Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

193007 July 19, 2011

RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners, vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents. DECISION ABAD, J.: May toll fees collected by tollway operators be subjected to value- added tax? The Facts and the Case Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief1 assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration. Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent opposition of Diaz and other sectors to such move. But, upon President Benigno C. Aquino IIIs assumption of office in 2010, the BIR revived the idea and would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "users tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation of the VAT. The Court required the government, represented by

respondents Cesar V. Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10 days from notice.2 Later, the Court issued another resolution treating the petition as one for prohibition.3 On August 23, 2010 the Office of the Solicitor General filed the governments comment.4 The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.5 The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the nonimpairment clause cannot limit the States sovereign taxing power which is generally read into contracts. Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll fees would have very minimal effect on motorists using the tollways. In their reply6 to the governments comment, petitioners point out that tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises. Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since only the Congress can modify VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be implemented. The Issues Presented The case presents two procedural issues: 1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and 2. Whether or not petitioners Diaz and Timbol have legal standing to file the action. The case also presents two substantive issues:

1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms "franchise grantees" and "sale of services" under Section 108 of the Code; and 2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will impair the tollway operators right to a reasonable return of investment under their TOAs; and c) is not administratively feasible and cannot be implemented. The Courts Rulings A. On the Procedural Issues: On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The government has sought reconsideration of the Courts resolution,7 however, arguing that petitioners allegations clearly made out a case for declaratory relief, an action over which the Court has no original jurisdiction. The government adds, moreover, that the petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the Secretary of Finance. But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good.8 The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority.9 Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more than half a million motorists who use the tollways everyday, but more so on the governments effort to raise revenue for funding various projects and for reducing budgetary deficits. To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the tax-paying public and the government. A belated declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not only the right, but the duty of the Court to take cognizance of and resolve the issues that the petition raises. Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite.10 B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected, according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use or lease of properties. The third paragraph of Section 108 defines "sale or exchange of services" as follows: The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies;services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. (Underscoring supplied) It is plain from the above that the law imposes VAT on "all kinds of services" rendered in the Philippines for a fee, including those specified in the list. The enumeration of affected services is not exclusive.11 By qualifying "services" with the words "all kinds," Congress has given the term "services" an all-encompassing meaning. The listing of specific services are intended to illustrate how pervasive and broad is the VATs reach rather than establish concrete limits to its application. Thus, every activity that can be imagined as a form of "service" rendered for a fee should be deemed included unless some provision of law especially excludes it. Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense. Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights 12 that its contract and the law recognize. In this sense, the tollway operator is no different from the

following service providers under Section 108 who allow others to use their properties or facilities for a fee: 1. Lessors of property, whether personal or real; 2. Warehousing service operators; 3. Lessors or distributors of cinematographic films; 4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; 5. Lending investors (for use of money); 6. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and 7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines. It does not help petitioners cause that Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties." This means that "services" to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds that require the use of human knowledge and skills. And not only do tollway operators come under the broad term "all kinds of services," they also come under the specific class described in Section 108 as "all other franchise grantees" who are subject to VAT, "except those under Section 119 of this Code." Tollway operators are franchise grantees and they do not belong to exceptions (the lowincome radio and/or television broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 11913 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern.14 Petitioners of course contend that tollway operators cannot be considered "franchise grantees" under Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the "franchise grantees" it speaks of are those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between franchises granted by Congress and franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself.15 The term "franchise" has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those

granted by administrative agencies to which the power to grant franchises has been delegated by Congress.16 Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the Philippine National Construction Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under P.D. 1112.17 The franchise in this case is evidenced by a "Toll Operation Certificate."18 Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term "sale of services" under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the collection of tolls or charges for its use or service is a franchise.19 Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional deliberations of the would-be law. As the Court said in South African Airways v. Commissioner of Internal Revenue,20 "statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law." The congressional will is ultimately determined by the language of the law that the lawmakers voted on. Consequently, the meaning and intention of the law must first be sought "in the words of the statute itself, read and considered in their natural, ordinary, commonly accepted and most obvious significations, according to good and approved usage and without resorting to forced or subtle construction." Two. Petitioners argue that a toll fee is a "users tax" and to impose VAT on toll fees is tantamount to taxing a tax.21 Actually, petitioners base this argument on the following discussion in Manila International Airport Authority (MIAA) v. Court of Appeals: 22 No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. x x x The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway

system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads. The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Article 420 of the Civil Code defines property of public dominion as "one intended for public use."Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A users tax is more equitable a principle of taxation mandated in the 1987 Constitution."23 (Underscoring supplied) Petitioners assume that what the Court said above, equating terminal fees to a "users tax" must also pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque City could sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate taxes. Since local governments have no power to tax the national government, the Court held that the City could not proceed with the auction sale. MIAA forms part of the national government although not integrated in the department framework."24 Thus, its airport lands and buildings are properties of public dominion beyond the commerce of man under Article 420(1)25of the Civil Code and could not be sold at public auction. As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that tollway fees are users tax, but to make the point that airport lands and buildings are properties of public dominion and that the collection of terminal fees for their use does not make them private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the government. It would of course be another matter if Congress enacts a law imposing a users tax, collectible from motorists, for the construction and maintenance of certain roadways. The tax in such a case goes directly to the government for the replenishment of resources it spends for the roadways. This is not the case here. What the government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for expressways.26 Except for a fraction given to the government, the toll fees essentially end up as earnings of the tollway operators. In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures.27 Toll fees, on the other hand, are

collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.28 Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the sellers liability but merely the burden of the VAT. 29 Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax30 and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service. Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, 31 VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees. For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "users tax." VAT is assessed against the tollway operators gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways.32 Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to the private tollway investors. Besides, her allegation that the private investors rate of recovery will be adversely affected by imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds. Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway operations impractical and incapable of implementation. They cite the fact that, in order to claim input VAT, the name, address and tax identification number of

the tollway user must be indicated in the VAT receipt or invoice. The manner by which the BIR intends to implement the VAT by rounding off the toll rate and putting any excess collection in an escrow account is also illegal, while the alternative of giving "change" to thousands of motorists in order to meet the exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible. 33 Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations are impaired."34 Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution. Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about it, 35 the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on whom the task of implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIRs discretion on the matter, absent any clear violation of law or the Constitution. For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT imposition was supposed to take effect. The issuance allegedly violates Section 111(A)36 of the Code which grants first time VAT payers a transitional input VAT of 2% on beginning inventory. In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the circulars validity. They are thus the ones who have a right to challenge the circular in a direct and proper action brought for the purpose. Conclusion In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code.

If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken.37 But as the law is written, no such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it is found.
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Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress. The Court has no discretion on the matter but simply applies the law. The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition. WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts temporary restraining order dated August 13, 2010. SO ORDERED. ROBERTO A. ABAD Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice ANTONIO T. CARPIO Associate Justice TERESITA J. LEONARDO-DE CASTRO Associate Justice DIOSDADO M. PERALTA Associate Justice MARIANO C. DEL CASTILLO PRESBITERO J. VELASCO, JR. Associate Justice ARTURO D. BRION Associate Justice (On Leave) LUCAS P. BERSAMIN* Associate Justice MARTIN S. VILLARAMA, JR.

Associate Justice JOSE PORTUGAL PEREZ Associate Justice

Associate Justice JOSE CATRAL MENDOZA Associate Justice

(On Official Leave) MARIA LOURDES P. A. SERENO** Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 173594 February 6, 2008

SILKAIR (SINGAPORE) PTE, LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION CARPIO MORALES, J.: Petitioner, Silkair (Singapore) Pte. Ltd. (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 Bureau of Internal Revenue (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 2000.1 As the BIR had not yet acted on the application as of December 26, 2001, Silkair filed a Petition for Review2before the CTA following Commissioner of Internal Revenue v. Victorias Milling Co., Inc., et al.3 Opposing the petition, respondent Commissioner on Internal Revenue (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.4 (Emphasis and underscoring supplied) By Decision of May 27, 2005, the Second Division of the CTA denied Silkairs 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. Thus the CTA discoursed: The liability for excise tax on petroleum products that are being removed from its refinery is imposed on the manufacturer/producer (Section 130 of the NIRC of 1997). xxx

xxxx While it is true that in the case of excise tax imposed on petroleum products, the seller thereof may shift the tax burden to the buyer, the latter is the proper party to claim for the refund in the case of exemption from excise tax. Since the excise tax was imposed upon Petron Corporation as the manufacturer of petroleum products, pursuant to Section 130(A)(2), and that the corresponding excise taxes were indeed, paid by it, . . . any claim for refund of the subject excise taxes should be filed by Petron Corporation as the taxpayer contemplated under the law. Petitioner cannot be considered as the taxpayer because it merely shouldered the burden of the excise tax and not the excise tax itself. Therefore, the right to claim for the refund of excise taxes paid on petroleum products lies with Petron Corporation who paid and remitted the excise tax to the BIR. Respondent, on the other hand, may only claim from Petron Corporation the reimbursement of the tax burden shifted to the former by the latter. The excise tax partaking the nature of an indirect tax, is clearly the liability of the manufacturer or seller who has the option whether or not to shift the burden of the tax to the purchaser. Where the burden of the tax is shifted to the [purchaser], the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased which constitutes a part of the purchase price. The incidence of taxation or the person statutorily liable to pay the tax falls on Petron Corporation though the impact of taxation or the burden of taxation falls on another person, which in this case is petitioner Silkair.5 (Italics in the original; emphasis and underscoring supplied) Silkair filed a Motion for Reconsideration6 during the pendency of which or on September 12, 2005 the Bengzon Law Firm entered its appearance as counsel,7 without Silkairs thencounsel of record (Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez or "JGLaw") having withdrawn as such. By Resolution8 of September 22, 2005, the CTA Second Division denied Silkairs motion for reconsideration. A copy of the Resolution was furnished Silkairs counsel JGLaw which received it on October 3, 2005.9 On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of Withdrawal of Appearance.10 On even date, Silkair, through the Bengzon Law Firm, filed a Manifestation/Motion11 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 petitioners 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 Courts Resolution on petitioners Motion for Reconsideration x x x.12 (Underscoring supplied) On October 14, 2005, the Bengzon Law Firm received its requested copy of the September 22, 200513 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 Review14 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. 15 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.16 The CTA En Banc granted Silkairs 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 Review17 before the CTA En Banc. By Resolution of May 19,2006, the CTA En Banc dismissed18 Silkairs 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

Courts 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 Bancon 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,20 CTA Associate Justice Juanito C. Castaeda, Jr. posited that Silkair is not the proper party to claim the tax refund. Silkair filed a Motion for Reconsideration21 which the CTA En Banc denied.22 Hence, the present Petition for Review23 which raises the following issues: I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY FILED. 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. 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.24(Underscoring supplied) Silkair posits that "the instant case does not involve a situation where the petitioner was represented by two (2) counsels on record, such that notice to the former counsel would be held binding on the petitioner, as in the case of Damasco v. Arrieta, etc., et al.25 x x x heavily relied upon by the respondent";26 and that "the case of Dolores De Mesa Abad v. Court of Appeals27 has more appropriate application to the present case."28 In Dolores De Mesa Abad, the trial court issued an order of November 19, 1974 granting the therein private respondents Motion for Annulment of documents and titles. The order was received by the therein petitioners counsel of record, Atty. Escolastico R. Viola , on November 22, 1974 prior to which or on July 17, 1974, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation." Atty. Millora

received a copy of the trial courts order on December 9, 1974. On January 4, 1975, the therein petitioners, through Atty. Ernesto D. Tobias also of the Millora, Tobias and Calimlim Law Office, filed their Notice of Appeal and Cash Appeal Bond as well as a Motion for Extension of the period to file a Record on Appeal. They filed the Record on Appeal on January 24, 1975. The trial court dismissed the appeal for having been filed out of time, which was upheld by the Court of Appeals on the ground that the period within which to appeal should be counted from November 22, 1974, the date Atty. Viola received a copy of the November 19, 1974 order. The appellate court held that Atty. Viola was still the counsel of record, he not having yet withdrawn his appearance as counsel for the therein petitioners. On petition for certiorari,29 this Court held x x x [R]espondent Court reckoned the period of appeal from the time petitioners original counsel, Atty. Escolastico R. Viola, received the Order granting the Motion for Annulment of documents and titles on November 22, 1974. But as petitioners stress, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation" on July 16, 1974. Where there may have been no specific withdrawal by Atty. Escolastico R. Viola, for which he should be admonished, by the appearance of a new counsel, it can be said that Atty. Viola had ceased as counsel for petitioners. In fact, Orders subsequent to the aforesaid date were already sent by the trial Court to the Millora, Tobias and Calimlim Law Office and not to Atty. Viola. Under the circumstances, December 9, 1974 is the controlling date of receipt by petitioners counsel and from which the period of appeal from the O rder of November 19, 1974 should be reckoned. That being the case, petitioners x x x appeal filed on January 4, 1975 was timely filed.30 (Underscoring supplied) The facts of Dolores De Mesa Abad are not on all fours with those of the present case. In any event, more recent jurisprudence holds that in case of failure to comply with the procedure established by Section 26, Rule 13831 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.32 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.33 The court cannot be expected to itself ascertain whether the counsel of record has been changed.34 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 Silkairs 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. 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. 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.37 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.38 Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting

Party."39 It invokes Maceda v. Macaraig, Jr.40 which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. Silkairss argument does not persuade. 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 ofMaceda being that an exemption from "all taxes" excludes indirect taxes, unless the exempting statute, like NPCs 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 [NPCs 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)42 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. 44 WHEREFORE, the petition is DENIED. Costs against petitioner. SO ORDERED. Quisumbing,Chairperson, Carpio, Tinga, Velasco, Jr., JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 171251 March 5, 2012

LASCONA LAND CO., INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION PERALTA, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 dated October 25, 2005 and Resolution2 dated January 20, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 58061 which set aside the Decision3 dated January 4, 2000 and Resolution4 dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5777 and declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final, executory and demandable. The facts, as culled from the records, are as follows: On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 0000047-93-4075against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of P753,266.56. Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City, in his Letter 6dated March 3, 1999, which reads, thus: xxxx Subject: LASCONA LAND CO., INC. 1993 Deficiency Income Tax Madam, Anent the 1993 tax case of subject taxpayer, please be informed that while we agree with the arguments advanced in your letter protest, we regret, however, that we cannot give due course to your request to cancel or set aside the assessment notice issued to your client for the reason that the case was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of Section 228 of the Tax Code. By virtue thereof, the said assessment notice has become final, executory and demandable.

In view of the foregoing, please advise your client to pay its 1993 deficiency income tax liability in the amount of P753,266.56. x x x x (Emphasis ours) On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory. The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC) resulted to the finality of the assessment. On January 4, 2000, the CTA, in its Decision,7 nullified the subject assessment. It held that in cases of inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-day period, or (2) wait until the Commissioner decides on his protest before he elevates the case. The CIR moved for reconsideration. It argued that in declaring the subject assessment as final, executory and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99 dated September 6, 1999 which reads, thus: If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period; otherwise, the assessment shall become final, executory and demandable. On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit.8 The CTA held that Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the former spoke of an assessment becoming final, executory and demandable by reason of the inaction by the Commissioner, while the latter referred to decisions becoming final, executory and demandable should the taxpayer adversely affected by the decision fail to appeal before the CTA within the prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must prevail over the revenue regulations. Dissatisfied, the CIR filed an appeal before the CA.9 In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition and set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further declared that the subject Assessment Notice No. 000004793-407 dated March 27, 1998 as final, executory and demandable. Lascona moved for reconsideration, but was denied for lack of merit.

Thus, the instant petition, raising the following issues: I THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS WHICH IT RECENTLY PROMULGATED, RULED THAT AN APPEAL FROM THE INACTION OF RESPONDENT COMMISSIONER IS NOT MANDATORY. II THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE ASSESSMENT HAS BECOME FINAL AND DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD "DECISION" IN THE LAST PARAGRAPH OF SECTION 228 CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY TO THE DECISION PER SEOF THE COMMISSIONER, BUT SHOULD ALSO BE CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE COMMISSIONER.10 In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC. Petitioner Lascona, invoking Section 3,11 Rule 4 of the Revised Rules of the Court of Tax Appeals, maintains that in case of inaction by the CIR on the protested assessment, it has the option to either: (1) appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment even beyond the 180-day period in which case, the taxpayer may appeal such final decision within 30 days from the receipt of the said decision. Corollarily, petitioner posits that when the Commissioner failed to act on its protest within the 180-day period, it had the option to await for the final decision of the Commissioner on the protest, which it did. The petition is meritorious. Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of the Commissioner on the protested assessment, to wit: SEC. 228. Protesting of Assessment. x x x xxxx Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. 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 (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable. (Emphasis supplied). Respondent, however, insists that in case of the inaction by the Commissioner on the protested assessment within the 180-day reglementary period, petitioner should have appealed the inaction to the CTA. Respondent maintains that due to Lascona's failure to file an appeal with the CTA after the lapse of the 180-day period, the assessment became final and executory. We do not agree. In RCBC v. CIR,12 the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.13 This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of Tax Appeals,14 to wit: SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: (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 relation 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 or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the

National Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code; (Emphasis ours) In arguing that the assessment became final and executory by the sole reason that petitioner failed to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period. This is incorrect. As early as the case of CIR v. Villa,15 it was already established that the word "decisions" in paragraph 1, Section 7 of Republic Act No. 1125, quoted above, has been interpreted to mean the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself. We quote what this Court said aptly in a previous case: In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment, . . . 16 Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment. It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment, while we reiterate the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final

decision to the CTA within 30 days after the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the application of the other. Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments.17 Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of the Letter 18 dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of the copy of the decision.
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Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the protested assessment. It is imperative that the taxpayers are informed of its action in order that the taxpayer should then at least be able to take recourse to the tax court at the opportune time. As correctly pointed out by the tax court: x x x to adopt the interpretation of the respondent will not only sanction inefficiency, but will likewise condone the Bureau's inaction. This is especially true in the instant case when despite the fact that respondent found petitioner's arguments to be in order, the assessment will become final, executory and demandable for petitioner's failure to appeal before us within the thirty (30) day period.19 Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.20 Thus, 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.21 WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and the Resolution dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No. 58061 are REVERSED and SET ASIDE. Accordingly, the Decision dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case No. 5777 and its Resolution dated March 3, 2000 are REINSTATED. SO ORDERED. DIOSDADO M. PERALTA Associate Justice WE CONCUR: PRESBITERO J. VELASCO, JR. Associate Justice Chairperson

ROBERTO A. ABAD Associate Justice

MARTIN S. VILLARAMA, JR.* Associate Justice

JOSE CATRAL MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. PRESBITERO J. VELASCO, JR. Associate Justice Third Division, Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 190102 July 11, 2012

ACCENTURE, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION SERENO, J.: This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying for the reversal of the Decision of the Court of Tax Appeals En Banc (CTA En Banc ) dated 22 September 2009 and its subsequent Resolution dated 23 October 2009. 1 Accenture, Inc. (Accenture) is a corporation engaged in the business of providing management consulting, business strategies development, and selling and/or licensing of software.2 It is duly registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of the National Internal Revenue Code (Tax Code).3 On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July 2002 to 31 August 2002 (1st period). Its Quarterly VAT Return for the fourth quarter of 2002, which covers the 1st period, was filed on 17 September 2002; and an Amended Quarterly VAT Return, on 21 June 2004.4 The following are reflected in Accentures VAT Return for the fourth quarter of 2002:5
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Purchases Domestic Purchases- Capital Goods Domestic Purchases- Goods other than capital Goods Domestic Purchases- Services Total Input Tax Zero-rated Sales Total Sales

Amount

Input VAT

P12,312,722.00 P1,231,272.20 P64,789,507.90 P6,478,950.79 P16,455,868.10 P1,645,586.81 P9,355,809.80 P316,113,513.34 P335,640,544.74

Accenture filed its Monthly VAT Return for the month of September 2002 on 24 October 2002; and that for October 2002, on 12 November 2002. These returns were amended on 9 January 2003. Accentures Quarterly VAT Return for the first quarter of 2003, which included the period 1 September 2002 to 30 November 2002 (2nd period), was filed on 17 December 2002; and the Amended Quarterly VAT Return, on 18 June 2004. The latter contains the following information:6 Purchases Domestic Purchases- Capital Goods Amount P80,765,294.10 Input VAT P8,076,529.41

Domestic Purchases- Goods other than capital P132,820,541.70 P13,282,054.17 Goods Domestic Purchases-Services Total Input Tax Zero-rated Sales Total Sales P P63,238,758.00 P6,323,875.80 P27,682,459.38 P545,686,639.18 P572,880,982.68

The monthly and quarterly VAT returns of Accenture show that, notwithstanding its application of the input VAT credits earned from its zero-rated transactions against its output VAT liabilities, it still had excess or unutilized input VAT credits. These VAT credits are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38 for the 2nd period, or a total of P37,038,269.18.7 Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input VAT on Accentures "domestic purchases of taxable goods which cannot be directly attributed to its zero-rated sale of services."8 This allocated input VAT was broken down to P8,811,301.66 for the 1st period and P26,367,542.55 for the 2nd period.9 The excess input VAT was not applied to any output VAT that Accenture was liable for in the same quarter when the amount was earnedor to any of the succeeding quarters. Instead, it was carried forward to petitioners 2nd Quarterly VAT Return for 2003. 10 Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). The DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter filed a Petition for Review with the First Division of the Court of Tax Appeals (Division), praying for the issuance of a TCC in its favor in the amount of P35,178,844.21. The Commissioner of Internal Revenue (CIR), in its Answer,11 argued thus: 1. The sale by Accenture of goods and services to its clients are not zero-rated transactions.

2. Claims for refund are construed strictly against the claimant, and Accenture has failed to prove that it is entitled to a refund, because its claim has not been fully substantiated or documented. In a 13 November 2008 Decision,12 the Division denied the Petition of Accenture for failing to prove that the latters sale of services to the alleged foreign clients qualified for zero percent VAT.13 In resolving the sole issue of whether or not Accenture was entitled to a refund or an issuance of a TCC in the amount of P35,178,844.21,14 the Division ruled that Accenture had failed to present evidence to prove that the foreign clients to which the former rendered services did business outside the Philippines.15 Ruling that Accentures services would qualify for zero-rating under the 1997 National Internal Revenue Code of the Philippines (Tax Code) only if the recipient of the services was doing business outside of the Philippines,16 the Division cited Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Burmeister)17 as basis. Accenture appealed the Divisions Decision through a Motion for Reconsideration (MR).18 In its MR, it argued that the reliance of the Division on Burmeister was misplaced 19 for the following reasons: 1. The issue involved in Burmeister was the entitlement of the applicant to a refund, given that the recipient of its service was doing business in the Philippines; it was not an issue of failure of the applicant to present evidence to prove the fact that the recipient of its services was a foreign corporation doing business outside the Philippines.20 2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the services should be doing business outside the Philippines, and Accenture had successfully established that.21 3. Having been promulgated on 22 January 2007 or after Accenture filed its Petition with the Division, Burmeister cannot be made to apply to this case. 22 Accenture also cited Commissioner of Internal Revenue v. American Express (Amex)23 in support of its position. The MR was denied by the Division in its 12 March 2009 Resolution.24 Accenture appealed to the CTA En Banc. There it argued that prior to the amendment introduced by Republic Act No. (R.A.) 9337, 25 there was no requirement that the services must be rendered to a person engaged in business conducted outside the Philippines to qualify for zero-rating. The CTA En Banc agreed that because the case pertained to the third and the fourth quarters of taxable year 2002, the applicable law was the 1997 Tax Code, and not R.A. 9337.26 Still, it ruled that even though the provision used in Burmeister was Section 102(b)(2) of the earlier 1977 Tax Code, the pronouncement therein requiring recipients of services to be engaged in business outside the Philippines to qualify for zerorating was applicable to the case at bar, because Section 108(B)(2) of the 1997 Tax Code was a mere reenactment of Section 102(b)(2) of the 1977 Tax Code.

The CTA En Banc concluded that Accenture failed to discharge the burden of proving the latters allegation that its clients were foreign-based.27 Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter affirmed the Divisions Decision and Resolution.28 A subsequent MR was also denied in a Resolution dated 23 October 2009. Hence, the present Petition for Review29 under Rule 45. In a Joint Stipulation of Facts and Issues, the parties and the Division have agreed to submit the following issues for resolution: 1. Whether or not Petitioners sales of goods and services are zero-rated for VAT purposes under Section 108(B)(2)(3) of the 1997 Tax Code. 2. Whether or not petitioners claim for refund/tax credit in the amount of P35,178,884.21 represents unutilized input VAT paid on its domestic purchases of goods and services for the period commencing from 1 July 2002 until 30 November 2002. 3. Whether or not Petitioner has carried over to the succeeding taxable quarter(s) or year(s) the alleged unutilized input VAT paid on its domestic purchases of goods and services for the period commencing from 1 July 2002 until 30 November 2002, and applied the same fully to its output VAT liability for the said period. 4. Whether or not Petitioner is entitled to the refund of the amount of P35,178,884.21, representing the unutilized input VAT on domestic purchases of goods and services for the period commencing from 1 July 2002 until 30 November 2002, from its sales of services to various foreign clients. 5. Whether or not Petitioners claim for refund/tax credit in the amount of P35,178,884.21, as alleged unutilized input VAT on domestic purchases of goods and services for the period covering 1 July 2002 until 30 November 2002 are duly substantiated by proper documents.30 For consideration in the present Petition are the following issues: 1. Should the recipient of the services be "doing business outside the Philippines" for the transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code? 2. Has Accenture successfully proven that its clients are entities doing business outside the Philippines? Recipient of services must be doing business outside the Philippines for the transactions to qualify as zero-rated.

Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which allows the refund of unutilized input VAT earned from zero-rated or effectively zero-rated sales. The provision reads: 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 of 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. Section 108(B) referred to in the foregoing provision was first seen when Presidential Decree No. (P.D.) 199431 amended Title IV of P.D. 1158,32 which is also known as the National Internal Revenue Code of 1977. Several Decisions have referred to this as the 1986 Tax Code, even though it merely amended Title IV of the 1977 Tax Code. Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 27333 further amended provisions of Title IV. E.O. 273 by transferring the old Title IV provisions to Title VI and filling in the former title with new provisions that imposed a VAT. The VAT system introduced in E.O. 273 was restructured through Republic Act No. (R.A.) 7716.34 This law, which was approved on 5 May 1994, widened the tax base. Section 3 thereof reads: SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: "SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x xxx xxx xxx

"(b) Transactions subject to zero-rate. The following services performed in the Philippines by VAT-registered 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)." Essentially, Section 102(b) of the 1977 Tax Codeas amended by P.D. 1994, E.O. 273, and R.A. 7716provides that if the consideration for the services provided by a VATregistered person is in a foreign currency, then this transaction shall be subjected to zero percent rate. The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section 108(B), to wit: (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate. (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 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); x x x. On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing provision, became effective. It reads: 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. (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (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 paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, 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); x x x." (Emphasis supplied) The meat of Accentures argument is that nowhere does Section 108(B) of the 1997 Tax Code state that services, to be zero-rated, should be rendered to clients doing business outside the Philippines, the requirement introduced by R.A. 9337.35 Required by Section 108(B), prior to the amendment, is that the consideration for the services rendered be in foreign currency and in accordance with the rules of the Bangko Sentral ng Pilipinas (BSP). Since Accenture has complied with all the conditions imposed in Section 108(B), it is entitled to the refund prayed for. In support of its claim, Accenture cites Amex, in which this Court supposedly ruled that Section 108(B) reveals a clear intent on the part of the legislators not to impose the condition of being "consumed abroad" in order for the services performed in the Philippines to be zero-rated.36 The Division ruled that this Court, in Amex and Burmeister, did not declare that the requirementthat the client must be doing business outside the Philippinescan be disregarded, because this requirement is expressly provided in Article 108(2) of the Tax Code.37 Accenture questions the Divisions application to this case of the pronouncements made in Burmeister. According to petitioner, the provision applied to the present case was Section 102(b) of the 1977 Tax Code, and not Section 108(B) of the 1997 Tax Code, which was the law effective when the subject transactions were entered into and a refund was applied for. In refuting Accentures theory, the CTA En Banc ruled that since Section 108(B) of the 1997 Tax Code was a mere reproduction of Section 102(b) of the 1977 Tax Code, this Courts interpretation of the latter may be used in interpreting the former, viz: In the Burmeister case, the Supreme Court harmonized both Sections 102(b)(1) and 102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A parallel approach should be accorded to the renumbered provisions of Sections 108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must be read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as follows: a) services other than processing, manufacturing or repacking rendered by VAT registered persons in the Philippines; and b) the transaction paid for in acceptable foreign currency duly accounted for in accordance with BSP rules and regulations. The same provision made reference to Section 108(B)(1) further imposing the requisite c) that the recipient of services must be performing business outside of Philippines. Otherwise, if both the provider and recipient of service are doing business in the Philippines, the sale transaction is subject to regular VAT as explained in the Burmeister case x x x. xxx xxx xxx

Clearly, the Supreme Courts pronouncements in the Burmeister case requiring that the recipient of the services must be doing business outside the Philippines as mandated by law govern the instant case.38

Assuming that the foregoing is true, Accenture still argues that the tax appeals courts cannot be allowed to apply to Burmeister this Courts interpretation of Section 102(b) of the 1977 Tax Code, because the Petition of Accenture had already been filed before the case was even promulgated on 22 January 2007,39 to wit: x x x. While the Burmeister case forms part of the legal system and assumes the same authority as the statute itself, however, the same cannot be applied retroactively against the Petitioner because to do so will be prejudicial to the latter. 40 The CTA en banc is of the opinion that Accenture cannot invoke the non-retroactivity of the rulings of the Supreme Court, whose interpretation of the law is part of that law as of the date of its enactment.41 We rule that the recipient of the service must be doing business outside the Philippines for the transaction to qualify for zero-rating under Section 108(B) of the Tax Code. This Court upholds the position of the CTA en banc that, because Section 108(B) of the 1997 Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any interpretation of the latter holds true for the former. Moreover, even though Accentures Petition was filed before Burmeister was promulgated, the pronouncements made in that case may be applied to the present one without violating the rule against retroactive application. When this Court decides a case, it does not pass a new law, but merely interprets a preexisting one.42 When this Court interpreted Section 102(b) of the 1977 Tax Code in Burmeister, this interpretation became part of the law from the moment it became effective. It is elementary that the interpretation of a law by this Court constitutes part of that law from the date it was originally passed, since this Court's construction merely establishes the contemporaneous legislative intent that the interpreted law carried into effect.43 Accenture questions the CTAs application of Burmeister, because the provision interpreted therein was Section 102(b) of the 1977 Tax Code. In support of its position that Section 108 of the 1997 Tax Code does not require that the services be rendered to an entity doing business outside the Philippines, Accenture invokes this Courts pronouncements in Amex. However, a reading of that case will readily reveal that the provision applied was Section 102(b) of the 1977 Tax Code, and not Section 108 of the 1997 Tax Code. As previously mentioned, an interpretation of Section 102(b) of the 1977 Tax Code is an interpretation of Section 108 of the 1997 Tax Code, the latter being a mere reproduction of the former. This Court further finds that Accentures reliance on Amex is misplaced. We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the services be consumed abroad to be zero-rated. However, nowhere in that case did this Court discuss the necessary qualification of the recipient of the service, as this matter was never put in question. In fact, the recipient of the service in Amex is a nonresident foreign client. The aforementioned case explains how the credit card system works. The issuance of a credit card allows the holder thereof to obtain, on credit, goods and services from certain

establishments. As proof that this credit is extended by the establishment, a credit card draft is issued. Thereafter, the company issuing the credit card will pay for the purchases of the credit card holders by redeeming the drafts. The obligation to collect from the card holders and to bear the lossin case they do not payrests on the issuer of the credit card. The service provided by respondent in Amex consisted of gathering the bills and credit card drafts from establishments located in the Philippines and forwarding them to its parent company's regional operating centers outside the country. It facilitated in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client. The Court explained how the services rendered in Amex were considered to have been performed and consumed in the Philippines, to wit: Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term means the performance or "successful completion of a contractual duty, usually resulting in the performers release from any past or future liability x x x." The services rendered by respondent are performed or successfully completed upon its sending to its foreign client the drafts and bills it has gathered from service establishments here. Its services, having been performed in the Philippines, are therefore also consumed in the Philippines.44 The effect of the place of consumption on the zero-rating of the transaction was not the issue in Burmeister. Instead, this Court addressed the squarely raised issue of whether the recipient of services should be doing business outside the Philippines for the transaction to qualify for zero-rating. We ruled that it should. Thus, another essential condition for qualification for zero-rating under Section 102(b)(2) of the 1977 Tax Code is that the recipient of the business be doing that business outside the Philippines. In clarifying that there is no conflict between this pronouncement and that laid down in Amex, we ruled thus:
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x x x. As the Court held in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), 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 NAPOCORs two 100-megawatt power barges in Mindanao. (Emphasis in the original)45 In Amex we ruled that the place of performance and/or consumption of the service is immaterial. In Burmeister, the Court found that, although the place of the consumption of the service does not affect the entitlement of a transaction to zero-rating, the place where the recipient conducts its business does. Amex does not conflict with Burmeister. In fact, to fully understand how Section 102(b)(2) of the 1977 Tax Codeand consequently Section 108(B)(2) of the 1997 Tax Codewas intended to operate, the two aforementioned cases should be taken together. The zerorating of the services performed by respondent in Amex was affirmed by the Court, because although the services rendered were both performed and consumed in the Philippines, the

recipient of the service was still an entity doing business outside the Philippines as required in Burmeister. That the recipient of the service should be doing business outside the Philippines to qualify for zero-rating is the only logical interpretation of Section 102(b)(2) of the 1977 Tax Code, as we explained in Burmeister: This can only be the logical interpretation of Section 102 (b) (2). If the provider and recipient of the "other services" are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102 (a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret Section 102 (b) (2) to apply to a payerrecipient of services doing business in the Philippines is to make the payment of the regular VAT under Section 102 (a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes Section 102 (a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary contribution. xxx xxx xxx

Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls squarely under Section 102 (a) governing domestic sale or exchange of services. Indeed, this is a purely local sale or exchange of services subject to the regular VAT, unless of course the transaction falls under the other provisions of Section 102 (b). Thus, when Section 102 (b) (2) speaks of "services other than those mentioned in the preceding subparagraph," the legislative intent is that only the services are different between subparagraphs 1 and 2. The requirements for zero-rating, including the essential condition that the recipient of services is doing business outside the Philippines, remain the same under both subparagraphs. (Emphasis in the original)46 Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress had already clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and 108(B)(2) of the 1997 Tax Code amending the earlier provision. R.A. 9337 added the following phrase: "rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed." Accenture has failed to establish that the recipients of its services do business outside the Philippines. Accenture argues that based on the documentary evidence it presented,47 it was able to establish the following circumstances:

1. The records of the Securities and Exchange Commission (SEC) show that Accentures clients have not established any branch office in which to do business in the Philippines. 2. For these services, Accenture bills another corporation, Accenture Participations B.V. (APB), which is likewise a foreign corporation with no "presence in the Philippines." 3. Only those not doing business in the Philippines can be required under BSP rules to pay in acceptable currency for their purchase of goods and services from the Philippines. Thus, 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.48 Accenture claims that these documentary pieces of evidence are supported by the Report of Emmanuel Mendoza, the Court-commissioned Independent Certified Public Accountant. He ascertained that Accentures gross billings pertaining to zero-rated sales were all supported by zero-rated Official Receipts and Billing Statements. These documents show that these zero-rated sales were paid in foreign exchange currency and duly accounted for in the rules and regulations of the BSP.49 In the CTAs opinion, however, the documents presented by Accenture merely substantiate the existence of the sales, receipt of foreign currency payments, and inward remittance of the proceeds of these sales duly accounted for in accordance with BSP rules. Petitioner presented no evidence whatsoever that these clients were doing business outside the Philippines.50 Accenture insists, however, that it was able to establish that it had rendered services to foreign corporations doing business outside the Philippines, unlike in Burmeister, which allegedly involved a foreign corporation doing business in the Philippines.51 We deny Accentures Petition for a tax refund. The evidence presented by Accenture may have established that its clients are foreign. This fact does not automatically mean, however, that these clients were doing business outside the Philippines. After all, the Tax Code itself has provisions for a foreign corporation engaged in business within the Philippines and vice versa, to wit:
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SEC. 22. Definitions - When used in this Title: xxx xxx xxx

(H) The term "resident foreign corporation" applies to a foreign corporation engaged in trade or business within the Philippines. (I) The term nonresident foreign corporation applies to a foreign corporation not engaged in trade or business within the Philippines. (Emphasis in the original)

Consequently, to come within the purview of Section 108(B)(2), it is not enough that the recipient of the service be proven to be a foreign corporation; rather, it must be specifically proven to be a nonresident foreign corporation. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. We ruled thus in Commissioner of Internal Revenue v. British Overseas Airways Corporation:52 x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. "In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character."53 A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly against the taxpayer.54
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Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its clients were foreign entities. However, as found by both the CTA Division and the CTA En Banc, no evidence was presented by Accenture to prove the fact that the foreign clients to whom petitioner rendered its services were clients doing business outside the Philippines. As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and Bank Statements presented by Accenture merely substantiated the existence of sales, receipt of foreign currency payments, and inward remittance of the proceeds of such sales duly accounted for in accordance with BSP rules, all of these were devoid of any evidence that the clients were doing business outside of the Philippines.55 WHEREFORE, the instant Petition is DENIED. The 22 September 2009 Decision and the 23 October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No. 477, dismissing the Petition for the refund of the excess or unutilized input VAT credits of Accenture, Inc., are AFFIRMED. SO ORDERED. MARIA LOURDES P.A. SERENO Associate justice WE CONCUR:

ANTONIO T. CARPIO Senior Associate Justice Chairperson ARTURO D. BRION Associate Justice JOSE PORTUGAL PEREZ Associate Justice

BIENVENIDO L. REYES Associate justice CERTIFICATION I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion or the Court's Division. ANTONIO T. CARPIO Senior Associate Justice (Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended)

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 169225 November 17, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. HAMBRECHT & QUIST PHILIPPINES, INC., Respondent. DECISION LEONARDO-DE CASTRO, J.: This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision1dated August 12, 2005 of the Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. No. 73 (C.T.A. Case No. 6362), entitled "Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc.," which affirmed the Decision2dated September 24, 2004 of the CTA Original Division in C.T.A. Case No. 6362 canceling the assessment issued against respondent for deficiency income and expanded withholding tax for the year 1989 for failure of petitioner Commissioner of Internal Revenue (CIR) to enforce collection within the period allowed by law. The CTA summarized the pertinent facts of this case, as follows: 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. The 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 1989.3 In a Decision dated September 24, 2004, 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. 00154389-5668. 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 in a Decision dated August 12, 2005, the dispositive portion reads: WHEREFORE, the Petition for Review is DENIED DUE COURSE and the case is accordingly DISMISSED for lack of merit.4 Hence, the instant Petition wherein the following issues are raised: I WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO RULE THAT THE GOVERNMENTS RIGHT TO COLLECT THE TAX HAS PRESCRIBED. II

WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS PRESCRIBED.5 The petition is without merit. Anent the first issue, petitioner argues that the CTA had no jurisdiction over the case since the CTA itself had ruled that the assessment had become final and unappealable. Citing Protectors Services, Inc. v. Court of Appeals,6 the CIR argued that, after the lapse of the 30-day period to protest, respondent may no longer dispute the correctness of the assessment and its appeal to the CTA should be dismissed. The CIR took issue with the CTAs pronouncement that it had jurisdiction to decide "other matters" related to the tax assessment such as the issue on the right to collect the same since the CIR maintains that when the law says that the CTA has jurisdiction over "other matters," it presupposes that the tax assessment has not become final and unappealable. We cannot countenance the CIRs assertion with regard to this point. 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, to wit: 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. Thus, on the strength of such observation, we have 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).7 In the case at bar, the issue at hand is whether or not the BIRs right to collect taxes had already prescribed and that is a subject matter falling under Section 223(c) of the 1986 NIRC, the law applicable at the time the disputed assessment was made. To quote Section 223(c):

Any internal revenue tax which has been assessed within the period of limitation aboveprescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. (Emphases supplied.) In connection therewith, Section 3 of the 1986 NIRC states that the collection of taxes is one of the duties of the BIR, to wit: Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of Internal Revenue shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges and the enforcement of all forfeitures, penalties, and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police power conferred to it by this Code or other laws. (Emphasis supplied.) Thus, from the foregoing, 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. Furthermore, 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. Likewise, the first paragraph of Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282,8 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. To be sure, the fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide. With respect to the second issue, the CIR insists that its right to collect the tax deficiency it assessed on respondent is not barred by prescription since the prescriptive period thereof was allegedly suspended by respondents request for reinvestigation.

Based on the facts of this case, we find that the CIRs contention is without basis. The pertinent provision of the 1986 NIRC is Section 224, to wit:
1avvphi 1

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. On this point, we have previously held that: 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.9 (Emphasis supplied.) Consequently, 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. As the CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out in its Decision, to wit: It is evident that the respondent did not conduct a reinvestigation, the protest having been dismissed on the ground that the assessment has become final and executory. There is nothing in the record that would show what action was taken in connection with the protest of the petitioner. In fact, petitioner did not hear anything from the respondent nor received any communication from the respondent relative to its protest, not until eight years later when the final decision of the Commissioner was issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation was not granted . x x x.10 (Emphasis supplied.) 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.11

Indeed, it is contradictory for the CIR to argue that respondents December 3, 1993 protest which contained a request for reinvestigation was filed beyond the reglementary period but still claim that the same request for reinvestigation was implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason to reverse the CTA when it ruled that the prescriptive period for the CIRs right to collect was not suspended under the circumstances of this case. 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. SO ORDERED. TERESITA J. LEONARDO-DE CASTRO Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson PRESBITERO J. VELASCO, JR. Associate Justice DIOSDADO M. PERALTA* Associate Justice

JOSE PORTUGAL PEREZ Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 183868 November 22, 2010

COMMISSIONER OF CUSTOMS, Petitioner, vs. MARINA SALES, INC., Respondent. DECISION MENDOZA, J.: In this petition for review on certiorari1 under Rule 45, the Commissioner of Customs (Commissioner), represented by the Office of the Solicitor General (OSG), assails the April 11, 2008 Resolution2 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. E.B. No. 333, dismissing his petition for review for his failure to file a motion for reconsideration before the Court of Tax Appeals Division (CTA-Division). Respondent Marina Sales, Inc. (Marina) is engaged in the manufacture of Sunquick juice concentrates. It was appointed by CO-RO Food A/S of Denmark, maker of Sunquick Juice Concentrates, to be its manufacturing arm in the Philippines. As such, Marina usually imports raw materials into the country for the purpose. In the past, the Bureau of Customs (BOC) assessed said type of importations under Tariff Heading H.S. 2106.90 10 with a 1% import duty rate.3 On March 6, 2003, Marinas importation, labeled as Import Entry No. C-33771-03, arrived at the Manila International Container Port (MICP) on board the vessel APL Iris V-111. Said Import Entry No. C-33771-03 consisted of a 1 x 20 container STC with a total of 80 drums: (a) 56 drums of 225 kilograms Sunquick Orange Concentrate; and (b) 24 drums of 225 kilograms of Sunquick Lemon Concentrate.4 It was supported by the following documents: (a) Bill of Lading No. APLU 800452452 dated February 2, 2003;5 and (b) CO-RO Food A/S of Denmark Invoice No. 1619409 dated January 27, 2003.6 Marina computed and paid the duties under Tariff Harmonized System Heading H.S. 2106.90 10 at 1% import duty rate. This time, however, the BOC examiners contested the tariff classification of Marinas Import Entry No. C-33771-03 under Tariff Heading H.S. 2106.90 10. The BOC examiners recommended to the Collector of Customs, acting as Chairman of the Valuation and Classification Review Committee (VCRC) of the BOC, to reclassify Marinas importation as Tariff Heading H.S. 2106.90 50 (covering composite concentrates for simple dilution with water to make beverages) with a corresponding 7% import duty rate.

The withheld importation being necessary to its business operations, Marina requested the District Collector of the BOC to release Import Entry No. C-33771-03 under its Tentative Release System.7 Marina undertook to pay the reclassified rate of duty should it be finally determined that such reclassification was correct. The District Collector granted the request. On April 15, 2003, the VCRC directed Marina to appear in a deliberation on May 15, 2003 and to explain why its shipment under Import Entry No. C-33771-03 should not be classified under Tariff Heading H.S. 2106.90 50 with import duty rate of 7%.8 On May 15, 2003, Marina, through its Product Manager Rowena T. Solidum and Customs Broker Juvenal A. Llaneza, attended the VCRC deliberation and submitted its explanation,9 dated May 13, 2003, along with samples of the importation under Import Entry No. C-33771-03. On May 21, 2003, another importation of Marina arrived at the MICP designated as Import Entry No. C-67560-03. It consisted of another 1 x 20 container STC with a total of 80 drums: (a) 55 drums of 225 kilograms of Sunquick Orange Concentrate; (b) 1 drum of 225 kilograms of Sunquick Tropical Fruit Concentrate; (c) 17 drums of 225 kilograms of Sunquick Lemon Concentrate; (d) 3 drums of 225 kilograms of Sunquick Ice Lemon Concentrate; and (e) 4 drums of 225 kilograms Sunquick Peach Orange Concentrate. The said importation was accompanied by the following documents: (a) Bill of Lading No. KKLUCPH060291 dated April 17, 2003;10 and (b) CO-RO Foods A/S Denmark Invoice No. 1619746 dated April 15, 2003.11 Again, the BOC examiners disputed the tariff classification of Import Entry No. C-67560-03 and recommended to the VCRC that the importation be classified at Tariff Heading H.S. 2106.90 50 with the corresponding 7% duty rate. In order for Import Entry No. C-67560-03 to be released, Marina once again signed an undertaking under the Tentative Release System.12 In a letter dated July 7, 2003, the VCRC scheduled another deliberation requiring Marina to explain why Import Entry No. C-67560-03 should not be classified under Tariff Heading H.S. 2106.90 50 at the import duty rate of 7%.13 On July 17, 2003, Marina again attended the VCRC deliberation and submitted its explanation14 dated July 17, 2003 together with samples in support of its claim that the imported goods under Import Entry No. C-67560-03 should not be reclassified under Tariff Heading H.S. 2106.90 50. Thereafter, the classification cases for Import Entry No. C-33771-03 and Import Entry No. C-67560-03 were consolidated. On September 11, 2003, as reflected in its 1st Indorsement, the VCRC reclassified Import Entry No. C-33771-03 and Import Entry No. C-67560-03 under Tariff Heading H.S. 2106.90 50 at 7% import duty rate.15

On October 7, 2003, Marina appealed before the Commissioner challenging VCRCs reclassification.16 In its 1st Indorsement of November 13, 2003,17 the VCRC modified its earlier ruling and classified Marinas Import Entry No. C-33771-03 and Import Entry No. C-67560-03 under Tariff Heading H.S. 2009 19 00 at 7% duty rate, H.S. 2009.80 00 at 7% duty rate and H.S. 2009.90 00 at 10% duty rate. Apparently not in conformity, Marina interposed a petition for review before the CTA on February 3, 2004, which was docketed as CTA Case No. 6859. On October 31, 2007, the CTA Second Division ruled in favor of Marina18 holding that its classification under Tariff Heading H.S. 2106.90 10 was the most appropriate and descriptive of the disputed importations.19 It opined that Marinas importations were raw materials used for the manufacture of its Sunquick products, not ready-to-drink juice concentrates as argued by the Commissioner.20 Thus, the decretal portion of the CTA Second Division reads: WHEREFORE, finding merit in petitioners Petition for Review, the same is hereby GRANTED. Accordingly, the Resolution/Decision dated November 13, 2003 of the Valuation and Classification Review Committee of the Bureau of Customs is hereby SET ASIDE and petitioners importation covered by Import Entry Nos. C-33771-03 and C-6756003 are reclassified under Tariff Harmonized System Heading H.S. 2106.90 10 with an import duty rate of 1%. SO ORDERED. The Commissioner disagreed and elevated the case to the CTA-En Banc via a petition for review.21 In its Resolution of April 11, 2008, the CTA En Banc dismissed the petition. The pertinent portions of the decision including the fallo read: A careful scrutiny of the record of this case showed that petitioner failed to file before the Second Division the required Motion for Reconsideration before elevating his case to the CTA En Banc. Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule, to wit: RULE 8 PROCEDURE IN CIVIL CASES SECTION 1. Review of Cases in the Court en banc.- In cases falling under the exclusive appellate jurisdiction of the Court en banc, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.

In statutory construction, the use of the word "must" indicates that the requirement is mandatory. Furthermore, the word "must" connote an imperative act or operates to simply impose a duty which may be enforced. It is true the word "must" is sometimes construed as "may" permissive but this is only when the context requires it. Where the context plainly shows the provision to be mandatory, the word "must" is a command and cannot be construed as permissive, but must be given the signification which it imparts. It is worthy to note that the Supreme Court ruled that a Motion for Reconsideration is mandatory as a precondition to the filing of a Petition for Review under Rule 43 of the Rules of Court. WHEREFORE, applying by analogy the above ruling of the Supreme Court and taking into consideration the mandatory provision provided by Section 1 of Rule 8 of the Revised Rules of the Court of Tax Appeals and considering further that petitioner did not file a Motion for Reconsideration with the Second Division before elevating the case to the Court En Banc, which eventually deprived the Second Division of an opportunity to amend, modify, reverse or correct its mistake or error, if there be, petitioners Petition for Review is hereby DISMISSED. SO ORDERED.22 The Commissioner sought reconsideration of the disputed decision, but the CTA En Banc issued a denial in its July 14, 2008 Resolution.23 Hence, this petition. In his Memorandum,24 the Commissioner submits the following issues for resolution: A. WHETHER THE DISMISSAL BY THE COURT OF TAX APPEALS EN BANC OF PETITIONERS PETITION BASED ON MERE TECHNICALITY WILL RESULT IN INJUSTICE AND UNFAIRNESS TO PETITIONER. B. WHETHER THE CHALLENGED DECISION OF THE COURT OF TAX APPEALS SECOND DIVISION HOLDING THAT RESPONDENTS IMPORTATION ARE COVERED BY IMPORT ENTRY NOS. C-33771-03 AND C-67560-03 ARE CLASSIFIED UNDER TARIFF HARMONIZED SYSTEM HEADING H.S. 2106.90 10 WITH AN IMPORT DUTY RATE OF ONE PERCENT (1%) IS NOT CORRECT.25 The Commissioner argues that the dismissal of his petition before the CTA-En Banc is inconsistent with the principle of the liberal application of the rules of procedure. 26 He points out that due to the dismissal of the petition, the government would only be collecting 1% import duty rate from Marina instead of 7%.27 This, if sanctioned, would result in grave injustice and unfairness to the government.28

The Commissioner also contends that the testimony of Marinas expert witness, Aurora Kimura, pertaining to Sunquick Lemon compound shows that it could be classified as "heavy syrup"29 falling under the category of H.S. 2190.90 50 with a 7% import duty rate. 30 The Court finds no merit in the petition. On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed to comply with the mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals31 requiring that "the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division." The word "must" clearly indicates the mandatory -- not merely directory -- nature of a requirement."32 The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division. Procedural rules are not to be trifled with or be excused simply because their non-compliance may have resulted in prejudicing a partys substantive rights.33 Rules are meant to be followed. They may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of the prescribed rules.34 At any rate, even if the Court accords liberality, the position of the Commissioner has no merit. After examining the records of the case, the Court is of the view that the import duty rate of 1%, as determined by the CTA Second Division, is correct. The table shows the different classification of Tariff import duties relevant to the case at bar: IMPORT DUTY RATE 1%

TARIFF HEADING H.S. 2106.90 10

COVERAGE Covers flavouring materials, nes., of kind used in food and drink industries; other food preparations to be used as raw material in preparing composite concentrates for making beverages Covers composite concentrate for simple dilution with water to make beverages Covers orange juice, not frozen Covers juice of any other single fruit or vegetable Covers mixtures of juices

H.S. 2106.90 50 H.S. 2009. 19 00 H.S. 2009.80 00 H.S. 2009.90 00

7% 7% 7% 10%

The Commissioner insists that Marinas two importations should be classified under Tariff Heading H.S. 2106.90 50 with an import duty rate of 7% because the concentrates are ready for consumption by mere dilution with water.

The Court is not persuaded. As extensively discussed by the CTA Second Division, to fit into the category listed under the Tariff Harmonized System Headings calling for a higher import duty rate of 7%, the imported articles must not lose its original character. In this case, however, the laboratory analysis of Marinas samples yielded a different result.35 The report supported Marinas position that the subject importations are not yet ready for human consumption. Moreover, Marinas plant manager, Rebecca Maronilla, testified that the juice compounds could not be taken in their raw form because they are highly concentrated and must be mixed with other additives before they could be marketed as Sunquick juice products. If taken in their unprocessed form, the concentrates without the mixed additives would produce a sour taste.36 In other words, the concentrates, to be consumable, must have to lose their original character. To quote the CTA Second Division: Verily, to fall under the assailed Tariff Harmonized System Headings, petitioners (herein respondent) articles of importation, as fruit juices/mixtures, should not have lost its original character, in spite of the addition of certain "standardizing agents/constituents." Contrary thereto, We find the subject importations categorized as "non-alcoholic composite concentrates" to have apparently lost their original character due to the addition of ingredients in such quantity that the concentrated fruit juice mixture only comprises a small percentage of the entire compound. This was clearly explained by the VCRC in its subsequent Resolution/Decision ("1st Indorsement") issued on February 17, 2005 pertaining to subsequent similar importations of petitioner, effectively correcting its findings in the assailed Resolution/Decision dated November 13, 2003 concerning the same party-importer, issues and articles of importation,37 to wit: SUB-GROUP OBSERVATIONS/FINDINGS: The classification issue was divided into two regimes. The era under the old Harmonized Commodity Description and Coding System, while the other is the latest revised edition, the Asean Harmonized Tariff Nomenclature. The previous committee resolution was promulgated technically not on the merit of the case but failure on the part of the importer to submit their position paper/arguments within the prescriptive period given by the committee. Importer submitted samples of subject shipment for laboratory analysis to Philippine Customs laboratory to validate the veracity of product information given by the supplier and to determine the correct tariff classification. xxx xxx xxx

Based on the report of the Laboratory Analysis, compound is made up to water 57.9%, Invert Sugar 34.34%, Citric Acid 2.94%, Vitamin C (Ascorbic Acid) 105 mg.

Since the item is compound which is composed of water, sugar, concentrated juice, flavourings, citric acid, stabilizer, preservatives, vitamins C and colouring to produce beverage ready to drink. Consequently the concentrated citrus juice has lost its original character due to the fact that it comprises only 12% of the total compound.38 Items (fruit juices) classifiable under HS 2009 are fruit juices generally obtained by pressing fresh, healthy and ripe fruit. Per item 4 of the Explanatory Notes to the Harmonized Commodity Description and Coding System apparently subject article has lost its original character as concentrated fruit juice drink to the compounding ingredients which reduces the fruit juices to 12% of the total compound. In view of the foregoing subject article is classifiable under Tariff Heading H.S. 2106.90 10 at 1% for entries filed under the old regime. For those filed under the new regime tariff heading AHTN 2106.90 51 at 1% where the item are specifically provided. RESOLUTION: To apply sub-group recommendation which is to adopt H.S. 2106.90 10 at 1% for entries filed under the old regime and for those filed under the new regime, AHTN 2106.90 51 at 1% where the item are specifically provided.39 To "manufacture" is to "make or fabricate raw materials by hand, art or machinery, and work into forms convenient for use."40 Stated differently, it is to transform by any process into another form suitable for its intended use. Marina, as the manufacturing arm of CO-RO Food A/S of Denmark, transforms said juice compounds, being raw materials, into a substance suitable for human consumption. This is evident from the "Commissioners Report"41 of Executive Clerk of Court II, CTA, Jesus P. Inocando, Jr., who conducted an ocular inspection of Marinas manufacturing plant in Taguig City. Pertinent excerpts of the "Commissioners Report" are herein reproduced:
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On our ocular inspection of the manufacturing plant of petitioner, Ms. Solidum and Mr. Domingo showed us the sample of the imported compounds (raw materials), showed to us the step by step manufacturing process of petitioner and even showed us the bottling and packaging of the finished product. Per observation of the undersigned, the imported compounds (raw materials) are very sticky, the plant is clean and that the personnel of petitioner in the plant strictly following the manufacturing process as presented in Annex A and Annex B of this report. Upon questioning by the counsel for respondent, Mr. Domingo said that while the imported compounds (raw materials) can be mixed with water and may be drinkable, he is not sure if the same is suitable for human consumption. None of us dared to taste the sample of imported compounds (raw materials) diluted in water. The imported compounds (raw materials) mixed with water produces bubbles on top of the mixture, not like the one that has gone through the manufacturing process. Counsel for respondent requested for the marking of Label of Sunquick Lemon (840 ml.), [Annex C], as Exhibit 1 for the respondent. 42 Contrary to the Commissioners assertions, empirical evidence shows that the subject importations would have to undergo a laborious method, as shown by its manufacturing flowchart43 and manufacturing process,44 to achieve their marketable juice consistency.

Accordingly, the 1% tariff import duty rate under Tariff Heading H.S. 2106.90 10 was correctly applied to the subject importations. In any case, the VCRC in its 1st Indorsement45 of February 17, 2005 (a subsequent proceeding involving the same type of importation) rectified the disputed tariff reclassification rate. Thus, in Marinas succeeding importations, the VCRC already adopted the 1% import duty rate as paid by Marina in the past. WHEREFORE, the petition is DENIED. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson TERESITA J. LEONARDO-DE CASTRO* Associate Justice DIOSDADO M. PERALTA Associate Justice

ROBERTO A. ABAD Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 178697 November 17, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SONY PHILIPPINES, INC., Respondent. DECISION MENDOZA, J.: This petition for review on certiorari seeks to set aside the May 17, 2007 Decision and the July 5, 2007 Resolution of the Court of Tax Appeals En Banc1 (CTA-EB), in C.T.A. EB No. 90, affirming the October 26, 2004 Decision of the CTA-First Division2 which, in turn, partially granted the petition for review of respondent Sony Philippines, Inc.(Sony). The CTA-First Division decision cancelled the deficiency assessment issued by petitioner Commissioner of Internal Revenue (CIR) against Sony for Value Added Tax (VAT) but upheld the deficiency assessment for expanded withholding tax (EWT) in the amount of P1,035,879.70 and the penalties for late remittance of internal revenue taxes in the amount of P1,269, 593.90.3 THE FACTS: On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue officers to examine Sonys books of accounts and other accounting records regarding revenue taxes for"the period 1997 and unverified prior years." On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand and the details of discrepancies.4 Said details of the deficiency taxes and penalties for late remittance of internal revenue taxes are as follows: DEFICIENCY VALUE -ADDED TAX (VAT) (Assessment No. ST-VAT-97-0124-2000) Basic Tax Due Add: Penalties Interest up to 3-31-2000 Compromise Deficiency VAT Due P 3,157,314.41 25,000.00 3,182,314.41 P 11,141,014.41 P 7,958,700.00

DEFICIENCY EXPANDED WITHHOLDING TAX (EWT) (Assessment No. ST-EWT-97-0125-2000) Basic Tax Due Add: Penalties Interest up to 3-31-2000 Compromise Deficiency EWT Due P 550,485.82 25,000.00 575,485.82 P 1,992,462.72 P 1,416,976.90

DEFICIENCY OF VAT ON ROYALTY PAYMENTS (Assessment No. ST-LR1-97-0126-2000) Basic Tax Due Add: Penalties Surcharge Interest up to 3-31-2000 Compromise Penalties Due P 359,177.80 87,580.34 16,000.00 462,758.14 P 462,758.14 P

LATE REMITTANCE OF FINAL WITHHOLDING TAX (Assessment No. ST-LR2-97-0127-2000) Basic Tax Due Add: Penalties Surcharge Interest up to 3-31-2000 Compromise Penalties Due P 1,729,690.71 508,783.07 50,000.00 2,288,473.78 P 2,288,473.78 P

LATE REMITTANCE OF INCOME PAYMENTS (Assessment No. ST-LR3-97-0128-2000)

Basic Tax Due Add: Penalties 25 % Surcharge Interest up to 3-31-2000 Compromise Penalties Due P 8,865.34 58.29 2,000.00

10,923.60 P 10,923.60

GRAND TOTAL

P 15,895,632.655

Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000. Sony submitted relevant documents in support of its protest on the 16th of that same month.6 On October 24, 2000, within 30 days after the lapse of 180 days from submission of the said supporting documents to the CIR, Sony filed a petition for review before the CTA.7 After trial, the CTA-First Division disallowed the deficiency VAT assessment because the subsidized advertising expense paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. As regards the EWT, the CTA-First Division maintained the deficiency EWT assessment on Sonys motor vehicles and on professional fees paid to general professional partnerships. It also assessed the amounts paid to sales agents as commissions with five percent (5%) EWT pursuant to Section 1(g) of Revenue Regulations No. 6-85. The CTA-First Division, however, disallowed the EWT assessment on rental expense since it found that the total rental deposit of P10,523,821.99 was incurred from January to March 1998 which was again beyond the coverage of LOA 19734. Except for the compromise penalties, the CTA-First Division also upheld the penalties for the late payment of VAT on royalties, for late remittance of final withholding tax on royalty as of December 1997 and for the late remittance of EWT by some of Sonys branches. 8 In sum, the CTAFirst Division partly granted Sonys petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT assessment as well as the penalties. Thus, the dispositive portion reads: WHEREFORE, the petition for review is hereby PARTIALLY GRANTED. Respondent is ORDERED to CANCEL and WITHDRAW the deficiency assessment for value-added tax for 1997 for lack of merit. However, the deficiency assessments for expanded withholding tax and penalties for late remittance of internal revenue taxes are UPHELD. Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded withholding tax in the amount of P1,035,879.70 and the following penalties for late remittance of internal revenue taxes in the sum ofP1,269,593.90:

1. VAT on Royalty 2. Withholding Tax on Royalty

P 429,242.07 831,428.20

3. EWT of Petitioner's Branches 8,923.63 Total P 1,269,593.90

Plus 20% delinquency interest from January 17, 2000 until fully paid pursuant to Section 249(C)(3) of the 1997 Tax Code. SO ORDERED.9 The CIR sought a reconsideration of the above decision and submitted the following grounds in support thereof: A. The Honorable Court committed reversible error in holding that petitioner is not liable for the deficiency VAT in the amount of P11,141,014.41; B. The Honorable court committed reversible error in holding that the commission expense in the amount of P2,894,797.00 should be subjected to 5% withholding tax instead of the 10% tax rate; C. The Honorable Court committed a reversible error in holding that the withholding tax assessment with respect to the 5% withholding tax on rental deposit in the amount of P10,523,821.99 should be cancelled; and D. The Honorable Court committed reversible error in holding that the remittance of final withholding tax on royalties covering the period January to March 1998 was filed on time.10 On April 28, 2005, the CTA-First Division denied the motion for reconsideration. Unfazed, the CIR filed a petition for review with the CTA-EB raising identical issues:
1avvphi 1

1. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41; 2. Whether or not the commission expense in the amount of P2,894,797.00 should be subjected to 10% withholding tax instead of the 5% tax rate; 3. Whether or not the withholding assessment with respect to the 5% withholding tax on rental deposit in the amount of P10,523,821.99 is proper; and 4. Whether or not the remittance of final withholding tax on royalties covering the period January to March 1998 was filed outside of time.11

Finding no cogent reason to reverse the decision of the CTA-First Division, the CTA-EB dismissed CIRs petition on May 17, 2007. CIRs motion for reconsideration was denied by the CTA-EB on July 5, 2007. The CIR is now before this Court via this petition for review relying on the very same grounds it raised before the CTA-First Division and the CTA-EB. The said grounds are reproduced below: GROUNDS FOR THE ALLOWANCE OF THE PETITION I THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS NOT LIABLE FOR DEFICIENCY VAT IN THE AMOUNT OF PHP11,141,014.41. II AS TO RESPONDENTS DEFICIENCY EXPANDED WITHHOLDING TAX IN THE AMOUNT OF PHP1,992,462.72: A. THE CTA EN BANC ERRED IN RULING THAT THE COMMISSION EXPENSE IN THE AMOUNT OF PHP2,894,797.00 SHOULD BE SUBJECTED TO A WITHHOLDING TAX OF 5% INSTEAD OF THE 10% TAX RATE. B. THE CTA EN BANC ERRED IN RULING THAT THE ASSESSMENT WITH RESPECT TO THE 5% WITHHOLDING TAX ON RENTAL DEPOSIT IN THE AMOUNT OF PHP10,523,821.99 IS NOT PROPER. III THE CTA EN BANC ERRED IN RULING THAT THE FINAL WITHHOLDING TAX ON ROYALTIES COVERING THE PERIOD JANUARY TO MARCH 1998 WAS FILED ON TIME.12 Upon filing of Sonys comment, the Court ordered the CIR to file its reply thereto. The CIR subsequently filed a manifestation informing the Court that it would no longer file a reply. Thus, on December 3, 2008, the Court resolved to give due course to the petition and to decide the case on the basis of the pleadings filed.13 The Court finds no merit in the petition. The CIR insists that LOA 19734, although it states "the period 1997 and unverified prior years," should be understood to mean the fiscal year ending in March 31, 1998. 14 The Court cannot agree. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or

enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. 15 The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine and assess a taxpayer. SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A)Examination of Returns and Determination of tax Due. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. x x x [Emphases supplied] Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. As earlier stated, LOA 19734 covered "the period 1997 and unverified prior years." For said reason, the CIR acting through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA. Upon review, the CTA-EB even added that the coverage of LOA 19734, particularly the phrase "and unverified prior years," violated Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent portion of which reads: 3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the L/A.16 [Emphasis supplied] On this point alone, the deficiency VAT assessment should have been disallowed. Be that as it may, the CIRs argument, that Sonys advertising expense could not be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore (SIS), is also erroneous. The CIR contends that since Sonys advertising expense was reimbursed by SIS, the former never incurred any advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising expense should be for the account of SIS, and not Sony.17

The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should have been realized from the advertising expense of the latter.18 It is evident under Section 11019 of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than CIRs own witness, Revenue Officer Antonio Aluquin.20 There is also no denying that Sony incurred advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid for the same.21 Indubitably, Sony incurred and paid for advertising expense/ services. Where the money came from is another matter all together but will definitely not change said fact. The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable. In support of this, the CIR cited a portion of Sonys protest filed before it: The fact that due to adverse economic conditions, Sony-Singapore has granted to our client a subsidy equivalent to the latters advertising expenses will not affect the validity of the input taxes from such expenses. Thus, at the most, this is an additional income of our client subject to income tax. We submit further that our client is not subject to VAT on the subsidy income as this was not derived from the sale of goods or services. 22 Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax, the Court agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sonys advertising expense for it was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was only "equivalent to the latters (Sonys) advertising expenses." Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus: 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, 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. Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony. In the case of CIR v. Court of Appeals (CA),23 the Court had the occasion to rule that services rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however, is not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred although without profit. This is not true in the present case. Sony did not render any

service to SIS at all. The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latters advertising expense but never received any goods, properties or service from Sony. Regarding the deficiency EWT assessment, more particularly Sonys commission expense, the CIR insists that said deficiency EWT assessment is subject to the ten percent (10%) rate instead of the five percent (5%) citing Revenue Regulation No. 2-98 dated April 17, 1998.24 The said revenue regulation provides that the 10% rate is applied when the recipient of the commission income is a natural person. According to the CIR, Sonys schedule of Selling, General and Administrative expenses shows the commission expense as "commission/dealer salesman incentive," emphasizing the word salesman. On the other hand, the application of the five percent (5%) rate by the CTA-First Division is based on Section 1(g) of Revenue Regulations No. 6-85 which provides: (g) Amounts paid to certain Brokers and Agents. On gross payments to customs, insurance, real estate and commercial brokers and agents of professional entertainers five per centum (5%).25 In denying the very same argument of the CIR in its motion for reconsideration, the CTAFirst Division, held: x x x, commission expense is indeed subject to 10% withholding tax but payments made to broker is subject to 5% withholding tax pursuant to Section 1(g) of Revenue Regulations No. 6-85. While the commission expense in the schedule of Selling, General and Administrative expenses submitted by petitioner (SPI) to the BIR is captioned as "commission/dealer salesman incentive" the same does not justify the automatic imposition of flat 10% rate. As itemized by petitioner, such expense is composed of "Commission Expense" in the amount of P10,200.00 and Broker Dealer of P2,894,797.00. 26 The Court agrees with the CTA-EB when it affirmed the CTA-First Division decision. Indeed, the applicable rule is Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which was the applicable rule during the subject period of examination and assessment as specified in the LOA. Revenue Regulations No. 2-98, cited by the CIR, was only adopted in April 1998 and, therefore, cannot be applied in the present case. Besides, the withholding tax on brokers and agents was only increased to 10% much later or by the end of July 2001 under Revenue Regulations No. 6-2001.27 Until then, the rate was only 5%. The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT assessment on the rental deposit. According to their findings, Sony incurred the subject rental deposit in the amount of P10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate LOA specifying the coverage, the CIRs deficiency EWT assessment from January to March 1998, is not valid and must be disallowed. Finally, the Court now proceeds to the third ground relied upon by the CIR.

The CIR initially assessed Sony to be liable for penalties for belated remittance of its FWT on royalties (i) as of December 1997; and (ii) for the period from January to March 1998. Again, the Court agrees with the CTA-First Division when it upheld the CIR with respect to the royalties for December 1997 but cancelled that from January to March 1998. The CIR insists that under Section 328 of Revenue Regulations No. 5-82 and Sections 2.57.4 and 2.58(A)(2)(a)29of Revenue Regulations No. 2-98, Sony should also be made liable for the FWT on royalties from January to March of 1998. At the same time, it downplays the relevance of the Manufacturing License Agreement (MLA) between Sony and Sony-Japan, particularly in the payment of royalties. The above revenue regulations provide the manner of withholding remittance as well as the payment of final tax on royalty. Based on the same, Sony is required to deduct and withhold final taxes on royalty payments when the royalty is paid or is payable. After which, the corresponding return and remittance must be made within 10 days after the end of each month. The question now is when does the royalty become payable? Under Article X(5) of the MLA between Sony and Sony-Japan, the following terms of royalty payments were agreed upon: (5)Within two (2) months following each semi-annual period ending June 30 and December 31, the LICENSEE shall furnish to the LICENSOR a statement, certified by an officer of the LICENSEE, showing quantities of the MODELS sold, leased or otherwise disposed of by the LICENSEE during such respective semi-annual period and amount of royalty due pursuant this ARTICLE X therefore, and the LICENSEE shall pay the royalty hereunder to the LICENSOR concurrently with the furnishing of the above statement. 30 Withal, Sony was to pay Sony-Japan royalty within two (2) months after every semi-annual period which ends in June 30 and December 31. However, the CTA-First Division found that there was accrual of royalty by the end of December 1997 as well as by the end of June 1998. Given this, the FWTs should have been paid or remitted by Sony to the CIR on January 10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First Division and the CTA-EB in ruling that the FWT for the royalty from January to March 1998 was seasonably filed. Although the royalty from January to March 1998 was well within the semi-annual period ending June 30, which meant that the royalty may be payable until August 1998 pursuant to the MLA, the FWT for said royalty had to be paid on or before July 10, 1998 or 10 days from its accrual at the end of June 1998. Thus, when Sony remitted the same on July 8, 1998, it was not yet late. In view of the foregoing, the Court finds no reason to disturb the findings of the CTA-EB. WHEREFORE, the petition is DENIED. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice

WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson TERESITA J. LEONARDO-DE CASTRO* Associate Justice DIOSDADO M. PERALTA Associate Justice

ROBERTO A. ABAD Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 185371 December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. METRO STAR SUPERAMA, INC., Respondent. DECISION MENDOZA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16, 2008 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution2 denying petitioners motion for reconsideration. The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed respondent Metro Star Superama, Inc.(Metro Star) of deficiency value-added tax and withholding tax for the taxable year 1999. Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division summarized the factual and procedural antecedents of the case, the pertinent portions of which read: 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, Legazpi City, issued Letter of Authority No. 00006561 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 P 292,874.16. 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, computed as follows: ASSESSMENT NOTICE NO. 067-99-003-579-072 VALUE ADDED TAX Gross Sales Output Tax Less: Input Tax VAT Payable Add: 25% Surcharge 20% Interest Compromise Penalty Late Payment Failure to File VAT returns TOTAL WITHHOLDING TAX Compensation Expanded Total Tax Due Less: Tax Withheld Deficiency Withholding Tax Add: 20% Interest p.a. Compromise Penalty TOTAL *Expanded Withholding Tax P1,949,334.25 x 5% Film Rental 10,000.25 x 10% 2,772.91 110,103.92 P 112,876.83 111,848.27 P 1,028.56 576.51 200.00 P 1,805.07 97,466.71 1,000.00 P16,000.00 2,400.00 18,400.00 136,731.01 P 291,069.09 P 38,584.54 79,746.49 P1,697,718.90 P 154,338.08 _____________ P 154,338.08

Audit Fee Rental Expense Security Service Service Contractor Total

193,261.20 41,272.73 156,142.01

x 5% x 1% x 1%

9,663.00 412.73 1,561.42 P 110,103.92

SUMMARIES OF DEFICIENCIES VALUE ADDED TAX WITHHOLDING TAX TOTAL P 291,069.09 1,805.07 P 292,874.16

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, Revenue Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18, 2005. x x x. Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a petition for review4 with the CTA. The parties then stipulated on the following issues to be decided by the tax court: 1. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the issuance of a deficiency tax assessment; 1.1 Whether petitioner is liable for the respective amounts of P291,069.09 and P1,805.07 as deficiency VAT and withholding tax for the year 1999;

1.2. Whether the assessment has become final and executory and demandable for failure of petitioner to protest the same within 30 days from its receipt thereof on April 11, 2002, pursuant to Section 228 of the National Internal Revenue Code; 2. Whether the deficiency assessments issued by the respondent are void for failure to state the law and/or facts upon which they are based. 2.2 Whether petitioner was informed of the law and facts on which the assessment is made in compliance with Section 228 of the National Internal Revenue Code; 3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT on sales of services under Section 108(A) of the National Internal Revenue Code; 4. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal Revenue Code. 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 reconsideration7 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 review9 with the CTA-En Banc, but the petition was dismissed after a determination that no new matters were raised. The CTA-En Banc disposed: WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED. The motion for reconsideration10 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. 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.) 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. Menguito16 cited by the CIR in support of its argument that only the nonservice 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 merelynotifying 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.
1avvphi 1

The Court need not belabor to discuss the matter of Metro Stars failure to file its protest, for it is well-settled that a void assessment bears no fruit.18 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. Hence in Commissioner of Internal Revenue v. Algue, Inc.,20 it was said Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. xxx xxx xxx

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned income to taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. 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.21 (Emphasis supplied). WHEREFORE, the petition is DENIED. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson

ANTONIO EDUARDO B. NACHURA Associate Justice

DIOSDADO M. PERALTA Associate Justice

ROBERTO A. ABAD Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpe rsons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Baguio City THIRD DIVISION G.R. No. 197117 April 10, 2013

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION MENDOZA, J.: Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation (petitioner), assailing the March l, 2011 Decision2 and the May 27, 2011 Resolution3 of the Court of Tax Appeals (CTA) En Bane, in CTA E.B. No. 563, which affirmed the May 21, 2009 Decision of the CTA-Second Division. The Facts: Petitioner is a non-lire insurance corporation and considered as a "Large Taxpayer under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994."4 After submitting its corporate income tax return for taxable year ending December 31, 1997, petitioner received a Letter of Authority, dated October 30, 1998, from respondent Commissioner of Internal Revenue (CIR) to allow it to examine their books of account and other accounting records for 1997 and other unverified prior years. On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income, withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes for taxable year 1997. On February 24, 2000, petitioner protested the said tax assessments. During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-970220-99; ST-VAT-97-0222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA Second Division granted the said motion in a Resolution, 5 dated March 31, 2008. Consequently, on May 21, 2009, the CTA Second Division partially granted the petition. 6 It directed petitioner to pay CIR a reduced tax liability of P1,994,390.86. The dispositive portion reads:

WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding tax on compensation, expanded withholding tax and final tax in the reduced amount of P1,994,390.86, computed as follows: Basic Tax Surcharges Interest Total

Deficiency Withholding Tax on Compensation ST-WC-97-022199

P774,200.55

P193,550.14 P312.227.34 P1,279,978.03

Deficiency Expanded Withholding Tax ST-EWT-970218-99

132,724.02

33,181.01

53,526.27

219,431.30

Deficiency Final Withholding Tax ST-FT-970219-99

299,391.84

74,847.96

120,741.73

494,981.53

TOTALS

P1,206,316.41 P301,579.11 P486,495.34 P1,994,390.86

Petitioners Motion for Partial Reconsideration7 was likewise denied by the CTA Second Division in its October 29, 2009 Resolution.8 Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc. 9 On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division.10 Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the P500,000.00 Directors Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales, Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was already subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that Section 5 of Revenue Regulation No. 12-86 expressly identified a director to be an employee. As to transportation, subsistence and lodging, and representation expenses, the expenses would not be subject to withholding tax only if the same were reimbursement for actual expenses of the company. In the present case, the CTA En Banc declared that petitioner failed to prove that they were so. As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate that the commissions earned totaling P905,428.36, came from reinsurance activities and should not be subject to withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost and service/contractors and purchases. As to deficiency final withholding taxes, "petitioner failed to present proof of remittance to establish that it had remitted the final tax on dividends paid as well as the payments for services rendered by the Malaysian entity."11 As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty (30) days from receipt of the demand letter, thus, delinquency interest accrued from such non-payment. Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May 27, 2011 Resolution.12 Hence, this petition.13 The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for: a. deficiency withholding taxes on compensation on directors bonuses under Assessment No. ST-WC-97-0021-99;

b. deficiency expanded withholding taxes on transportation, subsistence and lodging, and representation expense; commission expense; direct loss expense; occupancy cost; and service/contractor and purchases under Assessment No. ST-EWT-97-0218-99; c. deficiency final withholding taxes on payment of dividends and computerization expenses to foreign entities under Assessment No. ST-FT-97-0219-99; and d. delinquency interest under Section 249 (c) (3) of the NIRC. The Court finds no merit in the petition. For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation No. 12-86,14to wit: An individual, performing services for a corporation, whether as an officer and director or merely as a director whose duties are confined to attendance at and participation in the meetings of the Board of Directors, is an employee. The non-inclusion of the names of some of petitioners directors in the companys Alpha List does not ipso facto create a presumption that they are not employees of the corporation, because the imposition of withholding tax on compensation hinges upon the nature of work performed by such individuals in the company. Moreover, contrary to petitioners attestations, Revenue Regulation No. 2-98,15 specifically, Section 2.57.2. A (9) thereof,16 cannot be applied to this case as the latter is a later regulation while the accounting books examined were for taxable year 1997. As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and representation expense, commission expense, direct loss expense, occupancy cost, service/contractor and purchases, the Court finds no cogent reason to deviate from the findings of the CTA En Banc. As correctly observed by the CTA Second Division and the CTA En Banc, petitioner was not able to sufficiently establish that the transportation expenses reflected in their books were reimbursement from actual transportation expenses incurred by its employees in connection with their duties as the only document presented was a Schedule of Transportation Expenses without pertinent supporting documents. Without said documents, such as but not limited to, receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether the amounts reflected in the schedule of expenses were disbursed for transportation. With regard to commission expense, no additional documentary evidence, like the reinsurance agreements contracts, was presented to support petitioners allegation that the expenditure originated from reinsurance activities that gave rise to reinsurance commissions, not subject to withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the correct total occupancy cost that should be subjected to withholding tax, hence, petitioner is liable for the deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated that it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CTA Second Division and En Bane, however, stipulations cannot defeat the right of the State to collect the correct taxes due on an individual or juridical person because taxes are the lifeblood of our nation so its collection should be actively pursued without unnecessary impediment. As to the deficiency final withholding tax assessments for payments of dividends and computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine & Fire Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that petitioner failed to present evidence to show the supposed remittance to Matsui. The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997 NIRC to be proper, because failure to pay the deficiency tax assessed within the time prescribed for its payment justifies the imposition of 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. It is worthy to note that tax revenue statutes are not generally intended to be liberally construed.18 Moreover, the CTA being a highly specialized court particularly created for the purpose of reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great respect and are generally upheld by this Court, unless there is a clear showing of a reversible error or an improvident exercise of authority.19 Absent such errors, the challenged decision should be maintained. WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011 Resolution of the Court of Tax Appeals En Bane, in CTA E.B. No. 563, are AFFIRMED. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice WE CONCUR: PRESBITERO J. VELASCO, JR. Associate Justice Chairperson DIOSDADO M. PERALTA Associate Justice ROBERTO A. ABAD Associate Justice

MARVIC MARIO VICTOR F. LEONEN Associate Justice ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. PRESBITERO J. VELASCO, JR. Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. MARIA LOURDES P. A. SERENO Chief Justice

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 187485 February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SAN ROQUE POWER CORPORATION, Respondent. X----------------------------X G.R. No. 196113 TAGANITO MINING CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. x----------------------------x G.R. No. 197156 PHILEX MINING CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION CARPIO, J.: The Cases G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods and services for the taxable year 2001. G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution10of the CTA Second Division and granted the CIRs

petition for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporations (Taganito) judicial claim for P8,365,664.38 tax refund or credit. G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription, Philex Mining Corporations (Philex) judicial claim for P23,956,732.44 tax refund or credit. On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned. G.R. No. 187485 CIR v. San Roque Power Corporation The Facts The CTA EBs narration of the pertinent facts is as follows: [CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue ("BIR") National Office Building, Diliman, Quezon City. [San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was 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 governmentowned or controlled corporation, or other entity engaged in the development, supply, or distribution of energy. As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005017-501. It is likewise registered with the Board of Investments ("BOI") 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, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998. On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San Roque] shall be responsible for the design, construction, installation, completion, testing and commissioning of the Power Station and 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 559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of 559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year 2001. However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased its unutilized input VAT to the amount of 560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate amount of 560,200,283.14. [CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court [of Tax Appeals] in Division on April 10, 2003. Trial of the case ensued and on July 20, 2005, the case was submitted for decision. 15 The Court of Tax Appeals Ruling: Division The CTA Second Division initially denied San Roques claim. In its Decision16 dated 8 March 2006, it cited the following as bases for the denial of San Roques claim: lack of recorded zero-rated or effectively zero-rated sales; failure to submit documents specifically identifying the purchased goods/services related to the claimed input VAT which were included in its Property, Plant and Equipment account; and failure to prove that the related construction costs were capitalized in its books of account and subjected to depreciation. The CTA Second Division required San Roque to show that it complied with the following requirements of Section 112(B) of Republic Act No. 8424 (RA 8424) 17 to be entitled to a tax refund or credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-registered 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, thus: The fact that [San Roque] is a VAT registered entity is admitted ( par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p. 157). It was also established that the instant claim of 560,200,823.14 is already net of the 11,509.09 output tax declared by [San Roque] in its amended VAT return for the first quarter of 2001. Moreover, the entire amount of 560,200,823.14 was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002

(Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of 560,200,823.14 did not form part of the excess input taxes of 83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding quarters. Further, [San Roques] claim for refund/tax credit certificate of excess input VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the corresponding quarterly VAT returns. For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of 2001, respectively, ( Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims for refund (original and amended) and the Petition for Review fall within the two-year prescriptive period.18 San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roques claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of 483,797,599.65, which represents San Roques unutilized input VAT on its purchases of capital goods and services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of the independent certified public accountant. The following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related purchases are in the nature of capital goods; and the purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the difference between San Roques claim and that appearing on its books; the official receipts covering the claimed input VAT on purchases of local services are not within the period of the claim; and the amount of VAT cannot be determined from the submitted official receipts and invoices. The CTA Second Division denied San Roques claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales because San Roque had no record of such sales for the four quarters of 2001. The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision reads: WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and this Courts Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED. Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos (483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for the taxable year 2001.

SO ORDERED.20 The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division issued a Resolution dated 11 July 2008 which denied the CIRs motion for lack of merit. The Court of Tax Appeals Ruling: En Banc The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647. The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and resolution. The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular No. 49-03,22 as its bases for ruling that San Roques judicial claim was not prematurely filed. The pertinent portions of the Decision state: More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise: It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of the tax due. If the said period is about to expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for review with this Court within the two year period. In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait indefinitely for a decision or ruling which may or may not be forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make matters more exasperating for the taxpayer if we were to

close the doors of the courts of justice for such a relief until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go signal. This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein petitioner) may take. At stake are claims for refund and unlike disputed assessments, no decision of respondent (herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations omitted) Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of the subject 120-day period, to wit: In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto. In consonance therewith, the following amendments are being introduced to RMC No. 422003, to wit: I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows: In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency. If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)

G.R. No. 196113 Taganito Mining Corporation v. CIR The Facts The CTA Second Divisions narration of the pertinent facts is as follows: Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary purpose: To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their byproducts and which by-products thereof of every kind and description and by whatsoever process the same can be or may hereafter be produced, and generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights, concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever which this corporation may from time to time find to be to its advantage to mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize water rights in such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private telegraph and telephone lines, and other communication media, as may be needed by the corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and other works, conveniences and properties of any description in connection with or which may be directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in any operations; and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306. Respondent, on the other hand, 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, or other matters arising under the National Internal Revenue Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City. [Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows: Exhibit(s) L to L-4 M to M-3 N to N-4 Q to Q-3 R to R-4 U to U-4 V to V-4 Y to Y-4 Z to Z-4 4th 3rd 2nd Quarter 1st Nature of the Return Original Amended Amended Original Amended Original Amended Original Amended Mode of filing Electronic Electronic Electronic Electronic Electronic Electronic Electronic Electronic Electronic Filing Date April 15, 2005 July 20, 2005 October 18, 2006 July 20, 2005 October 18, 2006 October 19, 2005 October 18, 2006 January 20, 2006 October 18, 2006

As can be gleaned from its amended Quarterly VAT Returns, [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, the details of which are summarized as follows: Period Covered Zero-Rated Sales Input VAT on Input VAT on Total Input VAT Domestic Domestic Purchases and Purchases and Importations Importations of Goods and of Capital Services Goods P1,491,880.56 204,364.17 144,887.67 P239,803.22 5,811,130.73 P1,731,683.78 6,015,494.90 144,887.67

01/01/05 - P551,179,871.58 03/31/05 04/01/05 - 64,677,530.78 06/30/05 07/01/05 - 480,784,287.30 09/30/05

10/01/05 - 350,212,345.02 12/31/05 TOTAL

473,598.03

P6,050,933.95

473,598.03 P8,365,664.38

P1,446,854,034.68 P2,314,730.43

On November 14, 2006, [Taganito] filed with [the CIR], through BIRs Large Taxpayers Audit and Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of its supposed input VAT amounting to 8,365,664.38 for the period covering January 1, 2004 to December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same amount. On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct the period of the above claim for tax credit/refund in the said amount of 8,365,664.38 as actually referring to the period covering January 1, 2005 to Dece mber 31, 2005. As the statutory period within which to file a claim for refund for 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. In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses: 4. [Taganitos] alleged claim for refund is subject to administrative investigation/examination by the Bureau of Internal Revenue (BIR); 5. The amount of 8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on domestic purchases of goods and services and on importation of capital goods for the period January 1, 2005 to December 31, 2005 is not properly documented; 6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claiming tax refund/credit; 7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund pursuant to Revenue Memorandum Order No. 5398, otherwise there would be no sufficient compliance with the filing of administrative claim for refund, the administrative claim thereof being mere proforma, which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended, requires the submission of complete documents in support of the application filed with the BIR before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, [Taganitos] failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue Regulations No. 7-95. 9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670); 10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211). SPECIAL AND AFFIRMATIVE DEFENSES 11. 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 dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.) 12. 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. During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its supposed entitlement to the refund in the amount of 8,365,664.38, r epresenting input taxes for the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was submitted for decision as of such date, considering

[Taganitos] "Memorandum" filed on January 19, 2009 and [the CIRs] "Memorandum" filed on December 19, 2008.24 The Court of Tax Appeals Ruling: Division The CTA Second Division partially granted Taganitos claim. In its Decision25 dated 8 January 2010, the CTA Second Division 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.26 The pertinent portions of the CTA Second Divisions Decision read: Finally, records show that [Taganitos] administrative claim filed on November 14, 2006, which was amended on November 29, 2006, and the Petition for Review filed with this Court on February 14, 2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005, September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter covering the period January 1, 2005 to December 31, 2005. In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of 8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005. WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes attributable to zero-rated sales from January 1, 2005 to December 31, 2005. SO ORDERED.27 The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010. In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs 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 CTA Second Division applied the mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under Section 112. The Court of Tax Appeals Ruling: En Banc On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganitos entire claim for refund be denied.

In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and reversed and set aside the challenged decision and resolution. The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the close of the taxable quarter when the sales were made. The CTA EB also relied on this Courts rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing. The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA EB found that Taganitos judicial claim was prematurely filed. Taganito filed its Petition for Review before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code. The dispositive portion of the Decision states: WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in CTA Case No. 7574 for having been prematurely filed. SO ORDERED.32 In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally Collected). Justice Bautista also relied on this Courts ruling in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected national internal revenue tax are the same, insofar as both are monetary amounts which are currently in the hands of the government but must rightfully be returned to the taxpayer. Justice Bautista concluded: Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or after the lapse of the 120-day period in the event of inaction by the Commissioner, provided that both administrative and judicial remedies must be undertaken within the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganitos motion in a Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this Courts rulings in Aichi and Mirant. G.R. No. 197156 Philex Mining Corporation v. CIR The Facts The CTA EBs narration of the pertinent facts is as follows: [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, which includes the exploration and operation of mine properties and commercial production and marketing of mine products, with office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City. [The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes, fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith, including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR Road, Quezon City. 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 23,956,732.44 with the One Stop Shop Center of the Department of Finance. However, due to [the CIRs] failure to act on such claim, on October 17, 2007, pu rsuant to Sections 112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687. In [her] Answer, respondent CIR alleged the following special and affirmative defenses: 4. Claims for refund are strictly construed against the taxpayer as the same partake the nature of an exemption; 5. 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; 6. [Philex] should prove its legal basis for claiming for the amount being refunded. 37 The Court of Tax Appeals Ruling: Division The CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to prescription. The CTA Second Division 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 Philexs 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. On 10 November 2009, the CTA Second Division denied Philexs Motion for Reconsideration. The Court of Tax Appeals Ruling: En Banc Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA EB, in its Decision38 dated 3 December 2010, denied Philexs petition and affirmed the CTA Second Divisions Decision and Resolution. The pertinent portions of the Decision read: In this case, while there is no dispute that [Philexs] administrative claim for refund was filed within the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the amount of 23,956,732.44 with the One St op Shop Center of the Department of Finance, per Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426 days way beyond the 30- day period prescribed by law. Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review in CTA 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 in Division; and not due to prescription. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10, 2009 denying [Philexs] Motion for Reconsideration are hereby AFFIRMED, with modification that the dismissal is based on the ground that the Petition for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed period to appeal. SO ORDERED.39 G.R. No. 187485 CIR v. San Roque Power Corporation

The Commissioner raised the following grounds in the Petition for Review: I. The Court of Tax Appeals En Banc erred in holding that [San Roques] claim for refund was not prematurely filed. II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Appeals (Second Division) granting [San Roques] claim for refund of alleged unutilized input VAT on its purchases of capital goods and services for the taxable year 2001 in the amount of P483,797,599.65. 40 G.R. No. 196113 Taganito Mining Corporation v. CIR Taganito raised the following grounds in its Petition for Review: I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in violation of [Taganitos] right to due process. II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in erroneously interpreting the provisions of Section 112 (D).41 G.R. No. 197156 Philex Mining Corporation v. CIR Philex raised the following grounds in its Petition for Review: I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the petition was filed with the CTA within the period set by prevailing court rulings at the time it was filed. II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this instant case.42 The Courts Ruling For ready reference, the following are the provisions of the Tax Code applicable to the present cases: Section 105: Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leasesgoods 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 No. 7716. xxxx Section 110(B): Sec. 110. Tax Credits. (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: [Provided, That the input tax inclusive of 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:]43 Provided, however, That any input tax attributable to zerorated 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 . Section 112:44 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 Subsection (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. 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 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. 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. (All emphases supplied) I. Application of the 120+30 Day Periods a. G.R. No. 187485 - CIR v. San Roque Power Corporation On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-day period to lapse before filing its judicial claim;second, San Roque

filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007. Clearly, 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 Roques 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 taxpayers petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles.46 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."47 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"48 of the application for tax refund or credit. It is the Commissioners decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has no jurisdiction over a petition for review.49 San Roques 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 Roques 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 petitions validity. It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others." 50 For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roques petition with the CTA is a mere scrap of paper.

This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a 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. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit. 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. Non-compliance with mandatory periods, nonobservance of prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayers 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 non-compliance with mandatory and jurisdictional conditions. 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 Atlasdoctrine 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 Atlasdoctrine 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. TheAtlas doctrine does not interpret, expressly or impliedly, the 120+3052 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 Atlasas 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.53 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 Mirant54 doctrine on the other hand, is a mere 20 days. TheAtlas 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." Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative claims filed with the Commissioner, and the petitions for review filed with

the CTA, were all filed within two years from the date of payment of the output VAT, following Section 229: Period Covered 2nd Quarter, 1990 Close of Quarter 30 June 1990 3rd Quarter, 1990 Close of Quarter 30 September 1990 4th Quarter, 1990 Close of Quarter 31 December 1990 Date of Filing Return Date of Filing Date of Filing & Payment of Tax Administrative Claim Petition With CTA 20 July 1990 21 August 1990 20 July 1992

18 October 1990

21 November 1990

9 October 1992

20 January 1991

19 February 1991

14 January 1993

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 twoyear 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 difference55 between the Atlas doctrine and the later Mirant doctrine is not material to San Roques 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 Roques non-compliance with the 120day 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 Roques 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. 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)56 expressly grants the Commissioner 120 days within which to decide the taxpayers 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 Commissioners 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 Roques 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. (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 Commissioners decision, or if the Commissioner does not act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period. b. G.R. No. 196113 - Taganito Mining Corporation v. CIR 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-489-0357 dated 10 December 2003, which expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120day 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. c. G.R. No. 197156 Philex Mining Corporation v. CIR 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 twoyear 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 Philexs claim. Since the Commissioner did not act on Philexs 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 x58(Emphasis supplied) Unlike San Roque and Taganito, Philexs 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, Philexs 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, Philexs 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 Philexs claim during the 120-day period is, by express provision of law, "deemed a denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs 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.59 Philex failed to comply with the statutory conditions and must thus bear the consequences. II. Prescriptive Periods under Section 112(A) and (C) There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within the twoyear prescriptive period. First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law. The twoyear prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of documents "in support of the application filed in accordance with Subsection A" means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the twoyear prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner . As held in Aichi, the "phrase within two years x x x apply for the issuance of a tax credit or refund refers to applications for refund/credit with the CIR and not to appeals made to the CTA." Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days60), 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 twoyear prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period. The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal language. Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C). III. "Excess" Input VAT and "Excessively" Collected Tax 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 seller61 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.62 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. In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not "excessively" collected as understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229. Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." The prescriptive period is reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can file the judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no personality to file the judicial claim under Section 229.63 Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay theoutput VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the input 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. 64 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 carry-over 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. Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or services using materials subject to input VAT. 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 paymentbecause 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. IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

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 theverba 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. The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised inAichi, which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from the date of submission of complete documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayers claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of exhaustion of administrative remedies.65 Such doctrine is basic and elementary. 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 twentyday 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. Certainly, by no stretch of the imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the Commissioner. The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioners decision if the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period. To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period

from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional. V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003 There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day period to expire before filing a judicial claim with the CTA. RMC 4903 merely authorizes the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases where the taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance), the administrative agency and the court may act on the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day period, the BIR will nevertheless continue to act on the administrative claim because such premature filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the administrative claim within the 120-day period. On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still continue to evaluate the administrative claim. There is nothing new in this because even after the expiration of the 120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of opposing the taxpayers judicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayers judicial claim. The internal administrative evaluation of the taxpayers claim must necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the judicial claim, resulting in the termination of the judicial proceedings. What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory period, unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67 VI. BIR Ruling No. DA-489-03 dated 10 December 2003 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 "taxpayerclaimant 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,68 that the expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed. 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 CTA. In these cases, the Commissioner cannot be allowed to later on question the CTAs assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code. Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the power to interpret tax laws, thus: Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows: Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections 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 or 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 from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith. (Emphasis supplied) Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal only by the Commissioner because this

Section expressly states, "Any revocation, modification or reversal" without specifying who made the revocation, modification or reversal. Hence, a reversal by this Court is covered under Section 246. 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 Aichi69 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 Atlasdoctrine 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 Aichiprospectively. 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. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70 In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases ofCommissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case .
1w phi 1

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled to tax refunds or credits based on the BIRs own issuances but later was suddenly saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayers transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis supplied) Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner

what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period. Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer. San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-48903 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner . Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity. Philexs 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. VII. Existing Jurisprudence There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San Roques failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions do not support even remotely the

claim that this Court had already made such a ruling. None of these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory period is inconsequential as long as the administrative and judicial claims are filed within the two-year prescriptive period. In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services, to which this Court answers in the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the twoyear prescriptive period. In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in petitioners export sales invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioners failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division, conceding that petitioners transactions fall under the classification of zero-rated sales, nevertheless denied petitioners claim for lack of substantiation, x x x." The Court quoted the ruling of the First Division that "valid VAT official receipts, and not mere sale invoices, should have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioners motion for reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole issue in this case is whether petitioner complied with the substantiation requirements in claiming for tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the twoyear prescriptive period. In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner: "Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent Ironcons application for refund of its excess creditable VAT withheld." The Commissioner argued that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable VAT withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT withheld. Again, nowhere in this case did

the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained: Both the Commissioner of Internal Revenue and the Office of the Solicitor General 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. For petitioner claims that said registration was erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit. 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. Hence, 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 Certified Public Accountant 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. Considering the submission of the parties and the evidence on record, we find the petition bereft of merit. 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. 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 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. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the income tax holiday for four (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. (Emphasis supplied) Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT. Again, nowhere in this case did the Court discuss, state, or rule

that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA, this issue was not raised before the Court. Certainly, this statement of the Court is not a binding precedent that the taxpayer need not wait for the 120-day period to lapse. Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as precedent. As this Court has explained as early as 1926: It is contended, however, that the question before us was answered and resolved against the contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question was raised nor was it even suggested that said section 216 did not apply to a public officer. That question was not discussed nor referred to by any of the parties interested in that case. It has been frequently decided that the fact that a statute has been accepted as valid, and invoked and applied for many years in cases where its validity was not raised or passed on, does not prevent a court from later passing on its validity, where that question is squarely and properly raised and presented. Where a question passes the Court sub silentio, the case in which the question was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in the interpretation of the question presented here. 76 (Emphasis supplied) In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute binding precedent on the nature of the 120-day period. 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.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78 x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their own right because they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to specific cases alone, our judgments are

universal in their scope and application, and equally mandatory in character . Let it be warned that to defy our decisions is to court contempt. (Emphasis supplied) The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79 The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit: ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines. It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument. (Emphasis supplied) VIII. Revenue Regulations No. 7-95 Effective 1 January 1996 Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional. Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary law, more so in this case where the later law was enacted precisely to amend the prior administrative regulation and the law it implements. The laws and regulation involved are as follows: 1977 Tax Code, as amended by Republic Act No. 7716 (1994) Sec. 106. Refunds or tax credits of creditable input tax. (a) x x x x (d) Period within which refund or tax credit of input tax shall be made - In proper cases, the Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (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 receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996) Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x xxxx (c) Period within which refund or tax credit of input taxes shall be made. In proper cases, the Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above. In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of the application but before the lapse of the two (2) year period from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the Court of Tax Appeals. xxxx 1997 Tax Code Section 112. Refunds or Tax Credits of Input Tax (A) x x x xxxx (D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the Commissioner shall grant the 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 hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals . There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is mandatory and jurisdictional. Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act on the administrative claim, the taxpayer may file the judicial claim even "before the lapse of the two (2) year period."Thus, under Section 4.106-2(c) the 60day period is still mandatory and jurisdictional . Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be disputed.
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Second, 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.80 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 60day 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 4.1062(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. Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior inconsistent administrative issuance. Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty days from the expiration of the 120- day period if the Commissioner does not act within the 120-day period. There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five yearsbefore San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day period is mandatory and jurisdictional. San Roques claim, having been filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and jurisdictional period, San Roques claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its administrative claim. Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax refund or credit. San Roque did not comply with the express condition for such statutory grant. A final word. 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. 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) GRANTSthe 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. ANTONIO T. CARPIO Associate Justice WE CONCUR: I join the disent of J. Velasco; but I partly (source document unreadable) separate Dissenting Opinion) MARIA LOURDES P. A. SERENO Chief Justice I dissent (Please Dissenting Opinion) PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO Associate Justice

Associate Justice ARTURO D. BRION Associate Justice LUCAS P. BERSAMIN Associate Justice ROBERTO A. ABAD Associate Justice JOSE PORTUGAL PEREZ Associate Justice DIOSDADO M. PERALTA Associate Justice I join J. Leonen in his separate opinion MARIANO C. DEL CASTILLO Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice I join the dissent of J. Velasco JOSE C. MENDOZA Associate Justice I join the dissent of J. Velasco ESTELA M. PERLAS-BERNABE Associate Justice

BIENVENIDO L. REYES Associate Justice

See separate opinion MARVIC MARIO VICTOR F. LEONEN Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court. MARIA LOURDES P. A. SERENO Chief Justice