service
arising from its excess and unutilized creditable input taxes in the amount of ₱9,470,500.39, accumulated from
the first to fourth quarters of taxable year 2004.
 Remains unacted by CIR despite the lapse of the 120-day period (Sec 1, 12 (D), NIRC)
 On July 21, 2006, [Ml] filed [its] Petition for Review, praying for the issuance of [a TCC] in the amount of ₱
6,199,278.90 instead of the amount of ₱9,470,500.39, which covers merely the second to fourth quarters of
taxable year 2004
 CIR argued that:
 [Ml's] claim for refund is subject to administrative investigation by the Bureau;
 It must prove that it paid the alleged VAT input taxes for the period in question;
 It must prove that the same alleged input VAT was not utilized against any output VAT liability;
 It must prove that its sales are VAT zero-rated as contemplated under Section 112 (A) of the Tax Code of
1997;
 It must prove that the alleged VAT input taxes for the period in question are attributable to its alleged
VAT zero-rated sales;
 It must prove that the claim was filed within [the] period prescribed by law;
 CTA First Division granted Ml's claim for unutilized input value-added tax (VAT) for the third and fourth quarters
of 2004, but denied Ml's claim corresponding to the second quarter of the same year for having been filed out of
time
 Both parties filed their respective motions for partial reconsideration
 CTA First Division denied CIR’s MPR and partially granted the MPR filed by MI
 CIR elevated the case to CTA En Banc through a Petition for Review
 CTA En Banc granted the petition
 CTA En Banc denied MI’s motion for reconsideration
 MI received a copy of the resolution on July 7, 2011
  On July 22, 2011, Ml filed before the Court a Motion for Additional Time to File Petition for Review
 It prayed for an additional period of 30 days, or until August 21, 2011, within which to file a petition for
review.
 Subsequently, Ml filed the present Petition on August 22, 2011, to which the CIR filed its Comment on March 12,
2012.
 Thereafter, Ml filed its Reply to CIR's Comment on October 10, 2012

ISSUE: WON CTA En Banc erred when it dismissed MI’s judicial claim fro being out of time
RULING: NO
 Section 112 of the NIRC provides the procedure for filing claims for VAT refunds, and prescribes the corresponding
periods therefor. The provision states, in part:
 SEC. 112. Refunds or Tax Credits of Input Tax.
 (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT registered person, whose sales are zerorated 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, 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)(l), (2) and (b) and Section 108(B)(l) 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, farther, 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. Provided, finally,
That for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be
allocated ratably between his zero-rated and nonzero-rated sales. x x x x
 (C) 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 Subsection (A) 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 dayperiod, appeal the
decision or the unacted claim with the Court of Tax Appeals.
 The Petition calls into question the proper application of: (i) the two (2)-year period under Section 112(A); and (ii)
the one hundred twenty (120) and thirty (30)-day periods under Section 112(C). These questions, however, have
long been put to rest in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.25
(Aichi) and Commissioner of Internal Revenue v. San Roque Power Corporation26 (San Roque).
 In Aichi, the Court unequivocally ruled that the two (2)-year period under Section 112(A) should be reckoned from
the close of the taxable quarter when the sales were made consistent with the plain import of the NIRC. The Court
also clarified that the two (2)-year period only applies to administrative claims, and does not extend to judicial
claims. Anent judicial claims, the Court held that the one hundred twenty (120) and thirty (30)-day periods under
Section 112(C) are mandatory and jurisdictional, such that judicial claims filed before the denial of the taxpayers'
administrative claim or the lapse of the one hundred twenty (120)-day period in case of the CIR's inaction would
be deemed premature, while judicial claims filed beyond the thirty (30)-day period after such denial or lapse would
be deemed filed out of time.
 Subsequently, the Court's ruling in San Roque set out exceptions to the mandatory periods under Section 112(C),
thus:
 There is no dispute that the 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. There
 are, however, two exceptions to this rule. The first exception is if the Commissioner, through a specific
ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling
is applicable only to such particular taxpayer. The second exception is where the Commissioner, through
a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing
prematurely judicial claims with the CT A. In these cases, the Commissioner cannot be allowed to later on
question the CTA's assumption of jurisdiction over such claim since equitable estoppel has set in as
expressly authorized under Section 246 of the Tax Code.
 Specifically, the Court, in San Roque, held that BIR Ruling No. DA- 489-03, which states that "[the] taxpayer-
claimant need not wait for the lapse of the [one hundred twenty (120)]-day period before x x x seek[ing] judicial
relief with the CTA by way of [p]etition for [r]eview" serves as a valid claim for equitable estoppel recognized
under Section 246 from the time it was issued on December 10, 2003 until it was overturned on October 6, 2010.
 In turn, the principles decreed in Aichi and San Roque were later synthesized in the consolidated cases of
Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue and Mindanao I Geothermal
Partnership v. Commissioner of Internal Revenue (2013 Consolidated Cases) involving Ml's claim for unutilized
input VAT for the year 2003. The 2013 Consolidated Cases summarized the relevant periods under Section 112, as
follows:
 (1) An administrative claim must be filed with the CIR within two [2] years after the close of the taxable
quarter when the zero-rated or effectively zero-rated sales were made.
 (2) The CIR has [one hundred twenty (120)] days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The [one hundred twenty (120)]-day period may extend beyond the two [2]-year period from
the filing of the administrative claim if the claim is filed in the later part of the two [2]-year period. If the
[one hundred twenty (120)]-day period expires without any decision from the CIR, then the administrative
claim may be considered to be denied by inaction.
 (3) A judicial claim must be filed with the CTA within [thirty] 30 days from the receipt of the CIR's decision
denying the administrative claim or from the expiration of the [one hundred twenty (120)]-day period
without any action from the CIR.
 (4) All taxpayers, however, can rely on BIR Ruling No. DA-489- 03 from the time of its issuance on
[December 10, 2003] up to its reversal by this Court in Aichi on [October 6, 2010], as an exception to the
mandatory and jurisdictional 120+30 day periods
 APPLICATION: Proceeding therefrom, it becomes clear that Ml's judicial claim for the second, third and fourth
quarters of 2004 were filed out of time. The Court notes the following relevant dates:
Quarter Close of Taxable Amended Expiration of Judicial Claim
Quarter Administrative CIR’s period to
Claim Act
Second June 30 June 22 October 20 July 21
Third September 30 June 22 October 20 July 21
Fourth December 30 June 22 October 20 July 21

 The thirtieth (30th) day following October 20, 2005 (which is the date when the CIR's period to act expired) fell on
November 19, 2005, a Saturday. Accordingly, Ml had until November 21, 2005, the next working day, to file its
judicial claim before the CTA. As Ml filed its judicial claim over seven (7) months beyond the expiration of the
thirty (30)-day period, the CTA En Banc correctly ordered its dismissal. To be sure, while BIR Ruling No. DA-489-03
was in effect at the time Ml filed its judicial claim, said ruling only constitutes a valid claim for equitable estoppel
with respect to premature judicial claims, and not those filed beyond the 120+30-day periods under Section
112(C).

DISPOSITIVE: WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The Assailed Decision
dated January 12, 2011 and Resolution dated June 30, 2011 of the CTA En Banc in C.T.A. EB No. 630 are hereby AFFIRMED.
SO ORDERED.
NOTES:
ADDITIONAL RULINGS:
 Finally, it bears stressing that neither Atlas nor Mirant had been promulgated at the time Ml filed its administrative
and judicial claims. Hence, Ml's argument that Atlas was controlling at the time it filed its judicial claim is erroneous
and misleading, as the Court already found in the 2013 Consolidated Cases:
 Atlas was promulgated on [June 8, 2007], while Mirant was promulgated on [September 12, 2008]. It is
therefore misleading to state that Atlas was the controlling doctrine at the time of filing of the claims. The
1997 Tax Code, which took effect on [January 1, 1998], was the applicable law at the time of filing of the
claims in issue. x x x

BEST EVIDENCE OBTAINABLE (Section 6, NIRC)

1. MINDANAO BUS COMPANY vs. THE COLLECTOR OF INTERNAL REVENUE,G.R. No. L-14078
Facts:
 Petitioner is a common carrier engaged in transporting passengers and freight by means of auto-buses in
Northern Mindanao, under certificates of public convenience issued by the Public Service Commission.
Sometime in September, 1953, an agent of the respondent Collector of Internal Revenue examined the books of
accounts of the petitioner and found that the freight tickets used by it do not contain the required documentary
stamp tax.
 Said agent took with him 500 booklets of tickets used by the petitioner
o He counted 1,305 freight tickets.
o Assuming that each freight ticket covers baggage valued at more than P5.00, the Collector of Internal
Revenue, upon recommendation of the agent, assessed against the petitioner the sum of P15,704.16,
exclusive of compromise penalty, as documentary stamp taxes from January 1, 1948 up to September
16, 1953.
 The assessment of the Collector was appealed to the Court of Tax Appeals
 The tax court, modified the decision of the Collector and ordered the petitioner to pay only P15,704.16 as
documentary stamp tax for the period, without any compromise penalty.
 Upon petitioner's motion for reconsideration, the court resolved to reopen the case, for the sole purpose of
allowing the petitioner to present as evidence the 500 booklets and 17 sackful, respectively, of passenger and
freight tickets of the petitioner.
 During the rehearing of the case, the petitioner, however, failed to submit the said evidence; instead it
presented stub tickets, Exhibits "X-1" and "X-2, which were already in its possession during the first hearing.
 The Court of Tax Appeals denied the motion for reconsideration. Hence, this appeal.

ISSUE: Whether or not the computation made by the respondent is based upon the best available evidence, and not on
mere presumptions.
RULING: YES.
 The agent of the Bureau of Internal Revenue who investigated the petitioner's books of accounts found it
impossible to count one by one the freight tickets contained in used booklets dumped inside the petitioner's
bodega, because the booklets were so numerous and most of them were either torn or destroyed.
 The procedure followed by said agent, which is the average method, in ascertaining the total number of freight
tickets used during the period under review, can not be improved because an actual count of the freight tickets
is practically impossible.
 The average method is the only way by which the agent could determine the number of booklets used during
the period in question.
  The agent also correctly assumed that the value of the goods covered by each freight ticket is not less than
P5.00. It is a common practice of passengers in the rural areas not to secure receipts for cargoes of small value
and to demand receipts only for valuable cargo (Interprovincial Autobus Co., Inc. vs. Collector of Internal
Revenue, G.R. No. L-6741, January 31, 1956.)
 If the freight tickets were issued, the baggage carried must have been valuable enough.
 On the other hand, it was the duty of petitioner to present evidence to show inaccuracy in the above method of
assessment, but it failed to do so.

DISPOSITION: WHEREFORE, the decision appealed from should be affirmed, with costs against petitioner-appellant.

2. Sy Po vs. Court of Tax Appeals, No. L-81446, August 18, 1988

Ponente: Sarmiento, J.
Nature of the Case: This case is an appeal from the decision of the CTA – which affirmed the an earlier decision of the
correspondent Commissioner of Internal Revenue (CIR) in assessment letters, which ordered the payment by the
petitioner of deficiency income tax from 1966 to 1970 and deficiency specific tax for January 2, 1964 to January 19, 1972.

FACTS:
 Petitioner Sy Po is the widow of the late Mr. Po Bien Sing who died on September 7, 1980.
 In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine Factory
(Silver Cup) in Talisay, Cebu
o He was engaged in the business of manufacture and sale of compounded liquors, using alcohol and
other ingredients as raw materials.
 On the basis of a denunciation against Silver Cup allegedly “for tax evasion amounting to millions of pesos” the
then Secretary of Finance Cesar Virata directed the Finance-BIR-NBI team constituted under Finance
Department Order No. 13-70 dated February 19, 1971 to conduct the corresponding investigation in a
memorandum dated April 2, 1971
 Accordingly, a letter and a subpoena duces tecum dated April 13, 1971 and May 3, 1971, respectively, were
issued against Silver Cup requesting production of the accounting records and other related documents for the
examination of the team.
 Mr. Po Bien Sing did not produce his books of accounts as requested
 This prompted the team with the assistance of the PC Company, Cebu City, to enter the factory bodega of Silver
Cup and seized different brands, consisting of 1,555 cases of alcohol products
 The inventory lists of the seized alcohol products are contained in Volumes I, II, III, IV and V
 On the basis of the team’s report of investigation, the respondent CIR assessed Mr. Po Bien Sing the following:
o Deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16; and
o Deficiency specific tax for January 2, 1964 to January 19, 1972 in the amount of P5,595,003.68
 Petitioner protested the deficiency assessments through letters dated October 9 and October 30, 1972, which
protests were referred for reinvestigation.
 The corresponding report dated August 13, 1981 recommended the reiteration of the assessments in view of
the taxpayer’s persistent failure to present the books of accounts for examination, compelling respondent to
issue warrants of distraint and levy on September 10, 1981
o The warrants were admittedly received by petitioner on October 14, 1981, which petitioner deemed
respondent’s decision denying her protest on the subject assessments
 Hence, this appeal.

ISSUE: Whether or not the assessments have valid and legal bases.
RULING:
 Yes, the assessments have valid and legal bases.
 The applicable legal provision is Section 16(b) of the National Internal Revenue Code of 1977, as amended.
o Section 16. Power of the Commissioner of Internal Revenue to make assessments. –
xxx xxx xxx
(b) Failure to submit required returns, statements, reports and other documents. –When a report
required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming
within the time fixed by law or regulation or when there is reason to believe that any such report is false,
incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best
evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully
or otherwise, files a false or fraudulent return or other documents, the Commissioner shall make or amend
the return from his own knowledge and from such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all legal purposes.
(Emphasis added)

 The law is specific and clear.

 The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of
assessment is not available or when the tax report is incomplete or fraudulent.

Application:
 In this case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books of
accounts for examination for the taxable years involved left the CIR no other legal option except to resort to the
power conferred upon him under Section 16 of the Tax Code.
 The tax figures arrived at by the CIR are by no means arbitrary.
 This Court reproduced the respondent court’s findings, to wit:
o As thus shown, on the basis of the quantity of bottles of wines seized during the raid and the sworn
statements of former employees Messrs. Nelson S. Po and Alfonso Po taken on May 26, and 27, 1971,
respectively, by the investigating team in Cebu City, it was ascertained that the Silver Cup for the years
1964 to 1970, inclusive, utilized and consumed in the manufacture of compounded liquors and other
products 20,105 drums of alcohol as raw materials 81,288,787 proof liters of alcohol.
o As determined, the total specific tax liability of the taxpayer for 1964 to 1971 amounted to
P5,593,003.68
o Likewise, the team found due from Silver Cup deficiency income taxes for the years 1966 to 1970
inclusive in the aggregate sum of P7,154,685.16
 The 50% surcharge has been imposed, pursuant to Section 72 of the Tax Code and tax 1/2% monthly interest has
likewise been imposed pursuant to the provisions of Section 51(d) of the Tax Code
o The petitioner assails these assessments as wrong.

 In the case of CIR vs. Reyes, this Court ruled that:

o Where the taxpayer is appealing to the tax court on the ground that the Collector’s assessment is
erroneous, it is incumbent upon him to prove there what is the correct and just liability by a full and fair
disclosure of all pertinent data in his possession.
o Otherwise, if the taxpayer confines himself to proving that the tax assessment is wrong, the tax court
proceedings would settle nothing, and the way would be left open for subsequent assessments and
appeals in interminable succession.
 Tax assessments by tax examiners are presumed correct and made in good faith.
 The taxpayer has the duty to prove otherwise.
  In the absence of proof of any irregularities in the performance of duties, an assessment duly made by BIR
examiner and approved by his superior officers will not be disturbed.
 All presumptions are in favor of the correctness of tax assessments.
 On the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily
rebutted by the petitioner.
 There are indeed clear indications on the part of the taxpayer to deprive the Government of the taxes due.

 Records show that from January to December 1970, Silver Cup had used in production 189 drums of untaxed
distilled alcohol and 3,722 drums of untaxed distilled alcohol.
o The Assistant Factory Superintendent of Silver Cup testified on the existence of illegal operation
o In the same vein, the factory personnel manager testified that false entries were entered in the official
register book
 The existence of fraud as found by the respondents cannot be lightly set aside absent substantial evidence
presented by the petitioner to counteract such finding.
 The findings of fact of the respondent CTA are entitled to the highest respect.
 Hence, this Court did not find anything in the questioned decision that should disturb this long-established
doctrine.

Disposition: Petition denied.

Note: Section 16(b), NIRC of 1977 is now Section 6(B), NIRC of 1997
3. CIR v Hantex – Best Evidence Obtainable
GR 136975, March 31, 2005
Nature:
 This is a petition for review of the Decision of Court of Appeals (CA) which reversed the Decision of the Court of
Tax Appeals (CTA) upholding the deficiency income and sales tax assessments against respondent Hantex Trading
Co., Inc.
Facts:
 Hantex Trading Co is a company organized under the Philippines.
o It is engaged in the sale of plastic products, it imports synthetic resin and other chemicals for the
manufacture of its products.
 For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with
the Bureau of Customs under Section 1301 of the Tariff and Customs Code.
 Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic
Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported
synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57.
 Thus, Hantex receive a subpoena to present its books of account which it failed to do.
 The bureau cannot find any original copies of the products Hantex imported since the originals were eaten by
termites.
 Thus, the Bureau relied on the certified copies of the respondent’s Profit and Loss Statement for 1987 and 1988
on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer,
as well as excerpts from the entries certified by Tomas and Danganan.
 The case was submitted to the CTA which ruled that Hantex have tax deficiency and is ordered to pay, per
investigation of the Bureau.
 The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were
not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and
the BIR investigators.
 Petitioner’s arguments:
 oPetitioner asserts that since the respondent refused to cooperate and show its 1987 books of account and
other accounting records, it was proper for her to resort to the best evidence obtainable - the photocopies
of the import entries in the Bureau of Customs and the respondent’s financial statement filed with the
SEC.
o The petitioner maintains that these import entries were admissible as secondary evidence under the best
evidence obtainable rule, since they were duly authenticated by the Bureau of Customs officials who
processed the documents and released the cargoes after payment of the duties and taxes due.
o Further, the petitioner points out that under the best evidence obtainable rule, the tax return is not
important in computing the tax deficiency.
o The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977 NIRC, as
amended, legally cannot be equated to the best evidence rule under the Rules of Court; nor can the best
evidence rule, being procedural law, be made strictly operative in the interpretation of the best evidence
obtainable rule which is substantive in character.
o The petitioner posits that the CTA is not strictly bound by technical rules of evidence, the reason being
that the quantum of evidence required in the said court is merely substantial evidence.
o Finally, the petitioner avers that the respondent has the burden of proof to show the correct assessments;
otherwise, the presumption in favor of the correctness of the assessments made by it stands. Since the
respondent was allowed to explain its side, there was no violation of due process
 Respondent’s (Hantex) arguments:
o The respondent, for its part, maintains that the resort to the best evidence obtainable method was illegal.
In the first place, the respondent argues, the EIIB agents are not duly authorized to undertake examination
of the taxpayers accounting records for internal revenue tax purposes. Hence, the respondents failure to
accede to their demands to show its books of accounts and other accounting records cannot justify resort
to the use of the best evidence obtainable method. Secondly, when a taxpayer fails to submit its tax
records upon demand by the BIR officer, the remedy is not to assess him and resort to the best evidence
obtainable rule, but to punish the taxpayer according to the provisions of the Tax Code.
o In any case, the respondent argues that the photocopies of import entries cannot be used in making the
assessment because they were not properly authenticated, pursuant to the provisions of Sections 24 and
25 of Rule 132 of the Rules of Court. It avers that while the CTA is not bound by the technical rules of
evidence, it is bound by substantial rules. The respondent points out that the petitioner did not even
secure a certification of the fact of loss of the original documents from the custodian of the import entries.
It simply relied on the report of the EIIB agents that the import entry documents were no longer available
because they were eaten by termites. The respondent posits that the two collectors of the Bureau of
Customs never authenticated the xerox copies of the import entries; instead, they only issued
certifications stating therein the import entry numbers which were processed by their office and the date
the same were released.
o The respondent argues that it was not necessary for it to show the correct assessment, considering that
it is questioning the assessments not only because they are erroneous, but because they were issued
without factual basis and in patent violation of the assessment procedures laid down in the NIRC of 1977,
as amended. It is also pointed out that the petitioner failed to use the tax returns filed by the respondent
in computing the deficiency taxes which is contrary to law; as such, the deficiency assessments constituted
deprivation of property without due process of law.

Issue:
Where the December 10, 1991 final assessment of the petitioner (CIR) against the respondent (Hantex) for deficiency
income tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate based on competent evidence
and the law?

Ruling:
 NO
  The petitioner may avail herself of the best evidence or other information or testimony by exercising her power
or authority under paragraphs (1) to (4) of Section 7 of the NIRC:
1. To examine any book, paper, record or other data which may be relevant or material to such inquiry;
2. To obtain information from any office or officer of the national and local governments, government
agencies or its instrumentalities, including the Central Bank of the Philippines and government owned or
controlled corporations;
3. To summon the person liable for tax or required to file a return, or any officer or employee of such person,
or any person having possession, custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or any other person, to appear
before the Commissioner or his duly authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other data, and to give testimony;
4. To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; [66]
 The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting
records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers
engaged in the same line of business, including their gross profit and net profit sales.Such evidence also includes
data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who
had personal transactions or from whom the subject taxpayer received any income; and record, data, document
and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines,
the Bureau of Customs, and the Tariff and Customs Commission.

 The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places
no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is
kept. The purpose of the law is to enable the BIR to get at the taxpayers records in whatever form they may be
kept. Such records include computer tapes of the said records prepared by the taxpayer in the course of business.
In this era of developing information-storage technology, there is no valid reason to immunize companies with
computer-based, record-keeping capabilities from BIR scrutiny. The standard is not the form of the record but
where it might shed light on the accuracy of the taxpayers return.

 In Campbell, Jr. v. Guetersloh the United States (U.S.) Court of Appeals (5th Circuit) declared that it is the duty of
the Commissioner of Internal Revenue to investigate any circumstance which led him to believe that the taxpayer
had taxable income larger than reported. Necessarily, this inquiry would have to be outside of the books because
they supported the return as filed. He may take the sworn testimony of the taxpayer; he may take the testimony
of third parties; he may examine and subpoena, if necessary, traders and brokers accounts and books and the
taxpayers book accounts. The Commissioner is not bound to follow any set of patterns. The existence of
unreported income may be shown by any practicable proof that is available in the circumstances of the particular
situation. Citing its ruling in Kenney v. Commissioner, the U.S. appellate court declared that where the records of
the taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to other sources of
information to establish income made by the taxpayer during the years in question

Application:
 We agree with the contention of the petitioner that the best evidence obtainable may consist of hearsay evidence,
such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as
the taxpayer subject of the investigation, hence, inadmissible in a regular proceeding in the regular courts.
Moreover, the general rule is that administrative agencies such as the BIR are not bound by the technical rules of
evidence. It can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court
are strictly observed. It can choose to give weight or disregard such evidence, depending on its trustworthiness.

 However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere
photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment
against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The
 reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer. Indeed, in United States v. Davey, the U.S. Court of Appeals (2nd
Circuit) ruled that where the accuracy of a taxpayers return is being checked, the government is entitled to use
the original records rather than be forced to accept purported copies which present the risk of error or tampering.

 In Collector of Internal Revenue v. Benipayo, the Court ruled that the assessment must be based on actual facts.
The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by
the informer of the EIIB were furnished by yet another informer. While the EIIB tried to secure certified copies of
the said entries from the Bureau of Customs, it was unable to do so because the said entries were allegedly eaten
by termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to secure certified copies
of the said entries from the Tariff and Customs Commission or from the National Statistics Office which also had
copies thereof. It bears stressing that under Section 1306 of the Tariff and Customs Code, the Consumption Entries
shall be the required number of copies as prescribed by regulations. The Consumption Entry is accomplished in
sextuplicate copies and quadruplicate copies in other places. In Manila, the six copies are distributed to the Bureau
of Customs, the Tariff and Customs Commission, the Declarant (Importer), the Terminal Operator, and the Bureau
of Internal Revenue. Inexplicably, the Commissioner and the BIR personnel ignored the copy of the Consumption
Entries filed with the BIR and relied on the photocopies supplied by the informer of the EIIB who secured the same
from another informer. The BIR, in preparing and issuing its preliminary and final assessments against the
respondent, even ignored the records on the investigation made by the District Revenue officers on the
respondents importations for 1987.

 The original copies of the Consumption Entries were of prime importance to the BIR. This is so because such
entries are under oath and are presumed to be true and correct under penalty of falsification or perjury.
Admissions in the said entries of the importers documents are admissions against interest and presumptively
correct

 In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies
of the Consumption Entries in fixing the tax deficiency assessments against the respondent.

 The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner is not required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding
that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation
is arrived at arbitrarily and capriciously.

 We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners are
presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It
is to be presumed, however, that such assessment was based on sufficient evidence. Upon the introduction of the
assessment in evidence, a prima facie case of liability on the part of the taxpayer is made.[80] If a taxpayer files a
petition for review in the CTA and assails the assessment, the prima facie presumption is that the assessment
made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed their duties.
This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof
obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that the
taxpayer will have access to the relevant information; and the desirability of bolstering the record-keeping
requirements of the NIRC.

 However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly
without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a naked assessment,
i.e., without any foundation character, the determination of the tax due is without rational basis. In such a
situation, the U.S. Court of Appeals ruled that the determination of the Commissioner contained in a deficiency
notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate
determination must find support in credible evidence.
Ungab vs Cusi Jr

Facts:
 BIR Examiner Ben Garcia examined the income tax returns filed by the herein petitioner, Quirico P. Ungab, for the
calendar year ending December 31, 1973.
 In the course of his examination, he discovered that the petitioner failed to report his income derived from sales
of banana saplings. the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner
informing him that there is due from him (petitioner) the amount of P104,980.81, representing income, business
tax and forest charges for the year 1973 and inviting petitioner to an informal conference where the petitioner,
duly assisted by counsel, may present his objections to the findings of the BIR Examiner.
 Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting the assessment,
claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his
income, as reported in his income tax returns for the said year, was accurately stated.
 BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax return
so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the BIR.
 After examining the records of the case, the Special Investigation Division of the Bureau of Internal Revenue found
sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution:
 (1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just
taxes due the government under Section 45 in relation to Section 72 of the NIRC;
 (2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid
fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section
183 of the NIRC;
 (3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the
total sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of
its due revenue in the amount of P15,872.59, inclusive of surcharge.
 In a 2 indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the CIR approved the
nd

prosecution of the petitioner.

 Thereafter, State Prosecutor Jesus Acebes conducted a preliminary investigation of the case, and finding probable
cause, filed 6 informations against the petitioner with the CFI of Davao City
 On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that:
o (1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate
and prosecute the said cases; and
o (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending
protest against the assessment made by the BIR Examiner.
 However, the trial court denied the motion on October 22, 1975. Whereupon, the petitioner filed the instant
recourse. As prayed for, a temporary restraining order was issued by the Court, ordering the respondent Judge
from further proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965
of the Court of First Instance of Davao

Issue: Whether or not the State Prosecutor can proceed independently of the City Fiscal in the investigation and
prosecution?
Ruling: Yes.

Petitioner’s arguments
 The petitioner seeks the annulment of the informations filed against him on the ground that the respondent State
Prosecutor is allegedly without authority to do so.
  The petitioner argues that while the respondent State Prosecutor may initiate the investigation of and prosecute
crimes and violations of penal laws when duly authorized, certain requisites, enumerated by this Court in its
decision in the case of Estrella vs. Orendain, should be observed before such authority may be exercised;
otherwise, the provisions of the Charter of Davao City on the functions and powers of the City Fiscal will be
meaningless because according to said charter he has charge of the prosecution of all crimes committed within
his jurisdiction; and since "appropriate circumstances are not extant to warrant the intervention of the State
Prosecution to initiate the investigation, sign the informations and prosecute these cases, said informations are
null and void."
 The ruling adverted to by the petitioner reads, as follows:
o In view of all the foregoing considerations, it is the ruling of this Court that under Sections 1679 and 1686
of the Revised Administrative Code, in any instance where a provincial or city fiscal fails, refuses or is
unable, for any reason, to investigate or prosecute a case and, in the opinion of the Secretary of Justice it
is advisable in the public interest to take a different course of action, the Secretary of Justice may either
appoint as acting provincial or city fiscal to handle the investigation or prosecution exclusively and only of
such case, any practicing attorney or some competent officer of the Department of Justice or office of any
city or provincial fiscal, with complete authority to act therein in all respects as if he were the provincial
or city fiscal himself, or appoint any lawyer in the government service, temporarily to assist such city of
provincial fiscal in the discharge of his duties, with the same complete authority to act independently of
and for such city or provincial fiscal provided that no such appointment may be made without first hearing
the fiscal concerned and never after the corresponding information has already been filed with the court
by the corresponding city or provincial fiscal without the conformity of the latter, except when it can be
patently shown to the court having cognizance of the case that said fiscal is intent on prejudicing the
interests of justice. The same sphere of authority is true with the prosecutor directed and authorized
under Section 3 of Republic Act 3783, as amended and/or inserted by Republic Act 5184. The observation
in Salcedo vs. Liwag, supra, regarding the nature of the power of the Secretary of Justice over fiscals as
being purely over administrative matters only was not really necessary, as indicated in the above relation
of the facts and discussion of the legal issues of said case, for the resolution thereof. In any event, to any
extent that the opinion therein may be inconsistent herewith the same is hereby modified.

Court Ruling:
 The contention is without merit.
 Contrary to the petitioner's claim, the rule therein established had not been violated.
 The respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he
started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order
No. 116, dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals
throughout the Philippines in the investigation and prosecution of all violations of the NIRC, as amended, and
other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases,
and in fact, said investigation was conducted in the office of the City Fiscal.

Other court discussion:

 The petitioner also claims that the filing of the informations was precipitate and premature since the CIR has not
yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse
to the Court of Tax Appeals.
o The contention is without merit.
o What is involved here is not the collection of taxes where the assessment of the CIR may be reviewed by
the Court of Tax Appeals, but a criminal prosecution for violations of the NIRC which is within the
cognizance of courts of first instance. While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution under the Code.
  The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the
taxpayer can be prosecuted criminally for the charges preferred.
 The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with
intent to evade and defeat a part or all of the tax.
 An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade
the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with
intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly
to assess has no connections with the commission of the crime.
 Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the
prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of
law. Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop
his prosecution for violation of the NIRC. Accordingly, the respondent Judge did not abuse his discretion in denying
the motion to quash filed by the petitioner.
 WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order heretofore issued
is hereby set aside. With costs against the petitioner. SO ORDERED.

CIR v CA (COMPARISON WITH UNGAB CASE)

G.R. No. 119322 June 4, 1996
KAPUNAN, J.

FACTS:

 On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities of
manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing corporations
to avoid payment of correct internal revenue tax, to collect from them any tax liabilities discovered from such
investigation, and to file the necessary criminal actions against those who may have violated the tax code.
o The task force was composed of the Commissioner of Internal Revenue as Chairman, a representative of
the Department of Justice and a representative of the Executive Secretary.
 On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular No. 37-93
reclassifying best selling cigarettes bearing the brands "Hope," "More," and "Champion" as cigarettes of foreign
brands subject to a higher rate of tax.
 On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the validity of the
reclassification of said brands of cigarettes as violative of its right to due process and equal protection of law.
 Parenthetically, on September 8, 1993, the Court of Tax Appeals by resolution ruled that the reclassification
made by the Commissioner "is of doubtful legality" and enjoined its enforcement.
 In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the Commissioner assessed
against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad valorem and value-
added tax for the year 1992 with the request that the said amount be paid within thirty (30) days upon receipt
thereof.
 Fortune on September 17, 1993 moved for reconsideration of the assessments.
 On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the Department of Justice
against respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate
officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of
income tax, ad valorem tax and value-added tax for the year 1992.
o The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task Force on
revenue cases which found sufficient basis to further investigate the allegations that Fortune, through
fraudulent means, evaded payment of income tax, ad valorem tax, and value-added tax for the year
 1992 thus, depriving the government of revenues in the amount of Seven and One-half (P7.5) Billion
Pesos.
 On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary
injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790, praying that the
complaint of the Commissioner of Internal Revenue and the orders of the prosecutors in I.S. No. 93-508 be
dismissed or set aside, alternatively, the proceedings on the preliminary investigation be suspended pending
final determination by the Commissioner of Fortune's motion for reconsideration/ reinvestigation of the August
13, 1993 assessment of the taxes due.
 On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in the
petition, private respondents offered in evidence their verified petition for certiorari and prohibition and its
annexes.
 Petitioners responded by praying that their motion to dismiss the petition for certiorari and prohibition be
considered as their opposition to private respondents' application for the issuance of a writ of preliminary
injunction.
 On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary
injunction.
 On January 26, 1994, private respondents filed with the trial court a Motion to Admit Supplemental Petition and
sought the issuance of a writ of preliminary injunction to enjoin the State Prosecutors from continuing with the
preliminary investigation filed by them against private respondents with the Quezon City Prosecutor's Office,
docketed as I.S. 93-17942, for alleged fraudulent tax evasion.
 On January 28, 1994, private respondents filed with the trial court a second supplemental petition, also seeking
to stay the preliminary investigation in I.S. 93-584, which was the third complaint filed against private
respondents with the DOJ for alleged fraudulent tax evasion for the taxable year 1991.
 On January 31, 1994, the lower court admitted the two (2) supplemental petitions and issued a temporary
restraining order in I.S. 93-17942 and I.S. 93-584.
 Also, on the same day, petitioners filed an Urgent Motion for Immediate Resolution of petitioners' motion to
dismiss.
 On February 7, 1994, the trial court issued an order denying petitioners' motion to dismiss private respondents'
petition seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of whether Sec. 127(b) of
the National Tax Revenue Code should be the basis of private respondents' tax liability as contended by the
Bureau of Internal Revenue, or whether it is Section 142(c) of the same Code that applies, as argued by herein
private respondents, should first be settled before any complaint for fraudulent tax evasion can be initiated.
 On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer for preliminary injunction
before this Court. However, the petition was referred to the Court of Appeals for disposition by virtue of its
original concurrent jurisdiction over the petition.
 On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599 rendered a decision denying the petition.
 Their motion for reconsideration having been denied by respondent appellate court on February 23, 1995,
petitioners filed the present petition for review

ISSUE: Whether or not fortune wilfully attempted to evade or defeat the taxes sought to be collected from them?
(COMPARISON WITH THE UNGAB CASE)
RULING:
 No. We share with the view of both the trial court and Court of Appeals that before the tax liabilities of Fortune
are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to
evade or defeat the taxes sought to be collected from Fortune.
 In plain words, before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and
255 of the Tax Code, the fact that a tax is due must first be proved.
 Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to
prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v.
U.S.: The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent
to evade and defeat a part or all of the tax.
  In plain words, for criminal prosecution to proceed before assessment, there must be prima facie showing of a
wilful attempt to evade taxes.
 There was a wilful attempt to evade tax in Ungab because of the taxpayer’s failure to declare in his income tax
return his income derived from banana sapplings.
 In the mind of the trial court and the Court of Appeals, Fortunes situation is quite apart factually since the
registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price,
therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to
be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution.
 Herein lies a whale of difference between Ungab and the case at bar.

ISSUE: Whether or not it is premature to conclude that Fortune committed tax evasion?
RULING:
 Yes. Now, if every step in the production of cigarettes was closely monitored and supervised by the BIR
personnel specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn
Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR
and, further, since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that
such registered wholesale price is the same as, or approximates the price, excluding the value-added tax, at
which the goods are sold at wholesale in the place of production, otherwise, the BIR would not have approved
the registered wholesale price of the goods for purposes of imposing the ad valorem tax due.
 In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that
private respondents made fraudulent returns or willfully attempted to evade payment of taxes due.

DISPOSITIVE PORITON: WHEREFORE, the instant petition is hereby DISMISSED. SO ORDERED.

Cases on Assessment

1.COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO, respondents.

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed
period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer
to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer.
Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to
a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax
Appeals.

NATURE: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for the
nullification of the October 30, 1996 Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively
affirmed the January 25, 1996 Resolution 3 of the Court of Tax Appeals 4 CTA Case No. 5271. Petitioner also seeks to
nullify the February 13, 1997 Resolution 5 of the Court of Appeals denying reconsideration.

FACTS:

As found by the Court of Appeals, the undisputed facts of the case are as follows:

 Then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and
Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and
Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a
 recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the
years 1986 and 1987, respectively.
 On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of
Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes
in the total amount of P10,513,671 .00. Private respondents PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability.
 Thereafter, private respondents received a subpoena from the DOJ in connection with the criminal complaint
filed by the Commissioner of Internal Revenue (BIR) against them.1
 In a letter, the CIR denied the urgent request for reconsideration/reinvestigation of the private respondents on
the ground that no formal assessment of the has as yet been issued by the Commissioner.
 Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax Appeals on a
petition for review docketed as CTA Case No. 5271 on July 21, 1995.
o On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA has no
jurisdiction over the subject matter of the petition, as there was no formal assessment issued against
the petitioners.
o The CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR
to file an answer within thirty (30) days from receipt of said resolution. The CIR received the resolution
on January 31, 1996 but did not file an answer nor did she move to reconsider the resolution.
o Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and without jurisdiction in
considering the affidavit/report of the revenue officer and the indorsement of said report to the
secretary of justice as assessment which may be appealed to the Court of Tax Appeals;

Respondent Court Tax Appeals acted with grave abuse of discretion in considering the denial by
petitioner of private respondents' Motion for Reconsideration as [a] final decision which may be
appealed to the Court of Tax Appeals.

o In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:

We agree with petitioners' contentions, that the criminal complaint for tax evasion is
the assessment issued, and that the letter denial of May 17, 1995 is the decision
properly appealable to [u]s. Respondent's ground of denial, therefore, that there was no
formal assessment issued, is untenable.

It is the Court's honest belief, that the criminal case for tax evasion is already an
assessment. The complaint, more particularly, the Joint Affidavit of Revenue Examiners
Lagmay and Savellano attached thereto, contains the details of the assessment like the
kind and amount of tax due, and the period covered:

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to
exclusive appellate jurisdiction of this Court, do not, make any mention of "formal
assessment." The law merely states, that this Court has exclusive appellate jurisdiction
over decisions of the Commissioner of Internal Revenue on disputed assessments,
and other matters arising under the National Internal Revenue Code, other law or part
administered by the Bureau of Internal Revenue Code.

 As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.
 Hence, this recourse to this Court. 7

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the Criminal
Complaint for tax evasion filed by the Commissioner of Internal Revenue with the Department of Justice constituted an
"assessment" of the tax due, and that the said assessment could be the subject of a protest. By definition, an assessment
is simply the statement of the details and the amount of tax due from a taxpayer. Based on this definition, the details of
the tax contained in the BIR examiners' Joint Affidavit, 8 which was attached to the criminal Complaint, constituted an
assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave abuse of discretion, a
petition for certiorari did not lie.

ISSUE: whether the revenue officers' Affidavit-Report, which was attached to criminal revenue Complaint filed the
Department of Justice, constituted an assessment that could be questioned before the Court of Tax Appeals.

RULING: NO

 Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be
construed as a formal assessment of private respondents' tax liabilities. This position is based on Section 205 of
the National Internal Revenue Code 10 (NIRC), which provides that remedies for the collection of deficient taxes
may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states
that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without
assessment.
 Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection
of taxes, but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to
pay the same. Thus, qualifying as an assessment was the BIR examiners' Joint Affidavit, which contained the
details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and which was
attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private
respondents' request for reinvestigation of the disputed assessment is properly appealable to the CTA.
 We agree with petitioner.
 Neither the NIRC nor the regulations governing the protest of assessments 11 provide a specific definition or
form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To
consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an
assessment and to set a bad precedent that will prejudice innocent taxpayers.
 True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax
liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be
deemed assessments.
 To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the
taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the
tax due, in case the taxpayer fails to pay deficiency tax within the time prescribed for its payment in the notice
of assessment. Likewise, an interest of 20 percent per annum, or such higher rates as may be prescribed by rules
and regulations, is to be collected from the date prescribed for its payment until the full payment. 12
 The issuance of an assessment is vital in determining, the period of limitation regarding its proper issuance and
the period within which to protest it. Section 203 13 of the NIRC provides that internal revenue taxes must be
assessed within three years from the last day within which to file the return. Section 222, 14 on the other hand,
specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure
to file a return. Also, Section 228 15 of the same law states that said assessment may be protested only within
thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes
an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or
to protest the same, or whether interest and penalty may accrue thereon.
 It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is
deemed made only when the collector of internal revenue releases, mails or sends such notice to the
taxpayer. 16

APPLICATION:
  In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability.
It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the
taxpayers.
 Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. 17

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper
presentation of tax rolls. 18

 Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit attached
to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso
facto make it an assessment.
o The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax
evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents
for payment thereof.
 The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to
private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion,
not to issue an assessment.
o Although the revenue officers recommended the issuance of an assessment, the commissioner opted
instead to file a criminal case for tax evasion.
o What private respondents received was a notice from the DOJ that a criminal case for tax evasion had
been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment.

 In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax
evasion charges filed, not of an assessment, as shown thus:

This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and
Development Corporation and for the same to be referred to the Appellate Division in order to give my client
the opportunity of a fair and objective hearing. 19

DISPOSITION: WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. CTA
Case No. 5271 is likewise DISMISSED. No costs.

SO ORDERED.

NOTES:

Assessment Not Necessary Before Filing of Criminal Complaint

 Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is
incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced
without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously. In Ungab v. Cusi,20 petitioner therein sought the dismissal of
the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court
held that such protests could not stop or suspend the criminal action which was independent of the resolution
of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.
 Private respondents insist that Section 222 should be read in relation to Section 255 of the NLRC, 21 which
penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We
disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can
 be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception.
Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment.
 The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is
issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to
submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a
criminal case had been filed against him, not that the commissioner has issued an assessment. It must be
stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.

2. CIR vs Reyes
Facts:
 By virtue of a sworn affidavit for reward by one Abad, an investigation was conducted by BIR on the estate of
the deceased Maria Tancinco who died in 1993 leaving a residential lot and old house in Dasma.
 Without submitting a preliminary finding report, a letter of authority was issued and received by Reyes, one of
the heirs on 14 March 1997.
 Then on 12 Feb 1998, a preliminary assessment notice was issued against the estate, and received a final estate
tax assessment notice as well as demand letter both dated April 22, 1998, for the amount of P14,912,205.47,
inclusive of surcharge and interest.
 On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11,
1999 by Notices of Levy on Real Property and Tax Lien against it.
 On March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.
 The CIR rejected Reyes’s offer, pointing out that since the estate tax is a charge on the estate and not on the
heirs, the latter’s financial incapacity is immaterial as, in fact, the gross value of the estate amounting to
P32,420,360.00 is more than sufficient to settle the tax liability.
 As the estate failed to pay its tax liability within the deadline, BIR notified Reyes that the subject property would
be sold at public auction on August 8, 2000. Reyes filed a protest with the BIR Appellate Division
 Without acting on Reyes’s protest and offer, the CIR instructed the Collection Enforcement Division to proceed
with the August 8, 2000 auction sale
 Upon notification of the auction sale date, Reyes filed a petition in the Court of Tax Appeals (CTA).
 CTA then resolved that the CIR should refrain from Distraint.
 Subsequently, CIR filed a motion stating that CTA has no jurisdiction in the case because assessment were
already final and executory and the petition of Reyes was out of time, which the CTA denied.
 Based on BIR RR 6-2000 and RMO 42-2000, Reyes applied for compromise and paid 1M on Jan 29 2001.
 In 2001, Reyes filed a motion that the assessment is settled through a perfected compromise.
 CTA favored the CIR declaring that without the approval of NEB, the compromise cannot be perfected.
 Therefore, CTA denied the petition and ordered Reyes to pay the deficiency estate tax of 19.5M plus
delinquency interest.
 Court of Appeals partly granted the petition in favor of Reyes.

ISSUE # 1: Whether or not the assessment against the estate is valid

RULING: NO
 The second paragraph of Section 228 of the Tax Code is clear and mandatory

"Sec. 228. Protesting of Assessment. -- "The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made: otherwise, the assessment shall be void."
 Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been
made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former
Section 229 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of
1997.
 First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
 The notice required under the old law was no longer sufficient under the new law.
 To be simply informed in writing of the investigation being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which
the assessment was based. It does not at all conform to the compulsory requirement under Section 228.
Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
 The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new
or take away vested rights, do not fall under the general rule against the retroactive operation of statutes.
Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not
create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA
8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending proceedings would impair vested right
 The non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it
merely implements the law.
 A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. While it is
desirable for the government authority or administrative agency to have one immediately issued after a law is
passed, the absence of the regulation does not automatically mean that the law itself would become
inoperative.
 An administrative rule interpretive of a statute, and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of the statute. RR 12-99 is one such rule.
Being interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this
regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice
and demand letter.
 The provision on protesting an assessment has been amended. Furthermore, in case of discrepancy between the
law as amended and its implementing but old regulation, the former necessarily prevails. Thus, between Section
228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law.
 The law must still be followed, even though the existing tax regulation at that time provided for a different
procedure.
 The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.
 The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the
instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer of the government’s claim, there can be no deprivation
of property, because no effective protest can be made. The haphazard shot at slapping an assessment,
supposedly based on estate taxation’s general provisions that are expected to be known by the taxpayer, is utter
chicanery.
 Tax laws are civil in nature. Under our Civil Code, acts executed against the mandatory provisions of law are
void, except when the law itself authorizes the validity of those acts. Failure to comply with Section 228 does not
only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot
condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding.
ISSUE # 2: Whether or not the compromise entered into was valid

RULING: No

 It would be premature for this Court to declare that the compromise on the estate tax liability has been
perfected and consummated, considering the earlier determination that the assessment against the estate was
void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved
exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise
shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners.
 Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-
initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we
should not distinguish.

DISPOSITION: WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as
to costs.

3. CIR vs. BPI, G.R. No. 134062 April 17, 2007

This is a petition for review on certiorari of a decision of the CA which reversed and set aside the decision and resolution of
the CTA.

FACTS:

• In two notices dated October 28, 1988, petitioner CIR assessed respondent BPI for deficiency percentage and
documentary stamp taxes for the year 1986 in the total amount of ₱129,488,656.63.

• 1986 – Deficiency Percentage Tax ₱12,319,441.13

• 1986 – Deficiency Documentary Stamp Tax - ₱117,169,215.50.5

• BPI, through counsel, replied as follows:

1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why
it is being assessed a deficiency. The very purpose of a deficiency assessment is to inform taxpayer why he has incurred a
deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment. This is all the more
so when the assessment involves astronomical amounts, as in this case.

We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the
taxpayer has a deficiency documentary and percentage taxes, and as to the percentage tax, it is important that the
taxpayer be informed also as to what particular percentage tax the assessment refers to.

2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged between your office and
the Bankers Association of the Philippines [BAP] on this issue and of BPI’s submission of its computations under this
compromise. There is therefore no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue, we should like to be informed
about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested
since your letter does not even tell the taxpayer what particular percentage tax is involved and how your examiner arrived
at the deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the
taxpayer’s decision on whether to pay or protest the assessment.7

• On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

… although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85 and therefore
not deserving of any rejoinder by this office as no valid issue was raised against the validity of our assessment… still we
obliged to explain the basis of the assessments.

… this constitutes the final decision of this office on the matter.

• On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIR’s May 8, 1991 letter. This was
denied in a letter dated December 12, 1991, received by BPI on January 21, 1992.

• On February 18, 1992, BPI filed a petition for review in the CTA. In a decision dated November 16, 1995, the CTA
dismissed the case for lack of jurisdiction since the subject assessments had become final and unappealable.

• The CTA ruled that BPI failed to protest on time under Section 270 of the National Internal Revenue Code (NIRC)
of 1986 and Section 7 in relation to Section 11 of RA 1125.12 It denied reconsideration in a resolution dated May
27, 1996.

• On appeal, the CA reversed the tax court’s decision and resolution and remanded the case to the CTA for a decision on
the merits.

• It ruled that the October 28, 1988 notices were not valid assessments because they did not inform the
taxpayer of the legal and factual bases therefor. It declared that the proper assessments were those
contained in the May 8, 1991 letter which provided the reasons for the claimed deficiencies.

• Thus, it held that BPI filed the petition for review in the CTA on time. The CIR elevated the case to this Court.

ISSUE:

• 1) whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had
already become final and unappealable and

RULING:

• The present Section 228 of the NIRC provides: Sec. 228. Protesting of Assessment. — When the [CIR] or his duly
authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following cases: xxx xxx xxx

• The taxpayer shall be informed in writing of the law and the facts on which the assessment is made

• (The former Section 270 (now renumbered as Section 228) of the NIRC stated:Sec. 270. Protesting of
assessment. — When the [CIR] or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the
[CIR] shall issue an assessment based on his findings.)
• Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the deficiency taxes
were made. He merely notified BPI of his findings, consisting only of the computation of the tax liabilities and a demand
for payment thereof within 30 days after receipt.

• In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment
by RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v. Reyes, we held that:

• In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes
had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former
Section 229 prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.

• First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIR's findings was changed in 1998 to informing the taxpayer of not only the
law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

• It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the
final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already
in effect. The notice required under the old law was no longer sufficient under the new law.

• Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the
CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law required a written statement to the
taxpayer of the law and facts on which the assessments were based. The Court cannot read into the law what obviously
was not intended by Congress. That would be judicial legislation, nothing less.

• Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the
amount the taxpayer was to pay and a demand for payment within a prescribed period. Everything considered, there
was no doubt the October 28, 1988 notices sufficiently met the requirements of a valid assessment under the old law
and jurisprudence.

• The sentence [t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void was not in the old Section 270 but was only later on inserted in the renumbered
Section 228 in 1997.

• Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted sentence.The fact
that the amendment was necessary showed that, prior to the introduction of the amendment, the statute had an
entirely different meaning.

• Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an affirmation of what
the law required under the former Section 270. The amendment introduced by RA 8424 was an innovation and could
not be reasonably inferred from the old law. Clearly, the legislature intended to insert a new provision regarding the
form and substance of assessments issued by the CIR.

• In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:

• xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the legal and factual
basis of the former’s decision to charge the latter for deficiency documentary stamp and gross receipts taxes.31

• In other words, the CA’s theory was that BPI was deprived of due process when the CIR failed to inform it in writing of
the factual and legal bases of the assessments —even if these were not called for under the old law.We disagree.
• Indeed, the underlying reason for the law was the basic constitutional requirement that "no person shall be deprived of
his property without due process of law." We note, however, what the CTA had to say:

• xxx xxx xxx

• From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to discuss with the
[CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI] ignored) but that the examiners
themselves went to [BPI] and "we talk to them and we try to [thresh] out the issues, present evidences as to what they
need." Now, how can [BPI] and/or its counsel honestly tell this Court that they did not know anything about the
assessments?

• Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,] contrary to the
allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager of the Accounting Department of
[BPI]. He testified to the fact that he prepared worksheets which contain his analysis regarding the findings of the [CIR’s]
examiner, Mr. San Pedro and that the same worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].

APPLICATION:

• From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and basis of the
assessments, and was given all the opportunity to contest the same but ignored it despite the notice conspicuously
written on the assessments which states that "this ASSESSMENT becomes final and unappealable if not protested within
30 days after receipt." Counsel resorted to dilatory tactics and dangerously played with time. Unfortunately, such
strategy proved fatal to the cause of his client.

• The CA never disputed these findings of fact by the CTA:

• [T]his 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 abuse on the part of the
[CTA].34

• Under the former Section 270, there were two instances when an assessment became final and unappealable: (1) when
it was not protested within 30 days from receipt and (2) when the adverse decision on the protest was not appealed to
the CTA within 30 days from receipt of the final decision:35

• Sec. 270. Protesting of assessment. Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable.

• If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision
on the protest may appeal to the [CTA] within thirty (30) days from receipt of the said decision; otherwise, the decision
shall become final, executory and demandable.

• Implications Of A Valid Assessment

• Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30
days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not qualify as a protest since the letter
itself stated that "[a]s soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the
taxpayer’s decision on whether to pay or protest the assessment."36 Hence, by its own declaration, BPI did not regard
 this letter as a protest against the assessments. As a matter of fact, BPI never deemed this a protest since it did not even
consider the October 28, 1988 notices as valid or proper assessments.

• The inevitable conclusion is that BPI’s failure to protest the assessments within the 30-day period provided in the former
Section 270 meant that they became final and unappealable. Thus, the CTA correctly dismissed BPI’s appeal for lack of
jurisdiction. BPI was, from then on, barred from disputing the correctness of the assessments or invoking any defense
that would reopen the question of its liability on the merits.37 Not only that. There arose a presumption of correctness
when BPI failed to protest the assessments:

• Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove
otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a
Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions
are in favor of the correctness of tax assessments.

• Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to
appeal the CIR’s final decision regarding the disputed assessments within the 30-day period provided by law. The CIR,
in his May 8, 1991 response, stated that it was his "final decision … on the matter." BPI therefore had 30 days from the
time it received the decision on June 27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and
lodged its appeal in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer the
repercussions of its omission. We have already declared that:

• … the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated
by Sections 7 and 11 of [RA 1125], as amended. On the basis of his statement indubitably showing that the
Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would
then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would
be able to determine when his right to appeal to the tax court accrues.

• The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the
finality of the assessment — and, consequently, the collection of the amount demanded as taxes — by repeated
requests for recomputation and reconsideration. On the part of the [CIR], this would encourage his office to conduct a
careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the
first instance. This would also deter the [CIR] from unfairly making the taxpayer grope in the dark and speculate as to
which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a
pressing need for fair play, regularity, and orderliness in administrative action.39(emphasis supplied)

• Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the subject tax
assessments.

• We realize that these assessments (which have been pending for almost 20 years) involve a considerable amount of
money. Be that as it may, we cannot legally presume the existence of something which was never there. The state will
be deprived of the taxes validly due it and the public will suffer if taxpayers will not be held liable for the proper taxes
assessed against them:

• Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal
attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.

• DISPOSITIVE PORTION:
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in CA-G.R. SP No. 41025
is REVERSED and SET ASIDE. SO ORDERED.

4. Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue

FACTS:
 Petitioner Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.) is a corporation engaged in the
trading of securities.
 On April 14, 1988, petitioner filed its Annual Income Tax Return for taxable year 1987.
 After an audit investigation conducted by the BIR, respondent CIR issued an assessment for deficiency income tax
in the amount of P826,698.31 arising from the disallowance of the item on salaries, bonuses and allowances in
the amount of P1,219,093,93 as part of the deductible business expense since petitioner failed to subject the
salaries, bonuses and allowances to withholding taxes.
 This assessment was covered by Formal Assessment Notice No. FAN-1-87-91-000649 dated 1 February 1991,
which, respondent alleges, was sent to petitioner through registered mail on 6 February 1991.
 However, petitioner denies receiving the formal assessment notice.
 On March 17, 1992, petitioner was served with a Warrant of Distraint and/or Levy to enforce collection of the
deficiency income tax for the year 1987.
 On March 25, 1992, petitioner filed a formal protest requesting for its cancellation.
 On July 3, 1998, petitioner received a letter dated 30 April 1998 from the respondent denying the protest with
finality.
 On July 31, 1998, Petitioner filed a petition for review with the CTA.
 CTA rendered a decision in favor of petitioner on 17 May 2000.
o It ruled on the primary issue of prescription and found it unnecessary to decide the issues on the validity
and propriety of the assessment.
o It maintained that while a mailed letter is deemed received by the addressee in the course of mail, this is
merely a disputable presumption.
o It reasoned that the direct denial of the petitioner shifts the burden of proof to the respondent that the
mailed letter was actually received by the petitioner.
o It found the BIR records submitted by the respondent immaterial, selfserving, and therefore insufficient
to prove that the assessment notice was mailed and duly received by the petitioner.
 On June 6, 2000, respondent moved for reconsideration of the aforesaid decision but was denied by the CTA.
 Respondent appealed to the Court of Appeals on August 31, 2001.
 In reversing the CTA decision, the Court of Appeals found the evidence presented by the respondent to be
sufficient proof that the tax assessment notice was mailed to the petitioner, therefore the legal presumption that
it was received should apply.
 Petitioner moved for reconsideration of the said decision but the same was denied by the Court of Appeals.
 Hence, this Petition for Review on Certiorari.

MAIN ISSUE: Whether or not the period to make assessment has prescribed due to the failure of the BIR to send the
assessment notice to the taxpayer on time.
RULING: YES
 Under Section 203 of the National Internal Revenue Code (NIRC), respondent had three (3) years from the last
day for the filing of the return to send an assessment notice to petitioner.
 In the case of Collector of Internal Revenue v. Bautista, 105 Phil. 1326 (1959), this Court held that an assessment
is made within the prescriptive period if notice to this effect is released, mailed or sent by the CIR to the
taxpayer within said period. Receipt thereof by the taxpayer within the prescriptive period is not necessary. At
this point, it should be clarified that the rule does not dispense with the requirement that the taxpayer should
 actually receive, even beyond the prescriptive period, the assessment notice which was timely released, mailed
and sent.
 In Protector’s Services, Inc. v. Court of Appeals, 330 SCRA 404 (2000), this Court ruled that when a mail matter is
sent by registered mail, there exists a presumption, set forth under Section 3(v), Rule 131 of the Rules of Court,
that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are: (a)
that the letter was properly addressed with postage prepaid; and (b) that it was mailed. While a mailed letter is
deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption
subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favored by
the presumption to prove that the mailed letter was indeed received by the addressee.
 Furthermore, independent evidence, such as the registry receipt of the assessment notice, or a certification from
the Bureau of Posts, could have easily been obtained. Yet respondent failed to present such evidence.
 In the case of Nava v. Commissioner of Internal Revenue, this Court stressed on the importance of proving the
release, mailing or sending of the notice.
o “While we have held that an assessment is made when sent within the prescribed period, even if received
by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this
ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control,
without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of
the revenue offices, without adequate protection or defense.”
 APPLICATION: In the present case, the evidence offered by the respondent fails to convince this Court that Formal
Assessment Notice No. FAN-1-87-91-000649 was released, mailed, or sent before 15 April 1991, or before the
lapse of the period of limitation upon assessment and collection prescribed by Section 203 of the NIRC. Such
evidence, therefore, is insufficient to give rise to the presumption that the assessment notice was received in the
regular course of mail. Consequently, the right of the government to assess and collect the alleged deficiency
tax is barred by prescription.

ISSUE 2: Whether or not Section 44, Rule 130 is applicable.

RULING 2: NO
 Respondent offered the entry in the BIR record book and the testimony of its record custodian as entries in official
records in accordance with Section 44, Rule 130 of the Rules of Court, which states that:
 Section 44. Entries in official records. – Entries in official records made in the performance of his duty by a public
officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie
evidence of the facts therein stated.
 The foregoing rule on evidence, however, must be read in accordance with this Court’s pronouncement in Africa
v. Caltex (Phil.), Inc., 16 SCRA 448 (1966), where it has been held that an entrant must have personal knowledge
of the facts stated by him or such facts were acquired by him from reports made by persons under a legal duty to
submit the same.
 There are three requisites for admissibility under the rule just mentioned: (a) that the entry was made by a public
officer, or by another person specially enjoined by law to do so; (b) that it was made by the public officer in the
performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and (c)
that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been
acquired by him personally or through official information x x x.
 APPLICATION: In this case, the entries made by Ingrid Versola were not based on her personal knowledge as she
did not attest to the fact that she personally prepared and mailed the assessment notice. Nor was it stated in the
transcript of stenographic notes how and from whom she obtained the pertinent information. Moreover, she did
not attest to the fact that she acquired the reports from persons under a legal duty to submit the same. Hence,
Rule 130, Section 44 finds no application in the present case. Thus, the evidence offered by respondent does not
qualify as an exception to the rule against hearsay evidence.
ISSUE 3: Whether or not factual findings of the CA are binding on the Supreme Court.
RULING 3:
 While the general rule is that factual findings of the Court of Appeals are binding on this Court, there are, however,
recognized exceptions thereto, such as when the findings are contrary to those of the trial court or, in this case,
the CTA.
 Instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the Supreme
Court are (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee; (7) the findings of the Court of Appeals are contrary to those of
the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by the respondents; and (10) the finding of fact of the Court of Appeals is premised on the supposed
absence of evidence and is contradicted by the evidence on record. (Misa v. Court of Appeals, G.R. No. 97291, 5
August 1992, 212 SCRA 217, 221-222)
 APPLICATION: Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with
the highest respect.
 In Sea-Land Service Inc. v. Court of Appeals, 357 SCRA 441 (2001), this Court recognizes that the Court of Tax
Appeals, 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 abuse on the part of the Tax Court.
In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered
a decision which is valid in every respect.

DISPOSITIVE: IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. The assailed Decision of the Court of Appeals
in CA-G.R. SP No. 60209 dated 11 July 2002, is hereby REVERSED and SET ASIDE, and the Decision of the Court of Tax
Appeals in C.T.A. Case No. 5662, dated 17 May 2000, cancelling the 1988 Deficiency Tax Assessment against Barcelon,
Roxas Securitites, Inc. (now known as UPB Securities, Inc.) for being barred by prescription, is hereby REINSTATED. No
costs. SO ORDERED.
NOTES:
 Almost invariably in an ad valorem tax, as well as in income tax, estate and gift taxes, and the value added tax, the
tax paid or withheld is not deducted from the tax base. (Bank of America NT & SA vs. Court of Appeals, 234 SCRA
302 [1994])
 Where the Secretary of Justice reviews, pursuant to law, a tax measure enacted by a local government unit to
determine if the officials performed their functions in accordance with law, that is, with the prescribed procedure
for the enactment of tax ordinances and the grant of powers under the Local Government Code, the same is an
act of mere supervision, not control. (Drilon vs. Lim, 235 SCRA 135 [1994])

5.PHILIPPINE JOURNALISTS, INC. V CIR - (WAIVER)

PETITIONER (P): Ph Journalists Inc
RESPONDENT: CIR

ULTRA SUMMARY:
  P was assessed deficiency taxes by the BIR. P’s representative executed a waiver of the statute of limitations
under the NIRC which waived the running of prescriptive period and consented to the assessment and collection
of taxes after the lapse of the 3yr period until the completion of investigation re the assessment. Later on, BIR
served a final notice before seizure to P while P refused to pay because the assessment was w/o basis. A warrant
of distraint/levy was signed by Deputy Comm of BIR. P filed a pet for review with CTA which ruled that the
assessment notices were actually received by P but the waiver executed by it was void because of non-compliance
w RMO 20-90. CA reversed this saying that the defects in the waiver were mere formalities and so CA upheld its
validity. Also, that CTA has no jurisdiction over the case as the petition for review was not the proper remedy.
Mere assessment notices which have become final after the lapse of 30d reglementary period are not appealable.
SC reversed CA and reinstated CTA decision.

FACTS:
 The case arose from the Annual ITR filed by petitioner for the calendar year ended Dec 31, 1994 wc presented a
net income of P30,877,387 and the tax = P10,807,086. After deducting tax credits for the year, P paid the amount
of P10,247,384
 On Aug 10, 1995, Revenue District Office No. 33 of the BIR issued Letter of Authority No. 87120 for Revenue Officer
de Vera, Jr. and Group Supervisor Gapasin to examine P’s books of account and other accounting records for
internal revenue taxes for the period Jan 1, 1994-Dec 31, 1994. From the examination, P was told that there were
deficiency taxes, inclusive of surcharges, interest and compromise penalty = 127,980,433.20
 In a letter, Revenue District Officer Concepcion invited P to send a rep. to an informal conference on Sep 15, 1997
for an opportunity to object and present documentary evidence relative to the proposed assessment. But P’s
Comptroller, Tolentino, executed a "Waiver of the Statute of Limitation Under the NIRC”. The document "waive[d]
the running of the prescriptive period provided by Sec 223 & 224 and other relevant provisions of the NIRC and
consented to the assessment and collection of taxes which may be found due after the examination at any time
after the lapse of the period of limitations fixed by said Sections, until the completion of the investigation.”
 Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that
P had deficiency taxes = P136,952,408.97. The Assessment Division of the BIR issued Pre-Assessment Notices
which informed P of the results of the investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing
Section, issued Assessment/Demand No. 33-1-000757-94 on December 9, 1998 stating the deficiency taxes,
inclusive of interest and compromise penalty = 111,291,214.46
 A Preliminary Collection Letter was sent by Deputy Commissioner Panganiban to the P to pay the assessment
within 10 days from receipt of the letter. On Nov 10, 1999, a Final Notice Before Seizure was issued by the same
deputy commissioner giving P 10 days from receipt to pay. P received a copy of the final notice on Nov 24, 1999.
By letters dated Nov 26, 1999, P asked to be clarified how the tax liability of P111,291,214.46 was reached and
requested an extension of 30 days from receipt of the clarification within which to reply.
 The BIR received a follow-up letter asserting that its (PJI) records do not show receipt of Tax Assessment/Demand
No. 33-1-000757-94. P also contested that the assessment had no factual and legal basis. A Warrant of Distraint
and/or Levy signed by Deputy Commissioner Panganiban for the BIR was received by P.
 P filed a Petition for Review with CTA. P complains: (a) that no assessment or demand was received from the BIR;
(b) that the warrant of distraint and/or levy was w/o factual and legal bases as its issuance was premature; (c)
that the assessment, having been made beyond the 3yr prescriptive period, is null and void; (d) that the issuance
of the warrant w/o being given the opportunity to dispute the same violates its right to due process; and (e) that
the grave prejudice that will be sustained if the warrant is enforced is enough basis for the issuance of the writ of
preliminary injunction.
 CTA: As to WON the assessment notices were received by P, CTA rules in the affirmative. To disprove P’s allegation
of non-receipt of notices, R presented a certification issued by the Post Master of the Central Post Office, Manila
to the effect that Registered Letter No. 76134 sent by the BIR on Dec 15, 1998 addressed to Phil. Journalists, Inc.
at Journal Bldg., Railroad St., Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr.
(Authorized Representative) on Jan 8, 1999. R also showed proof that in claiming Registered Letter No. 76134, Mr.
Sanchez presented 3 IDs, one of which is his company ID. However, as to WON the Waiver of the Statute of
Limitations is valid and binding on the P is another question. After carefully examining the questioned Waiver of
the Statute of Limitations, this Court considers the same to be without any binding effect on P for the ff reasons:
 (1) the waiver is an unlimited waiver. It does not contain a definite expiration date, (2) the waiver failed to state
the date of acceptance by the Bureau; and (3) P was not furnished a copy of the waiver. It is to be noted that
under RMO No. 20-90, the waiver must be executed in 3 copies, the 2nd copy of which is for the taxpayer. It is
likewise required that the fact of receipt by the taxpayer of his/her file copy be indicated in the orig copy. It bears
stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO even provides
that the procedures found therein should be strictly followed, under pain of being administratively dealt with
should non-compliance result to prescription of the right to assess/collect.
 Thus, finding the waiver executed by P on Sept 22, 1997 to be suffering from legal infirmities, rendering the same
invalid and ineffective, CTA finds Assessment/Demand No. 33-1-000757-94 to be time-barred. Consequently, the
Warrant of Distraint and/or Levy issued pursuant thereto is considered null and void.
 CIR’s MR was denied by CTA so it appealed to CA wc disagreed w the CTA. The petition for review with CTA was
neither timely filed nor the proper remedy. Only decisions of the BIR, denying the request for reconsideration or
reinvestigation may be appealed to the CTA. Mere assessment notices which have become final after the lapse of
30d reglementary period are not appealable. Thus, the CTA should not have entertained the petition at all.
 The CTA found the waiver executed by Phil. Journalists to be invalid for 3 reasons but the CA said that these
grounds are merely formal in nature. The date of acceptance by the BIR does not categorically appear in the
document but it states at the bottom page that the BIR "accepted and agreed to:"…, followed by the signature of
the BIR’s authorized rep. Although the date of acceptance was not stated, the document was dated 22 Sep 1997
= reasonably be understood as the same date of acceptance by the BIR. As to the allegation that P was not
furnished a copy of the waiver, this req’t appears ridiculous because it was its representative who signed the
waiver. As regards the need for a definite expiration date, this is the biggest flaw of the decision. The period of
prescription for the assessment of taxes may be extended provided that the extension be made in writing and
that it be made prior to the expiration of the period of prescription.

ISSUE No. 1 (Sub-issue):

Does CTA have jurisdiction over the case?
Ruling:
 YES
 Sec 7(1) of RA 1125, the Act Creating the CTA, provides for the jurisdiction of that special court. The appellate
jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to
assessments/refunds. The 2ND part of the provision covers other cases that arise out of the NIRC/related laws
administered by the BIR. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to
determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of
Limitations was validly effected.
 This is not the 1ST case where the CTA validly ruled on issues that did not relate directly to a disputed assessment
or a claim for refund. In Pantoja v. David, we upheld the jurisdiction of the CTA to act on a petition to invalidate
and annul the distraint orders of the Commissioner of Internal Revenue. Also, in CIR v. CA, the decision of the CTA
declaring several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by
the BIR, was upheld by this Court.

ISSUE No. 2 (MAIN Issue):

Was the waiver on prescription valid?

RULING:
 NO
 The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of
internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.
Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because
 this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes
after the expiration of a reasonable period of time. As was held in Republic of the Phils. v. Ablaza:
o The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act promptly
in the making of assessment, and to citizens because after the lapse of the period of prescription citizens
would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect
the books of taxpayers, not to determine the latters real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open for inspection subject
to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be
interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the
taxpayer within the contemplation of the Commission which recommend the approval of the law.
 RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment
and collection of taxes. A cursory reading of the Order supports petitioners argument that the RMO must be
strictly followed, thus in the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned
but there should be no deviation from such form. The phrase but not after __________ 19___ should be
filled up
2. Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated
3. The following revenue officials are authorized to sign the waiver.
a. In the National Office
 Commissioner - For tax cases involving more than P1M
b. In the Regional Offices
 The Revenue District Officer with respect to tax cases still pending investigation and the
period to assess is about to prescribe regardless of amount
 The foregoing procedures shall be strictly followed. Any revenue official found not to
have complied with this Order resulting in prescription of the right to assess/collect shall
be administratively dealt with.
 A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers right to
security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.
The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as
erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period
to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that
the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law
on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a
corollary, the exceptions to the law on prescription should perforce be strictly construed. RMO No. 20-90 explains
the rationale of a waiver:
o The phrase but not after _________ 19___ should be filled up. This indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year period of prescription. The period
agreed upon shall constitute the time within which to effect the assessment/collection of the tax in
addition to the ordinary prescriptive period.
Application:
 As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners comptroller on September 22,
1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify
a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue
taxes. Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC.
 The waiver is also defective from the government side because it was signed only by a revenue district officer, not
the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer
 or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity
of the BIR must be made by either the Commissioner or the Revenue District Officer. This case involves taxes
amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven months before the
expiration of the three-year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal
Revenue to sign for the BIR.
 The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the
waiver was actually agreed before the expiration of the three-year prescriptive period. The Court of Appeals held
that the date of the execution of the waiver on September 22, 1997 could reasonably be understood as the same
date of acceptance by the BIR. Petitioner points out however that Revenue District Officer Sarmiento could not
have accepted the waiver yet because she was not the Revenue District Officer of RDO No. 33 on such date. Ms.
Sarmientos transfer and assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998
as shown by the Revenue Travel Assignment Order No. 14-98. The Court of Tax Appeals noted in its decision that
it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because Revenue Officials
normally have to conduct first an inventory of their pending papers and property responsibilities.
 Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver
must be executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this
was important because the petitioner need not have a copy of the document it knowingly executed. It stated that
the reason copies are furnished is for a party to be notified of the existence of a document, event or proceeding.
 The flaw in the appellate courts reasoning stems from its assumption that the waiver is a unilateral act of the
taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioners
comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not
assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the
waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give
notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.
 The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or
extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94
issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same
manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null
and void for having been issued pursuant to an invalid assessment.

6. Commissioner of Internal Revenue (CIR) vs. Transitions Optical Philippines, Inc., G.R. No. 227544, November 22, 2017
[Waiver]
Ponente: Leonen, J.
Estoppel applies against a taxpayer who did not only raise at the earliest opportunity its representative's lack of authority
to execute two (2) waivers of defense of prescription, but was also accorded, through these waivers, more time to comply
with the audit requirements of the Bureau of Internal Revenue. Nonetheless, a tax assessment served beyond the extended
period is void.

Nature of the Case: This case is a Petition for Review on Certiorari – which seeks to nullify and set aside the decision and
resolution of the CTA En Banc. The latter affirmed its First Division's decision – cancelling the deficiency assessments
against respondent Transitions Optical Philippines, Inc. (Transitions Optical).

FACTS:
 On April 28, 2006, Transitions Optical (respondent) received Letter of Authority No. 00098746 dated March 23,
2006 from Revenue Region No. 9, San Pablo City, of the Bureau of Internal Revenue (BIR).
 It was signed by then Officer-in-Charge Regional Director Corazon C. Pangcog
o It authorized Revenue Officers Jocelyn Santos and Levi Visaya to examine Transition Optical's books of
accounts for internal revenue tax purposes for taxable year 2004
 On October 9, 2007, the parties allegedly executed a Waiver of the Defense of Prescription (First Waiver).
 o In this supposed First Waiver, the prescriptive period for the assessment of Transition Optical's internal
revenue taxes for the year 2004 was extended to June 20, 2008
o The document was signed by Transitions Optical's Finance Manager, Pamela Theresa D. Abad, and by
BIR's Revenue District Officer (RDO), Myrna S. Leonida
 This was followed by another supposed Waiver of the Defense of Prescription (Second Waiver) dated June 2,
2008
o This time, the prescriptive period was supposedly extended to November 30, 2008
 Thereafter, the CIR, through Regional Director Jaime B. Santiago (Director Santiago), issued a Preliminary
Assessment Notice (PAN) dated November 11, 2008, assessing Transitions Optical for its deficiency taxes for
taxable year 2004.
o Transitions Optical filed a WRITTEN PROTEST on November 26, 2008
 The CIR, again through Director Santiago, subsequently issued against Transitions Optical a Final Assessment
Notice (FAN) and a Formal Letter of Demand (FLD) dated November 28, 2008 for:
o Deficiency income tax, value-added tax, expanded withholding tax, and final tax for taxable year 2004
amounting to ₱19, 701,849.68.

 In its Protest Letter dated December 8, 2008 against the FAN, Transitions Optical alleged that the demand for
deficiency taxes had already prescribed at the time the FAN was mailed on December 2, 2008.
o In its Supplemental Protest, Transitions Optical pointed out that the FAN was void because the FAN
indicated 2006 as the return period, but the assessment covered calendar year 2004
 Years later, the CIR, through Regional Director Jose N. Tan, issued a Final Decision on the Disputed Assessment
dated January 24, 2012, holding Transitions Optical liable for deficiency taxes in the total amount of
₱19,701,849.68 for taxable year 2004. (Refer to Notes below for the breakdown)
 Transitions Optical filed a Petition for Review before the Court of Tax Appeals

 In her Answer, the CIR interposed the following:

o Transitions Optical's claim of prescription was inappropriate because the executed Waiver of the
Defense of Prescription extended the assessment period.
o The posting of the FAN and FLD was within San Pablo City Post Office's exclusive control
o She could not be faulted if the FAN and FLD were posted for mailing only on December 2, 20081 since
November 28, 2008 fell on a Friday and the next supposed working day, December 1, 2008, was
declared a Special Holiday
 After trial and upon submission of the parties' memoranda, the First Division of the Court of Tax Appeals (First
Division) rendered a Decision.

CTA First Division Ruling:

 Finds the subject Waivers to be defective and therefore void
 Nevertheless, granting for the sake of argument that the subject Waivers were validly executed, for failure of
respondent however to present adequate supporting evidence to prove that it issued the FAN and the FLD
within the extended period agreed upon in the 2nd Waiver, the subject assessment must be cancelled for being
issued beyond the prescriptive period provided by law to assess.
 Granted the petition for review. Accordingly, the FAN, FLD, and Final Decision on Disputed Assessment finding
for deficiency taxes are cancelled and set aside.

 CIR filed a Motion for Reconsideration (MR), but was denied by CTA First Division
 CTA En Banc affirmed the First Division’s decision, and likewise denied the subsequent MR
 Hence, this petition.

(CIR) Petitioner’s contentions:

  The two Waivers executed by the parties on October 9, 2007 and June 2, 2008 substantially complied with the
requirements of Sections 203 and 222 of the NIRC.
o That technical rules of procedure of administrative bodies, such as those provided in Revenue
Memorandum Order (RMO) No. 20-90 issued on April 4, 1990 and Revenue Delegation Authority Order
(RDAO) No. 05-01 issued on August 2, 2001, must be liberally applied to promote justice.
 She maintains that respondent is estopped from questioning the validity of the waivers since their execution
was caused by the delay occasioned by respondent's own failure to comply with the orders of the BIR to submit
documents for audit and examination
 The assessment required to be issued within the three (3)-year period provided in Sections 203 and 222 of the
NIRC refer to petitioner's actual issuance of the notice of assessment to the taxpayer or what is usually known
as PAN, and not the FAN issued in case the taxpayer files a protest

(Transitions Optical) Respondent’s contentions:

 CTA properly found the waivers defective, and therefore, void.
 The three (3)-year prescriptive period for tax assessment primarily benefits the taxpayer, and any waiver of this
period must be strictly scrutinized in light of the requirements of the laws and rules.
 It posits that the requirements for valid waivers are not mere technical rules of procedure that can be set aside
 That it is not estopped from questioning the validity of the waivers as it raised its objections at the earliest
opportunity.
 Besides, the duty to ensure compliance with the requirements of RMO No. 20-90 and RDAO No. 05-01, including
proper authorization of the taxpayer's representative, fell primarily on petitioner and her revenue officers.
o Thus, petitioner came to court with unclean hands and cannot be permitted to invoke the doctrine of
estoppel.
 Respondent insists that there was no clear showing that the signatories in the waivers were duly sanctioned to
act on its behalf
 Further, even assuming that the waivers were valid, respondent argues that the assessment would still be void
as the FAN was served only on December 4, 2008, beyond the extended period of November 30, 2008.
 Respondent contends that the assessment required to be served within the three (3)-year prescriptive period is
the FAN and FLD, not just the PAN
o It is the FAN and FLD that formally notify the taxpayer, and categorically [demand] from him, that a
deficiency tax is due.

[In relation to topic: Waiver]

ISSUE 1: Whether the two (2) Waivers of the Defense of Prescription entered into by the parties on October 9, 2007 and
June 2, 2008 were valid.
Or stated differently: Is the respondent estopped from questioning the validity of the Waivers?

RULING 1:
 Yes, the respondent is estopped from questioning the validity of the Waivers.
 While the BIR was at fault when it accepted respondent's Waivers despite their non-compliance with the
requirements, respondent’s acts show its implied admission of the validity of the waivers.
 The doctrine of estoppel applies to this case.

 As a GENERAL RULE, petitioner has three (3) years to assess taxpayers from the filing of the return.
 Section 203 of the NIRC provides:
o Section 203. Period of Limitation Upon Assessment and Collection. – Except as provided in Section 222,
internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without assessment for the collection of such taxes
 shall be begun after the expiration of such period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.
 An EXCEPTION TO THE RULE OF PRESCRIPTION is found in Section 222(b) and (d) of this Code, viz:
o Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –
...
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed upon.
...
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5)-year period. The period so agreed upon
may be extended by subsequent written agreements made before the expiration of the period previously
agreed upon.
 Thus, the period to assess and collect taxes may be extended upon the CIR and the taxpayer's written
agreement, executed before the expiration of the three (3)-year period

Application:
 In this case, two (2) waivers were supposedly executed by the parties extending the prescriptive periods for
assessment of income tax, value-added tax, and expanded and final withholding taxes to June 20, 2008, and
then to November 30, 2008
 The CTA, both its First Division and En Banc, declared as defective and void the two (2) Waivers of the Defense of
Prescription for non-compliance with the requirements for the proper execution of a waiver as provided in
RMO No. 20-90 and RDAO No. 05-01.
o Specifically, CTA found that these Waivers were not accompanied by a notarized written authority
from respondent, authorizing the so-called representatives to act on its behalf.
o Likewise, neither the Revenue District Office's acceptance date nor respondent's receipt of the BIR's
acceptance was indicated in either document.

 However, Presiding Justice Roman G. Del Rosario (Justice Del Rosario) in his Separate Concurring Opinion in the
CTA June 7, 2016 Decision, found that respondent is estopped from claiming that the waivers were invalid by
reason of its own actions, which persuaded the government to postpone the issuance of the assessment. [Refer
further to Notes below]

 In the case of CIR v. Next Mobile, Inc. (formerly Nextel Communications Phils., lnc.), this Court recognized the
DOCTRINE OF ESTOPPEL and upheld the waivers when both the taxpayer and the BIR were in part de lie to.
o The taxpayer's act of impugning its waivers after benefitting from them was considered an act of bad
faith.
o In this cited case, the taxpayer is estopped from questioning the validity of its waivers
o Respondent executed five Waivers and delivered them to petitioner, one after the other.
 It allowed petitioner to rely on them and did not raise any objection against their validity until
petitioner assessed taxes and penalties against it.
 Moreover, the application of estoppel is necessary to prevent the undue injury that the
government would suffer because of the cancellation of petitioner's assessment of respondent's
tax liabilities
 Parenthetically, this Court stated that when both parties continued to deal with each other in spite of knowing
and without rectifying the defects of the waivers, their situation is "dangerous and open to abuse by
unscrupulous taxpayers who intend to escape their responsibility to pay taxes by mere expedient of hiding
behind technicalities.”
Estoppel similarly applies in this case.
 Indeed, the BIR was at fault when it accepted respondent's Waivers despite their non-compliance with the
requirements of RMO No. 20-90 and RDAO No. 05-01.
 Nonetheless, respondent's acts also show its implied admission of the validity of the waivers.

 First, respondent never raised the invalidity of the Waivers at the earliest opportunity, either in its Protest to the
PAN, Protest to the FAN, or Supplemental Protest to the FAN.
o It thereby impliedly recognized these Waivers' validity and its representatives' authority to execute
them.
o Respondent only raised the issue of these Waivers' validity in its Petition for Review filed with the CTA
o In fact, as pointed out by Justice Del Rosario, respondent's Protest to the FAN clearly recognized the
validity of the Waivers
 Second, respondent does not dispute petitioner's assertion that respondent repeatedly failed to comply with
petitioner's notices, directing it to submit its books of accounts and related records for examination by the BIR.
o Respondent also ignored the BIR's request for an Informal Conference to discuss other "discrepancies"
found in the partial documents submitted.
o The Waivers were necessary to give respondent time to fully comply with the BIR notices for audit
examination and to respond to its Informal Conference request to discuss the discrepancies.
 Thus, having benefitted from the Waivers executed at its instance, respondent is estopped from claiming that
they were invalid and that prescription had set in.

OTHER ISSUE: (In relation to Prescription)

Whether the assessment of deficiency taxes against respondent Transitions Optical for taxable year 2004 had prescribed.

RULING:
 Yes, the assessment of deficiency taxes against respondent had prescribed.
 Even as respondent is estopped from questioning the validity of the Waivers, the assessment is nonetheless
void because it was served beyond the supposedly extended period.
 The CTA First Division found that "the date indicated in the envelope/mail matter containing the FAN and the
FLD is December 4, 2008, which is considered as the date of their mailing."
 Since the validity period of the second Waiver is only until November 30, 2008, prescription had already set in
at the time the FAN and the FLD were actually mailed on December 4, 2008.

 For lack of adequate supporting evidence, CTA rejected petitioner's claim that the FAN and the FLD were already
delivered to the post office for mailing on November 28, 2008 but were actually processed by the post office on
December 2, 2008, since December 1, 2008 was declared a Special Holiday.
o The testimony of petitioner's witness, Dario A. Consignado, Jr., that he brought the mail matter
containing the FAN and the FLD to the post office on November 28, 2008 was considered self-serving,
uncorroborated by any other evidence.
o Additionally, the Certification presented by petitioner certifying that the FAN issued to respondent was
delivered to its Administrative Division for mailing on November 28, 2008 was found insufficient to
prove that the actual date of mailing was November 28, 2008.
 This Court finds no clear and convincing reason to overturn these factual findings of the CTA.

 Finally, petitioner's contention that the assessment required to be issued within the three (3)-year or extended
period provided in Sections 203 and 222 of the NIRC refers to the PAN is untenable
o Considering the functions and effects of a PAN vis a vis a FAN, it is clear that the assessment
contemplated in Sections 203 and 222 of the NIRC refers to the service of the FAN upon the taxpayer.
Distinction between a PAN and a FAN:
 A PAN merely informs the taxpayer of the initial findings of the BIR.
o It contains the proposed assessment, and the facts, law, rules, and regulations or jurisprudence on
which the proposed assessment is based.
o It does not contain a demand for payment but usually requires the taxpayer to reply within 15 days
from receipt.
o Otherwise, the CIR will finalize an assessment and issue a FAN.
o The PAN is a part of due process.
 It gives both the taxpayer and the CIR the opportunity to settle the case at the earliest possible
time without the need for the issuance of a FAN.
 On the other hand, a FAN contains not only a computation of tax liabilities but also a demand for payment
within a prescribed period.
o As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount
assessed and demanded.
o It also signals the time when penalties and interests begin to accrue against the taxpayer.
o Thus, the NIRC imposes a 25% penalty, in addition to the tax due, in case the taxpayer fails to pay the
deficiency tax within the time prescribed for its payment in the notice of assessment.
 Likewise, an interest of 20% per annum, or such higher rate as may be prescribed by rules and
regulations, is to be collected from the date prescribed for payment until the amount is fully
paid.
o Failure to file an administrative protest within 30 days from receipt of the FAN will render the
assessment final, executory, and demandable.

Disposition: Petition denied. Decision and Resolution of the CTA are affirmed.
The CTA committed no reversible error in cancelling the deficiency tax assessments.

Notes:
Breakdown of deficiency taxes:

Tax Amount
Income tax ₱3,153,371.04
Value-added tax 1,231,393.4 7
Expanded Withholding tax 175,339.51
Final Tax on Royalty 14,026,247.90
Final Tax on Interest Income 1,115,497. 76
Total ₱19,701,849.68

Justice Del Rosario’s Separate Concurring Opinion in CTA Decision:

He discussed:
 In the case at bar, respondent performed acts that induced the BIR to defer the issuance of the assessment.
 Records reveal that to extend the BIR's prescriptive period to assess respondent for deficiency taxes for taxable
year 2004, respondent executed two (2) waivers.
o The first Waiver dated October 2007 extended the period to assess until June 20, 2008,
o While the second Waiver, which was executed on June 2, 2008, extended the period to assess the taxes
until November 30, 2008
 As a consequence of the issuance of said waivers, petitioner delayed the issuance of the assessment.
  Notably, when respondent filed its protest on November 26, 2008 against the Preliminary Assessment Notice
dated November 11, 2008, it merely argued that it is not liable for the assessed deficiency taxes and did not
raise as an issue the invalidity of the waiver and the prescription of petitioner's right to assess the deficiency
taxes.
 In its protest dated December 8, 2008 against the FAN, respondent argued that the year being audited in the
FAN has already prescribed at the time such FAN was mailed on December 2, 2008.
 Respondent even stated in that protest that it received the letter (referring to the FAN dated November 28,
2008) on December 5, 2008, which accordingly is five (5) days after the waiver it issued had prescribed.
 The foregoing narration plainly does not suggest that respondent has any objection to its previously executed
waivers.
 By the principle of estoppel, respondent should not be allowed to question the validity of the waivers.

7. CIR vs FMF Development Corporation (Sec 222(b))

Facts:

 FMF filed its Corporate Annual Income Tax Return for taxable year 1995 and declared a loss of P3,348,932.
However, it filed an amended return and declared a loss of P2,826,541. The BIR then sent FMF pre-assessment
notices, all dated October 6, 1998, informing it of its alleged tax liabilities. FMF filed a protest against these notices
with the BIR and requested for a reconsideration/reinvestigation.
 On January 22, 1999, RDO Rogelio Zambarrano informed FMF that the reinvestigation had been referred to
Revenue Officer Alberto Fortaleza and also advised FMF of the informal conference set on February 2, 1999 to
allow it to present evidence to dispute the BIR assessments.
 On February 9, 1999, FMF President Enrique Fernandez executed a waiver of the three-year prescriptive period
for the BIR to assess internal revenue taxes, hence extending the assessment period until October 31, 1999. The
waiver was accepted and signed by RDO Zambarrano.
 On October 18, 1999, FMF received amended pre-assessment notices5 dated October 6, 1999 from the BIR. FMF
immediately filed a protest on November 3, 1999 but on the same day, it received BIR’s Demand Letter and
Assessment Notice No. 33-1-00487-95 dated October 25, 1999 reflecting FMF’s alleged deficiency taxes and
accrued interests amounting to P2,053,698.25.
 FMF filed a letter of protest on the assessment invoking the defense of prescription by reason of the invalidity of
the waiver.
 In its reply, the BIR insisted that the waiver is valid because it was signed by the RDO, a duly authorized
representative of petitioner. It also ordered FMF to immediately settle its tax liabilities; otherwise, judicial action
will be taken.
 Treating this as BIR’s final decision, FMF filed a petition for review with the CTA challenging the validity of the
assessment. the CTA granted the petition and cancelled Assessment Notice No. 33-1-00487-95
o because it was already time-barred.
o ruled that the waiver did not extend the three-year prescriptive period within which the BIR can make a
valid assessment because it did not comply with the procedures laid down in RMO No. 20-90.
 First, the waiver did not state the dates of execution and acceptance of the waiver, by the taxpayer
and the BIR, respectively; thus, it cannot be determined with certainty if the waiver was executed
and accepted within the prescribed period.
 Second, the CTA also found that FMF was not furnished a copy of the waiver signed by RDO
Zambarrano.
 Third, the CTA pointed out that since the case involves an amount of more than P1 million, and
the period to assess is not yet about to prescribe, the waiver should have been signed by the
Commissioner of Internal Revenue, and not a mere RDO.
 The CIR filed a motion for reconsideration, but it was denied
 CA affirmed CTA decision
 o the CA held that the waiver did not strictly comply with RMO No. 20-90. Thus, it nullified Assessment
Notice No. 33-1-00487-95

Issue #1: Is the Waiver valid?

Ruling #1: No. Defective and did not validly extend the original 3-year period.

Petitioner’s argument:
 Petitioner contends that the waiver was validly executed mainly because it complied with Section 222 (b)12 of the
NIRC.
 Petitioner points out that the waiver was in writing, signed by the taxpayer and the Commissioner, and executed
within the three-year prescriptive period.
 Petitioner also argues that the requirements in RMO No. 20-90 are merely directory; thus, the indication of the
dates of execution and acceptance of the waiver, by the taxpayer and the BIR, respectively, are not required by
law.
 Petitioner adds that there is no provision in RMO No. 20-90 stating that a waiver may be invalidated upon failure
of the BIR to furnish the taxpayer a copy of the waiver.
 Further, it contends that respondent’s execution of the waiver was a renunciation of its right to invoke
prescription. Petitioner also argues that the government cannot be estopped by the mistakes committed by its
revenue officer in the enforcement of RMO No. 20-90.
Respondent’s argument:
 On the other hand, respondent counters that the waiver is void because it did not comply with RMO No. 20-90.
Respondent assails the waiver because
o (1) it was not signed by the Commissioner despite the fact that the assessment involves an amount of
more than P1 million;
o (2) there is no stated date of acceptance by the Commissioner or his duly authorized representative; and
o (3) it was not furnished a copy of the BIR-accepted waiver. Respondent also cites Philippine Journalists,
Inc. v. Commissioner of Internal Revenue13 and contends that the procedures in RMO No. 20-90 are
mandatory in character, precisely to give full effect to Section 222 (b) of the NIRC. Moreover, a waiver of
the statute of limitations is not a waiver of the right to invoke the defense of prescription.
Court Ruling:
 After considering the issues and the submissions of the parties in the light of the facts of this case, we are in
agreement that the petition lacks merit.
 Under Section 203 of the NIRC, internal revenue taxes must be assessed within three years counted from the
period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This mandate
governs the question of prescription of the government’s right to assess internal revenue taxes primarily to
safeguard the interests of taxpayers from unreasonable investigation. Accordingly, the government must assess
internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer
of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of
reasonable period of time.
 An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC, which
provides:
x x x x (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon. x x x x

 The above provision authorizes the extension of the original three-year period by the execution of a valid waiver,
where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the taxes due
 is extended to an agreed upon date. Under RMO No. 20-90, which implements Sections 203 and 222 (b), the
following procedures should be followed:
1. The waiver must be in the form identified as Annex "A" hereof….
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of
a corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both
the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office x x x x
3. Commissioner For tax cases involving more than P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still pending investigation and
the period to assess is about to prescribe regardless of amount. x x x x
4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt
by the taxpayer of his/her file copy shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied
with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. (Emphasis
supplied.)

Application:
 Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-
year prescriptive period.
o Firstly, it was not proven that respondent was furnished a copy of the BIR-accepted waiver.
o Secondly, the waiver was signed only by a revenue district officer, when it should have been signed by
the Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an
amount of more than P1 million, and the period to assess is not yet about to prescribe.
o Lastly, it did not contain the date of acceptance by the CIR, a requisite necessary to determine whether
the waiver was validly accepted before the expiration of the original three-year period. Bear in mind that
the waiver in question is a bilateral agreement, thus necessitating the very signatures of both the
Commissioner and the taxpayer to give birth to a valid agreement.


Issue #2: Did the 3-year period to assess internal revenue taxes already prescribe?

Ruling #2: The waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor
extended and continued to run until April 15, 1999.

Petitioner’s argument:
 Petitioner contends that the procedures in RMO No. 20-90 are merely directory and that the execution of a waiver
was a renunciation of respondent’s right to invoke prescription.

Court Ruling:
 We do not agree.
  RMO No. 20-90 must be strictly followed. In Philippine Journalists, Inc. v. Commissioner of Internal Revenue:
o we ruled that a waiver of the statute of limitations under the NIRC, to a certain extent being a derogation
of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully
and strictly construed.
o The waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally, particularly where the language of the document is equivocal.
 Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon
between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding
effect on respondent because there was no consent by the Commissioner. On this basis, no implied consent can
be presumed, nor can it be contended that the concurrence to such waiver is a mere formality.
 Consequently, petitioner cannot rely on its invocation of the rule that the government cannot be estopped by the
mistakes of its revenue officers in the enforcement of RMO No. 20-90 because the law on prescription should be
interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer
within the contemplation of the Commission which recommended the approval of the law. To the Government,
its tax officers are obliged to act promptly in the making of assessment so that taxpayers, after the lapse of the
period of prescription, would have a feeling of security against unscrupulous tax agents who will always try to find
an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of a
possible opportunity to harass even law-abiding businessmen. Without such legal defense, taxpayers would be
open season to harassment by unscrupulous tax agents.
 In fine, Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was issued beyond the three-year
prescriptive period.
 The waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor extended
and continued to run until April 15, 1999. Even if the three-year period be counted from May 8, 1996, the date of
filing of the amended return, assuming the amended return was substantially different from the original return, a
case which affects the reckoning point of the prescriptive period, still, the subject assessment is definitely
considered time-barred.

8. CIR v Kudos Metal Corporation (waiver)

G.R. No. 178087, May 5, 2010
DEL CASTILLO, J.:

This Petition for Review on Certiorari seeks to set aside the Decision dated March 30, 2007 of the Court of Tax Appeals (CTA)
affirming the cancellation of the assessment notices for having been issued beyond the prescriptive period and the Resolution
dated May 18, 2007 denying the motion for reconsideration.

FACTS:
 On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998.
 Bureau of Internal Revenue (BIR) served upon respondent three Notices of Presentation of Records.
 Respondent failed to comply with these notices.
o the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by
respondents President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
 A review and audit of respondents records then ensued.
 On December 10, 2001, Nelia Pasco (respondents accountant) executed a Waiver of the Defense of Prescription.
o received by the BIR Enforcement Service on January 31, 2002
o by the BIR Tax Fraud Division on February 4, 2002,
o and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar (Salazar).
  This was followed by a second Waiver of Defense of Prescription executed by Pasco on February 18, 2003, notarized
on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant
Commissioner Salazar.
 On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent.
 This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26,
2003 which was received by respondent on November 12, 2003.
 Respondent challenged the assessments by filing its Protest on Various Tax Assessments on December 3, 2003 and its
Legal Arguments and Documents in Support of Protests against Various Assessments on February 2, 2004.
o On June 22, 2004, the BIR rendered a final Decision on the matter, requesting the immediate payment of
the tax liabilities in the amount of P25,624,048.76 (CHECK NOTES FOR BREAKDOWN).
 Believing that the governments right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition for
Review with the CTA.
o Petitioner in turn filed his Answer.
 On April 11, 2005, respondent filed an Urgent Motion for Preferential Resolution of the Issue on Prescription.

Ruling of the Court of Tax Appeals, Second Division

 On October 4, 2005, the CTA Second Division issued a Resolution canceling the assessment notices issued against
respondent for having been issued beyond the prescriptive period.
 It found the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the provisions of
Revenue Memorandum Order (RMO) No. 20-90.
o First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case
involves more than P1,000,000.00. In this regard, only the Commissioner is authorized to enter into
agreement with the petitioner in extending the period of assessment;
o Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary to
determine whether the acceptance was made within the prescriptive period;
o Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original copy. The
requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of
the document but also of the acceptance by the BIR and the perfection of the agreement.
o The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period was
not tolled or extended and continued to run.
 Petitioner moved for reconsideration but the CTA Second Division denied the motion in a Resolution dated April 18, 2006.

Ruling of the Court of Tax Appeals, En Banc

 On appeal, the CTA En Banc affirmed the cancellation of the assessment notices.
 Although it ruled that the Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first waiver was still invalid based on the second and third grounds
stated by the CTA Second Division.
 Petitioner sought reconsideration but the same was unavailing.
 Hence, the present recourse where petitioner.

ISSUE: Whether or not the Government’s right to the assessed unpaid taxes of respondent prescribed?
RULING:

 Yes, the government’s right has already prescribed.

  We find no merit in petitioners claim that respondent is now estopped from claiming prescription since by executing the
waivers, it was the one which asked for additional time to submit the required documents.
 The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the
assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver,
which the BIR must strictly follow.
 As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly
defined, is justice according to natural law and right.
 As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against
public policy.
 It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them
requirements of the transactions in which they originate.
 Simply put, the doctrine of estoppel must be sparingly applied.
 Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO
05-01, which the BIR itself issued.
 As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its
accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers.
 Having caused the defects in the waivers, the BIR must bear the consequence.
 It cannot shift the blame to the taxpayer.
 To stress, a waiver of the statute of limitations, being a derogation of the taxpayers right to security against prolonged and
unscrupulous investigations, must be carefully and strictly construed.
 As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against
respondent.
 Neither can the BIR use this as an excuse for issuing the assessments beyond the three-year period because with or without
the required documents, the CIR has the power to make assessments based on the best evidence obtainable.
PROCEDURAL LAPSES BY THE BIR:

 Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of the three-year period.

 RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___,
which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year
period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by
the taxpayer to a representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However,
before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is
in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.
 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case,
the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by
the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified
of the acceptance of the BIR and the perfection of the agreement.

 A perusal of the waivers executed by respondents accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of
respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.

 Due to the defects in the waivers, the period to assess or collect taxes was not extended.
 Consequently, the assessments were issued by the BIR beyond the three-year period and are void.

DISPOSITIVE PORTION: WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and Resolution dated May
18, 2007 of the Court of Tax Appeals are hereby AFFIRMED.

NOTES:

Kind of Tax Amount

Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total P25,624,048.76

9.CIR vs Metro Star Superama

FACTS:

 Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of
the Philippines, x x x.
 On January 26, 2001, the Regional Director of Revenue Region No. 10, issued Letter of Authority for
Revenue Officer Daisy G. Justiniana to examine petitioners books of accounts and other accounting
records for income tax and other internal revenue taxes for the taxable year 1999. Said Letter of Authority
was revalidated on August 10, 2001 by Regional Director Leonardo Sacamos.
 For petitioners failure to comply with several requests for the presentation of records and Subpoena
Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September 26, 2001 informing
Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed with the investigation based
on the best evidence obtainable preparatory to the issuance of assessment notice.
 On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary 15-day
Letter, which petitioner received on November 9, 2001. The said letter stated that a post audit review was
held and it was ascertained that there was deficiency value-added and withholding taxes due from
petitioner in the amount of P292,874.16.
 On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue
District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight
Hundred Seventy Four Pesos and Sixteen Centavos (P292,874.16.) for deficiency value-added and
withholding taxes for the taxable year 1999.
 Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12,
2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its deficiency
tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be constrained
to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection.
 On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint and/or
Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax and
withholding tax payment in the amount of P292,874.16.
 On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.
 On February 8, 2005, respondent Commissioner, through its authorized representative, issued a Decision
denying petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.
 Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded
due process, Metro Star filed a petition for review[4] with the CTA.
 The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered a
decision, the decretal portion of which reads:

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the
assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED
TO DESIST from collecting the subject taxes against petitioner.
 The CTA-Second Division opined that [w]hile there [is] a disputable presumption that a mailed letter [is]
deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of mail
shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.[5] It also found that there was no clear showing that Metro Star actually
received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand
dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as
Metro Star was denied due process.[6]
 The CIR sought reconsideration[7] of the decision of the CTA-Second Division, but the motion was denied
in the latters July 24, 2007 Resolution.[8]
 Aggrieved, the CIR filed a petition for review[9] with the CTA-En Banc, but the petition was dismissed after
a determination that no new matters were raised.
 The motion for reconsideration[10] filed by the CIR was likewise denied by the CTA-En Banc in its November
18, 2008 Resolution.[11]
 The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process was
served nonetheless because the latter received the Final Assessment Notice (FAN), comes now before this
Court with the sole issue of whether or not Metro Star was denied due process.
ISSUE: Whether or not the sending of a PAN to taxpayer to inform him of the assessment made is part of the due process
requirement in the issuance of a deficiency tax assessment.

RULING: YES
 The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very
nature of its functions, has accordingly developed an exclusive expertise on the resolution unless there has been
an abuse or improvident exercise of authority.[12] In Barcelon, Roxas Securities, Inc. (now known as UBP Securities,
Inc.) v. Commissioner of Internal Revenue,[13] the Court wrote:

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with
the highest respect. In Sea-Land Service Inc. v. Court of Appeals[G.R. No. 122605, 30 April 2001, 357 SCRA
441, 445-446], this Court recognizes that the Court of Tax Appeals, 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 abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered
a decision which is valid in every respect.

 On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive, viz:

Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by
contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme
Court has consistently held that while a mailed letter is deemed received by the addressee in the course
of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts
the burden to the party favored by the presumption to prove that the mailed letter was indeed received
by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme Court
in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:

"The facts to be proved to raise this presumption are (a) that the letter was
properly addressed with postage prepaid, and (b) that it was mailed. Once these facts
are proved, the presumption is that the letter was received by the addressee as soon as
it could have been transmitted to him in the ordinary course of the mail. But if one of the
said facts fails to appear, the presumption does not lie. (VI, Moran, Comments on the
Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil
269)."

x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau
of Posts or the Registry return card which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document
which is executed with the intervention of the Bureau of Posts. This Court does not put much credence
to the self serving documentations made by the BIR personnel especially if they are unsupported by
substantial evidence establishing the fact of mailing. Thus:
 "While we have held that an assessment is made when sent within the prescribed
period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista,
L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the
release, mailing or sending of the notice be clearly and satisfactorily proved. Mere
notations made without the taxpayers intervention, notice or control, without adequate
supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the
revenue offices, without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104,
January 30, 1965).

x x x.

The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the
conclusion that no assessment was issued. Consequently, the governments right to issue an assessment
for the said period has already prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR
CTA Case 4885, August 22, 1996). (Emphases supplied.)

APPLICATION:
 The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that
Metro Star indeed received the PAN dated January 16, 2002. It could have simply presented the registry receipt
or the certification from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on
why it failed to comply with the requirement of service of the PAN. It merely accepted the letter of Metro Stars
chairman dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not the PAN; that
he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters with the
hope of lessening its tax liability.
 This now leads to the question: Is the failure to strictly comply with notice requirements prescribed under
Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99
tantamount to a denial of due process? Specifically, are the requirements of due process satisfied if only the
FAN stating the computation of tax liabilities and a demand to pay within the prescribed period was sent to the
taxpayer?
 The answer to these questions require an examination of Section 228 of the Tax Code which reads:

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: provided, however, that a preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding
tax for a taxable period was determined to have carried over and automatically applied the same amount
claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable
year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-
exempt persons.
 The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

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. 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. (Emphasis supplied).

 Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly
with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations - that taxpayers should be able to present their case and adduce supporting
evidence.[14]
 This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. The Revenue Officer who audited the taxpayer's records
shall, among others, state in his report whether or not the taxpayer agrees with his findings that the
taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's
submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office
or by the Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by
the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies
in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order
to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond
within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered
in default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of
the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office
or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review
and issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment
Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined
that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the
proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence
 on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the
preliminary assessment notice shall not be required in any of the following cases, in which case, issuance
of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer;
or
(ii) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.

3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter
of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void (see illustration in ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b)
signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received
by a person other than the taxpayer himself; and (d) date of receipt thereof.

x x x.
 From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the
assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the
absence of which renders nugatory any assessment made by the tax authorities. The use of the word shall in
subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due
process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Stars right to due process.[15]
 Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required
by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
 The case of CIR v. Menguito[16] cited by the CIR in support of its argument that only the non-service of the FAN is
fatal to the validity of an assessment, cannot apply to this case because the issue therein was the non-compliance
with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No. 8424 has
already amended the provision of Section 229 on protesting an assessment. The old requirement of
 merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer of not only the
law, but also of the facts on which an assessment would be made. Otherwise, the assessment itself would be
invalid.[17] The regulation then, on the other hand, simply provided that a notice be sent to the respondent in the
form prescribed, and that no consequence would ensue for failure to comply with that form.
 It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without
due process of law.[19] In balancing the scales between the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process
of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizens
right is amply protected by the Bill of Rights under the Constitution. Thus, while taxes are the lifeblood of the
government, the power to tax has its limits, in spite of all its plenitude.
 But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate x x x that the law has not
been observed.

DISPOSITION: WHEREFORE, the petition is DENIED. SO ORDERED.

10. Allied Banking Corp. vs CIR (Estoppel)

FACTS:

 On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of
P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable
year 2001
 Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004.
 On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which partly reads as
follows:
o It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties
incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal
the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall
become final, executory and demandable.
 Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004
 On September 29, 2004, petitioner filed a Petition for Review with the CTA
 CIR filed a Motion to Dismiss on the ground that petitioner failed to file an administrative protest on the Formal
Letter of Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.
 The First Division of the CTA rendered a Resolution granting respondents Motion to Dismiss
 The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA
to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in
challenging the legality or validity of an assessment. According to the CTA En Banc, although there are exceptions to the
doctrine of exhaustion of administrative remedies, the instant case does not fall in any of the exceptions.
ISSUE: Whether or not the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR
appealable to the CTA under RA 9282.

RULING:

 Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review by appeal
decisions of the CIR in cases involving disputed assessments
 The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction
 Petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with
Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments
by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final
assessment notices. Instead, it filed a Petition for Review with the CTA.
 Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.
 The case is an exception to the rule on exhaustion of administrative , a careful reading of the Formal Letter of Demand with
Assessment Notices leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of
administrative remedies, i.e., estoppel on the part of the administrative agency concerned.
 In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices.
 Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment
Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on
the matter.
 We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed
assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her
right to appeal to the tax court accrues.
 Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of
Demand with Assessment Notices to be a final decision.
 We are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR Revenue
Regulations No. 12-99.
 It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days,
and not the PAN.
 Neither are we deviating from our pronouncement in St. Stephens Chinese Girls School v. Collector of Internal Revenue, that
the counting of the 30 days within which to institute an appeal in the CTA commences from the date of receipt of the decision
of the CIR on the disputed assessment, not from the date the assessment was issued.

DISPOSITION: WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the October 17, 2006
Resolution of the Court of Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in CTA Case No. 7062 is hereby
DISMISSED based solely on the Bureau of Internal Revenues acceptance of petitioners offer of compromise for the settlement of the
gross receipts tax, documentary stamp tax and value added tax, for the years 1998-2003.

11. CIR Vs. Gonzalez, Secretary Of Justice G.R. No. 117279, October 13, 2010
(Previous Tax Examination does not Bar Tax Fraud Audit)

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the
Decision[1] dated October 31, 2006 and Resolution[2] dated March 6, 2007 of the Court of Appeals (CA) which affirmed
the Resolution[3] dated December 13, 2005 of respondent Secretary of Justice in I.S. No. 2003-774 for violation of
Sections 254 and 255 of the National Internal Revenue Code of 1997 (NIRC).

FACTS:
• The BIR National Office conducted a fraud investigation for all internal revenue taxes to determine the tax liabilities of
L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999 due to the information
provided by an “informer” that it had substantial underdeclared income for the said period.

• LMCEC failed to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, hence,
a criminal complaint was instituted by the BIR for violation of Section 266 of the NIRC against LMCEC, Luis M. Camus
and Lino D. Mendoza.

• The latter two were sued in their capacities as President and Comptroller, respectively.

• Camus and Mendoza assail the validity of the complaint and further aver that the company had already undergone a
series of routine examinations for the years 1997, 1998 and 1999 for under the NIRC, only one examination of the
books of accounts is allowed per taxable year.

• The Chief State Prosecutor, the Secretary of Justice and the Court of Appeals dismissed the complaint instituted by the
BIR.

• Hence, this petition was filed before the Supreme Court.

ISSUE:
• Whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or
Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax) of the Tax Code.

RULING:
YES.

• We rule in favor of the BIR.

• LMCEC cannot claim as excuse from the reopening of its books of accounts the previous investigations and
examinations.
• Under Section 235 (a), an exception was provided in the rule on once a year audit examination in case of “fraud,
irregularity or mistakes, as determined by the Commissioner”. The distinction between a Regular Audit Examination
and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district offices of the Bureau’s
Regional Offices, the authority emanating from the Regional Director, while the latter is conducted by the TFD of the
National Office only when instances of fraud had been determined by the BIR.

APPLICATION:
• In this case, the non-declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30%
income declared in its return is considered a substantial underdeclaration of income, which constituted prima facie
evidence of false or fraudulent return under Section 248(B) of the NIRC, as amended.
• Further, RR No. 2-99 was issued “providing for last priority in audit and investigation of tax returns” to accomplish the
said objective “without, however, compromising the revenue collection that would have been generated from audit
and enforcement activities.”
• The program “Economic Recovery Assistance Payment (ERAP) Program” granted immunity from audit and
investigation of income tax, VAT and percentage tax returns for 1998.
• Since such immunity from audit and investigation does not preclude the collection of revenues generated from audit
and enforcement activities, it follows that the BIR is likewise not barred from collecting any tax deficiency discovered
as a result of tax fraud investigations.

DISPOSITIVE PORTION:
• WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and Resolution dated March 6, 2007 of the
Court of Appeals in CA-G.R. SP No. 93387 are hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby
DIRECTED to order the Chief State Prosecutor to file before the Regional Trial Court of Quezon City, National Capital
Judicial Region, the corresponding Information against L. M. Camus Engineering Corporation, represented by its
President Luis M. Camus and Comptroller Lino D. Mendoza, for Violation of Sections 254 and 255 of the National Internal
Revenue Code of 1997.No costs. SO ORDERED

12. PACQUIAO v CTA – Exception payment before appeal to CTA

FACTS:
 Due to his success and fame as a world-class professional boxer Pacquiao was able to amass income from both
the Philippines and the United States of America (US). His income from the US came primarily from the purses he
received for the boxing matches he took part under Top Rank, Inc. While his income from the Philippines consisted
of talent fees received from various Philippine Corporations for product endorsements, advertising commercials
and television appearances.
 On April 15, 2009, Pacquiao filed his 2008 income tax return reporting his Philippine sourced-income. It was
subsequently amended to include his US-sourced income.
 On March 25, 2010, Pacquiao received a Letter of Authority (March LA) from the Regional District Office NO. 43
(RDO) of the Bureau of Internal Revenue (BIR) for the examination of his books of accounts another accounting
records for the period covering January 1, 2008 to December 31, 2008.
 On April 15, 2010, Pacquiao filed his 2009 income tax return however; he failed to include his income derived from
US. He also failed to file his Value Added Tax (VAT) returns for the years 2008 and 2009.
 Commissioner on Internal Revenue (CIR) issued another Letter of Authority, dated July 27, 2010 (July LA),
authorizing the BIR’s National Investigation Division (NID) to examine the books of accounts and other accounting
records of both Pacquiao and Jinkee for the last 15 years, from 1995 to 2009. On September 21 and 22, 2010, the
CIR replaced the July LA by issuing to both Pacquiao and Jinkee separate electronic versions of the July LA pursuant
to Revenue Memorandum Circular (RMC) No. 56-2010.
 Due to these developments, petitioners wrote a letter questioning the propriety of the CIR investigation as they
were already subjected to an earlier investigation by the BIR for the years prior to 2007, and no fraud was ever
found to have been committed.
 The NID informed the counsel of the petitioners that the July LA issued by the CIR had effectively cancelled and
superseded the March LA issued by its RDO. The same letter also stated that fraud had been established by the
Commissioner, still spouses were given the opportunity to present documents as part of their procedural rights
to due process with regard to the civil aspect thereof. The CIR informed the petitioners that its reinvestigation of
years prior to 2007 was justified because the assessment thereof was pursuant to a “fraud investigation” against
the petitioners under the “Run After Tax Evaders” (RATE) program of the BIR.
 On January 5 and 21, 2011, the petitioners submitted various income tax related documents for the years 2007-
2009.18 As for the years 1995 to 2006, the petitioners explained that they could not furnish the bureau with the
books of accounts and other tax related documents as they had already been disposed. Finally, the petitioners
pointed out that their tax liabilities for the said years had already been fully settled with then CIR Jose Mario
Buñag, who after a review, found no fraud against them.
 On June 21, 2011, on the same day that the petitioners made their last compliance in submitting their tax-related
documents, the CIR issued a subpoena duces tecum, requiring the petitioners to submit additional income tax and
VAT-related documents for the years 1995-2009.
 After conducting its own investigation, the CIR made its initial assessment finding that the petitioners were unable
to fully settle their tax liabilities. Thus, the CIR issued its Notice of Initial Assessment-Informal Conference (NIC),
directly addressed to the petitioners, informing them that based on the best evidence obtainable, they were liable
for deficiency income taxes in the amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, inclusive
of interests and surcharges.
 The CIR then issued the Preliminary Assessment Notice (PAN), informing the petitioners that based on third-party
information (allowed under Section 5(B) and 6 of the NIRC), they found the petitioners liable not only for
deficiency income taxes in the amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, but also for
their non-payment of their VAT liabilities in the amount P4,104,360.01 for 2008 and P 24,901,276.77 for 2009.
 The petitioners filed their protest against the PAN.
 After denying the protest, the BIR issued its Formal Letter Demand (FLD), finding the petitioners liable for
deficiency income tax and VAT amounting to P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for
2009, inclusive of interests and surcharges. Again, the petitioners questioned the findings of the CIR.
 On May 14, 2013, the BIR issued its Final Decision on Disputed Assessment (FDDA), addressed to Pacquiao only,
informing him that the CIR found him liable for deficiency income tax and VAT for taxable years 2008 and 2009
which, inclusive of interests and surcharges, amounted to a total of P2,261,217,439.92.
 Seeking to collect the total outstanding tax liabilities of the petitioners, the Accounts Receivable Monitoring
Division of the BIR (BIR-ARMD), issued the Preliminary Collection Letter (PCL), demanding that both Pacquiao and
Jinkee pay the amount of P2,261,217,439.92, inclusive of interests and surcharges.
 Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final Notice Before Seizure (FNBS), informing
the petitioners of their last opportunity to make the necessary settlement of deficiency income and VAT liabilities
before the bureau would proceed against their property. Although they no longer questioned the BIR’s
assessment of their deficiency VAT liability, the petitioners requested that they be allowed to pay the same in four
(4) quarterly installments. Eventually, through a series of installments, Pacquiao and Jinkee paid a total
P32,196,534.40 in satisfaction of their liability for deficiency VAT.
 Proceedings at the CTA
 Aggrieved that they were being made liable for deficiency income taxes for the years 2008 and 2009, the
petitioners sought redress and filed a petition for review with the CTA contending that the assessment of the CIR
was defective because it was predicated on its mere allegation that they were guilty of fraud. They also questioned
the validity of the attempt by the CIR to collect deficiency taxes from Jinkee, arguing that she was denied due
process. According to the petitioners, as all previous communications and notices from the CIR were addressed
to both petitioners, the FDDA was void because it was only addressed to Pacquiao. Moreover, considering that
the PCL and FNBS were based on the FDDA, the same should likewise be declared void. The petitioners added that
the CIR assessment, which was not based on actual transaction documents but simply on “best possible sources,”
was not sanctioned by the Tax Code. They also argue that the assessment failed to consider not only the taxes
paid by Pacquiao to the US authorities for his fights, but also the deductions claimed by him for his expenses.
 Pending the resolution by the CTA of their appeal, the petitioners sought the suspension of the issuance of
warrants of distraint and/or levy and warrants of garnishment. Meanwhile, the BIR-ARMD informed the
petitioners that they were denying their request to defer the collection enforcement action for lack of legal basis.
 A warrant of distraint and/or levy against Pacquiao and Jinkee was included in the letter. Aggrieved, the petitioners
filed the subject Urgent Motion for the CTA to lift the warrants of distraint, levy and garnishments issued by the
CIR against their assets and to enjoin the CIR from collecting the assessed deficiency taxes pending the resolution
of their appeal. As for the cash deposit and bond requirement under Section 11 of Republic Act (R.A.) No. 1125,
the petitioners question the necessity thereof, arguing that the CIR’s assessment of their tax liabilities was highly
questionable. At the same time, the petitioners manifested that they were willing to file a bond for such
reasonable amount to be fixed by the tax court.
 The CTA issued the resolution granting the petitioner’s Urgent Motion, ordering the CIR to desist from collecting
on the deficiency tax assessments against the petitioners. In its resolution, the CTA noted that the amount sought
to be collected was way beyond the petitioners’ net worth, which, based on Pacquiao’s Statement of Assets,
Liabilities and Net Worth (SALN), only amounted to P1,185,984,697.00.
 The CTA, however, saw no justification that the petitioners should deposit less than the disputed amount. They
were, thus, required to deposit the amount of P3,298,514,894.35 or post a bond in the amount of
P4,947,772,341.53.
 The petitioners sought partial reconsideration praying for the reduction of the amount of the bond required or an
extension of 30 days to file the same. CTA issued resolution denying the petitioner’s motion to reduce the required
cash deposit or bond, but allowed them an extension of thirty (30) days within which to file the same.
 Hence, this Petition.
ISSUE:
Will appeal to CTA suspend the collection of tax?

RULING:
 NO, unless a bond is provided
 Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the rule that an appeal to the CTA from the
decision of the CIR will not 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 law. When, in the view of the CTA, the collection may
jeopardize the interest of the Government and/or the taxpayer, it may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond
 The application of the exception to the rule is the crux of the subject controversy. Specifically, Section 11 provides:
o SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision,
ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary
of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of
Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days
after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as
referred to in Section 7(a)(2) herein.
o No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the
Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the
Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be
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 law:
o Provided, however, That when in the opinion of the Court the collection by the aforementioned
government agencies 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.
Application:
 Essentially, the petitioners ascribe grave abuse of discretion on the part of the CTA when it issued the subject
resolutions requiring them to deposit-the amount of P3,298,514,894.35 or post a bond in the amount of
P4,947,772,341.53 as a condition for its order enjoining the CIR from collecting the taxes from them. The
petitioners anchor their contention on the premise that the assessment and collection processes employed by the
CIR in exacting their tax liabilities were in patent violation of their constitutional right to due process of law. They,
thus, posit that pursuant to Avelino and Zulueta, the tax court should have not only ordered the CIR to suspend
the collection efforts it was pursuing in satisfaction of their tax liability, but also dispensed with the requirement
of depositing a cash or filing a surety bond.
 To recall, the Court in Avelino upheld the decision of the CTA to declare the warrants of garnishment, distraint
and levy and the notice of sale of the properties of Jose Avelino null and void and ordered the CIR to desist from
collecting the deficiency income taxes which were assessed for the years 1946 to 1948 through summary
administrative methods. The Court therein found that the demand of the then CIR was made without authority of
law because it was made five (5) years and thirty-five (35) days after the last two returns of Jose Avelino were filed
- clearly beyond the three (3)-year prescriptive period provided under what was then Section 51(d) of the National
Internal Revenue Code. Dismissing the contention of the CIR that the deposit of the amount claimed or the filing
of a bond as required by law was a requisite before relief was granted, the Court therein concurred with the
opinion of the CTA that the courts were clothed with authority to dispense with the requirement "if the method
employed by the Collector of Internal Revenue in the collection of tax is not sanctioned by law."
 In Zulueta, the Court likewise dismissed the argument that the CTA erred in issuing the injunction without
requiring the taxpayer either to deposit the amount claimed or to file a surety bond for an amount not more than
double the tax sought to be collected. The Court cited Collector of Internal Revenue v. Aurelio P. Reyes and the
Court of Tax Appeals where it was written:
o At first blush it might be as contended by the Solicitor General, but a careful analysis of the second
paragraph of said Section 11 will lead Us to the conclusion that the requirement of the bond as a condition
 precedent to the issuance of a writ of injunction applies only in cases where the processes by which the
collection sought to be made by means thereof are carried out in consonance with law for such cases
provided and not when said processes are obviously in violation of the law to the extreme that they have
to be SUSPENDED for jeopardizing the interests of the taxpayer
 The Court went on to explain the reason for empowering the courts to issue such injunctive writs. It wrote:
o "Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the collection by
summary proceedings is by itself in accordance with existing laws; and then what is suspended is the act
of collecting, whereas, in the case at bar what the respondent Court suspended was the use of the method
employed to verify the collection which was evidently illegal after the lapse of the three-year limitation
period. The respondent Court issued the injunction in question on the basis of its findings that the means
intended to be used by petitioner in the collection of the alleged deficiency taxes were in violation of law.
It would certainly be an absurdity on the part of the Court of Tax Appeals to declare that the collection by
the summary methods of distraint and levy was violative of the law, and then, on the same breath require
the petitioner to deposit or file a bond as a prerequisite of the issuance of a writ of injunction. Let us
suppose, for the sake of argument, that the Court a quo would have required the petitioner to post the
bond in question and that the taxpayer would refuse or fail to furnish said bond, would the Court a quo
be obliged to authorize or allow the Collector of Internal Revenue to proceed with the collection from the
petitioner of the taxes due by a means it previously declared to be contrary to law?"
 Thus, despite the amendments to the law, the Court still holds that the CTA has ample authority to issue injunctive
writs to restrain the collection of tax and to even dispense with the deposit of the amount claimed or the filing of
the required bond, whenever the method employed by the CIR in the collection of. tax jeopardizes the interests
of a taxpayer for being patently in violation of the law. Such authority emanates from the jurisdiction conferred
to it not only by Section 11 of R.A. No. 1125, but also by Section 7 of the same law, which, as amended provides:
o Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
o a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
o l. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue or other laws administered by the Bureau of Internal
Revenue;
 From all the foregoing, it is clear that the authority of the courts to issue injunctive writs to restrain the collection
of tax and to dispense with the deposit of the amount claimed or the filing of the required bond is not simply
confined to cases where prescription has set in. As explained by the Court in those cases, whenever it is
determined by the courts that the method employed by the Collector of Internal Revenue in the collection of tax
is not sanctioned by law, the bond requirement under Section 11 of R.A. No. 1125 should be dispensed with. The
purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to
prevent the absurd situation wherein the court would declare "that the collection by the summary methods of
distraint and levy was violative of law, and then, in the same breath require the petitioner to deposit or file a bond
as a prerequisite for the issuance of a writ of injunction."

Issue no. 2
Does petitioners’ case falls within the exception provided under Section 11, RA 1125?

RULING:
 This cannot be determined at this point
 Applying the foregoing precepts to the subject controversy, the Court finds no sufficient basis in the records for
the Court to determine whether the dispensation of the required cash deposit or bond provided under Section
11, R.A No. 1125 is appropriate.
 It should first be highlighted that in rendering the assailed resolution, the CTA, without stating the facts and law,
made a determination that the illegality of the methods employed by the CIR to effect the collection of tax was
not patent. To quote the CTA:
 o n this case, the alleged illegality of the methods employed by respondent to effect the collection of tax is
not at all patent or evident as in the foregoing cases. At this early stage of the proceedings, it is premature
for this Court to rule on the issues of whether or not the warrants were defectively issued; or whether the
service thereof was done in violation of the rules; or whether or not respondent's assessments were valid.
These matters are evidentiary in nature, the resolution of which can only be made after a full blown trial.
o Apropos, the Court finds no legal basis to apply Avelino and Zulueta to the instant case and exempt
petitioners from depositing a cash bond or filing a surety bond before a suspension order may be effected
 Though it may be true that it would have been premature for the CTA to immediately determine whether the
assessment made against the petitioners was valid or whether the warrants were properly issued and served, still,
it behooved upon the CTA to properly determine, at least preliminarily, whether the CIR, in its assessment of the
tax liability of the petitioners, and its effort of collecting the same, complied with the law and the pertinent
issuances of the BIR itself. The CTA should have conducted a preliminary hearing and received evidence so it could
have properly determined whether the requirement of providing the required security under Section 11, R.A. No.
1125 could be reduced or dispensed with pendente lite.

Issue No. 3:
Can the Court make a preliminary determination on whether the CIR used methods not sanctioned by law?

Ruling:
 NO
 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 and settle the main issues presented before it,
that is, whether the petitioners were afforded due process; whether the CIR has valid basis for its assessment;
and whether the petitioners should be held liable for the deficiency taxes

Issue no. 4
Should the case be remanded to the CTA for the conduct of preliminary hearing?

Ruling:
 YES
 As the CTA is in a better, position to make such a preliminary determination, a remand to the CTA is in order. To
resolve the issue of whether the petitioners should be required to post the security bond under Section 11 of R.A.
No. 1125, and, if so, in what, amount, the CTA must take into account, among others, the following:
o First. Whether the requirement of a Notice of Informal Conference was complied with;
o Second. Whether the 15-year period subject of the CIR's investigation is arbitrary and excessive;
o Third. Whether fraud was duly established;
o Fourth. Whether the FLD issued against the petitioners was irregular;
o Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint and/or Levy were validly issued.
In its hearing, the CTA must also determine if the following allegations of the petitioners have merit:
 The FDDA and PCL were issued against petitioner Pacquiao only. The Warrant of Distraint and/or
Levy/Garnishment issued by the CIR, however, were made against the assets of both petitioners;
 The warrants of garnishment had been served on the banks of both petitioners even before the
petitioners received the FDDA and PCL;
 The Warrant of Distraint and/or Levy/Garnishment against the petitioners was allegedly made
prior to the expiration of the period allowed for the petitioners to pay the assessed deficiency
taxes;
 The Warrant of Distraint and/or Levy/Garnishment against petitioners failed to take into
consideration that the deficiency VAT was already paid in full; and
 Petitioners were not given a copy of the Warrants. Sections 207[68] and 208[69] of the Tax Code
require the Warrant of Distraint and/or Levy/Garnishment be served upon the taxpayer.
 In case the CTA finds that the petitioners should provide the necessary security under Section 11 of R.A. 1125, a
recomputation of the amount thereof is in order. If there would be a need for a bond or to reduce the same, the
CTA should take note that the Court, in A.M. No. 15-92-01-CTA, resolved to approve the CTA En Banc Resolution
No. 02-2015, where the phrase "amount claimed" stated in Section 11 of R.A. No. 1125 was construed to refer to
the principal amount of the deficiency taxes, excluding penalties, interests and surcharges. Moreover, the CTA
should.also consider the claim of the petitioners that they already paid a total of P32,196,534.40 deficiency VAT
assessed against' them.

Cases on prescription

1. Commissioner of Internal Revenue vs. Tulio, G.R. No. 139858, October 25, 2005
Ponente: Sandoval-Gutierrez, J.
Nature of the Case: This case is a petition for review on certiorari assailing the orders of the RTC.

FACTS:
 Arturo Tulio, respondent, is engaged in the construction business.
 On February 28, 1991, the Commissioner of Internal Revenue (CIR), petitioner, sent him a demand letter with
two final assessment notices requesting payment of the following:
o His deficiency percentage taxes of P188,585.76 and P245,669.53 for the taxable years 1986 and 1987.
 However, despite receipt, respondent failed to act on the assessment notices.
 Hence, the same became final and executory pursuant to Section 229 of the 1996 National Internal Revenue
Code (NIRC)
 On October 15, 1991, in order to enforce the collection of the taxes through administrative summary remedy,
petitioner issued a warrant of distraint and/or levy against respondent.
 However, he has no properties which can be placed under distraint and/or levy.

 On different dates, specifically on April 3, 1991, October 5, 1993 and May 14, 1997, petitioner sent letters to
respondent giving him the last opportunity to settle his deficiency tax liabilities.
o But respondent was obstinate.
 Thus, on October 29, 1997, petitioner filed with the RTC (Br. 60) of Baguio City, a civil action for the collection
of the deficiency percentage taxes [docketed as Civil Case No. 3853-R]
 Incidentally, it bears emphasis that it is the RTC which has jurisdiction over this case, not the Court of Tax
Appeals (CTA).
o It is the ordinary courts, not the tax court, which can entertain BIR money claims based on assessments
that have become final and executory

 On March 22, 1999, the RTC issued an order – directing respondent to file his answer to the complaint
 Three days thereafter, respondent filed a motion to dismiss alleging that the complaint was filed beyond the
three-year prescriptive period provided by Section 203 of the NIRC
RTC Ruling:
 Dismissed the Civil Case No. 3853-R, with prejudice, by reason of prescription.
o Since there was admittedly a return filed by the BIR in the name of the taxpayer, defendant Arturo Tulio
on August 15, 1990 or beyond the period prescribed by law for the filing thereof, the three (3) year
period shall be counted from the day the return was filed.
o Ergo, the plaintiff had until August 15, 1993 within which to file for collection of the alleged deficiency
percentage taxes in court.
o Considering that this instant case was filed only on October 19, 1997, the government’s right to file this
case has already prescribed as correctly pointed out by the defendant.
o RTC is not convinced that the case falls under Section 223 of the NIRC as alleged by the plaintiff for the
simple reason that the complaint never alleged fraud.
o Why should it be when it was the government entity charged with the collection of taxes which filed the
return.
 It would be impossible for them to charge themselves with filing a fraudulent return.
 The 10-year prescriptive period provided for under the cited section of the tax code therefore,
should not apply in this case

 Petitioner filed a Motion for Reconsideration, but was denied

 Hence, this petition for review on certiorari.

ISSUE: Whether the petitioner’s cause of action for the collection of deficiency percentage taxes against respondent has
prescribed.

RULING:
 No. The petitioner’s cause of action for the collection of deficiency percentage taxes against respondent has not
prescribed.
 The lower court erroneously applied Section 203 of the same Code providing for the three-year prescriptive
period from the filing of the tax return within which internal revenue taxes shall be assessed.
o RTC held that such period should be counted from the day the return was filed, or from August 15, 1990
up to August 15, 1993.
 HOWEVER, as shown by the records, respondent failed to file a tax return, forcing petitioner to invoke the
powers of his office in tax administration and enforcement.
 Respondent’s failure to file his tax returns is thus covered by Section 223 providing for a ten-year prescriptive
period within which a proceeding in court may be filed.

 Section 223 (now Section 222) of the NIRC provides:

o “Section 223. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court for the collection of such tax may be filed without
assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which had become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action for the collection thereof.
Xxx
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within three
(3) years following the assessment of the tax.”

 Section 223 specifies three (3) instances when the running of the three-year prescriptive period does not apply.
These are:
 (1) Filing a false return
(2) Filing a fraudulent return with intent to evade tax or
(3) Failure to file a return.
 The period within which to assess tax is ten years from discovery of the fraud, falsification or omission.

Application:
 In this case, the respondent failed to file his tax returns for 1986 and 1987.
 On September 14, 1989, petitioner found respondent’s omission.
 Hence, the running of the ten-year prescriptive period within which to assess and collect the taxes due from
respondent commenced on that date until September 14, 1999.
 The two final assessment notices were issued on February 28, 1991, well within the prescriptive period of three
(3) years. [10 years?]
 When respondent failed to question or protest the deficiency assessments thirty (30) days therefrom, or until
March 30, 1991, the same became final and executory.

 As this Court held in Marcos II vs. Court of Appeals:

o The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment
made by the BIR is fatal, considering that under Section 223 of the NIRC, in case of failure to file a
return, the tax may be assessed at any time within ten (10) years after the omission, and any tax so
assessed may be collected by levy upon real property within three years following the assessment of the
tax (as was done in this case).
o Since the estate tax assessment had become final and unappealable, there is now no reason why
petitioner should not enforce its authority to collect respondent’s deficiency percentage taxes for 1986
and 1987.

Disposition: Petition granted. Reversed the assailed orders of the RTC. Remanded to the said court for further
proceedings with dispatch.

2. BPI vs CIR GR No 139736 October 17, 2005

Facts:
 Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On
two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold US $500,000.00 to the Central Bank
of the Philippines, for the total sales amount of US$1,000,000.00.
 On 10 October 1989, the BIR issued Assessment No. FAS-5-85-89-002054, finding petitioner BPI liable for
deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank in the amount of
P28,020.00
 Petitioner BPI received the Assessment, together with the attached Assessment Notice, on 20 October 1989 and
through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17
November 1989
 Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR
issued a Warrant of Distraint and/or Levy against petitioner BPI for the assessed deficiency DST for taxable year
1985, in the amount of ₱27,720.00. It served the Warrant on petitioner BPI only on 23 October 1992.
 Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter,
dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its "request for
reconsideration," and addressing the points raised by petitioner BPI in its protest letter:
o This office finds the argument to be legally untenable
o It is admitted that while industry practice or market convention has the force of law between the
members of a particular industry, it is not binding with the BIR since it is not a party thereto. The same
 should, therefore, not be allowed to prejudice the Bureau of its lawful task of collecting revenues
necessary to defray the expenses of the government.
o Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code,
as amended, the same was already interpreted to hold that the other party who is not exempt from the
payment of documentary stamp tax liable from the tax.
 Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the
CTA on 10 October 1997; to which respondent BIR Commissioner, represented by the Office of the Solicitor
General, filed an Answer on 08 December 1997.
 Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest
letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to
enforce collection of the assessed amount.
o It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-
89-002054, but she waited for seven years and nine months to deny the protest.
 In her Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as
stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s protest; and remained silent
as to the expiration of the prescriptive period for collection of the assessed deficiency DST.
 After due trial, the CTA rendered a Decision in which it identified two primary issues in the controversy between
petitioner BPI and respondent BIR Commissioner:
o (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged
deficiency DST for taxable year 1985 had prescribed; and
o (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to
the Central Bank were subject to DST.
 The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR
Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA
reasoned that –
o In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., the Supreme Court
laid to rest the first issue. It categorically ruled that a "protest" is to be treated as request for
reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the
prescriptive period of the Commissioner to collect on an assessment. . .
. . . In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment
on November 17, 1989, there can be no conclusion other than that said protest stopped the running of the
prescriptive period of the Commissioner to collect.
o Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by
the Commissioner, shall suspend the prescriptive period to collect. The underscored portion above does
not mean that the Commissioner will cancel the subject assessment but should be construed as when the
same was entertained by the Commissioner by not issuing any warrant of distraint or levy on the
properties of the taxpayer or any action prejudicial to the latter unless and until the request for
reinvestigation is finally given due course.
o Taking into consideration this provision of law and the aforementioned ruling of the Supreme Court
in Wyeth Suaco which specifically and categorically states that a protest could be considered as a request
for reinvestigation, We rule that prescription has not set in against the government.
 The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier
case, Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue, the CTA reached the conclusion that
the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST –
o From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the
period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of DST
pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the
Central Bank, as buyer of the foreign currency, is exempt from paying the documentary stamp tax for the
period above-mentioned. This Court further expounded that said tax exemption of the Central Bank was
 modified beginning January 1, 1986 when P.D. 1994 took effect. Under this decree, the liability for DST on
sales of foreign currency to the Central Bank is shifted to the seller.
o Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales
of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is
the one liable thereof.
o However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of
the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is
liable for the payment of the documentary stamp tax for the former’s 1985 sales of foreign currencies to
the latter.
 In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment
No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said
Assessment because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were
tax-exempt.
 respondent BIR Commissioner appealed the Decision of the CTA to the CA. CA ruled:
o the CA sustained the finding of the CTA on the first issue, that the running of the prescriptive period for
collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a
protest on 17 November 1989 and, therefore, the prescriptive period for collection on the Assessment
had not yet lapsed.
o However, the CA reversed the CTA on the second issue and basically adopted the position of the
respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were subject to DST.
o The CA, thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required
petitioner BPI to pay the amount of ₱28,020.00 as deficiency DST for taxable year 1985, inclusive of the
compromise penalty.

Issue: Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST
for taxable year 1985 had prescribed?
Ruling: YES.

I. The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were already barred by
prescription.
 This Court disagrees in the Decisions of the CTA and the CA, and herein determines the statute of limitations on
collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed.
 The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the
Tax Code of 1977, as amended, which provides that –
o SEC. 203. Period of limitation upon assessment and collection. – Except as provided in the succeeding
section, internal revenue taxes shall be assessed within three years after the last day prescribed by law
for the filing of the return, and no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond
the period prescribed by law, the three-year period shall be counted from the day the return was filed.
For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof
shall be considered as filed on such last day.

 The three-year period of limitations on the assessment and collection of national internal revenue taxes set by
Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with
the following provisions of the same Code –
o SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. –
 (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud, or
 omission: Provided, That in a fraud assessment which has become final and executory, the fact of
fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.
 (b) If before the expiration of the time prescribed in the preceding section for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time the tax may be assessed within the period agreed upon. The period so agreed upon
may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon.
 (c) Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.
 (d) Any internal revenue tax which has been assessed within the period agreed upon as provided
in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court
within the period agreed upon in writing before the expiration of the three-year period. The
period so agreed upon may be extended by subsequent written agreements made before the
expiration of the period previously agreed upon.
 (e) Provided, however, That nothing in the immediately preceding section and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into any tax
returns filed in accordance with the provisions of any tax amnesty law or decree.

o SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s]
203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court
for collection, in respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in
court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by
the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner
of any change in address, the running of the statute of limitations will not be suspended; when the warrant
of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located; and when the taxpayer is out of
the Philippines.

 As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the
return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a
national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment.
 In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive
period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission.
 When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is
appropriate, then the BIR has another three years after the assessment within which to collect the national
internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed
made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice
had been released, mailed or sent by the BIR to the taxpayer.

Application:
 While Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10 October
1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to when the said
Assessment and Assessment Notice were released, mailed or sent by the BIR.
 Still, it can be granted that the latest date the BIR could have released, mailed or sent the Assessment and
Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20 October 1989.
 Counting the three-year prescriptive period, for a total of 1,095 days, from 20 October 1989, then the BIR only
had until 19 October 1992 within which to collect the assessed deficiency DST.
 The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of
a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992,
 previous to the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI
only on 23 October 1992.
 Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or
Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax.
It is enough that the proceedings have validly began or commenced and that their execution has not been
suspended by reason of the voluntary desistance of the respondent BIR Commissioner.
 Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the
issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of
Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the
prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that
the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute
intention of the BIR to collect the tax assessed.
 If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond
the prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what
more the letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the
petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI and requesting payment of the
deficiency DST? Even later and more unequivocally barred by prescription on collection was the demand made by
respondent BIR Commissioner for payment of the deficiency DST in her Answer to the Petition for Review of
petitioner BPI before the CTA, filed on 08 December 1997.

II. There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed DST
under the Tax Code of 1977, as amended.

A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall
be construed liberally in his favor.
 Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both
the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said
taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration
of a reasonable period of time.
 In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of
1977, as amended, identifies specifically in Sections 223 and 224 thereof the circumstances when the prescriptive
periods for assessing and collecting taxes could be suspended or interrupted.
 To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection
of taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government.

B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject to
certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, respectively.
Petitioner BPI, however, did not execute any such waiver in the case at bar.
 According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods
for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement
 The agreements so described in the provisions are often referred to as waivers of the statute of limitations. The
waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of
the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to
extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does
not mean that the taxpayer relinquishes the right to invoke prescription unequivocally.
 A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,
as amended, must be:
 (1) in writing;
 (2) agreed to by both the Commissioner and the taxpayer;
 (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and
  (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection.
 The period agreed upon can still be extended by subsequent written agreement, provided that it is executed
prior to the expiration of the first period agreed upon.
 RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any
revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall
be administratively dealt with.
 This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by
the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as
required by the Tax Code and implementing rules, will not suspend the running thereof.
 In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the
deficiency DST per Assessment No. FAS-5-85-89-002054.
 In fact, an internal memorandum of the Chief of the BIR to her counterpart in the Collection Enforcement
Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to execute a Waiver of the Statute of
Limitations extending the period of collection of the said tax up to December 31, 1993 pending reconsideration
of its protest. . ." Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST
could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended.

C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR
Commissioner, which could have suspended the running of the statute of limitations on collection of the assessed
deficiency DST under Section 224 of the Tax Code of 1977, as amended.
 The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on
the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a
waiver, under Section 224 thereof, which reads –
SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in
Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding
in court for collection, in respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in
court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by
the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner
of any change in address, the running of the statute of limitations will not be suspended; when the warrant
of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located; and when the taxpayer is out of
the Philippines.
 Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax
Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes
is considered suspended "when the taxpayer requests for a reinvestigation which is granted by the
Commissioner."
 This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for
reconsideration and a request for reinvestigation. RR No. 12-85, issued on 27 November 1985 by the Secretary of
Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment
and distinguishes between the two types of protest, as follows –
PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written
request for reconsideration or reinvestigation. . .
For the purpose of the protest herein –
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on
the basis of existing records without need of additional evidence. It may involve both a question
of fact or of law or both.
 (b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on
the basis of newly-discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or law or both.

 With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a
request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used
interchangeably and their differences so lightly brushed aside.
 It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive
period for collection of taxes can only be suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional
evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend the running of the statute of limitations on collection
of the assessed tax, while the latter can not.
 The protest letter of petitioner BPI dated 16 November 1989 and filed with the BIR the next day, on 17 November
1989, did not specifically request for either a reconsideration or reinvestigation.
o A close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-
85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for DST
on its sales of foreign currency to the Central Bank in taxable year 1985.
o did not raise any question of fact; neither did it offer to present any new evidence.
 In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI
as a request for reconsideration. These considerations would lead this Court to deduce that the protest letter of
petitioner BPI was in the nature of a request for reconsideration, rather than a request for reinvestigation and,
consequently, Section 224 of the Tax Code of 1977, as amended, on the suspension of the running of the statute
of limitations should not apply.
 Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration
and a request for reinvestigation and considers the protest of petitioner BPI as a request for reinvestigation, the
filing thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax
Code of 1977, as amended, very plainly requires that the request for reinvestigation had been granted by the BIR
Commissioner to suspend the running of the prescriptive periods for assessment and collection.
 That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the
statute of limitations is even supported by existing jurisprudence.
 In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation
of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he
had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all
examined. Considering the given facts, this Court pronounced that –
. . .The act of requesting a reinvestigation alone does not suspend the period. The request should
first be granted, in order to effect suspension. Moreover, the Collector gave appellee until April 1, 1949,
within which to submit his evidence, which the latter did one day before. There were no impediments on
the part of the Collector to file the collection case from April 1, 1949. . . .
 In Republic of the Philippines v. Acebedo, this Court similarly found that –
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949. There is no evidence that this request was considered or
acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of
distraint and levy for the full amount of the assessment, but there was no follow-up of this warrant.
Consequently, the request for reinvestigation did not suspend the running of the period for filing an
action for collection.
 The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on
respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from
the actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request
for reinvestigation.
  In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted
and actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended
assessment.
 On the basis of these facts, this Court ruled in the same cases that the period between the request for
reinvestigation and the revised assessment should be subtracted from the total prescriptive period for the
assessment of the tax; and, once the assessment had been reconsidered at the taxpayer’s instance, the period for
collection should begin to run from the date of the reconsidered or modified assessment.
 The rulings of the foregoing cases do not apply to the present Petition because:
o (1) the protest filed by petitioner BPI was a request for reconsideration, not a reinvestigation, of the
assessment against it; and
o (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was no showing
that it was granted by respondent BIR Commissioner and that actual reinvestigation had been conducted.

 Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of
the protest letter of petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter
until 10 September 1992, less than a month before the prescriptive period for collection on Assessment No. FAS-
5-85-89-002054 was due to expire. There were internal communications, mostly indorsements of the docket of
the case from one BIR division to another; but these hardly fall within the same sort of acts in the previously
discussed cases that satisfactorily demonstrated the grant of the taxpayer’s request for reinvestigation. Petitioner
BPI, in the meantime, was left in the dark as to the status of its protest in the absence of any word from the BIR.
Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet
acted on the protest of the former.
 When the BIR stated in its letter that the waiver of the statute of limitations on collection was a condition
precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was understood
that the grant of such request for reconsideration was being held off until compliance with the given condition.
When petitioner BPI failed to comply with the condition precedent, which was the execution of the waiver, the
logical inference would be that the request was not granted and was not given due course at all.

III. The suspension of the statute of limitations on collection of the assessed deficiency DST from petitioner BPI does not
find support in jurisprudence.
 It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-
year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because
the said prescriptive period was suspended, invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco
Laboratories, Inc., this case in which this Court ruled that the prescriptive period provided by law to make a
collection is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.
 Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had
unjustifiably expanded the grounds for suspending the prescriptive period for collection of national internal
revenue taxes.
 This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the
said case cannot be applied to the particular facts of the Petition at bar.

A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax
Code, was recognized in the Suyoc case.
 The statute of limitations on assessment and collection of national internal revenue taxes may be suspended if
the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code
of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code, which include a
request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this
Court also recognized one other exception to the statute of limitations on collection of taxes in the case
of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.
o In the said case, the CIR issued an assessment against taxpayer Suyoc Consolidated Mining Co. for
deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within which
to pay the amount assessed, but at the same time, reserving its right to question the correctness of the
 assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only three
months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended
period, the Collector sent it a demand letter. Upon receipt of the demand letter, taxpayer Suyoc asked for
a reinvestigation and reconsideration of the assessment, but the Collector denied the request. Taxpayer
Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by the Collector
on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The Conference Staff
heard the appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in the reduction
of the assessment on 26 July 1955. It was the collection of the reduced assessment that was questioned
before this Court for being enforced beyond the prescriptive period.
 In resolving the issue on prescription, this Court ratiocinated thus –
o It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by
proceeding in court within the 5-year period from the filing of the second amended final return due to the
several requests of respondent for extension to which petitioner yielded to give it every opportunity to
prove its claim regarding the correctness of the assessment. Because of such requests, several
reinvestigations were made and a hearing was even held by the Conference Staff organized in the
collection office to consider claims of such nature which, as the record shows, lasted for several months.
After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take
advantage of such desistance to elude his deficiency income tax liability to the prejudice of the
Government invoking the technical ground of prescription.
o While we may agree with the CTA that a mere request for reexamination or reinvestigation may not have
the effect of suspending the running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer, there are cases however where
a taxpayer may be prevented from setting up the defense of prescription even if he has not previously
waived it in writing as when by his repeated requests or positive acts the Government has been, for good
reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or
that no harassment or injustice is meant by the Government. And when such situation comes to pass
there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not
be countenanced if only to protect the interest of the Government.
 By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts
of the Government to collect the tax assessed against it. This Court adopted the following principle from American
jurisprudence: "He who prevents a thing from being done may not avail himself of the nonperformance which he
has himself occasioned, for the law says to him in effect ‘this is your own act, and therefore you are not
damnified.’"
 In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an
assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the
prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may
be estopped from raising the defense of prescription because by his repeated requests or positive acts, he had
induced Government authorities to delay collection of the assessed tax.
 Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that
the statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or
reinvestigation, runs counter to the ruling made by this Court in the Suyoc case.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is
not applicable to the Petition at bar because of the distinct facts involved herein.
 In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties
and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments both received by
taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent
to the BIR two letters protesting the assessments and requesting their cancellation or withdrawal on the ground
that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer
Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308.
Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain
conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR
 Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth
Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco
brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription.
 Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was
brought before it on appeal. According to the decision of this Court –
o Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or
by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of
the assessment. . .
o . . . Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically
state or use the words "reinvestigation" and "reconsideration," the same are to be treated as letters of
reinvestigation and reconsideration…
o These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the
deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of Wyeth Suaco, in
accordance with its request for reinvestigation, rendered a final assessment… It was only upon receipt
by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.

 The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein
that, "settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or
by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the
assessment." It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and
Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or
reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court
therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is
true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of
limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and
previous jurisprudence.

 The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the
factual backgrounds of the two cases.
o The Suyoc case refers to a situation where there were repeated requests or positive acts performed by
the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein
that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the
defense of prescription against the Government when the latter attempted to collect the assessed tax.
o In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently
granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under
Section 224 of the Tax Code of 1977, as amended.

 To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute
of limitations on assessment and collection may be interrupted or suspended, among which is a request for
reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does
not suspend the period; such request must be granted. The grant need not be express, but may be implied from
the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation.

 This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with
the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued
against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its
Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division. The statute
of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment.
 The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted
or suspended when the taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein,
such request is granted by the BIR Commissioner.
 Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case.
 o It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts
involved herein.
o The protest filed by petitioner BPI was a request for reconsideration, which merely required a review of
existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require,
neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request
for reconsideration, there was no other communication between it and respondent BIR Commissioner or
any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed
or aware that its request for reconsideration was granted or acted upon by the BIR.

IV. Conclusion
 To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute
of limitations on collection.
 The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in
accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the
circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted
by the BIR Commissioner.
 Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no
request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in
estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection
when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to
postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or
injustice is meant by the Government, as laid down by this Court in the Suyoc case.
 Applying the given rules to the present Petition, this Court finds that –
o (a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054,
issued against petitioner BPI, had already expired; and
o (b) None of the conditions and requirements for exception from the statute of limitations on collection
exists herein:
 Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by
paragraph (d) of Section 223 of the Tax Code of 1977, as amended;
 the protest filed by petitioner BPI was a request for reconsideration, not a request for
reinvestigation that was granted by respondent BIR Commissioner which could have suspended
the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended;
and,
 petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-
002054, did not make repeated requests or performed positive acts that could have persuaded
the respondent BIR Commissioner to delay collection, and that would have prevented or estopped
petitioner BPI from setting up the defense of prescription against collection of the tax assessed,
as required in the Suyoc case.
 This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in
resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the
assessment. They presented no reason or explanation as to why it took them almost eight years to address the
protest of petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the
taxpayer from such prolonged and unreasonable assessment and investigation by the BIR.
 Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST
in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make
a determination on the validity and correctness of the said Assessment for the latter would only be unenforceable.
 Petition is GRANTED. The Decision of the Court of Appeals, which reinstated Assessment No. FAS-5-85-89-
002054 requiring petitioner BPI to pay the amount of ₱28,020.00 as deficiency documentary stamp tax for the
taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-
89-002054 is CANCELED
3 BPI vs CIR (request for reinvestigation as a requirement for the suspension of the statute of limitations)
G.R. No. 174942, March 7, 2008
TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks a review of the Decision dated 15 August 2006 and the Resolution dated
5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable for the deficiency
documentary stamp tax (DST) on its cabled instructions to its foreign correspondent bank and that prescription had not
yet set in against the government.

FACTS:

 Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly
created and existing under the laws of the Republic of the Philippines
 Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice
(PAN) dated November 26, 1986.
 Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986
deficiency taxes mentioned in the November 26, 1986 PAN.
 On April 7, 1989, respondent issued to the petitioner, assessment/demand notices.
o FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap
Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63,
respectively, for the years 1982 to 1986.
 On April 20, 1989, petitioner filed a protest on the demand/assessment notices.
 On May 8, 1989, petitioner filed a supplemental protest.
 On March 12, 1993, petitioner requested for an opportunity to present or submit additional
documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records).
 Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned
assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank.
 Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective
until December 31, 1994.
 On August 9, 2002, respondent issued a final decision on petitioners protest ordering the withdrawal and
cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the
same as closed and terminated.
o On the other hand, the deficiency DST assessment in the amount of P24,587,174.63 was reiterated and
the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order.
 Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court.
 On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review.
 On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision
which was denied for lack of merit in a Resolution dated February 14, 2005.
 On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition
for Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005.
o Petitioners motion was granted in a Resolution dated March 16, 2005.
 On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review,
advancing the following assignment of errors.

ISSUE: Whether or not the running of the prescriptive period for assessment and collection was suspended by the
protest letters filed by BPI?
RULING:

 No. In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled
by BPIs filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine
Section 320 of the Tax Code of 1977 x x x (CHECK NOTES FOR THE PROVISION)
 The above section is plainly worded.
 In order to suspend the running of the prescriptive periods for assessment and collection, the request for
reinvestigation must be granted by the CIR.
 In BPI v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), the Court emphasized the rule that the CIR
must first grant the request for reinvestigation as a requirement for the suspension of the statute of
limitations.
 The Court went on to declare that the burden of proof that the request for reinvestigation had been actually
granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied
from the action of the CIR or his authorized representative in response to the request for reinvestigation.
 There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the
request for reinvestigation filed by BPI.
 What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation,
as he considered BPIs letters of protest to be.
 In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first
time that he had granted the request for reinvestigation.
 His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period
was tolled by BPIs request for reinvestigation, without any assertion that the same had been granted or at least
acted upon.
 As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually
conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its
request.
 Hence, there is no basis for the tax court’s ruling that the filing of the request for reinvestigation tolled the running
of the prescriptive period for collecting the tax deficiency.
 Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December
1994 suspend the prescriptive period.
 The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-
90.
 At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to
collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a
decision on the protest.

DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED. The Decision of the Court of Tax Appeals dated 15 August
2006and its Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs. SO
ORDERED.

NOTES:
Sec. 320. Suspension of running of statute.
The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning
of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding
in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is
being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running
of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative, or a member of his household with sufficient discretion, and no property could be located;
and when the taxpayer is out of the Philippines. (Emphasis supplied)

4. CIR vs Phil Global (Prescription)

NATURE: This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set aside the en
bancDecision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22 February 2005,1 ordering the petitioner to
withdraw and cancel Assessment Notice No. 000688-80-7333 issued against respondent Philippine Global
Communication, Inc. for its 1990 income tax deficiency. The CTA, in its assailed en banc Decision, affirmed the Decision
of the First Division of the CTA dated 9 June 20042 and its Resolution dated 22 September 2004 in C.T.A. Case No. 6568.

FACTS:

 Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year
1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority,
authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and
other accounting records of respondent, in connection with the investigation of respondent’s 1990 income tax
liability. On 22 April 1992, the BIR sent a letter to respondent requesting the latter to present for examination
certain records and documents, but respondent failed to present any document.
 On 21 April 1994, respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency
income tax in the amount of P118,271,672.00, inclusive of surcharge, interest, and compromise penalty, arising
from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were
likewise disallowed. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with
Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount
of P118,271,672.00.3
 On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and Manalastas Law Offices, filed
a formal protest letter against Assessment Notice No. 000688-80-7333. Respondent filed another protest letter
on 23 May 1994, through another counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters,
respondent requested for the cancellation of the tax assessment, which they alleged was invalid for lack of
factual and legal basis.4
 On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile
Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8 October 2002
denying the respondent’s protest against Assessment Notice No. 000688-80-7333, and affirming the said
assessment in toto.5
 On 15 November 2002, respondent filed a Petition for Review with the CTA. After due notice and hearing, the
CTA rendered a Decision in favor of respondent on 9 June 2004.6 The CTA ruled on the primary issue of
prescription and found it unnecessary to decide the issues on the validity and propriety of the assessment. It
decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence,
they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax.7 Thus, since
more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was issued in 1994, the
CIR’s right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue
Code of 19778 (Tax Code of 1977).
 The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA in a Resolution dated 22
September 2004.10 Thereafter, the CIR filed a Petition for Review with the CTA en banc, questioning the
aforesaid Decision and Resolution. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA
Case No. 6568.
 Hence, this Petition for Review on Certiorari.

ISSUE: Whether or not CIR’s right to collect respondent’s alleged deficiency income tax is barred by prescription.

RULING: YES
 This Court finds no merit in this Petition.
 The main issue in this case is whether or not CIR’s right to collect respondent’s alleged deficiency income tax is
barred by prescription under Section 269(c) of the Tax Code of 1977, which reads:

Section 269. Exceptions as to the period of limitation of assessment and collection of taxes. – x x x

xxxx

c. Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.

 The law prescribed a period of three years from the date the return was actually filed or from the last date
prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national
internal revenue tax.13
o However, the law increased the prescriptive period to assess or to begin a court proceeding for the
collection without an assessment to ten years when a false or fraudulent return was filed with the intent
of evading the tax or when no return was filed at all.14 In such cases, the ten-year period began to run
only from the date of discovery by the BIR of the falsity, fraud or omission.
 If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable,
the law provided another three years after the assessment for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through judicial proceedings.15 The three-year period for
collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent
by the BIR.16
 The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the
CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or
Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR
to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January
2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from
collecting the assessed tax.
 The provisions on prescription in the assessment and collection of national internal revenue taxes became law
upon the recommendation of the tax commissioner of the Philippines. The report submitted by the tax
commission clearly states that these provisions on prescription should be enacted to benefit and protect
taxpayers:

Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to
the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax
within 5 years from the date of assessment thereof. Just as the government is interested in the stability of its
collections, so also are the taxpayers entitled to an assurance that they will not be subjected to further
investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax
Commission of the Philippines, pp. 321-322).17

 In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should
benefit both the Government and the taxpayers. In these cases, the Court further illustrated the harmful effects
that the delay in the assessment and collection of taxes inflicts upon taxpayers. In Collector of Internal Revenue
v. Suyoc Consolidated Mining Company,18 Justice Montemayor, in his dissenting opinion, identified the potential
loss to the taxpayer if the assessment and collection of taxes are not promptly made.
 Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of
both the Government and the taxpayer; for the Government for the purpose of expediting the collection of
taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to
the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that
within a reasonable time after filing his return, he may know the amount of the assessment he is required to
pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of
 the assessment or contest its validity in court x x x. It would surely be prejudicial to the interest of the taxpayer
for the Government collecting agency to unduly delay the assessment and the collection because by the time
the collecting agency finally gets around to making the assessment or making the collection, the taxpayer may
then have lost his papers and books to support his claim and contest that of the Government, and what is more,
the tax is in the meantime accumulating interest which the taxpayer eventually has to pay .
 In Republic of the Philippines v. Ablaza,19 this Court emphatically explained that the statute of limitations of
actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible
harassment:

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of
taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest,
peaceful, law-abiding citizens. Without such legal defense taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents.
The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about
the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission
which recommended the approval of the law.

 And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue,20 this Court, in
confirming these earlier rulings, pronounced that:

Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both
the Government and the taxpayer, it principally intends to afford protection to the taxpayer against
unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it
deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes
after the expiration of a reasonable period of time.

 Thus, in Commissioner of Internal Revenue v. B.F. Goodrich,21 this Court affirmed that the law on prescription
should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly construed.
 The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes could be suspended, even in the absence of a
waiver, under Section 271 thereof which reads:

Section 224. Suspension of running of statute. – The running of the statute of limitation provided in
Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a proceeding in
court for collection in respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court
and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which
a tax is being assessed or collected x x x. (Emphasis supplied.)

 Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is
the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However,
this exception does not apply to this case since the respondent never requested for a reinvestigation. More
importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition,
the respondent refused to submit any new evidence.
 Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau
of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for
reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner:
 Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request for
reconsideration or reinvestigation specifying the following particulars:

xxxx

For the purpose of protest herein—

(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing
records without need of additional evidence. It may involve both a question of fact or of law or both.

(b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of newly-
discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also
involve a question of fact or law or both.

 The main difference between these two types of protests lies in the records or evidence to be examined by
internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-
evaluation of existing records which results from a request for reconsideration does not toll the running of the
prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the
running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted
by the CIR. The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner
of Internal Revenue22explaining why a request for reinvestigation, and not a request for reconsideration,
interrupts the running of the statute of limitations on the collection of the assessed tax:

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take
more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this
justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax,
while the latter cannot.

 In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for
reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable since
respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation
proceedings. This much was admitted in the Decision dated 8 October 2002 issued by then CIR Guillermo
Payarno, Jr.

o In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom, despite
repeated demands, failed to submit documentary evidences in support of its claimed deductible
expenses. Hence, except for the item of interest expense which was disallowed for being not ordinary
and necessary, the rest of the claimed expenses were disallowed for non-withholding. In the same
token, Revenue Officer Escober testified that upon his assignment to conduct the re-investigation, he
immediately requested the taxpayer to present various accounting records for the year 1990, in addition
to other documents in relation to the disallowed items (p.171). This was followed by other requests for
submission of documents (pp.199 &217) but these were not heeded by the taxpayer. Essentially, he
stated that Philcom did not cooperate in his reinvestigation of the case.
o In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji, emphasized that it
was denied due process because of the issuance of the Pre-Assessment Notice and the Assessment
Notice on successive dates. x x x Counsel for the taxpayer even questioned the propriety of the
conference-hearing inasmuch as the only question to resolved (sic) is the legality of the issuance of the
assessment. On the disallowed items, Philcom thru counsel manifested that it has no intention to
present documents and/or evidences allegedly because of the pending legal question on the validity of
the assessment.23

 Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a
request for reinvestigation, there have been cases wherein these two terms were used interchangeably. But
 upon closer examination, these cases all involved a reinvestigation that was requested by the taxpayer and
granted by the BIR.
 In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,24 the Court weighed the considerable
time spent by the BIR to actually conduct the reinvestigations requested by the taxpayer in deciding that the
prescription period was suspended during this time.
 Because of such requests, several reinvestigations were made and a hearing was even held by the Conference
Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for
several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to
now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the
Government invoking the technical ground of prescription.
 Although the Court used the term "requests for reconsideration" in reference to the letters sent by the taxpayer
in the case of Querol v. Collector of Internal Revenue,25 it took into account the reinvestigation conducted soon
after these letters were received and the revised assessment that resulted from the reinvestigations.

It is true that the Collector revised the original assessment on February 9, 1955; and appellant avers that this
revision was invalid in that it was not made within the five-year prescriptive period provided by law (Collector vs.
Pineda, 112 Phil. 321). But that fact is that the revised assessment was merely a result of petitioner Querol’s
requests for reconsideration of the original assessment, contained in his letters of December 14, 1951 and May
25, 1953. The records of the Bureau of Internal Revenue show that after receiving the letters, the Bureau
conducted a reinvestigation of petitioner’s tax liabilities, and, in fact, sent a tax examiner to San Fernando, La
Union, for that purpose; that because of the examiner’s report, the Bureau revised the original assessment, x x
x. In other words, the reconsideration was granted in part, and the original assessment was altered.
Consequently, the period between the petition for reconsideration and the revised assessment should be
subtracted from the total prescriptive period (Republic vs. Ablaza, 108 Phil 1105).

 The Court, in Republic v. Lopez,26 even gave a detailed accounting of the time the BIR spent for each
reinvestigation in order to deduct it from the five-year period set at that time in the statute of limitations:

It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by Section 332(c) of the
Internal Revenue Code within which the Government may sue to collect an assessed tax is to be computed from
the last revised assessment resulting from a reinvestigation asked for by the taxpayer and (2) that where a
taxpayer demands a reinvestigation, the time employed in reinvestigating should be deducted from the total
period of limitation.

xxxx

The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954, from which date the
Government had five years for bringing an action to collect.

The second reinvestigation was asked on 16 January 1956, and lasted until it was decided on 22 April 1960, or a
period of 4 years, 3 months, and 6 days, during which the limitation period was interrupted.

 The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal Revenue v.
Sison,27"that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should be
deducted from the total period of limitation." Finally, in Republic v. Arcache,28 the Court enumerated the
reasons why the taxpayer is barred from invoking the defense of prescription, one of which was that, "In the
first place, it appears obvious that the delay in the collection of his 1946 tax liability was due to his own
repeated requests for reinvestigation and similarly repeated requests for extension of time to pay."
 In this case, the BIR admitted that there was no new or additional evidence presented. Considering that the BIR
issued its Preliminary Assessment Notice on 13 April 1994 and its Formal Assessment Notice on 14 April 1994,
just one day before the three-year prescription period for issuing the assessment expired on 15 April 1994, it
had ample time to make a factually and legally well-founded assessment. Added to the fact that the Final
Decision that the CIR issued on 8 October 2002 merely affirmed its earlier findings, whatever examination that
 the BIR may have conducted cannot possibly outlast the entire three-year prescriptive period provided by law to
collect the assessed tax, not to mention the eight years it actually took the BIR to decide the respondent’s
protest. The factual and legal issues involved in the assessment are relatively simple, that is, whether certain
income tax deductions should be disallowed, mostly for failure to pay withholding taxes. Thus, there is no
reason to suspend the running of the statute of limitations in this case.
 The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears
repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of
limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of
the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest,
then the erroneous assessment would become final and unappealable.29 On the other hand, if the taxpayer does
file the protest on a patently erroneous assessment, the statute of limitations would automatically be
suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the
deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers
remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament
that the law on the statute of limitations seeks to prevent.
 The Court, in sustaining for the first time the suspension of the running of the statute of limitations in cases
where the taxpayer requested for a reinvestigation, gave this justification:

A taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it
in writing as when by his repeated requests or positive acts the Government has been, for good reasons,
persuaded to postpone collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government.

xxxx

This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several
precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable
principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of
the nonperformance which he himself occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified."’ (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis supplied.)30

 This rationale is not applicable to the present case where the respondent did nothing to prevent the BIR from
collecting the tax. It did not present to the BIR any new evidence for its re-evaluation. At the earliest
opportunity, respondent insisted that the assessment was invalid and made clear to the BIR its refusal to
produce documents that the BIR requested. On the other hand, the BIR also communicated to the respondent
its unwavering stance that its assessment is correct. Given that both parties were at a deadlock, the next logical
step would have been for the BIR to issue a Decision denying the respondent’s protest and to initiate
proceedings for the collection of the assessed tax and, thus, allow the respondent, should it so choose, to
contest the assessment before the CTA. Postponing the collection for eight long years could not possibly make
the taxpayer feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Government. There was no legal, or even a moral, obligation preventing the CIR from collecting the assessed tax.
In a similar case, Cordero v. Conda,31 the Court did not suspend the running of the prescription period where the
acts of the taxpayer did not prevent the government from collecting the tax.

The government also urges that partial payment is "acknowledgement of the tax obligation", hence a "waiver on
the defense of prescription." But partial payment would not prevent the government from suing the taxpayer.
Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is meant." Which, as stated in
Collector v. Suyoc Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying reason behind
the rule that prescriptive period is arrested by the taxpayer’s request for reexamination or reinvestigation –
even if "he has not previously waived it [prescription] in writing."
  Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of
the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing
for exceptions to such rule in Section 271, the law strictly limits the suspension of the running of the prescription
period to, among other instances, protests wherein the taxpayer requests for a reinvestigation. In this case,
where the taxpayer merely filed two protest letters requesting for a reconsideration, and where the BIR could
not have conducted a reinvestigation because no new or additional evidence was submitted, the running of
statute of limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on 8
October 2002 affirming the Formal Assessment issued on 14 April 1994 can no longer be the subject of any
proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is
barred by prescription.

DISPOSITION: IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en banc Decision of the CTA in
CTA EB No. 37 dated 22 February 2005, cancelling Assessment Notice No. 000688-80-7333 issued against Philippine
Global Communication, Inc. for its 1990 income tax deficiency for the reason that it is barred by prescription, is
hereby AFFIRMED. No costs. SO ORDERED.

5. COMMISSIONER OF INTERNAL REVENUE vs. HAMBRECHT & QUIST PHILIPPINES, INC

FACTS:

 In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue (BIR), through its West-Makati
District Office of its change of business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the 22nd
Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City.
 Said letter was duly received by the BIR-West Makati on February 18, 1993.
 On November 4, 1993, respondent received a tracer letter or follow-up letter dated October 11, 1993 issued by the Accounts
Receivable/Billing Division of the BIRs National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding for
payment of alleged deficiency income and expanded withholding taxes for the taxable year 1989 amounting to
P2,936,560.87
 On December 3, 1993, respondent, through its external auditors, filed with the same Accounts Receivable/Billing Division of
the BIRs National Office, its protest letter against the alleged deficiency tax assessments for 1989 as indicated in the said
tracer letter dated October 11, 1993.
 The alleged deficiency income tax assessment apparently resulted from an adjustment made to respondents taxable income
for the year 1989, on account of the disallowance of certain items of expense, namely, professional fees paid, donations,
repairs and maintenance, salaries and wages, and management fees.
 The latter item of expense, the management fees, made up the bulk of the disallowance, the examiner alleging, among
others, that petitioner failed to withhold the appropriate tax thereon.
 This is also the same basis for the imposition of the deficiency withholding tax assessment on the management fees.
 Revenue Regulations No. 6-85 (EWT Regulations) does not impose or prescribe EWT on management fees paid to a non-
resident.
 On November 7, 2001, nearly eight (8) years later, respondents external auditors received a letter from herein petitioner
Commissioner of Internal Revenue dated October 27, 2001. T
 he letter advised the respondent that petitioner had rendered a final decision denying its protest on the ground that the
protest against the disputed tax assessment was allegedly filed beyond the 30-day reglementary period prescribed in then
Section 229 of the National Internal Revenue Code.
 On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case No. 6362 before the then Court of Tax
Appeals, pursuant to Section 7 of Republic Act No. 1125, otherwise known as an Act Creating the Court of Tax Appeals and
Section 228 of the NIRC, to appeal the final decision of the Commissioner of Internal Revenue denying its protest against the
deficiency income and withholding tax assessments issued for taxable year 1989
 The CTA Original Division held that the subject assessment notice sent by registered mail on January 8, 1993 to respondents
former place of business was valid and binding since respondent only gave formal notice of its change of address on February
18, 1993.
  Thus, the assessment had become final and unappealable for failure of respondent to file a protest within the 30-day period
provided by law.
 However, the CTA (a) held that the CIR failed to collect the assessed taxes within the prescriptive period; and (b) directed the
cancellation and withdrawal of Assessment Notice No. 001543-89-5668.
 Petitioners Motion for Reconsideration and Supplemental Motion for Reconsideration of said Decision filed on October 14,
2004 and November 22, 2004, respectively, were denied for lack of merit.
 Undaunted, the CIR filed a Petition for Review with the CTA En Banc but this was denied

ISSUE: Whether or not the court of tax appeals has jurisdiction to rule that the governments right to collect the tax has prescribed.

RULING: YES

 The jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as amended, and the term other
matters referred to by the CIR in its argument can be found in number (1) of the aforementioned provision
o Section 7. Jurisdiction. - The Court of Tax Appeals 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 imposed
in relation thereto, or other matters arising under the National Internal Revenue Code
or other law as part of law administered by the Bureau of Internal Revenue. (Emphasis
supplied.)
 Plainly, the assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing
provision upon which petitioners theory with regard to the parameters of the term other matters can be
supported or even deduced. What is rather clearly apparent, however, is that the term other matters is limited
only by the qualifying phrase that follows it.
 The previously ruled that the appellate jurisdiction of the CTA is not limited to cases which involve decisions of
the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that
arise out of the National Internal Revenue Code (NIRC) or related laws administered by the Bureau of Internal
Revenue (BIR).
 The issue of prescription of the BIRs right to collect taxes may be considered as covered by the term other matters over which
the CTA has appellate jurisdiction.
 The phraseology of Section 7, number (1), denotes an intent to view the CTAs jurisdiction over disputed assessments and
over other matters arising under the NIRC or other laws administered by the BIR as separate and independent of each other.
This runs counter to petitioners theory that the latter is qualified by the status of the former, i.e., an other matter must not
be a final and unappealable tax assessment or, alternatively, must be a disputed assessment.
 The first paragraph of Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282, belies petitioners
assertion as the provision is explicit that, for as long as a party is adversely affected by any decision, ruling or
inaction of petitioner, said party may file an appeal with the CTA within 30 days from receipt of such decision or
ruling.
 The wording of the provision does not take into account the CIRs restrictive interpretation as it clearly provides
that the mere existence of an adverse decision, ruling or inaction along with the timely filing of an appeal operates
to validate the exercise of jurisdiction by the CTA.

ISSUE # 1 : Whether or not the period to collect the assessment has prescribed

RULING: YES

 The pertinent provision of the 1986 NIRC is Section 224, to wit:

o Section 224. Suspension of running of statute. The running of the statute of limitations provided
in Sections 203 and 223 on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
 during which the Commissioner is prohibited from making the assessment or beginning distraint
or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a
re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in
the address given by him in the return filed upon which a tax is being assessed or collected:
Provided, That, if the taxpayer informs the Commissioner of any change in address, the statute
will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative, or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied.)
 The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to
enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such
request.
 The mere filing of a protest letter which is not granted does not operate to suspend the running of the period to
collect taxes. In the case at bar, the records show that respondent filed a request for reinvestigation on December
3, 1993, however, there is no indication that petitioner acted upon respondents protest.
 Since the CIR failed to disprove the aforementioned findings of fact of the CTA which are borne by substantial evidence on
record, this Court is constrained to uphold them as binding and true.
 This is in consonance with our oft-cited ruling that instructs this Court to not lightly set aside the conclusions reached by the
CTA, which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly
developed an expertise on the subject unless there has been an abuse or improvident exercise of authority

DISPOSITION: WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Tax Appeals (CTA) En Banc dated August 12,
2005 is AFFIRMED. No costs.

NOTE:

The relevant portion of Section 11, Republic Act No. 1125 states:

Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or
the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30)
days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to
in Section 7 (a)(2) herein.

6. COMMISSIONER OF INTERNAL REVENUE,Petitioner ,

vs. GJM PHILIPPINES MANUFACTURING, INC., G.R. No. 202695

FACTS:

• On April 12, 2000, GJM filed its Annual Income Tax Return for the year 1999.

• Thereatler, its parent company, Warnaco (HK) Ltd., underwent bankruptcy proceedings, resulting in the transfer of
ownership over GJM and its global affiliates to Luen Thai Overseas Limited in December 2001.

• On August 26, 2002, GJM informed the Revenue District Officer of Trece Martirez, through a letter, that on April 29,
2002, it would be canceling its registered address in Makati and transferring to Rosario, Cavite, which is under Revenue
District Office (RDO) No. 54.

• On August 26, 2002, GJM's request for transfer of its tax registration from RDO No. 48 to RDO No. 54 was confirmed
through Transfer Confirmation Notice No. OCN ITR 000018688.
• On October 18, 2002, the Bureau of Internal Revenue (BIR) sent a letter of informal conference informing GJM that the
report of investigation on its income and business tax liabilities for 1999 had been submitted.

• The report disclosed that GJM was still liable for an income tax deficiency and the corresponding 20% interest, as
well as for the compromise penalty in the total amount of P1,192,541.51.

• Said tax deficiency allegedly resulted from certain disallowances/understatements, to wit: (a) Loading and
Shipment/Freight Out in the amount of P2,354,426.00; (b) Packing expense, P8,859,975.00; (c) Salaries and Wages,
P2,717,910.32; (d) Staff Employee Benefits, P1,191,965.87; and (e) Fringe Benefits Tax, in the amount of P337,814.57.
On October 24, 2002, GJM refuted said findings through its Financial Controller.

• On February l 2, 2003, the BIR issued a Pre-Assessment Notice and Details of Discrepancies against GJM. On April 14,
2003, it issued an undated Assessment Notice, indicating a deficiency income tax assessment in the amount of
P1,480,099.29.

• On July 25, 2003, the BIR issued a Preliminary Collection Letter requesting GJM to pay said income tax deficiency for
the taxable year 1999.

• Said letter was addressed to GJM's former address in Pio del Pilar, Makati. On August 18, 2003, although the BIR
sent a Final Notice Before Seizure to GJM's address in Cavite, the latter claimed that it did not receive the same.

• On December 8, 2003, GJM received a Warrant of Distraint and/or Levy from the BIR RDO No. 48-West Makati. The
company then filed its Letter Protest on January 7, 2004, which the BIR denied on January 15, 2004. Hence, G.JM filed
a Petition for Review before the CTA.

• On January 26, 20 l 0, the CTA First Division rendered a Decision in favor of GJM, the dispositive portion of which reads:

• WHEREFORE, the deficiency income tax assessment in the amount of P1,480,099.29, inclusive of interest, for
taxable year 1999, covered by Formal Assessment Notice No. IT-17316-99-03-282 and the Warrant of Distraint
and/or Levy dated November 27, 2003, both issued against petitioner by respondent, are
hereby CANCELLED and WITHDRAWN.

• Accordingly, respondent is hereby ORDERED to cease and desist from implementing the said assessment and Warrant.

• When its Motion for Reconsideration was denied, the CIR brought the case to the CT A En Banc.

• On March 6, 2012, the CTA En Banc denied the CIR's petition, thus:

• WHEREFORE, the Petition for Review is hereby DENIED. Accordingly, the impugned Decision dated January 26,
2010 and Resolution dated May 4, 2010 are hereby AFFIRMED in toto. SO ORDERED.

• The CIR filed a Motion for Reconsideration but the same was denied for Jack of merit. Thus, the instant petition.

ISSUE:

WHETHER OR NOT THE FORMAL ASSESSMENT NOTICE (FAN) FOR DEFICIENCY INCOME TAX ISSUED TO GJM FOR
TAXABLE YEAR 1999 WAS RELEASED, MAILED, AND SENT WITHIN THE THREE (3)-YEAR PRESCRIPTIVE PERIOD UNDER
SECTION 203 OF THE NIRC OF 1997
or

WHETHER OR NOT THE BIR'S RIGHT TO ASSESS GJM FOR DEFICIENCY INCOME TAX FOR TAXABLE YEAR 1999 HAS
ALREADY PRESCRIBED.

RULING: YES.

• Section 203 of the 1997 National Internal Revenue Code (NIRC), as amended, specifically provides for the period within
which the CIR must make an assessment.1âwphi1 It provides:

• SEC. 203. Period of Limitation Upon Assessmentand Collection. - Except as provided in Section 222, internal revenue
taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period
shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day. Thus, the CIR has three (3) years
from the date of the actual filing of the return or from the last day prescribed by law for the filing of the return,
whichever is later, to assess internal revenue taxes.

APPLICATION:

• Here, GJM filed its Annual Income Tax Return for the taxable year 1999 on April 12, 2000. The three (3)-year prescriptive
period, therefore, was only until April 15, 2003. The records reveal that the BIR sent the FAN through registered mail
on April 14, 2003, well-within the required period.

• The Court has held that when an assessment is made within the prescriptive period, as in the case at bar, receipt by
the taxpayer may or may not be within said period. But it must be clarified that the rule does not dispense with the
requirement that the taxpayer should actually receive the assessment notice, even beyond the prescriptive period.7

• GJM, however, denies ever having received any FAN.

• If the taxpayer denies having received an assessment from the BIR, it then becomes incumbent upon the latter to prove
by competent evidence that such notice was indeed received by the addressee.8

• Here, the onus probandi has shifted to the BIR to show by contrary evidence that GJM indeed received the assessment
in the clue course of mail. It has been settled that while a mailed letter is deemed received by the addressee in the
course of mail, this is merely a disputable presumption subject to controversion, the direct denial of which shifts the
burden to the sender to prove that the mailed letter was, in fact, received by the addressee. 9

• To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry
return card which would have been signed by the taxpayer or its authorized representative. And if said documents could
not be located, the CIR should have, at the very least, submitted to the Court a certification issued by the Bureau of
Posts and any other pertinent document executed with its intervention.

• The Court does not put much credence to the self-serving documentations made by the BIR personnel, especially if they
are unsupported by substantial evidence establishing the fact of mailing. While it is true that an assessment is made
when the notice is sent within the prescribed period, the release, mailing, or sending of the same must still be clearly
and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice or control, and without
 adequate supporting evidence cannot suffice. Otherwise, the defenseless taxpayer would be unreasonably placed at
the mercy of the revenue offices. 10

• The BIR's failure to prove GJM's receipt of the assessment leads to no other conclusion but that no assessment was
issued.

• Consequently, the government's right to issue an assessment for the said period has already prescribed.

• The CIR offered in evidence Transmittal Letter No. 282 dated April 14, 2003 prepared and signed by one Ma. Nieva A.
Guerrero, as Chief of the Assessment Division of BIR Revenue Region No. 8-Makati, to show that the FAN was actually
served upon GJM. However, it never presented Guerrero to testify on said letter, considering that GJM vehemently
denied receiving the subject FAN and the Details of Discrepancies. Also, the CIR presented the Certification signed by
the Postmaster of Rosario, Cavite, Ni carter Looc, which supposedly proves the fact of mailing of the FAN and Details of
Discrepancy. It also adduced evidence of mail envelopes stamped February 17, 2003 and April 14, 2003, which were
meant to prove that, on said dates, the Preliminary Assessment Notice (PAN) and the FAN were delivered, respectively.

• Said envelopes also indicate that they were posted from the Makati Central Post Office. However, according to the
Postmaster's Certification, of all the mail matters addressed to GJM which were received by the Cavite Post Office from
February 12, 2003 to September 9, 2003, only two (2) came from the Makati Central Post Office. These two (2) were
received by the Cavite Post Office on February 12, 2003 and May 13, 2003. But the registered mail could not have been
the PAN since the latter was mailed only on February 17, 2003, and the FAN, although mailed on April 14, 2003, was
not proven to be the mail received on May 13, 2003.

• The CIR likewise failed to show that said mail matters received indeed came from it. It could have simply presented the
registry receipt or the registry return card accompanying the envelope purportedly containing the assessment notice,
but it offered no explanation why it failed to do so. Hence, the CT A aptly ruled that the CIR failed to discharge its duty
to present any evidence to show that GJM indeed received the FAN sent through registered mail on April 14, 2003.

• The Court wishes to note and reiterate that it is not a trier of facts. The CIR mainly raised issues on factual findings
which have already been thoroughly discussed below by both the CTA First Division and the CTA En Banc.

• Oft-repeated is the rule that the Court will not lightly set aside the conclusions reached by the CTA which, by the very
nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an
expertise on the subject, unless there has been an abuse or improvident exercise of authority.

• This Court recognizes that the CTA's findings can only be disturbed on appeal if they are not supported by substantial
evidence, or there is a showing of gross error or 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. It has been the Court's long-standing policy and practice to respect the conclusions of quasi-judicial agencies
such as the CTA, a highly specialized body specifically created for the purpose of reviewing tax cases.

DISPOSITIVE PORTION:

• WHEREFORE, PREMISES CONSIDERED, the petition is DENIED. The Decision of the Court of Tax Appeals En Banc dated
March 6, 2012 and its Resolution dated July 12, 2012 in CTA EB CASE No. 637 are hereby AFFIRMED. SO ORDERED.

X. TAX REMEDIES: Tax Credit / Refund

1. Vda. De San Agustin vs CIR
Facts:
 Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27, 1990 leaving his wife Dra. Felisa L.
San Agustin as sole heir. He left a holographic will executed on April 21, 1980 giving all his estate to his widow,
and naming retired Justice Jose Y. Feria as Executor thereof. Probate proceedings were instituted on August 22,
1990, in the RTC of Makati, Branch 139. Pursuantly, notice of decedent's death was sent to the CIR on August 30,
1990.
 On September 3, 1990, an estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of
the estate, with a request for an extension of two years for the payment of the tax, inasmuch as the decedent's
widow (did) not personally have sufficient funds, and that the payment (would) have to come from the estate.
 In his letter/answer, BIR Deputy Commissioner Victor A. Deoferio, Jr., granted the heirs an extension of only six
(6) months, subject to the imposition of penalties and interests under Sections 248 and 249 of the NIRC, as
amended.
 The RTC allowed the will and appointed Jose Feria as Executor of the estate. On December 5, 1990, the executor
submitted to the probate court an inventory of the estate with a motion for authority to withdraw funds for the
payment of the estate tax.
 Such authority was granted by the probate court on March 5, 1991. Thereafter, on March 8, 1991 , the executor
paid the estate tax in the amount of P1,676,432 as reported in the Tax Return filed with the BIR. This was well
within the six (6) months extension period granted by the BIR.
 On September 23, 1991, the widow of the deceased, Felisa L. San Agustin, received a Pre-Assessment Notice
from the BIR, dated August 29, 1991, showing a deficiency estate tax of P538,509.50, which, including surcharge,
interest and penalties, amounted to P976,540.00.
 On October 1, 1991, within the 10-day period given in the pre-assessment notice, the executor filed a letter with
the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax of P538,509.50 as soon
as the RTC approves withdrawal thereof, but, requesting that the surcharge, interest, and other penalties,
amounting to P438,040.38 be waived, considering that the assessed deficiency arose only on account of the
difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of
P1,676,432.00 was already paid in due time within the extension period.
 On October 4, 1991, the Commissioner issued an Assessment Notice reiterating the demand in the pre-
assessment notice and requesting payment on or before thirty (30) days upon receipt thereof.
 In a letter, dated October 31, 1991, the executor requested the Commissioner a reconsideration of the
assessment of P976,549.00 and waiver of the surcharge, interest, etc.
 On December 18, 1991, the Commissioner accepted payment of the basic deficiency tax in the amount of
P538,509.50 through its Receivable Accounts Billing Division.
 The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter,
dated September 21, 1992, signed by the Commissioner, stating that there is no legal justification for the waiver
of the interests, surcharge and compromise penalty in this case, and requiring full payment of P438,040.38
representing such charges within ten (10) days from receipt thereof.
 The respondent estate paid the amount of P438,040.38 under protest on January 25, 1993.
 On February 18, 1993, a Petition for Review was filed by the executor with the CTA with the prayer that the
Commissioner's letter/decision be reversed and that a refund of the amount of P438,040.38 be ordered.
 The Commissioner opposed the said petition, alleging that the CTA's jurisdiction was not properly invoked
inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the BIR before the petition
was filed, in violation of Sections 204 and 230 of the NIRC. Moreover, there is no statutory basis for the refund
of the deficiency surcharges, interests and penalties charged by the Commissioner upon the estate of the
decedent.
 Upholding its jurisdiction over the dispute, the CTA rendered its Decision modifying the CIR's assessment for
surcharge, interests and other penalties from P438,040.38 to P13,462.74, representing interest on the
deficiency estate tax, for which reason the CTA ordered the reimbursement to the respondent estate the
balance of P423,577.64
  The case was appealed to the CA. CA granted the CIR’s petition and held that the CTA did not acquire jurisdiction
over the subject matter and that the decision was null and void.
Petitioner’s submission:
1. The filing of a claim for refund [is] not essential before the filing of the petition for review.
2. The imposition by the respondent of surcharge, interest and penalties on the deficiency estate tax is not in
accord with the law and therefore illegal."

Issue #1: Whether or not a claim for refund is essential before filing the petition for review in the CTA?
Ruling #1: No.
 The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of
Internal Revenue. The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax,
surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then
respondent CIR set up several defenses, one of which was that petitioner had failed to first file a written claim
for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written
claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the petition for lack
of jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the Court held:
"We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court of Tax
Appeals, in providing for appeals from -
'(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or
other matters arising under the National Internal Revenue Code or other law or part of the law
administered by the Bureau of Internal Revenue -
allows an appeal from a decision of the Collector in cases involving' disputed assessments' as
distinguished from cases involving' refunds of internal revenue taxes, fees or other charges, x x'; that the
present action involves a disputed assessment'; because from the time petitioner received assessments
Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him in his income
tax returns for the years 1955 and 1956, he already protested and refused to pay the same, questioning
the correctness and legality of such assessments; and that the petitioner paid the disputed assessments
under protest before filing his petition for review with the Court a quo, only to forestall the sale of his
properties that had been placed under distraint by the respondent Collector since December 4, 1957.
To hold that the taxpayer has now lost the right to appeal from the ruling on, the disputed
assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer
to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect
require of him to go through a useless and needless ceremony that would only delay the disposition of
the case, for the Collector would certainly disallow the claim for refund in the same way as he
disallowed the protest against the assessment. The law should not be interpreted as to result in
absurdities.”

 The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve
the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of
the taxpayer's appeal to it.

Issue #2: Whether or not the imposition by the respondent of surcharge, interest and penalties on the deficiency estate
tax is not in accord with the law and therefore illegal?
Ruling #2: No.
 On the second issue, the NIRC, relative to the imposition of surcharges, interests, and penalties, provides thusly:
"Sec. 248. Civil Penalties. -
"(a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five
percent (25% ) of the amount due, in the following cases:
 "(1) Failure to file any return and pay the tax due thereon as required under the provisions of this
Code or rules and regulations on the date prescribed; or
"(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer
other than those with whom the return is required to be filed; or
"(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
"(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to
be filed, on or before the date prescribed for its payment."

"Sec.249. Interest. -
"(A) In General. -There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the
date prescribed for payment until the amount is fully paid.
"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject
to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date
prescribed for its payment until the full payment thereof.
"(C) Delinquency Interest. -In case of failure to pay:
"(1) The amount of the tax due on any return to be filed, or
"(2) The amount of the tax due for which no return is required, or
"(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice
and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest
at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part
of the tax.
"(D) Interest on Extended Payment. -If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where the Commissioner has
authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be
assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof
unpaid from the date of notice and demand until it is paid."

 It would appear that, as early as 23 September 1991, the estate already received a pre-assessment notice
indicating a deficiency estate tax of P538,509.50.
 Within the ten-day period given in the pre-assessment notice, respondent Commissioner received a letter from
petitioner expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the
trial court would have approved the withdrawal of that sum from the estate but requesting that the surcharge,
interests and penalties be waived.
 On 04 October 1991, however, petitioner received from the Commissioner notice insisting payment of the tax
due on or before the lapse of thirty (30) days from receipt thereof. The deficiency estate tax of P538,509.50 was
not paid until 19 December 1991.
 The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of
assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code.
 The basic deficiency tax in this case being P538,509.50, the 25% thereof comes to P134,627.37.
 Section 249 of the Tax Code states that any deficiency in the tax due would be subject to interest at the rate of
twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its
payment until full payment is made. The computation of interest by the CTA -

"Deficiency estate x Interest Rate x Terms

tax 20% per annum 11/2 mo./12 mos
P538,509.50 (11/04/91 to 12/19/91)
 = P13,462.74"7

conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until it is paid.
 The CTA correctly held that the compromise penalty of P20,000.00 could not be imposed on petitioner, a
compromise being, by its nature, mutual in essence.
 The payment made under protest by petitioner could only signify that there was no agreement that had
effectively been reached between the parties.
 Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency
estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the
application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be
paid without delay and often oblivious to contingencies or conditions.
 In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a total of
P148,090.00.
 WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge, interest and
penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and
interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is
hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38

2. CIR VS. PHILIPPINE NATIONAL BANK

G.R. No. 161997 October 25, 2005
FACTS:

 In early April 1991, respondent PNB issued to the BIR P180,000,000.00. The check represented PNB’s advance
income tax payment for the bank’s 1991 operations and was remitted in response to then President Corazon C.
Aquino’s call to generate more revenues for national development. The BIR acknowledged receipt of the amount
by issuing Payment Order and BIR Confirmation Receipt, both dated April 15, 1991.
 Via separate letters to then BIR Commissioner Jose C. Ong, PNB requested the issuance of a tax credit certificate
(TCC) to be utilized against future tax obligations of the bank.
 For the first and second quarters of 1991, PNB also paid additional taxes amounting to P6,096,150.00 and
P26,854,505.80, respectively.
 This final figure, if tacked to PNB’s prior year’s excess tax credit (P1,385,198.30) and the creditable tax withheld
for 1991 (P3,216,267.29), adds up to P217,552,122.38.
 By the end of CY 1991, PNB’s annual income tax liability, per its 1992 annual income tax return, amounted to
P144,253,229.78, which, when compared to its claimed total credits and tax payments of P217,552,122.38,
resulted to a credit balance in its favor in the amount of P73,298,892.60.8
 This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB alleged, was
never applied.
 On July 28, 1997, PNB wrote then BIR Commissioner Liwayway Vinzons-Chato.
 In a letter dated July 26, 2000, PNB sought reconsideration of the decision of Deputy Commissioner Hefti not to
take cognizance of the bank’s claim for tax credit certificate on the ground that the jurisdiction of the Appellate
Division is limited to claims for tax refund and credit "involving erroneous or illegal collection of taxes whenever
there are questions of law and/or facts and does not include claims for refund of advance payment, pursuant to
Revenue Administrative Order No. 7-95."
 In her letter-reply dated August 8, 2008,11 Deputy Commissioner Hefti denied PNB’s request for reconsideration.
 On August 14, 2001, PNB again wrote the BIR requesting that it be allowed to apply its unutilized advance tax
payment of P73,298,892.60 to the bank’s future gross receipts tax liability.
 Replying, the BIR Commissioner denied PNB’s claim for tax credit
 PNB, via a petition for review, appealed the denial action of the BIR Commissioner to the Court of Tax Appeals
(CTA). The Revenue Commissioner filed a motion to dismiss PNB’s aforementioned petition on ground of
prescription under the 1977 National Internal Revenue Code (NIRC).
  The CTA granted the MTD and denied PNB’s petition for review, stating that such refund was not filed within the
2-year prescriptive period and because of this, the court did not have jurisdiction to hear it.
 PNB’s MR was denied.
 PNB filed a petition for review with the Court of Appeals (CA), arguing that the applicability of the two (2)-year
prescriptive period is not jurisdictional and that said rule admits of certain exceptions.
 The CA reversed the CTA’s ruling and remanded it to the CIR for the issuance of the TCC.
 The BIR Commissioner filed an MR which was then denied by the CA.

ISSUE: WON the 2-year prescriptive period under Section 230 (now Sec. 229) of the NIRC is applicable.

RULING: NO
 The request for issuance of a tax credit certificate should NOT be subject to the two (2)-year limitation in Section
230 of the NIRC.

SEC. 230. Recovery of tax erroneously or illegally collected. – No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected , . . , or of any sum, alleged to have been excessive or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two [(2)] years from the date
of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid.
 In rejecting petitioner’s ruling, the CA stated that PNB’s request for issuance of a tax credit certificate on the
balance of its advance income tax payment cannot be treated as a simple case of excess payment as to be
automatically covered by the two (2)-year limitation in Section 230, supra of the NIRC. We agree with the Court
of Appeals.
 Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended
to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully
collected.
 Black defines the term erroneous or illegal tax as one levied without statutory authority.29 In the strict legal
viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax
erroneously or illegally collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180
Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in
the payment. What in effect transpired when PNB wrote its July 28, 1997 letter30 was that respondent sought the
application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-
over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred
income tax liability during that period.
 The instant case ought to be distinguished from a situation where, owing to net losses suffered during a taxable
year, a corporation was also unable to apply to its income tax liability taxes which the law requires to be withheld
and remitted. In the latter instance, such creditable withholding taxes, albeit also legally collected, are in the
nature of "erroneously collected taxes" which entitled the corporate taxpayer to a refund under Section 230 of
the Tax Code.
 In this case, the payments of the withholding taxes for 1979 and 1980 were creditable to the income tax liability,
if any, of petitioner-bank, determined after the filing of the corporate income tax returns on April 15, 1980 and
April 15, 1981.
 As petitioner posted net losses in its 1979 and 1980 returns, it was not liable for any income taxes. Consequently
and clearly, the taxes withheld during the course of the taxable year, while collected legally under the aforecited
revenue regulation, became untenable and took on the nature of erroneously collected taxes at the end of the
taxable year. Analyzing the underlying reason behind the advance payment made by respondent PNB in 1991,
the CA held that it would be improper to treat the same as erroneous, wrongful or illegal payment of tax within
 the meaning of Section 230 of the Tax Code. So that even if the respondent’s inability to carry-over the remaining
amount of its advance payment to taxable years 1992 to 1996 resulted in excess credit, it would be inequitable
to impose the two (2)-year prescriptive period in Section 230 as to bar PNB’s claim for tax credit to utilize the
same for future tax liabilities.
 Additionally, petitioner, citing Revenue Regulation No. 10-77, contends that the carrying forward of any excess or
overpaid income tax for a given taxable year is limited to the succeeding taxable year only. We do not agree.

Revenue Regulation No. 10-77 governs the method of computing corporate quarterly income tax on a
cumulative basis. Section 7 thereof provides:
SEC. 7. Filing of final or adjustment return and final payment of income tax. -- A final or an
adjustment return . . . covering the total taxable income of the corporation for the preceding
calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the
close of the calendar or fiscal year. xxxx. The amount of income tax to be paid shall be the balance
of the total income tax shown on the final or adjustment return after deducting therefrom the
total quarterly income taxes paid during the preceding first three quarters of the same calendar
or fiscal year.
"Any excess of the total quarterly payments over the actual income tax computed and shown in
the adjustment or final corporate income tax return shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the
quarters of the succeeding taxable year. The corporation must signify in its annual corporate
adjustment return its intention whether to request for the refund of the overpaid income or claim
for automatic tax credit to be applied against its income tax liabilities for the quarters of the
succeeding taxable year by filling the appropriate box on the corporate tax return. (B.I.R. Form
No. 1702)
 In Commissioner vs. Phi-am Life, the Court ruled that an availment of a tax credit due for reasons other than the
erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision
in the Tax Code or special laws, that period would be ten (10) years under Article 1144 of the Civil Code.
Significantly, Commissioner vs. Phil-Am is partly a reiteration of a previous holding that even if the two (2)-year
prescriptive period, if applicable, had already lapsed, the same is not jurisdictional36 and may be suspended for
reasons of equity and other special circumstances.
 Like the CA, this Court perceives no compelling reason why the principle enunciated in Panay
Electric andCommissioner vs. Phil-Am Life should not be applied in this case, more so since the amount over which
tax credit is claimed was theoretically booked as advance income tax payment.
 It bears stressing that respondent PNB remitted the P180 Million in question as a measure of goodwill and
patriotism, a gesture noblesse oblige, so to speak, to help the cash-strapped national government. It would thus
indeed, be unfair, as the CA correctly observed, to leave respondent PNB to suffer losing millions of pesos
advanced by it for future tax liabilities.
 The cut becomes all the more painful when it is considered that PNB’s failure to apply the balance of such advance
income tax payment from 1992 to 1996 was, to repeat, due to business downturn experienced by the bank so
that it incurred no tax liability for the period.
 It is likewise settled that to a claimant rests the onus to establish the factual basis of his or her claim for tax credit
or refund.40 In this case, however, petitioner does not dispute that a portion of the P180 Million PNB remitted to
the BIR in 1991 as advance payment remains unutilized for the purpose for which it was intended in the first
place..
 Verily, the suspension of the two (2)-year prescriptive period is warranted not solely by the objective or purpose
pursuant to which respondent PNB made the advance income tax payment in 1991. Records show that
petitioner’s very own conduct led the bank to believe all along that its original intention to apply the advance
payment to its future income tax obligations will be respected by the BIR.
 Notwithstanding respondent PNB’s failure to request for tax credit after incurring negative tax position in 1992,
up to taxable year 1996, there appears to be a valid reason to assume that the agreed carrying forward of the
balance of the advance payment extended to succeeding taxable years, and not only in 1992.
 Thus, upon posting a net income in 1997 and regaining a profitable business operation, respondent bank promptly
sought the issuance of a TCC for the reason that its credit balance of P73, 298,892.60 remained unutilized.
  If ever, petitioner’s pose about respondent PNB never having made a written claim for refund only serves to
buttress the latter’s position that it was not out to secure a refund or recover the aforesaid amount, but for the
BIR to issue a TCC so it can apply the same to its future tax obligations.
 Even as petitioner concluded such administrative investigation, it did not deny the request for issuance of a tax
credit certificate on any factual finding, such as the veracity of alleged business losses in the taxable years 1992
to 1996, during which the respondent bank alleged the credit balance was not applied.
 Lastly, there is no indication that petitioner considered respondent’s request as an ordinary claim for refund, the
very reason why the same was referred by the BIR for processing to the Operations Group of the Bureau.
 Hence, no reversible error was committed by the CA in holding that, upon basic considerations of equity and
fairness, respondent’s request for issuance of a tax credit certificate should NOT be subject to the two (2)-year
limitation in Section 230 of the NIRC.

DISPOSITION: WHEREFORE, the petition is DENIED for lack of merit and the assailed decision and resolution of the Court
of Appeals in CA-G.R. SP No. 76488 AFFIRMED.

3. Commissioner of Internal Revenue v Central Luzon Drug Corporation

G.R. No. 159647
PANGANIBAN, J.:
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

FACTS
 Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical
products.
o In 1996, it operated six (6) drugstores under the business name and style Mercury Drug.
 From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified senior
citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432 and its Implementing Rules
and Regulations.
o the amount allegedly representing the 20% sales discount granted by respondent to qualified senior
citizens totaled P904,769.00.
 On 15 April 1998, respondent filed its 1997 Corporate Annual Income Tax Return reflecting a nil income tax
liability due to net loss incurred from business operations of P2,405,140.00.
 Respondent filed its 1997 Income Tax Return under protest.
 On 19 March 1999, respondent filed with the petitioner a claim for refund or credit of overpaid income tax for
the taxable year 1997 in the amount of P2,660,829.00.
 Respondent alleged that the overpaid tax was the result of the wrongful implementation of RA 7432.
o Respondent treated the 20% sales discount as a deduction from gross sales in compliance with RR 2-94
instead of treating it as a tax credit as provided under Section 4(a) of RA 7432.
 On 6 April 2000, respondent filed a Petition for Review with the CTA in order to toll the running of the two-year
statutory period within which to file a judicial claim.
 Respondent reasoned that RR 2-94, which is a mere implementing administrative regulation, cannot modify,
alter or amend the clear mandate of RA 7432.
o Consequently, Section 2(i) of RR 2-94 is without force and effect for being inconsistent with the law it
seeks to implement.
 In his Answer, petitioner stated that the construction given to a statute by a specialized administrative agency
like the BIR is entitled to great respect and should be accorded great weight.
The Ruling of the Court of Tax Appeals
  On 15 April 2002, the CTA rendered a Decision ordering petitioner to issue a tax credit certificate in the amount
of P2,376,805.63 in favor of respondent.
 The CTA stated that in a number of analogous cases, it has consistently ruled that the 20% senior citizens
discount should be treated as tax credit instead of a mere deduction from gross income.
The Ruling of the Appellate Court

 On 13 August 2003, the Court of Appeals affirmed the CTAs decision in toto.
 Hence, this petition.

ISSUE: Whether or not the 20% sales discount given to a senior citizen be claimed as a tax credit?
RULING:
 Yes, a business owner may claim the sales discount as tax credit despite incurring a net loss.
 The issues presented are not novel. In two similar cases involving the same parties where respondent lodged its
claim for tax credit on the senior citizens discount granted in 1995 and 1996, this Court has squarely ruled that
the 20% senior citizens discount required by RA 7432 may be claimed as a tax credit and not merely a tax
deduction from gross sales or gross income.
 Under RA 7432, Congress granted the tax credit benefit to all covered establishments without conditions.
 The net loss incurred in a taxable year does not preclude the grant of tax credit because by its nature, the tax
credit may still be deducted from a future, not a present, tax liability.
 However, the senior citizens discount granted as a tax credit cannot be refunded.
 In Commissioner of Internal Revenue v. Central Luzon Drug Corporation, 456 SCRA 414 (2005), the Court ruled
that petitioners definition in RR 2-94 of a tax credit is clearly erroneous.
 To deny the tax credit, despite the plain mandate of the law, is indefensible. In Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, 456 SCRA 414 (2005), the Court declared, When the law says that
the cost of the discount may be claimed as a tax credit, it means that the amount when claimed―shall be
treated as a reduction from any tax liability, plain and simple.
 The Court further stated that the law cannot be amended by a mere regulation because administrative agencies
in issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot
engraft additional requirements not contemplated by the legislature.
 Hence, there being a dichotomy in the law and the revenue regulation, the definition provided in Section 2(i) of
RR 2- 94 cannot be given effect.

ISSUE: Whether or not if the business incurs a net loss, the tax credit may be availed and carried over the next taxable
year?
RULING:
 Yes. It may be claimed or availed the next taxable year.
 In Commissioner of Internal Revenue v. Central Luzon Drug Corporation, 456 SCRA 414 (2005), the Court
stressed that prior payment of tax liability is not a pre-condition before a taxable entity can avail of the tax
credit.
 The Court declared, where there is no tax liability or where a private establishment reports a net loss for the
period, the tax credit can be availed of and carried over to the next taxable year.
 It is irrefutable that under RA 7432, Congress has granted the tax credit benefit to all covered establishments
without conditions.
 Therefore, neither a tax liability nor a prior tax payment is required for the existence or grant of a tax credit.
 The applicable law on this point is clear and without any qualifications.

ISSUE: Whether or not the 20% discount should be treated as a tax deduction as according to RA9257?
RULING:
  Yes. It according to the new law it should be treated as a tax deduction. (CHECK NOTES)
 Contrary to the provision in RA 7432 where the senior citizens discount granted by all covered establishments
can be claimed as tax credit, RA 9257 now specifically provides that this discount should be treated as tax
deduction.
 With the effectivity of RA 9257 on 21 March 2004, there is now a new tax treatment for senior citizens discount
granted by all covered establishments.
 This discount should be considered as a deductible expense from gross income and no longer as tax credit.
 The present case, however, covers the taxable year 1997 and is thus governed by the old law, RA 7432.

DISPOSITIVE PORTION: WHEREFORE, we DENY the petition. We AFFIRM the assailed Decision of the Court of Appeals
dated 13 August 2003 in CA-G.R. SP No. 70480.

NOTES:

RA 9257 now specifically provides that all covered establishments

may claim the senior citizens discount as tax deduction.

On 26 February 2004, RA 9257, otherwise known as the Expanded Senior Citizens Act of 2003, was signed into law and
became effective on 21 March 2004.[31]

RA 9257 has amended RA 7432. Section 4(a) of RA 9257 reads:

Sec. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and
burial services for the death of senior citizens;

xxx

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on
the net cost of the goods sold or services rendered: Provided, 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, as amended. (Emphasis supplied)

4. SILKAIR (SINGAPORE) PTE, LTD., vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 173594 February 6, 2008

FACTS:
• Petitioner, Silkair, a corporation organized under the laws of Singapore which has a Philippine representative office, is
an online international air carrier operating the Singapore-Cebu-Davao-Singapore, Singapore-Davao-Cebu-Singapore,
and Singapore-Cebu-Singapore routes.

• On December 19, 2001, Silkair filed with the BIR a written application for the refund of P4,567,450.79 excise taxes it
claimed to have paid on its purchases of jet fuel from Petron Corporation from January to June 2000.

• As the BIR had not yet acted on the application as of December 26, 2001, Silkair filed a Petition for Review before the
CTA.

• Opposing the petition, respondent CIR alleged in his Answer that, among other things: Petitioner failed to prove that
the sale of the petroleum products was directly made from a domestic oil company to the international carrier. The
excise tax on petroleum products is the direct liability of the manufacturer/producer, and when added to the cost of
the goods sold to the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain the article.

• The Second Division of the CTA denied Silkair’s petition on the ground that as the excise tax was imposed on Petron
Corporation as the manufacturer of petroleum products, any claim for refund should be filed by the latter; and where
the burden of tax is shifted to the purchaser, the amount passed on to it is no longer a tax but becomes an added cost
of the goods purchased.

• Silkair filed a Motion for Reconsideration during the pendency of which or on September 12, 2005 the Bengzon Law Firm
entered its appearance as counsel, without Silkair’s then-counsel of record (Jimenez Gonzales Liwanag Bello Valdez
Caluya & Fernandez or "JGLaw") having withdrawn as such.

• By Resolution of September 22, 2005, the CTA Second Division denied Silkair’s motion for reconsideration.

• On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of Withdrawal of Appearance. On even date,
Silkair, through the Bengzon Law Firm, filed a Manifestation/Motion stating:

• Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG BELLO VALDEZ CALUYA & FERNANDEZ
(JGLaw).

• 1. On 24 August 2005, petitioner served notice to JGLaw of its decision to cease all legal representation handled by
the latter on behalf of the petitioner. Petitioner also requested JGLaw to make arrangements for the transfer of all
files relating to its legal representation on behalf of petitioner to the undersigned counsel. x x x

• 2. The undersigned counsel was engaged to act as counsel for the petitioner in the above-entitled case; and thus,
filed its entry of appearance on 12 September 2005. x x x

• 3. The undersigned counsel, through petitioner, has received information that the Honorable Court promulgated a
Resolution on petitioner’s Motion for Reconsideration. To date, the undersigned counsel has yet to receive an official
copy of the above-mentioned Resolution. In light of the foregoing, undersigned counsel hereby respectfully requests
for an official copy of the Honorable Court’s Resolution on petitioner’s Motion for Reconsideration x x x.

• On October 14, 2005, the Bengzon Law Firm received its requested copy of the September 22, 2005 CTA Second
Division Resolution. Thirty-seven days later or on October 28, 2005, Silkair, through said counsel, filed a Motion for
Extension of Time to File Petition for Review before the CTA En Banc which gave it until November 14, 2005 to file a
petition for review.
• On November 11, 2005, Silkair filed another Motion for Extension of Time.On even date, the Bengzon Law Firm informed
the CTA of its withdrawal of appearance as counsel for Silkair with the information, that Silkair would continue to be
represented by Atty. Teodoro A. Pastrana, who used to be with the firm but who had become a partner of the Pastrana
and Fallar Law Offices.

• The CTA En Banc granted Silkair’s second Motion for Extension of Time, giving Silkair until November 24, 2005 to file its
petition for review. On November 17, 2005, Silkair filed its Petition for Review before the CTA En Banc.

• By Resolution of May 19,2006, the CTA En Banc dismissed Silkair’s petition for review for having been filed out of time
in this wise:

• A petitioner is given a period of fifteen (15) days from notice of award, judgment, final order or resolution, or denial
of motion for new trial or reconsideration to appeal to the proper forum, in this case, the CTA En Banc. This is clear
from both Section 11 and Section 9 of Republic Act No. 9282 x x x.

• xxxx

• The petitioner, through its counsel of record Jimenez, Gonzalez, L[iwanag], Bello, Valdez, Caluya & Fernandez Law
Offices, received the Resolution dated September 22, 2005 on October 3, 2005. At that time, the petitioner had two
counsels of record, namely, Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices and The
Bengzon Law Firm which filed its Entry of Appearance on September 12, 2005. However, as of said date, Atty. Mary
Jane B. Austria-Delgado of Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices was still
the counsel of record considering that the Notice of Withdrawal of Appearance signed by Atty. Mary Jane B.
Austria-Delgado was filed only on October 13, 2005 or ten (10) days after receipt of the September 22, 2005
Resolution of the Court’s Second Division. This notwithstanding, Section 2 of Rule 13 of the Rules of Court provides
that if any party has appeared by counsel, service upon him shall be made upon his counsel or one of them, unless
service upon the party himself is ordered by the Court. Where a party is represented by more than one counsel of
record, "notice to any one of the several counsel on record is equivalent to notice to all the counsel (Damasco vs.
Arrieta, et. al., 7 SCRA 224)." Considering that petitioner, through its counsel of record, had received the September
22, 2005 Resolution as early as October 3, 2005, it had only until October 18, 2005 within which to file its Petition
for Review. Petitioner only managed to file the Petition for Review with the Court En Banc on November 17, 2005
or [after] thirty (30) days had lapsed from the final date of October 18, 2005 to appeal.

• The argument that it requested Motions for Extension of Time on October 28, 2005 or ten (10) days from the appeal
period and the second Motion for Extension of Time to file its Petition for Review on November 11, 2005 and its
allowance by the CTA En Banc notwithstanding, the questioned Decision is no longer appealable for failure to timely file
the necessary Petition for Review.19 (Emphasis in the original)

• In a Separate Concurring Opinion, CTA Associate Justice Juanito C. Castañeda, Jr. posited that Silkair is not the proper
party to claim the tax refund.

• Silkair filed a Motion for Reconsideration which the CTA En Banc denied.

• Hence, the present Petition for Review which raises the following issues:

ISSUE 1: WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE HONORABLE COURT OF TAX APPEALS EN BANC
WAS TIMELY FILED.

RULING: YES.
• Under the circumstances, December 9, 1974 is the controlling date of receipt by petitioners’ counsel and from which
the period of appeal from the Order of November 19, 1974 should be reckoned. That being the case, petitioner’s x x x
appeal filed on January 4, 1975 was timely filed.

• In any event, more recent jurisprudence holds that in case of failure to comply with the procedure established by Section
26, Rule 138 of the Rules of Court re the withdrawal of a lawyer as a counsel in a case, the attorney of record is regarded
as the counsel who should be served with copies of the judgments, orders and pleadings.Thus, where no notice of
withdrawal or substitution of counsel has been shown, notice to counsel of record is, for all purposes, notice to the
client. The court cannot be expected to itself ascertain whether the counsel of record has been changed.

APPLICATION:

• In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance on October 13, 200535 after the Bengzon Law Firm
had entered its appearance. While Silkair claims it dismissed JGLaw as its counsel as early as August 24, 2005, the same
was communicated to the CTA only on October 13, 2005.36 Thus, JGLaw was still Silkair’s counsel of record as of October
3, 2005 when a copy of the September 22, 2005 resolution of the CTA Second Division was served on it. The service upon
JGLaw on October 3, 2005 of the September 22, 2005 resolution of CTA Second Division was, therefore, for all legal
intents and purposes, service to Silkair, and the CTA correctly reckoned the period of appeal from such date

ISSUE II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM, WHETHER OR NOT PETITIONER SHOULD
BE DEPRIVED OF ITS RIGHT TO APPEAL ON THE BASIS OF TECHNICALITY.

RULING: TECHNICALITY ASIDE, on the merits, the petition just the same fails.

• Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 which reads

• Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. – Petroleum products
sold to the following are exempt from excise tax:

• xxxx

• (b) Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use
and consumption: Provided, however, That the country of said foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; x x x

• x x x x,

• and Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the
Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads:

• Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the
territory of one Contracting party by, or on behalf of, a designated airline of the other Contracting Party and intended
solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service
performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the
territories of the first Contracting Party , even when these supplies are to be used on the parts of the journey
performed over the territory of the Contracting Party in which they are introduced into or taken on board. The
materials referred to above may be required to be kept under customs supervision and control.
• ISSUE III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD THAT THE FILING OF THE PETITITON FOR
REVIEW WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY, WHETHER OR NOT THE PETITIONER
IS THE PROPER PARTY TO CLAIM FOR REFUND OR TAX CREDIT.

RULING:

• The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax
is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation,
not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore.

• Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel
is not a tax but part of the price which Silkair had to pay as a purchaser.

• In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,41 this Court clarified the ruling
in Maceda v. Macaraig, Jr., viz:

• It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from "all taxes" granted to the National
Power Corporation (NPC) under its charter includes both direct and indirect taxes. But far from providing PLDT
comfort, Maceda in fact supports the case of herein petitioner, the correct lesson of Macedabeing that an exemption
from "all taxes" excludes indirect taxes, unless the exempting statute, like NPC’s charter, is so couched as to include
indirect tax from the exemption. Wrote the Court:

• x x x However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption.
Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both
direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPC’s amended
charter] amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties[,] fees…"

• The use of the phrase "all forms" of taxes demonstrates the intention of the law to give NPC all the tax exemptions it
has been enjoying before…

• xxxx

• It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of
taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in the original;
emphasis supplied)

• The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes.
Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority, 43 and if an exemption is found to exist, it must not be enlarged by construction.

DISPOSITIVE PORTION: WHEREFORE, the petition is DENIED. Costs against petitioner. SO ORDERED.
5. Commissioner of Internal Revenue (CIR) vs. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008
[Solutio Indebiti]
Ponente: Tinga, J.
Nature of the Case: This case is a petition for review on certiorari of the decision and resolution of the Court of Appeals
(CA).
After much wrangling in the CTA and the CA, Fortune Tobacco Corporation (Fortune Tobacco) was granted a tax refund
or tax credit representing specific taxes erroneously collected from its tobacco products. However, in this case, the tax
refund is being re-claimed by the CIR.

FACTS:
 Fortune Tobacco Corporation (respondent) is a domestic corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines
Brand Tax Rate
o With principal address at Fortune Avenue, Parang, Marikina City
Champion M 100 P1.00
 Respondent is the manufacturer/producer of, among others,
Salem M 100
 P1.00
the following cigarette brands, with tax rate classification based
on Salem M King P1.00 net retail price (prescribed by Annex “D” to R.A. No. 4280):
Camel F King P1.00
Camel Lights Box 20’s P1.00
Camel Filters Box 20’s P1.00
Winston F Kings P5.00
Winston Lights P5.00

 Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax
pursuant to then Section 142 of the Tax Code of 1977, as amended.
 However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT) system
to the specific tax system was made and subjecting the aforesaid cigarette brands to specific tax under Section
142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997.
 Section 145 provides, among others, that:
o The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be
increased by twelve percent (12%) on January 1, 2000.
 To implement the provisions for a 12% increase of excise tax on, among others, cigars and cigarettes packed by
machines by January 1, 2000, the Secretary of Finance, upon recommendation of petitioner CIR, issued Revenue
Regulations No. 17-99
o RR No. 17-99 likewise provides in the last paragraph of Section 1 thereof, “that the new specific tax rate
for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.”
 For the period covering January 1-31, 2000, respondent allegedly paid specific taxes on all brands manufactured
and removed in the total amounts of P585,705,250.00
 On February 7, 2000, respondent filed with petitioner CIR’s Appellate Division a claim for refund or tax credit of
its purportedly overpaid excise tax for the month of January 2000 in the amount of P35,651,410.00
 On June 21, 2001, respondent filed with petitioner’s Legal Service a letter dated June 20, 2001 reiterating all the
claims for refund/tax credit of its overpaid excise taxes filed on various dates, including the present claim for
the month of January 2000 in the amount of P35,651,410.00
 As there was no action on the part of petitioner, respondent filed the instant petition for review with the CA on
December 11, 2001, in order to comply with the two-year period for filing a claim for refund.

 Petitioner CIR’s Special and Affirmative Defenses:

o The alleged claim for refund is subject to administrative routinary investigation/examination by the
Bureau;
o The amount of P35,651,410 being claimed by petitioner as alleged overpaid excise tax for the month of
January 2000 was not properly documented;
o In an action for tax refund, the burden of proof is on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to its claim for refund/credit
o Respondent must show that it has complied with the provisions of Section 204(C) in relation to Section
229 of the Tax Code on the prescriptive period for claiming tax refund/credit;
o Claims for refund are construed strictly against the claimant for the same partake of tax exemption from
taxation; and
o The last paragraph of Section 1 of Revenue Regulations No. 17-99 is a valid implementing regulation
which has the force and effect of law
 CIR was ordered to refund to the respondent corporation the amount of P35,651.410.00 representing
erroneously paid excise taxes for the period January 1 to January 31, 2000.

 In a related case filed, it contains essentially similar facts, except that said case questions the CTA’s decision
granting respondent’s claim for refund of the amount of P355,385,920.00 representing erroneously or illegally
collected specific taxes covering the period January 1, 2002 to December 31, 2002, as well as its Resolution
denying a reconsideration thereof.

 CIR appealed the decisions of the CTA to the CA

o Questioning the grant of refund in the amount of P680,387,025.00 and P355,385,920.00
o But, denied by CA
o Also denied reconsideration
 In a Memorandum filed on behalf of CIR, the OSG seeks to convince the Court that the literal interpretation
given by the CTA and the Court of Appeals of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a
lower tax imposable on 1 January 2000 than that imposable during the transition period.
o Instead of an increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated by the
Tax Code, the appellate court’s ruling would result in a significant decrease in the tax rate by as much as
66%.
 Finally, OSG asserts that that a tax refund is in the nature of a tax exemption and must, therefore, be
construed strictly against the taxpayer, such as Fortune Tobacco.

 It should be mentioned that at the outset:

o There is no dispute between the fact of payment of the taxes sought to be refunded and the receipt
thereof by the BIR.
o There is also no question about the mathematical accuracy of Fortune Tobacco’s claim since the
documentary evidence in support of the refund has not been controverted by the revenue agency.
o The claims have been made and the actions have been filed within the two (2)-year prescriptive period
provided under Section 229 of the Tax Code.
(In relation to topic on TAX REFUND, i.e. Solutio Indebiti)
ISSUE: Whether the CIR’s contention that a tax refund partakes the nature of a tax exemption applicable in this case.
RULING:
 No. The CIR’s contention that a tax refund partakes the nature of a tax exemption does not apply to the tax
refund to which Fortune Tobacco is entitled.
 There is parity between tax refund and tax exemption only when the former is based either on a tax exemption
statute or a tax refund statute.
o Obviously, that is not the situation here.
 Quite the contrary, Fortune Tobacco’s claim for refund is premised on its erroneous payment of the tax, or
better still the government’s exaction in the absence of a law.
 Tax exemption is a result of legislative grace.
o And he who claims an exemption from the burden of taxation must justify his claim by showing that the
legislature intended to exempt him by words too plain to be mistaken.
o The rule is that tax exemptions must be strictly construed such that the exemption will not be held to be
conferred unless the terms under which it is granted clearly and distinctly show that such was the
intention
 A claim for tax refund may be based on statutes granting tax exemption or tax refund.
 In such case, the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of
the nature of an exemption, a legislative grace, which cannot be allowed unless granted in the most explicit and
categorical language.
 The taxpayer must show that the legislature intended to exempt him from the tax by words too plain to be
mistaken
 TAX REFUNDS (or TAX CREDITS), on the other hand, are not founded principally on legislative grace but on the
legal principle which underlies all quasi-contracts abhorring a person’s unjust enrichment at the expense of
another.
 The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti, which
covers not only mistake in fact but also mistake in law.

Related ISSUE: Is the Government exempt from the application of solutio indebiti?
RULING:
 No. The Government is not exempt from the application of solutio indebiti.
 Indeed, the taxpayer expects fair dealing from the Government, and the latter has the duty to refund without
any unreasonable delay what it has erroneously collected.
 If the State expects its taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against
the same standard in refunding excess (or erroneous) payments of such taxes.
 It should not unjustly enrich itself at the expense of taxpayers.
 And so, given its essence, a claim for tax refund necessitates only preponderance of evidence for its
approbation like in any other ordinary civil case.
 Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract principle, a claim for tax
refund may be based on the following:
(a) Erroneously or illegally assessed or collected internal revenue taxes;
(b) Penalties imposed without authority; and
(c) Any sum alleged to have been excessive or in any manner wrongfully collected

Application:
 In this case, what is controlling is the well-settled doctrine of strict interpretation in the imposition of taxes, not
the similar doctrine as applied to tax exemptions.
  The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does
so clearly, expressly, and unambiguously.
 A tax cannot be imposed without clear and express words for that purpose.
 Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar
strictness to tax laws and the provisions of a taxing act are not to be extended by implication.
 In answering the question of who is subject to tax statutes, it is basic that in case of doubt, such statutes are to
be construed most strongly against the government and in favor of the subjects or citizens because burdens are
not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import.
 As burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax laws.

MAIN ISSUE: Whether Revenue Regulation No. 17-99 has exceeded the allowable limits of legislative delegation.
RULING:
 Yes. RR No. 17-99 has exceeded the allowable limits of legislative delegation.
 RR No. 17-99 was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules
and regulations for the effective implementation of the Tax Code
o The table provided by the RR reflects Section 145 of the Tax Code insofar as it mandates a 12% increase
effective on 1 January 2000 based on the taxes indicated under paragraph C, subparagraph (1)-(4).
 However, RR No. 17-99 went further and added that “The new specific tax rate for any existing brand of cigars,
cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000.”
 Parenthetically, Section 145 states that during the transition period, i.e., within the next three (3) years from the
effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from
each brand on 1 October 1996.
o This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied
on cigars and cigarettes packed by machine, among others, effective on 1 January 2000.
 Clearly and unmistakably, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due
to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from
this period may turn out to be lower than that collected prior to this date.
 By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the
tax actually paid prior to 1 January 2000, RR No. 17-99 effectively imposes a tax which is the higher amount
between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax
under paragraph C, subparagraph (1)-(4), as increased by 12% - a situation not supported by the plain wording of
Section 145 of the Tax Code.

 As this Court has previously declared, rule-making power must be confined to details for regulating the mode or
proceedings in order to carry into effect the law as it has been enacted, and it cannot be extended to amend or
expand the statutory requirements or to embrace matters not covered by the statute.
 Administrative regulations must always be in harmony with the provisions of the law because any resulting
discrepancy between the two will always be resolved in favor of the basic law

Application:
 In this case, the OSG’s argument that by 1 January 2000, the excise tax on cigarettes should be the higher tax
imposed under the specific tax system and the tax imposed under the ad valorem tax system plus the 12%
increase imposed by paragraph 5, Section 145 of the Tax Code, is an unsuccessful attempt to justify what is
clearly an impermissible incursion into the limits of administrative legislation.
 Such an interpretation is not supported by the clear language of the law and is obviously only meant to validate
the OSG’s thesis that Section 145 of the Tax Code is ambiguous and admits of several interpretations.
 The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands of cigarettes
listed under Annex “D” is likewise unmeritorious, absurd even.
 o Paragraph 8, Section 145 of the Tax Code simply states that, “The classification of each brand of
cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex ‘D,’ shall
remain in force until revised by Congress.
 This declaration certainly does not lend itself to the interpretation given to it by the OSG.
 As plainly worded, the average net retail prices of the listed brands under Annex “D,” which classify cigarettes
according to their net retail price into low, medium or high, obviously remain the bases for the application of
the increase in excise tax rates effective on 1 January 2000.

 The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly flawed.
 The CIR cannot seek refuge in his claim that the purpose behind the passage of the Tax Code is to generate
additional revenues for the government.
 Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code.
 However, as borne by the legislative record, the shift from the ad valorem system to the specific tax system is
likewise meant:
o To promote fair competition among the players in the industries concerned,
o To ensure an equitable distribution of the tax burden and
o To simplify tax administration by classifying cigarettes, among others, into high, medium and low-priced
based on their net retail price and accordingly graduating tax rates
 At any rate, this advertence to the legislative record is merely gratuitous because, as we have held, the meaning
of the law is clear on its face and free from the ambiguities that the Commissioner imputes.
o We simply cannot disregard the letter of the law on the pretext of pursuing its spirit.

Disposition: Petition denied. Affirmed the decision and resolution of the CA.

Note:
Re: Power to Tax
 The power to tax is inherent in the State, such power being inherently legislative, based on the principle that
taxes are a grant of the people who are taxed, and the grant must be made by the immediate representatives of
the people; and where the people have laid the power, there it must remain and be exercised.

6. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. FAR EAST BANK & TRUST COMPANY (NOW BANK OF THE
PHILIPPINE ISLANDS), respondent. (REQUISITES)
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
DEL CASTILLO, J.: Entitlement to a tax refund is for the taxpayer to prove and not for the government to disprove.
FACTS:
 On April 10, 1995, respondent filed with BIR two Corporate Annual Income Tax Returns, one for its Corporate
Banking Unit (CBU) and another for its Foreign Currency Deposit Unit (FCDU), for the taxable year ending
December 31, 1994.
 The return for the CBU consolidated the respondent’s overall income tax liability for 1994, which reflected a
refundable income tax of P12,682,864.00,
 Pursuant to Section 697 of the old National Internal Revenue Code (NIRC), the amount of P12,682,864.00 was
carried over and applied against respondent’s income tax liability for the taxable year ending December 31, 1995.
 On April 15, 1996, respondent filed its 1995 Annual Income Tax Return, which showed a total overpaid income tax
in the amount of P17,443,133.00.
  Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be refunded by respondent.
 As to the remaining P3,798,024.00, respondent opted to carry it over to the next taxable year.
 On May 17, 1996, respondent filed a claim for refund of the amount of P13,645,109.00 with the BIR.
 Due to the failure of petitioner CIR to act on the claim for refund, respondent was compelled to bring the matter
to the CTA on April 8, 1997 via a Petition for Review.
 CTA rendered a Decision denying respondent’s claim for refund on the ground that respondent failed to show that
the income derived from rentals and sale of real property from which the taxes were withheld were reflected in
its 1994 Annual Income Tax Return.
 Respondent filed a Motion for New Trial based on excusable negligence. It prayed that it be allowed to present
additional evidence to support its claim for refund.
 CTA denied the motion.
 On appeal, the CA reversed the Decision of the CTA.
o It found that respondent has duly proven that the income derived from rentals and sale of real property
upon which the taxes were withheld were included in the return as part of the gross income.
ISSUE: Whether or not respondent has proven its entitlement to the refund.
RULING: NO
 We find that the respondent miserably failed to prove its entitlement to the refund. Therefore, we grant the
petition filed by the petitioner CIR for being meritorious.
 A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following
requisites: 1) The claim must be filed with the CIR within the two-year period from the date of payment of the
tax; 2) It must be shown on the return that the income received was declared as part of the gross income; and 3)
The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee
showing the amount paid and the amount of the tax withheld.
 The two-year period requirement is based on Section 229 of the NIRC of 1997 which provides that: “SECTION 229.
Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have
been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. (Formerly Section 230 of the old NIRC)”
 While the second and third requirements are found under Section 10 of Revenue Regulation No. 6-85, as
amended, which reads: “Section 10. Claims for tax credit or refund. – Claims for tax credit or refund of income
tax deducted and withheld on income payments shall be given due course only when it is shown on the return
that the income payment received was declared as part of the gross income and the fact of withholding is
established by a copy of the statement duly issued by the payer to the payee (BIR Form No. 1743.1) showing the
amount paid and the amount of tax withheld therefrom.”
 There is no dispute that respondent complied with the first requirement. The filing of respondent’s administrative
claim for refund on May 17, 1996 and judicial claim for refund on April 8, 1997 were well within the two-year
period from the date of the filing of the return on April 10, 1995.
 However, as to the second and third requirements, the tax court and the appellate court arrived at different
factual findings.
o CTA ruled that the income derived from rentals and sales of real property were not included in
respondent’s gross income. It noted that in respondent’s 1994 Annual Income Tax Return, the phrase
“NOT APPLICABLE” was printed on the space provided for rent, sale of real property and trust income.
 The CTA also declared that the certifications issued by respondent cannot be considered in the absence
of the Certificates of Creditable Tax Withheld at Source.
o CA found that in the case of Citibank, N.A. vs. Court of Appeals (280 SCRA 459), the Supreme Court held
that: “a refund claimant is required to prove the inclusion of the income payments which were the basis
of the withholding taxes and the fact of withholding. However, a detailed proof of the truthfulness of each
and every item in the income tax return is not required. x x x x x x The grant of a refund is founded on the
assumption that the tax return is valid; that is, the facts stated therein are true and correct. x x x”
 Between the decision of the CTA and the CA, it is the former’s that is based on the evidence and in accordance
with the applicable law and jurisprudence.
 To establish the fact of withholding, respondent submitted Certificates of Creditable Tax Withheld at Source and
Monthly Remittance Returns of Income Taxes Withheld, which pertain to rentals and sales of real property,
respectively. However, a perusal of respondent’s 1994 Annual Income Tax Return shows that the gross income
was derived solely from sales of services. In fact, the phrase “NOT APPLICABLE” was printed on the schedules
pertaining to rent, sale of real property, and trust income.
 Thus, based on the entries in the return, the income derived from rentals and sales of real property upon which
the creditable taxes were withheld were not included in respondent’s gross income as reflected in its return.
Since no income was reported, it follows that no tax was withheld. To reiterate, it is incumbent upon the taxpayer
to reflect in his return the income upon which any creditable tax is required to be withheld at the source.
 Respondent’s explanation that its income derived from rentals and sales of real properties were included in the
gross income but were classified as “Other Earnings” in its Schedule of Income attached to the return is not
supported by the evidence.
 There is nothing in the Schedule of Income to show that the income under the heading “Other Earnings” includes
income from rentals and sales of real property. No documentary or testimonial evidence was presented by
respondent to prove this. In fact, respondent, upon realizing its omission, filed a motion for new trial on the ground
of excusable negligence with the CTA. Respondent knew that it had to present additional evidence showing the
breakdown of the “Other Earnings” reported in its Schedule of Income attached to the return to prove that the
income from rentals and sales of real property were actually included under the heading „Other Earnings.‰19
 Unfortunately, the CTA was not convinced that there was excusable negligence to justify the granting of a new
trial. Accordingly, the CA erred in ruling that respondent complied with the second requirement.
ISSUE 2: Whether or not the inaction of the Commissioner automatically entitles the Bank to a refund.
RULING 2: NO
 The fact that the petitioner failed to present any evidence or to refute the evidence presented by respondent
does not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a
taxpayer’s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the
taxpayer.
 And while the petitioner has the power to make an examination of the returns and to assess the correct amount
of tax, his failure to exercise such powers does not create a presumption in favor of the correctness of the returns.
The taxpayer must still present substantial evidence to prove his claim for refund. As we have said, there is no
automatic grant of a tax refund.
 Hence, for failing to prove its entitlement to a tax refund, respondent’s claim must be denied. Since tax refunds
partake of the nature of tax exemptions, which are construed strictissimi juris against the taxpayer, evidence in
support of a claim must likewise be strictissimi scrutinized and duly proven
DISPOSITIVE: WHEREFORE, the petition is GRANTED. The assailed January 31, 2006 Decision of the Court of Appeals in
CAG.R. SP No. 56773 and its July 19, 2006 Resolution are REVERSED and SET ASIDE. The October 4, 1999 Decision of the
Court of Tax Appeals denying respondent’s claim for tax refund for failure to prove that the income derived from rentals
and sale of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return, is
REINSTATED and AFFIRMED. SO ORDERED.
NOTES:
  Respondent failed to present all the Certificates of Creditable Tax Withheld at Source.
 The CA likewise failed to consider in its Decision the absence of several Certificates of Creditable Tax Withheld at
Source. It immediately granted the refund without first verifying whether the fact of withholding was established
by the Certificates of Creditable Tax Withheld at Source as required under Section 10 of Revenue Regulation No.
6-85. As correctly pointed out by the CTA, the certifications (Exhibit UU) issued by respondent cannot be
considered in the absence of the required Certificates of Creditable Tax Withheld at Source.

7. COMMISSIONER OF INTERNAL REVENUE vs. SMART COMMUNICATION, INC – Withholding agent can file claim

Facts:
 The right of a withholding agent to claim a refund of erroneously or illegally withheld taxes comes with the
responsibility to return the same to the principal taxpayer
 On May 25, 2001, respondent Smart entered into three Agreements for Programming and Consultancy Services
with Prism Transactive (M) Sdn. Bhd. (Prism), a non-resident corporation duly organized and existing under the
laws of Malaysia. Under the agreements, Prism was to provide programming and consultancy services for the
installation of the Service Download Manager (SDM) and the Channel Manager (CM), and for the installation and
implementation of Smart Money and Mobile Banking Service SIM Applications (SIM Applications) and Private Text
Platform (SIM Application).
 On June 25, 2001, Prism billed respondent in the amount of US$547,822.45, broken down as follows:
o SDM Agreement US$236,000.00
o CM Agreement 296,000.00
o SIM Application Agreement 15,822.45
o Total US$547,822.45
 Thinking that these payments constitute royalties, respondent withheld the amount of US$136,955.61 or
P7,008,840.43, representing the 25% royalty tax under the RP-Malaysia Tax Treaty
 On September 25, 2001, respondent filed its Monthly Remittance Return of Final Income Taxes Withheld (BIR
Form No. 1601-F) for the month of August 2001.
 On September 24, 2003, or within the two-year period to claim a refund, respondent filed with the Bureau of
Internal Revenue (BIR), through the International Tax Affairs Division (ITAD), an administrative claim for refund of
the amount of P7,008,840.43
 Proceedings before the CTA Second Division
o Due to the failure of the petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund,
respondent filed a Petition for Review with the CTA
o In its Petition for Review, respondent claimed that it is entitled to a refund because the payments made
to Prism are not royalties but business profits, pursuant to the definition of royalties under the RP-
Malaysia Tax Treaty, and in view of the pertinent Commentaries of the Organization for Economic
Cooperation and Development (OECD) Committee on Fiscal Affairs through the Technical Advisory Group
on Treaty Characterization of Electronic Commerce Payments. Respondent further averred that since
under Article 7 of the RP-Malaysia Tax Treaty, business profits are taxable in the Philippines only if
attributable to a permanent establishment in the Philippines, the payments made to Prism, a Malaysian
company with no permanent establishment in the Philippines, should not be taxed
o On December 1, 2003, petitioner filed his Answer arguing that respondent, as withholding agent, is not a
party-in-interest to file the claim for refund, and that assuming for the sake of argument that it is the
proper party, there is no showing that the payments made to Prism constitute business profits.
 Ruling of the CTA Second Division
o The CTA upheld respondents right, as a withholding agent, to file the claim for refund
o However, as to the claim for refund, the Second Division found respondent entitled only to a partial
refund. Although it agreed with respondent that the payments for the CM and SIM Application
Agreements are business profits, and therefore, not subject to tax under the RP-Malaysia Tax Treaty, the
 Second Division found the payment for the SDM Agreement a royalty subject to withholding tax.
Accordingly, respondent was granted refund in the amount of P3,989,456.43
 Both parties moved for partial reconsideration but the CTA Second Division denied the motion
 On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial refund granted to respondent.

Main Issue:
Does respondent have the right to file the claim for refund?

Ruling:
 YES
 Petitioners Arguments
o Petitioner contends that the cases relied upon by the CTA in upholding respondents right to claim the
refund are inapplicable since the withholding agents therein are wholly owned subsidiaries of the principal
taxpayers, unlike in the instant case where the withholding agent and the taxpayer are unrelated entities.
Petitioner further claims that since respondent did not file the claim on behalf of Prism, it has no legal
standing to claim the refund. To rule otherwise would result to the unjust enrichment of respondent, who
never shelled-out any amount to pay the royalty taxes. Petitioner, thus, posits that the real party-in-
interest to file a claim for refund of the erroneously withheld taxes is Prism. He cites as basis the case of
Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,[38] where it was ruled that the proper
party to file a refund is the statutory taxpayer.[39] Finally, assuming that respondent is the proper party,
petitioner counters that it is still not entitled to any refund because the payments made to Prism are
taxable as royalties, having been made in consideration for the use of the programs owned by Prism.
 Respondents Arguments
o Respondent, on the other hand, maintains that it is the proper party to file a claim for refund as it has the
statutory and primary responsibility and liability to withhold and remit the taxes to the BIR. It points out
that under the withholding tax system, the agent-payor becomes a payee by fiction of law because the
law makes the agent personally liable for the tax arising from the breach of its duty to withhold. Thus, the
fact that respondent is not in any way related to Prism is immaterial.
o Moreover, respondent asserts that the payments made to Prism do not fall under the definition of
royalties since the agreements are for programming and consultancy services only, wherein Prism
undertakes to perform services for the creation, development or the bringing into existence of software
applications solely for the satisfaction of the peculiar needs and requirements of respondent.
 Withholding agent may file a claim for refund
 Sections 204(c) and 229 of the National Internal Revenue Code (NIRC) provide:
o Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The
Commissioner may
o (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in
his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
o Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or
of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
o In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
 however, That the Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. (Emphasis supplied)
 Pursuant to the foregoing, the person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer
does not file a claim for refund, the withholding agent may file the claim.
 In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation, a withholding
agent was considered a proper party to file a claim for refund of the withheld taxes of its foreign parent company.
o The term taxpayer is defined in our NIRC as referring to any person subject to tax imposed by the Title [on
Tax on Income]. It thus becomes important to note that under Section 53(c)[41] of the NIRC, the
withholding agent who is required to deduct and withhold any tax is made personally liable for such tax
and indeed is indemnified against any claims and demands which the stockholder might wish to make in
questioning the amount of payments effected by the withholding agent in accordance with the provisions
of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount
of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover,
subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax
withheld be finally found to be less than the amount that should have been withheld under law.
o A person liable for tax has been held to be a person subject to tax and properly considered a taxpayer.
The terms liable for tax and subject to tax both connote legal obligation or duty to pay a tax. It is very
difficult, indeed conceptually impossible, to consider a person who is statutorily made liable for tax as
not subject to tax. By any reasonable standard, such a person should be regarded as a party in interest,
or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally
collected from him.
o In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a
withholding agent is in fact the agent both of the government and of the taxpayer, and that the
withholding agent is not an ordinary government agent:
o The law sets no condition for the personal liability of the withholding agent to attach. The reason is to
compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for
the collection of the tax as well as the payment thereof is concentrated upon the person over whom the
Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the
Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the
Governments agent. In regard to the filing of the necessary income tax return and the payment of the tax
to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary
government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty
bound to withhold; whereas the Commissioner and his deputies are not made liable by law.
o If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of
the dividends with respect to the filing of the necessary income tax return and with respect to actual
payment of the tax to the government, such authority may reasonably be held to include the authority to
file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially
warranted where, as in the instant case, the withholding agent is the wholly owned subsidiary of the
parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In
the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to
claim a refund and to commence an action for such refund.
o We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a
taxpayer within the meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund
and the suit to recover such claim.
 Petitioner, however, submits that this ruling applies only when the withholding agent and the taxpayer are related
parties, i.e., where the withholding agent is a wholly owned subsidiary of the taxpayer.
 We do not agree.
 Although such relation between the taxpayer and the withholding agent is a factor that increases the latters legal
interest to file a claim for refund, there is nothing in the decision to suggest that such relationship is required or
that the lack of such relation deprives the withholding agent of the right to file a claim for refund. Rather, what is
clear in the decision is that a withholding agent has a legal right to file a claim for refund for two reasons. First, he
is considered a taxpayer under the NIRC as he is personally liable for the withholding tax as well as for deficiency
 assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the
amount that should have been withheld under law. Second, as an agent of the taxpayer, his authority to file the
necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to
file a claim for refund and to bring an action for recovery of such claim.
 In this connection, it is however significant to add that while the withholding agent has the right to recover the
taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal
taxpayer. As an agent of the taxpayer, it is his duty to return what he has recovered; otherwise, he would be
unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from
whom he derives his legal right to file a claim for refund.
 As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue cited by the petitioner, we find the same
inapplicable as it involves excise taxes, not withholding taxes. In that case, it was ruled that the proper party to
question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by
law and who paid the same even if he shifts the burden thereof to another.
 In view of the foregoing, we find no error on the part of the CTA in upholding respondents right as a withholding
agent to file a claim for refund.

Sub-Issue:
Were the payments made to Prism business profits or royalties?

Ruling:
 The payments for the CM and the SIM Application Agreements constitute business profits
 Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments of any kind received as consideration
for: (i) the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process,
any copyright of literary, artistic or scientific work, or for the use of, or the right to use, industrial, commercial, or
scientific equipment, or for information concerning industrial, commercial or scientific experience; (ii) the use of,
or the right to use, cinematograph films, or tapes for radio or television broadcasting. These are taxed at the rate
of 25% of the gross amount.
 Under the same Treaty, the business profits of an enterprise of a Contracting State is taxable only in that State,
unless the enterprise carries on business in the other Contracting State through a permanent establishment. The
term permanent establishment is defined as a fixed place of business where the enterprise is wholly or partly
carried on. However, even if there is no fixed place of business, an enterprise of a Contracting State is deemed to
have a permanent establishment in the other Contracting State if it carries on supervisory activities in that other
State for more than six months in connection with a construction, installation or assembly project which is being
undertaken in that other State.
 In the instant case, it was established during the trial that Prism does not have a permanent establishment in the
Philippines. Hence, business profits derived from Prisms dealings with respondent are not taxable. The question
is whether the payments made to Prism under the SDM, CM, and SIM Application agreements are business profits
and not royalties.
o Paragraph 1.3 of the Programming Services (Schedule A) of the SDM Agreement, reads:
o 1.3 Intellectual Property Rights (IPR)
o The SDM shall be installed by PRISM, including the SDM Libraries, the IPR of which shall be retained by
PRISM. PRISM, however, shall provide the Client the APIs for the SDM at no cost to the Client. The Client
shall be permitted to develop programs to interface with the SDM or the SDM Libraries, using the related
APIs as appropriate.
 Whereas, paragraph 1.4 of the Programming Services (Schedule A) of the CM Agreement and paragraph 1.3 of the
Programming Services (Schedule A) of the SIM Agreement provide:
o 1.4 Intellectual Property Rights (IPR)
o The IPR of all components of the CM belong to the Client with the exception of the following components,
which are provided, without technical or commercial restraints or obligations
o ConfigurationException.java
o XXX
 o1.3 Intellectual Property Rights (IPR)
oThe Client shall own the IPR for the Specifications and the Source Code for the SIM Applications. PRISM
shall develop an executable compiled code (the Executable Version) of the SIM Applications for use on
the aSIMetric card which, however, shall only be for the Clients use. The Executable Version may not be
provided by PRISM to any third [party] without the prior written consent of the Client. It is further
recognized that the Client anticipates licensing the use of the SIM Applications, but it is agreed that no
license fee will be charged to PRISM or to a licensee of the aSIMetrix card from PRISM when SIMs are
supplied to the Client
 The provisions in the agreements are clear. Prism has intellectual property right over the SDM program, but not
over the CM and SIM Application programs as the proprietary rights of these programs belong to respondent. In
other words, out of the payments made to Prism, only the payment for the SDM program is a royalty subject to a
25% withholding tax. A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM
and SIM Application Agreements is therefore in order.
 Indeed, the government has no right to retain what does not belong to it. No one, not even the State, should
enrich oneself at the expense of another.[53]

Dispositive:
WHEREFORE, the petition is DENIED. The assailed Decision dated June 28, 2007 and the Resolution dated July 31, 2007 of
the Court of Tax Appeals En Banc are hereby AFFIRMED. The Bureau of Internal Revenue is hereby ORDERED to ISSUE a
TAX CREDIT CERTIFICATE to Prism Transactive (M) Sdn. Bhd. in the amount of P3,989,456.43 representing the overpaid
final withholding taxes for the month of August 2001.