T2CD

G.R. No.
171251
March 5, 2012
LASCONA LAND CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE
Facts: Petitioner Lascona Land Co., Inc. was assessed for alleged deficiency
income tax in the amount of P753,266.56 for the taxable year 1993. Petitioner
filed a protest with the respondent Commissioner of the Internal Revenue (CIR),
but it was denied on the ground that it has become final, executory and
demandable as is it was not elevated to the Court of Tax Appeals (CTA) as
required in the last paragraph of Section 228 of the Tax Code. Petitioner
appealed before the CTA alleging that the CIR erred in ruling that the failure to
appeal to the CTA within 30 days from the lapse of the 180-day period rendered
the assessment final and executory. However, the CIR maintained its argument
that petitioners failure to file an appeal after the lapse of the 180-day
reglementary period required by law resulted to the finality of the assessment.
Issue: Whether or not the subject assessment has become final and executory.
Ruling: No.
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 an appeal after the lapse of the 180day 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, 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.
In the case at bar, petitioner 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 30 days after
receipt of a copy of such decision or ruling, even after the expiration of the 180day period fixed by law for the Commissioner of Internal Revenue to act on the
disputed assessments.
C a s e D i g e s t s Ta x a t i o n I I
Page 37
G.R. No. 174759
September 7, 2011
DENIS B. HABAWEL AND ALEXIS F. MEDINA vs. COURT OF TAX APPEALS,

FIRST DIVISION
Facts: Petitioners Habawel and Medina were the counsel of Surfield

Development Corporation (Surfield). Surfield sought the refund of excess realty
taxes paid by it from 1995 until 2000 from the Office of the Treasurer of
Mandaluyong City, which the latter denied. Surfield filed a Special Civil Action for
Mandamus before the Regional Trial Court (RTC) which dismissed the petition on
the ground that the period to file the claim had already prescribed and that
Surfield had failed to exhaust administrative remedies. The RTC ruled that the
grant of a tax refund was not a ministerial duty compellable by writ of mandamus.
The Court of Tax Appeals (CTA) First Division affirmed the decision of the RTC.
On its motion for reconsideration, the petitioners insists that the CTA had
jurisdiction pursuant to Section 7(a)(3) of Republic Act No. 9282 and there was
no need to file an appeal before the Local Board of Assessment Appeals
pursuant to Section 22 of RA 7160.
The CTA denied the motion for reconsideration, explaining that the jurisdiction
conferred by Section 7(a)(3) of Republic Act No. 9282 referred to appeals from
the decisions, orders, or resolutions of the RTCs in local tax cases and did not
include real property tax, an ad valorem tax, the refund of excess payment of
which Surfield was claiming. Accordingly, the CTA First Division ruled that the
jurisdiction of the CTA concerning real property tax cases fell under a different
section of the same law and under a separate book of Republic Act No. 7160.
Issue: Whether or not the CTA has jurisdiction over the case.
Ruling: No.
Section 7(a)(3) covers only appeals from the decisions, orders or resolutions of
the Regional Trial Courts in local tax cases originally decided or resolved by them
in the exercise of their original or appellate jurisdiction. The provision is clearly
limited to local tax disputes decided by the Regional Trial Courts. In contrast,
Section 7(a)(5) grants the CTA cognizance of appeals from the decisions of the
Central Board of Assessment Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals.
Therefore, as the CTA First Division forthrightly explained and contrary to the
petitioners contention, Section 7(a)(3) is not applicable because real property
tax, being an ad valorem tax, cannot be treated as a local tax.
Page 37
G.R. No. 180173
April 6, 2011
MICROSOFT PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL

REVENUE
Facts: Petitioner Microsoft Philippines, Inc., a VAT-registered taxpayer, renders

marketing services to Microsoft Operations Pte. Ltd. (MOP) and Microsoft
Licensing, Inc. (MLI), both affiliated non-resident foreign corporations. The
services are paid for in acceptable foreign currency and qualify as zero-rated
sales for VAT purposes.
Petitioner filed an administrative claim for tax credit of VAT input taxes in the
amount of P11,449,814.99 attributable to its zero-rated sales. Due to the Bureau
of Internal Revenues (BIR) inaction, petitioner filed a petition for review before
the Court of Tax Appeals (CTA), which denied the claim for tax credit of VAT input
taxes. The CTA explained that petitioner failed to comply with the invoicing
requirements of Sections 113 and 237 of the National Internal Revenue Code
(NIRC) as well as Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95).
The CTA stated that petitioners official receipts do not bear the imprinted word
"zero-rated" on its face, thus, the official receipts cannot be considered as valid
evidence to prove zero-rated sales for VAT purposes.
Issue: Whether or not the petitioner is entitled to a refund of VAT input taxes.
Ruling: No.
The invoicing requirements for a VAT-registered taxpayer as provided in the
NIRC and revenue regulations are clear. A VAT-registered taxpayer is required to
comply with all the VAT invoicing requirements to be able to file a claim for input
taxes on domestic purchases for goods or services attributable to zero-rated
sales. A "VAT invoice" is an invoice that meets the requirements of Section 4.1081 of RR 7-95. Contrary to petitioner's claim, RR 7-95 expressly states that "All
purchases covered by invoices other than a VAT invoice shall not give rise to any
input tax." Petitioner's invoice, which lacks the word "zero-rated," is not a "VAT
invoice," and thus cannot give rise to any input tax.
It was ruled in several cases that the printing of the word "zero-rated" is required
to be placed on VAT invoices or receipts covering zero-rated sales in order to be
entitled to claim for tax credit or refund. In Panasonic v. Commissioner of Internal
Revenue, it was held that the appearance of the word "zero-rated" on the face of
invoices covering zero-rated sales prevents buyers from falsely claiming input
VAT from their purchases when no VAT is actually paid. Absent such word, the
government may be refunding taxes it did not collect. In the case at bar, both the
CTA Second Division and CTA En Banc found that Microsoft's receipts did not
indicate the word "zero-rated" on its official receipts.
Page 37
G.R. No. 172378
January 17, 2011
SILICON PHILIPPINES, INC. (formerly INTEL PHILIPPINES

MANUFACTURING, INC.) vs. COMMISSIONER OF INTERNAL REVENUE
Facts: Petitioner Silicon Philippines, Inc., a Philippine corporation engaged in the

business of designing, developing, manufacturing and exporting advance and
large-scale integrated circuit components or "ICs.", is registered with the Bureau
of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer. Petitioner filed
with the respondent Commissioner of Internal Revenue (CIR) an application for
credit/refund of unutilized input VAT for 1998 in the amount of P31,902,507.50.
The CIR denied this application. On appeal to the Court of Tax Appeals (CTA)
Division, petitioners claim for refund of unutilized input VAT on capital goods was
granted. However, the CTA Division reduced the amount which petitioner claimed
from P15,170,082.00 to P9,898,867.00 .With regard to petitioners claim for
credit/refund of input VAT attributable to its zero-rated export sales, the CTA
Division denied the same. Upon denial of its motion for reconsideration, petitioner
elevated the case to the CTA En Banc. The CTA En Banc denied petitioners
claim for credit/ refund of input VAT attributable to its zero-rated sales due to its
failure to show that it secured an Authorization-to-Print (ATP) invoices from the
BIR and to indicate the same in its export sales invoices; and failure to print the
word "zero-rated" in its export sales invoices. It also ruled that the items being
claimed as capital goods (training materials, office supplies, posters, banners, tshirts, books and the like) purchased by petitioner were not duly proven to have
been used, directly or indirectly in the production or sale of taxable goods or
services. As such, they cannot be considered as capital goods, and so the
reduction decided by the CTA Division was upheld.
Issues:
1. Whether or not petitioner can claim credit/refund of input VAT attributable to its
zero-rated sales.
2. Whether or not the petitioner can claim input VAT paid on capital goods.
Ruling:
1. No.
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section
112 (A) of the NIRC lays down four requisites: (1) the taxpayer must be VATregistered; (2) the taxpayer must be engaged in sales which are zero-rated or
effectively zero-rated; (3) the claim must be filed within two years after the close
of the taxable quarter when such sales were made; and (4) the creditable input
tax due or paid must be attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been applied against the output tax.
Under Section 112(A) of the NIRC, a claimant must be engaged in sales which
are zero-rated or effectively zero-rated. To prove this, duly registered invoices or
receipts evidencing zero-rated sales must be presented. However, since the ATP
is not indicated in the invoices or receipts, the only way to verify whether the
invoices or receipts are duly registered is by requiring the claimant to present its
Page 37
ATP from the BIR. Without this proof, the invoices or receipts would have no
probative value for the purpose of refund. In the case of Intel, we emphasized
that It is not specifically required that the BIR authority to print be reflected or
indicated therein. Indeed, what is important with respect to the BIR authority to
print is that it has been secured or obtained by the taxpayer, and that invoices or
receipts are duly registered.
The non-presentation of the ATP and the failure to indicate the word "zero-rated"
in the invoices or receipts are fatal to a claim for credit/refund of input VAT on
zero-rated sales. The failure to indicate the ATP in the sales invoices or receipts,
on the other hand, is not. In this case, petitioner failed to present its ATP and to
print the word "zero-rated" on its export sales invoices. Thus, the CTA ruled
correctly.
2. No.
To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC
requires that: (1) The claimant must be a VAT registered person; (2) The input
taxes claimed must have been paid on capital goods; (3) The input taxes must
not have been applied against any output tax liability; and (4) The administrative
claim for refund must have been filed within two years after the close of the
taxable quarter when the importation or purchase was made. Section 4.106-1(b)
of RR No. 7-95 defines capital goods as goods or properties with estimated
useful life greater that one year and which are treated as depreciable assets
under Section 29 (f), used directly or indirectly in the production or sale of taxable
goods or services. Based on this definition, the Supreme Court affirmed the
findings of the CTA that training materials, office supplies, posters, banners, Tshirts, books, and the other similar items reflected in petitioners Summary of
Importation of Goods are not capital goods. The reduction in the refundable input
VAT on capital goods from P15,170,082.00 to P9,898,867.00 is proper.
Page 37
G.R. No. 179961
January 31, 2011
KEPCO PHILIPPINES CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE
Facts: Petitioner Kepco Philippines Corporation, a domestic corporation

engaged in the production and sale of electricity, is a value-added tax (VAT)
registered taxpayer. It sells its electricity to the National Power Corporation
(NPC). Petitioner filed with respondent Commissioner of Internal Revenue (CIR)
an application for effective zero-rating of its sales of electricity to the NPC.
Petitioner alleged that for the taxable year 1999, it incurred input VAT in the
amount of P10,527,202.54 on its domestic purchases of goods and services that
were used in its production and sale of electricity to NPC for the same period.
Upon denial of its application, petitioner elevated the case to the Court of Tax
Appeals (CTA) and the CTA Second Division denied petitioners claim for refund
due to failure to properly substantiate its effectively zero-rated sales. The tax
court held that petitioner also failed to comply with the invoicing requirements in
clear violation of Section 4.108-1 of Revenue Regulations (R.R.) No. 7-95,
implementing Section 108(B)(3) in conjunction with Section 113 of the 1997
NIRC. Petitioner filed an appeal but the CTA En Banc dismissed such, reasoning
out that petitioners failure to comply with the requirement of imprinting the words
"zero-rated" on its official receipts resulted in non-entitlement to the benefit of
VAT zero-rating and denial of its claim for refund of input tax.
Issue: Whether or not petitioners failure to imprint the words "zero-rated" on its
official receipts issued to NPC justifies an outright denial of its claim for refund of
unutilized input tax credits.
Ruling: Yes.
It is the duty of petitioner to comply with the requirements, including the
imprinting of the words "zero-rated" in its VAT official receipts and invoices in
order for its sales of electricity to NPC to qualify for zero-rating. It must be
emphasized that the requirement of imprinting the word "zero-rated" on the
invoices or receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as
ruled by the CTA En Banc, citing Tropitek International, Inc. v. Commissioner of
Internal Revenue. The imprinting of "zero-rated" is necessary to distinguish sales
subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt
sales, to enable the Bureau of Internal Revenue to properly implement and
enforce the other provisions of the 1997 NIRC on VAT.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales
that are subject to 10% (now 12%) VAT from those sales that are zero-rated.
Unable to submit the proper invoices, petitioner Panasonic has been unable to
substantiate its claim for refund. Well-settled in this jurisdiction is the fact that
actions for tax refund, as in this case, are in the nature of a claim for exemption
and the law is construed in strictissimi juris against the taxpayer. The pieces of
evidence presented entitling a taxpayer to an exemption are also scrutinized and
must be duly proven.
Page 37
G.R. No. 179632
October 19, 2011
SOUTHERN PHILIPPINES POWER CORPORATION vs. COMMISSIONER OF

INTERNAL REVENUE
Facts: Petitioner Southern Philippines Power Corporation, a power company that

generates and sells electricity to the National Power Corporation (NPC), applied
with the Bureau of Internal Revenue (BIR) for zero-rating of its transactions under
Section 108(B)(3) of the National Internal Revenue Code (NIRC). The BIR
approved the application for taxable years 1999 and 2000. Petitioner also filed a
claim with respondent Commissioner of Internal Revenue (CIR) for a tax credit of
its unutilized input VAT attributable to its zero-rated sale of electricity to NPC.
Before the lapse of the two-year prescriptive period for such actions, petitioner
filed with the Court of Tax Appeals (CTA) Second Division a petition for review
covering its claims for refund or tax credit. CTA Second Division denied the
petition, holding that its zero-rated official receipts did not correspond to the
quarterly VAT returns, bearing a difference of P800,107,956.61. Further, these
receipts do not bear the words "zero-rated" in violation of RR 7-95. The Second
Division denied SPPs motion for reconsideration and on appeal, the CTA En
Banc affirmed the Second Divisions decision. The CTA En Banc rejected
petitioners contention that its sales invoices reflected the words "zero-rated,"
pointing out that it is on the official receipts that the law requires the printing of
such words. Moreover, SPP did not report in the corresponding quarterly VAT
return the sales subject of its zero-rated receipts.
Issue: Whether or not the word zero-rated must be reflected on the official
receipts for the petitioner to be entitled to a tax credit of unutilized VAT input on
its zero-rated transactions.
Ruling: No.
NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be
evidenced by a VAT invoice "or" official receipt issued in accordance with Section
113. Section 113 does not distinguish between an invoice and a receipt when
used as evidence of a zero-rated transaction. Consequently, the CTA should
have accepted either or both of these documents as evidence of petitioners
zero-rated transactions. Section 237 of the NIRC also makes no distinction
between receipts and invoices as evidence of a commercial transaction. The
Court held in Seaoil Petroleum Corporation v. Autocorp Group that business
forms like sales invoices are recognized in the commercial world as valid
between the parties and serve as memorials of their business transactions.
The Supreme Court also ruled that petitioners failure to indicate its zero-rated
sales in its VAT returns is not sufficient reason to deny it its claim for tax credit or
refund when there are other documents from which the CTA can determine the
veracity of SPPs claim. Although such failure partakes of a criminal act under
Section 255 of the NIRC could warrant the criminal prosecution of the
responsible person/s, the omission does not furnish ground for the outright denial
of the claim for tax credit or refund if such claim is in fact justified.
Page 37
G.R. No. 193007
July 19, 2011
RENATO V. DIAZ AND AURORA MA. F. TIMBOL vs. THE SECRETARY OF

FINANCE and THE COMMISSIONER OF INTERNAL REVENUE
Facts: Petitioners Renato Diaz and Aurora Ma. F. Timbol filed a petition for
declaratory relief 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. They alleged that the Congress when it enacted the NIRC did not
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. The government averred
that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides otherwise; that the
Court should seek the meaning and intent of the law from the words used in the
statute; and that the imposition of VAT on tollway operations has been the subject
as early as 2003 of several BIR rulings and circulars.
Issue: Whether or not toll fees collected by tollway operators may be subjected
to value- added tax.
Ruling: Yes.
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. 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.
Page 37
G.R. No. 178090
February 8, 2010
PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE

PHILIPPINES (formerly MATSUSHITA BUSINESS MACHINE CORPORATION
OF THE PHILIPPINES) vs. COMMISSIONER OF INTERNAL REVENUE
Facts: Petitioner Panasonic Communications Imaging Corporation of the

Philippines produces and exports plain paper copiers and their sub-assemblies,
parts, and components. It is a registered value-added tax (VAT) enterprise. From
1998 to 1999, petitioner generated export sales where it paid input VAT
of P9,368,482.40 believing that its sales are zero-rated sales. Claiming that the
input VAT it paid remained unutilized. Panasonic filed with the Bureau of Internal
Revenue (BIR) two separate applications for refund or tax credit of what it paid.
When the BIR did not act on the same, Panasonic filed a petition for review with
the Court of Tax Appeals (CTA). The CTA First Division denied the petition stating
that while petitioners export sales were subject to 0% VAT under the NIRC, the
same did not qualify for zero-rating because the word "zero-rated" was not
printed on its export invoices. This omission violates the invoicing requirements
of Section 4.108-1 of Revenue Regulations (RR) 7-95. The motion for
reconsideration was denied. On appeal, the CTA en banc upheld the First
Divisions decision.
Issue: Whether or not the words "zero-rated" must appear in the sales invoice so
that a claim for refund of unutilized input VAT on zero-rated sales will be proper.
Ruling: Yes.
Zero-rated transactions generally refer to the export sale of goods and services.
When applied to the tax base or the selling price of the goods or services sold,
such zero rate results in no tax chargeable against the foreign buyer or customer.
But, although the seller in such transactions charges no output tax, he can claim
a refund of the VAT that his suppliers charged him. The seller thus enjoys
automatic zero rating, which allows him to recover the input taxes he paid
relating to the export sales, making him internationally competitive. For the
effective zero rating of such transactions, however, the taxpayer has to be VATregistered and must comply with invoicing requirements. Interpreting these
requirements, respondent CIR ruled that under Revenue Memorandum Circular
(RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will
result in the disallowance of his claim for refund.
If the claim for refund is based on the existence of zero-rated sales by the
taxpayer but it fails to comply with the invoicing requirements in the issuance of
sales invoices, its claim for tax credit/refund of VAT on its purchases shall be
denied considering that the invoice it is issuing to its customers does not depict
its being a VAT-registered taxpayer whose sales are classified as zero-rated
sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer
to charge the input taxes to the appropriate expense account or asset account
subject to depreciation, whichever is applicable. Moreover, the case shall be
referred by the processing office to the concerned BIR office for verification of
other tax liabilities of the taxpayer.
Page 37
G.R. No. 182722
January 22, 2010
DUMAGUETE CATHEDRAL CREDIT COOPERATIVE, represented by

FELICIDAD L. RUIZ (General Manager) vs. COMMISSIONER OF INTERNAL
REVENUE
Facts: Petitioner Dumaguete Cathedral Credit Cooperative is a credit

cooperative duly registered with and regulated by the Cooperative Development
Authority (CDA). The Bureau of Internal Revenue (BIR) examined petitioners
books of accounts and other accounting records for all internal revenue taxes for
the taxable years 1999 and 2000. Petitioner received two Pre-Assessment
Notices for deficiency withholding taxes for said taxable years which cover the
payments of the honorarium of the Board of Directors, security and janitorial
services, legal and professional fees, and interest on savings and time deposits
of its members. Petitioner informed BIR that it would only pay the deficiency
withholding taxes corresponding to the honorarium and per diems of the Board of
Directors, security and janitorial services, commissions, legal and professional
fees for the years 1999 and 2000; and that it would avail of the Voluntary
Assessment and Abatement Program (VAAP) of the BIR. Petitioner then received
from the BIR Letters of Demand with attached Transcripts of Assessment and
Audit Results/Assessment Notices, ordering petitioner to pay the deficiency
withholding taxes, inclusive of penalties, for the years 1999 and 2000. Petitioner
protested with the Commissioner of Internal Revenue (CIR). However, the latter
failed to act on the protest within the prescribed 180-day period. Hence,
petitioner filed a Petition for Review before the CTA, which was partially granted.
Petitioner moved for a partial reconsideration, but it was denied.
Issue: Whether or not petitioner is required to withhold taxes on interest from
savings and time deposits of their members.
Ruling: No.
The BIR declared in BIR Ruling No. 551-888 that cooperatives are not required
to withhold taxes on interest from savings and time deposits of their members.
The legislative intent to give cooperatives a preferential tax treatment is apparent
in Articles 61 of RA 6938, which read: ART. 61. Tax Treatment of Cooperatives.
Duly registered cooperatives under this Code which do not transact any
business with non-members or the general public shall not be subject to any
government taxes and fees imposed under the Internal Revenue Laws and other
tax laws. Cooperatives not falling under this article shall be governed by the
succeeding section. This exemption extends to members of cooperatives. It
must be emphasized that cooperatives exist for the benefit of their members. In
fact, the primary objective of every cooperative is to provide goods and services
to its members to enable them to attain increased income, savings, investments,
and productivity. Therefore, limiting the application of the tax exemption to
cooperatives would go against the very purpose of a credit cooperative.
Extending the exemption to members of cooperatives, on the other hand, would
be consistent with the intent of the legislature. Thus, although the tax exemption
only mentions cooperatives, this should be construed to include the members.
Page 37
G.R. No. 179085
January 21, 2010
TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL

REVENUE
Facts: Respondent Commissioner of Internal Revenue sent petitioner

Tambunting Pawnshop, Inc. an assessment notice for P3,055,564.34 deficiency
value-added tax, P406,092.50 deficiency documentary stamp tax on pawn
tickets, P7,201.55 deficiency withholding tax on compensation, and P21,723.75
deficiency expanded withholding tax, all inclusive of interests and surcharges for
the taxable year 1999. Petitioner protested the assessment. As the protest
merited no response, it filed a Petition for Review with the Court of Tax Appeals
the ground that Pawnshops are not subject to Value Added Tax pursuant to
Section 108 of the National Internal Revenue Code, which states that a
pawnshop is not enumerated as one of those engaged in sale or exchange of
services and Petitioner's pawn tickets are not subject to documentary stamp tax
pursuant to existing laws and jurisprudence. The First Division of the CTA ruled
that petitioner is liable for VAT and documentary stamp tax but not for withholding
tax on compensation and expanded withholding tax.
Issue: What are tax liabilities of pawnshops?
Ruling:
On the issue of whether pawnshops are liable to pay VAT, the Court finds that
pawnshops should have been treated as non-bank financial intermediaries from
the very beginning, subject to the appropriate taxes provided by law, thus
Under the National Internal Revenue Code of 1977, pawnshops should have
been levied the 5% percentage tax on gross receipts imposed on bank and nonbank financial intermediaries under Section 119 (now Section 121 of the Tax
Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the EVAT Law,
pawnshops should have been subjected to the 10% VAT imposed on banks and
non-bank financial intermediaries and financial institutions under Section 102 of
the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);
This was restated by R.A. No. 8241, which amended R.A. No. 7716, although
the levy, collection and assessment of the 10% VAT on services rendered by
banks, non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions, were made effective
January 1, 1998;
R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a 10% VAT
under Section 108 but the levy, collection and assessment thereof were again
deferred until December 31, 1999;
Page 37
The levy, collection and assessment of the 10% VAT was further deferred by
R.A. No. 8761 until December 31, 2000, and by R.A. No. 9010, until December
31, 2002;
With no further deferments given by law, the levy, collection and assessment
of the 10% VAT on banks, non-bank financial intermediaries, finance companies,
and other financial intermediaries not performing quasi-banking functions were
finally made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks,
non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions were specifically
exempted from VAT, 28 and the 0% to 5% percentage tax on gross receipts on
other non-bank financial intermediaries was re-imposed under Section 122 of the
Tax Code of 1997.
At the time of the disputed assessment, that is, for the year 2000, pawnshops
were not subject to 10% VAT under the general provision on "sale or exchange of
services" as defined under Section 108 (A) of the Tax Code of 1997, which
states: "'sale or exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration."
Instead, due to the specific nature of its business, pawnshops were then subject
to 10% VAT under the category of non-bank financial intermediaries.
Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for
the tax years 1996 to 2002; however, with the levy, assessment and collection of
VAT from non-bank financial intermediaries being specifically deferred by law,
then petitioner is not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial intermediaries starting
January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning
2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable
for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as
the case may be. Since the imposition of VAT on pawnshops, which are nonbank financial intermediaries, was deferred for the tax years 1996 to 2002,
petitioner is not liable for VAT for the tax year 1999.
In dodging liability for documentary stamp tax on its pawn tickets, petitioner
argues that such tickets are neither securities nor printed evidence of
indebtedness. The argument fails. True, the law does not consider said ticket as
an evidence of security or indebtedness. However, for purposes of taxation, the
same pawn ticket is proof of an exercise of a taxable privilege of concluding a
contract of pledge. There is therefore no basis in petitioner's assertion that a DST
is literally a tax on a document and that no tax may be imposed on a pawn ticket.
Page 37
G.R. No. 180356
February 16, 2010
SOUTH AFRICAN AIRWAYS vs. COMMISSIONER OF INTERNAL REVENUE
Facts: Petitioner South African Airways is a foreign corporation organized and

existing under and by virtue of the laws of the Republic of South Africa. In the
Philippines, it is an internal air carrier having no landing rights in the country.
Petitioner has a general sales agent in the Philippines, Aerotel. Aerotel sells
passage documents for compensation or commission for petitioner's off-line
flights for the carriage of passengers and cargo between ports or points outside
the territorial jurisdiction of the Philippines. Petitioner is not registered with the
Securities and Exchange Commission as a corporation, branch office, or
partnership. It is not licensed to do business in the Philippines.
For the taxable year 2000, petitioner filed separate quarterly and annual income
tax returns for its off-line flights. On 2003, petitioner filed with the Bureau of
Internal Revenue a claim for the refund of the amount of P1,727,766.38 as
erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year
2000. Such claim was unheeded. Thus petitioner filed a petition for Review with
the CTA for the refund of the abovementioned amount.
Issue: Whether or not petitioner, as an off-line international carrier selling
passage documents through an independent sales agent in the Philippines, is
engaged in trade or business in the Philippines subject to the 32% income tax.
Ruling: Yes.
In Commissioner of Internal Revenue v. British Overseas Airways Corporation,
which was decided under similar factual circumstances, the Court ruled that offline air carriers having general sales agents in the Philippines are engaged in or
doing business in the Philippines and that their income from sales of passage
documents here is income from within the Philippines. Thus, in that case, we
held the off-line air carrier liable for the 32% tax on its taxable income.
Sec. 28 (A) (1) of the 1997 NIRC is a general rule that resident foreign
corporations are liable for 32% tax on all income from sources within the
Philippines. Sec. 28 (A) (3) is an exception to this general rule. In the instant
case, the general rule is that resident foreign corporations shall be liable for a
32% income tax on their income from within the Philippines, except for resident
foreign corporations that are international carriers that derive income "from
carriage of persons, excess baggage, cargo and mail originating from the
Philippines" which shall be taxed at 2 1/2% of their Gross Philippine Billings.
Petitioner, being an international carrier with no flights originating from the
Philippines, does not fall under the exception. As such, petitioner must fall under
the general rule. This principle is embodied in the Latin maxim, exception firmat
regulam in casibus non exceptis, which means, a thing not being excepted must
be regarded as coming within the purview of the general rule.
Page 37
G.R. No. 160756
March 9, 2010
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC. vs.

THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON.
ACTING SECRETARY OF FINANCE JUANITA AMATONG, AND THE HON.
COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.
Facts: Petitioner Chamber of Real Estate and Builders Associations, Inc. is an

association of real estate developers and builders in the Philippines. They assail
the validity of the imposition of minimum corporate income tax (MCIT) on
corporations and creditable withholding tax (CWT) on sales of real properties
classified as ordinary assets. Section 27 (E) of RA 8424 provides for MCIT on
domestic corporations and is implemented by RR 9-98. They argue that the MCIT
violates the due process clause because it levies income tax even if there is no
realized gain. Petitioner also seeks to nullify Sections 2.57.2 (J) (as amended by
RR 6-2001) and 2.58.2 of RR 2-98, and Section 4 (a) (ii) and (c) (ii) of RR 72003, all of which prescribe the rules and procedures for the collection of CWT
on the sale of real properties categorized as ordinary assets. Petitioner contends
that these revenue regulations are contrary to law for two reasons: first, they
ignore the different treatment by RA 8424 of ordinary assets and capital assets
and second, respondent Secretary of Finance has no authority to collect CWT,
much less, to base the CWT on the gross selling price or fair market value of the
real properties classified as ordinary assets.
Petitioner also asserts that the enumerated provisions of the subject revenue
regulations violate the due process clause because, like the MCIT, the
government collects income tax even when the net income has not yet been
determined. They contravene the equal protection clause as well because the
CWT is being levied upon real estate enterprises but not on other business
enterprises, more particularly those in the manufacturing sector.
Issue: Whether or not the imposition of the MCIT on domestic corporations is
unconstitutional.
Ruling: No.
MCIT is not violative of due process. Taxes are the lifeblood of the government.
Without taxes, the government can neither exist nor endure. The exercise of
taxing power derives its source from the very existence of the State whose social
contract with its citizens obliges it to promote public interest and the common
good. Under the MCIT scheme, a corporation, beginning on its fourth year of
operation, is assessed an MCIT of 2% of its gross income when such MCIT is
greater than the normal corporate income tax imposed under Section 27 (A). If
the regular income tax is higher than the MCIT, the corporation does not pay the
MCIT. Any excess of the MCIT over the normal tax shall be carried forward and
credited against the normal income tax for the three immediately succeeding
taxable years.
Petitioner is correct in saying that income is distinct from capital. Income means
all the wealth which flows into the taxpayer other than a mere return on capital.
Page 37
Capital is a fund or property existing at one distinct point in time while income
denotes a flow of wealth during a definite period of time. Income is gain derived
and severed from capital.
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because
capital is not income. In other words, it is income, not capital, which is subject to
income tax. However, the MCIT is not a tax on capital. The MCIT is imposed on
gross income which is arrived at by deducting the capital spent by a corporation
in the sale of its goods, i.e., the cost of goods and other direct expenses from
gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of
the normal net income tax, and only if the normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base
the corporation's gross income.
In sum, petitioner failed to support, by any factual or legal basis, its allegation
that the MCIT is arbitrary and confiscatory. The Court cannot strike down a law
as unconstitutional simply because of its yokes. Taxation is necessarily
burdensome because, by its nature, it adversely affects property rights. The party
alleging the law's unconstitutionality has the burden to demonstrate the
supposed violations in understandable terms.
Page 37
G.R. No. 178087
May 5, 2010
COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL

CORPORATION
Facts: On April 15, 1999, respondent Kudos Metal Corporation filed its Annual
Income Tax Return for the taxable year 1998. A review and audit of respondents
records ensued after petitioner Bureau of Internal Revenue (BIR) served
respondent with a subpoena duces tecum for its documents. On December 10,
2001, Nelia Pasco, respondents accountant, executed a Waiver of the Defense
of Prescription, which was notarized on January 22, 2002, received by the BIR
Tax Fraud Division on February 4, 2002. This was followed by a second Waiver
of Defense of Prescription executed by Pasco on February 18, 2003, notarized
on February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for
the taxable year 1998 against the respondent. This was followed by a Formal
Letter of Demand with Assessment Notices for taxable year 1998, dated
September 26, 2003. Respondent challenged the assessments by filing its
protest on the assessment.
The BIR rendered a final decision on the matter, requesting the immediate
payment of tax liabilities amounting to P25,624,048.76. Believing that the
governments right to assess taxes had prescribed, respondent filed a Petition for
Review with the CTA. The CTA Second Division issued a Resolution canceling
the assessment notices issued against respondent for having been issued
beyond the prescriptive period. It found the first Waiver of the Statute of
Limitations incomplete and defective for failure to comply with the provisions of
Revenue Memorandum Order (RMO) No. 20-90. Petitioner moved for
reconsideration but the CTA Second Division denied such motion. On appeal, the
CTA En Banc affirmed the cancellation of the assessment notices. Petitioner
sought reconsideration but the same was unavailing.
Issue: Whether or not the waivers of prescriptive period to assess are valid.
Ruling: No.
The waivers executed by respondents accountant did not extend the period
within which the assessment can be made. Section 222 (b) of the NIRC provides
that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of
the three-year period. RMO 20-9017 and RDAO 05-0118 lay down the procedure
for the proper execution of the waiver, to wit: (1) The waiver must be in the
proper form prescribed by RMO 20-90. The phrase "but not after ______ 19
___", which indicates the expiry date of the period agreed upon to assess/collect
the tax after the regular three-year period of prescription, should be filled up; (2)
The waiver must be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of
its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized; (3) The
waiver should be duly notarized; (4) The CIR or the revenue official authorized by
Page 37
him must sign the waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be indicated. However,
before signing the waiver, the CIR or the revenue official authorized by him must
make sure that the waiver is in the prescribed form, duly notarized, and executed
by the taxpayer or his duly authorized representative; (5) Both the date of
execution by the taxpayer and date of acceptance by the Bureau should be
before the expiration of the period of prescription or before the lapse of the period
agreed upon in case a subsequent agreement is executed; and (6) The waiver
must be executed in three copies, the original copy to be attached to the docket
of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must
be indicated in the original copy to show that the taxpayer was notified of the
acceptance of the BIR and the perfection of the agreement.
In the case at bar, the waivers executed by respondents accountant were
executed without the notarized written authority of Pasco to sign the waiver in
behalf of respondent; the waivers failed to indicate the date of acceptance, and
the fact of receipt by the respondent of its file copy was not indicated in the
original copies of the waivers. Due to the defects in the waivers, the period to
assess or collect taxes was not extended. Consequently, the assessments were
issued by the BIR beyond the three-year period and are void.
Page 37
G.R. No. 166134
June 29, 2010
ANGELES CITY vs. ANGELES CITY ELECTRIC CORPORATION AND

REGIONAL TRIAL COURT BRANCH 57, ANGELES CITY
Facts: Respondent Angeles City Electric Corporation (AEC), which was granted
a legislative franchise to generate and distribute electricity in Angeles City,
Pampanga, pays a franchise tax of two percent (2%) of its gross receipts to the
BIR. When the Local Government Code (LGC) of 1991 was passed into law, the
Sangguniang Panlungsod of Angeles City enacted a tax ordinance known as the
Revised Revenue Code of Angeles City (RRCAC) which imposed a local
franchise tax upon AEC. Metro Angeles Chamber of Commerce and Industry Inc.
(MACCI) of which AEC is a member filed a petition seeking the reduction of the
tax rates and a review of the provisions of the RRCAC was filed by, claiming that
the ordinance is oppressive. The petition was referred to the Bureau of Local
Government Finance (BLGF) and an indorsement was issued to the City
Treasurer of Angeles City, instructing the latter to make representations with the
Sanggunian for the appropriate amendment of the RRCAC.
On 2004, the City Treasurer issued a Notice of Assessment to AEC for payment
of business tax, license fee and other charges for the period 1993 to 2004
amounting to P94,861,194.10. AEC protested the assessment but the City
Treasurer denied the protest. AEC appealed to the RTC of Angeles City via a
Petition for Declaratory Relief. The City Treasurer however levied on the real
properties of AEC and a Notice of Auction Sale was published announcing that a
public auction of the levied properties would be held. This prompted AEC to file
with the RTC an Urgent Motion for Issuance of Temporary Restraining Order
(TRO) and/or Writ of Preliminary Injunction. After due notice and hearing, the
RTC issued a TRO and a Writ of Preliminary Injunction. Angeles City filed a
motion for dissolution of preliminary injunction, contending that the RTC cannot
enjoin the collection of taxes pursuant to the LGC, but the RTC denied such
motion.
Issue: Whether or not the RTC can enjoin the collection of local taxes.
Ruling: No.
The LGC does not specifically prohibit an injunction enjoining the collection of
taxes. A principle deeply embedded in our jurisprudence is that taxes being the
lifeblood of the government should be collected promptly, without unnecessary
hindrance or delay. In line with this principle, the National Internal Revenue Code
of 1997 (NIRC) expressly provides that no court shall have the authority to grant
an injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by the code. The situation, however, is different in the case of
the collection of local taxes as there is no express provision in the LGC
prohibiting courts from issuing an injunction to restrain local governments from
collecting taxes. Unlike the National Internal Revenue Code, the Local Tax Code
does not contain any specific provision prohibiting courts from enjoining the
collection of local taxes. Nevertheless, it must be emphasized that although there
is no express prohibition in the LGC, injunctions enjoining the collection of local
Page 37
taxes are frowned upon. Courts therefore should exercise extreme caution in
issuing such injunctions.
No grave abuse of discretion was committed by the RTC in the issuance of the
writ of preliminary injunction because the two requisites to warrant the issuance
of such, which are the existence of a clear and unmistakable right that must be
protected and an urgent and paramount necessity for the writ to prevent serious
damage, have been satisfied. The Court then had no other recourse but to grant
the prayer for the issuance of a writ of preliminary injunction considering that if
the respondent will not be restrained from doing the acts complained of, it will
preempt the Court from properly adjudicating on the merits the various issues
between the parties, and will render moot and academic the proceedings before
the court. The petition was dismissed.
Page 37
G.R. Nos. 172045-46
June 16, 2009
COMMISSIONER OF INTERNAL REVENUE vs. FIRST EXPRESS PAWNSHOP

COMPANY, INC.
Facts: Petitioner Bureau of Internal Revenue (BIR) issued assessment notices

against respondent First Express Pawnshop Company, Inc., which included
assessments for deficiency documentary stamp tax (DST) of P12,328.45 on
deposit on subscription and for deficiency DST of P62,128.87 on pawn tickets.
Respondent filed its written protest on the assessments and when petitioner did
not act on the protest during the 180-day period, respondent petitioned before
the Court of Tax Appeals (CTA). Respondent alleged that no deficiency DST was
due because the National Internal Revenue Code (Tax Code) does not cover any
document or transaction which relates to respondent. The CTA First Division
ruled that the assessments for deficiency DST shall be cancelled. Both parties
filed Motions for Reconsideration which were denied, hence, both parties filed
Petitions for Review with the CTA En Banc. The CTA En Banc promulgated a
Decision ordering respondent to pay DST on its pawnshop tickets but found that
respondents deposit on subscription was not subject to DST. Aggrieved,
petitioner elevated the case before this Court.
Issue: Whether or not the subscription contracts are subject to DST.
Ruling: Yes.
According to Section 175 of the Tax Code, DST is imposed on the original issue
of shares of stock. DST attaches upon acceptance of the stockholders
subscription in the corporations capital stock regardless of actual or constructive
delivery of the certificates of stock. Sections 175 and 176 of the Tax Code
contemplate a subscription agreement in order for a taxpayer to be liable to pay
the DST. A stock subscription is a contract by which the subscriber agrees to take
a certain number of shares of the capital stock of a corporation, paying for the
same or expressly or impliedly promising to pay for the same. Based on the
testimony of respondents auditor and respondents financial statements as of
1998, there was no agreement to subscribe to the unissued shares. Here, the
deposit on stock subscription refers to an amount of money received by the
corporation as a deposit with the possibility of applying the same as payment for
the future issuance of capital stock, an event which may or may not happen. The
person making a deposit on stock subscription does not have the standing of a
stockholder and he is not entitled to dividends, voting rights or other prerogatives
and attributes of a stockholder. In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc., the Supreme Court held that those
certificates of stocks temporarily subject to suspensive conditions shall be liable
for DST only when released from said conditions, for then and only then shall
they truly acquire any practical value for their owners. Hence, respondent is not
liable for the payment of DST on its deposit on subscription for the reason that
there is yet no subscription that creates rights and obligations between the
subscriber and the corporation. The petition was denied and the CTA en bancs
decision was affirmed.
Page 37
G.R. No. 180345
November 25, 2009
SAN ROQUE POWER CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE
Facts: Petitioner San Roque Corporation entered into a Power Purchase

Agreement (PPA) with the National Power Corporation (NPC) to develop the
hydro potential of the Lower Agno River, and to be able to generate additional
power and energy for the Luzon Power Grid, by developing and operating the
San Roque Multipurpose Project. The PPA provides that petitioner shall be
responsible for the design, construction, installation, and completion and testing
and commissioning of the Power Station and it shall operate and maintain the
same, subject to the instructions of the NPC. During the cooperation period of 25
years commencing from the completion date of the Power Station, the NPC shall
purchase all the electricity generated by the Power Plant. Because of the
exclusive nature of the PPA between petitioner and the NPC, the former applied
for and was granted five Certificates of Zero Rate by the BIR. For January to
December 2002, petitioner filed with the respondent Commissioner of Internal
Revenue its Monthly VAT Declaration and Quarterly VAT Returns. The latter
showing excess input VAT payments on account of its importation and domestic
purchases of goods and services. Petitioner filed with the BIR four separate
administrative claims for refund of Unutilized Input VAT. Respondent failed to act
on the request for tax refund or credit of petitioner, which prompted the latter to
file with the CTA in Division, a Petition for Review. After a hearing on the merits,
the CTA Second Division denied petitioner's claim for tax refund or credit.
Issue: Whether or not petitioner may claim a tax refund or credit.
Ruling: Yes.
To claim refund or tax credit petitioner must comply with the following criteria: (1)
the taxpayer is VAT registered; (2) the taxpayer is engaged in effectively zerorated or zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes
are not transitional input taxes; (5) the input taxes have not been applied against
output taxes during and in the succeeding quarters; (6) the input taxes claimed
are attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated
sales under Section 106 (A) (2) (1) and (2); 106 (B); and 108 (B) (1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in
accordance with BSP rules and regulations; (8) where there are both zero-rated
or effectively zero-rated sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of these sales, the input taxes
shall be proportionately allocated on the basis of sales volume; and (9) the claim
is filed within two years after the close of the taxable quarter when such sales
were made.
San Roque Corporation complied with the abovementioned requirements. It
bears emphasis that effective zero-rating is not intended as a benefit to the
person legally liable to pay the tax, in this case the petitioner, but to relieve
certain exempt entities, such as the NPC, from the burden of indirect tax so as to
encourage the development of particular industries.
Page 37
G.R. No. 173594
February 6, 2008
SILKAIR (SINGAPORE) PTE, LTD. vs. COMMISSIONER OF INTERNAL

REVENUE
Facts: Petitioner, Silkair (Singapore) Pte. Ltd., a corporation organized under the
laws of Singapore which has a Philippine representative office, is an online
international air carrier operating domestic routes. Petitioner filed with the Bureau
of Internal Revenue (BIR) a refund worth P 4,000,000.00 for excise taxes it
claimed to have paid on its purchases of jet fuel from Petron Corporation
(Petron). The Second Division of the CTA, however, denied the petition on the
ground that the excise tax was imposed on Petron as manufacturer and that
should any claim arise, it should be filed by the latter and that where the burden
of tax is shifted to the purchaser (petitioner in this case), the amount passed on
to it is no longer a tax but an added cost to the goods purchased.
Issue: Whether or not petitioner Silkair is the proper party to claim for refund or
tax credit.
Ruling: No.
The proper party to question, or seek a refund of an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC
provides that "unless 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.
Page 37
G.R. No. 166134
January 22, 2007
COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN

SCANDINAVIAN CONTRACTOR MINDANAO, INC.
Facts: Respondent Burmeister is a domestic corporation duly organized and

existing under and by virtue of the laws of the Philippines. A foreign consortium
composed of Burmeister and Wain Scandinavian Contractor A/S (BWSCDenmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd.
entered into a contract with the National Power Corporation (NAPOCOR) for the
operation and maintenance of NAPOCORs two power barges. The Consortium
appointed BWSC-Denmark as its coordination manager. BWSC-Denmark
established Burmeister (respondent) which subcontracted the actual operation
and maintenance of NAPOCORs two power barges as well as the performance
of other duties and acts which necessarily have to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of
currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is
deposited directly to the Consortiums bank accounts in Denmark and Japan,
while the Peso-denominated component is deposited in a separate and special
designated bank account in the Philippines. On the other hand, the Consortium
pays the respondent in foreign currency inwardly remitted to the Philippines
through the banking system. In order to ascertain the tax implications of the
transactions, Burmeister sought a ruling from the BIR which responded that if
Burmeister chooses to register as a VAT person and the consideration for its
services is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the
aforesaid services shall be subject to VAT at zero-rate.
For 1996, Burmeister filed VAT Returns reflecting a total zero-rated sales of
P147,000,000 with VAT input taxes of P3,300,000. The next year, it availed of the
Voluntary Assessment Program (VAP) of the BIR, allegedly misrepresented
certain regulations to be applicable to its case. Burmeister in 1999 secured a
ruling from the VAT Committee that services provided by the former is VAT-free
who then filed a claim for a tax credit certificate for the erroneously paid output
VAT in 1996.
Issue: Whether or not respondent is entitled to the refund of the erroneously paid
output VAT for the year 1996.
Ruling: No.
Court declares that the denial of the instant petition is not on the ground that
respondents services are subject to 0% VAT. Rather, it is based on the nonretroactivity of the prejudicial revocation of BIR Ruling No. 023-95 and VAT
Ruling No. 003-99, which held that respondents services are subject to 0% VAT
and which respondent invoked in applying for refund of the output VAT.
The Tax Code enumerates which services are zero-rated, thus:
Page 37
(1)
Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported, where
the services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(2)
Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(3)
Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero rate;
(4)
and
Services rendered to vessels engaged exclusively in international shipping;
(5)
Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production.
Another essential condition for qualification to zero-rating under the tax code is
that the recipient of such services is doing business outside the Philippines.
Services other than processing, manufacturing, or repacking of goods must
likewise be performed for persons doing business outside the Philippines. 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.
In this case, the payer-recipient of respondents services is the Consortium which
is a joint-venture doing business in the Philippines. While the Consortiums
principal members are non-resident foreign corporations, the Consortium itself is
doing business in the Philippines.
Respondent, as subcontractor of the Consortium, operates and maintains
NAPOCORs power barges in the Philippines. NAPOCOR pays the Consortium,
through its non-resident partners, partly in foreign currency outwardly remitted.
In turn, the Consortium pays respondent also in foreign currency inwardly
remitted and accounted for in accordance with BSP rules. This payment scheme
does not entitle respondent to 0% VAT.
Page 37
G.R. No. 168129
April 24, 2007
COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE HEALTH CARE

PROVIDERS, INC.
Facts: Respondent Philippine Health Care Providers, Inc. is a domestic

corporation which is a health care delivery system or a health maintenance
organization (HMO) created to take care of the sick and disabled persons
enrolled in the health care plan and to provide for the administrative, legal, and
financial responsibilities of the organization. On July 25, 1987, President Corazon
C. Aquino issued Executive Order (E.O.) No. 273, amending the National Internal
Revenue Code of 1977 by imposing Value-Added Tax (VAT) on the sale of goods
and services. Before the effectivity of E.O. No. 273, respondent wrote the
Commissioner of Internal Revenue (CIR), petitioner, inquiring whether the
services it provides to the participants in its health care program are exempt from
the payment of the VAT. Petitioner issued VAT Ruling No. 231-88 stating that
respondent, as a provider of medical services, is exempt from the VAT coverage.
On January 1, 1998, the National Internal Revenue Code of 1997 became
effective. This new Tax Code provided for the following: SEC. 102. Value-added
tax on sale of services and use or lease of properties. (a) Rate and base of
tax. There shall be levied, assessed and collected, a value-added tax
equivalent to 10% of gross receipts derived from the sale or exchange of
services, including the use or lease of properties. The phrase sale or exchange
of service means the performance of all kinds of services in the Philippines for a
fee, remuneration or consideration, including those performed or rendered by
construction and service contractors; and SEC. 103. Exempt Transactions.
The following shall be exempt from the value-added tax: (l) Medical, dental,
hospital and veterinary services except those rendered by professionals. The
BIR sent respondent a Preliminary Assessment Notice for deficiency in its
payment of the VAT and documentary stamp taxes (DST) for taxable years 1996
and 1997. Subsequently, the BIR sent a demand letter for the payment of VAT
with 4 notice of assessments for the same years. On both instances, the
respondent seasonably filed its protest for the assessments, which the BIR
ignored. Via a petition for review, the CTA decided for the respondent however
since it was not involve directly in providing health care, the CTA decided that it
was not VAT exempt. Such decision was affirmed by the Court of Appeals.
Issue: Whether or not respondent is liable for VAT.
Ruling: No.
The taxpayer is not subject to VAT for the years 1996 and 1997, relying on good
faith on VAT Ruling No. 231-88, June8, 1988, pursuant to Section 246 of the
NIRC on non-retroactivity of rulings prejudicial to the taxpayer. There is no
misrepresentation by the mere fact that the taxpayer failed to describe itself as
an HMO. Further, a health maintenance organization, which does not actually
provide medical and/or hospital services, but merely arranges for the same, is
not VAT-exempt under Sec. 103, NIRC.
Page 37
G.R. No. 164365
June 8, 2007
COMMISSIONER OF INTERNAL REVENUE vs. PLACER DOME TECHNICAL

SERVICES (PHILS.), INC.
Facts: At the San Antonio Mines in Marinduque owned by Marcopper Mining

Corporation (Marcopper), mine tailings from the Taipan Pit started to escape
through the Makulapnit Tunneland Boac Rivers, causing the cessation of mining
and milling operations, and causing potential environmental damage. To contain
the damage and prevent the further spread of the tailing leak, Placer Dome, Inc.
(PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and
rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To
accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL),
a non-resident foreign corporation with office in Canada, to carry out the project.
In turn, PDTSL engaged the services of Placer Dome Technical Services
(Philippines), Inc. (respondent), a domestic corporation and registered ValueAdded Tax (VAT) entity, to implement the project in the Philippines. PDTSL and
respondent thus entered into an Implementation Agreement. Due to the urgency
and potentially significant damage to the environment, respondent had agreed to
immediately implement the project, and that PDTSL was to pay respondent "an
amount of money, in U.S. funds, equal to all Costs incurred for Implementation
Services as well as a fee agreed to one percent (1%) of such Costs."
Respondent amended its quarterly VAT returns. In the amended returns,
respondent declared a total input VAT payment of P43,015,461.98 for the said
quarters, and P42,837,933.60 as its total excess input VAT for the same period.
Then respondent filed an administrative claim for the refund of its reported total
input VAT payments in relation to the project it had contracted from PDTSL,
amounting to P43,015,461.98. Respondent argued that the revenues it derived
from services rendered to PDTSL qualified as zero-rated sales under Section
102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly
remitted to the Philippines. When the CIR did not act on this claim, respondent
duly filed a Petition for Review with the CTA. CTA ruled in favor of respondent but
only the resulting input VAT of P17,178,373.12 could be refunded. The Court of
Appeals affirmed such ruling.
Issue: Whether Placer is entitled to the refund as the revenues qualified as zerorated sales.
Ruling: Yes.
Section 102(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 subparagraph, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations
of the [BSP].
Page 37
It is Section 102(b)(2) which finds special relevance to this case. The VAT is a tax
on consumption "expressed as a percentage of the value added to goods
or services" purchased by the producer or taxpayer. As an indirect tax on
services, its main object is the transaction itself or, more concretely, the
performance of all kinds of services conducted in the course of trade or business
in the Philippines. These services must be regularly conducted in this country;
undertaken in "pursuit of a commercial or an economic activity;" for a valuable
consideration; and not exempt under the Tax Code, other special laws, or any
international agreement. Yet even as services may be subject to VAT, our tax
laws extend the benefit of zero-rating the VAT due on certain services. Under the
last paragraph of Section 102(b), services performed by VAT-registered persons
in the Philippines, when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated. Petitioner
invokes the "destination principle," citing that respondents services, while
rendered to a non-resident foreign corporation, are not destined to be consumed
abroad. Hence, the onus of taxation of the revenue arising there from is also
within the Philippines. The Court in American Express debunked this
argument. As a general rule, the VAT system uses the destination principle as a
basis for the jurisdictional reach of the tax. Goods and services are taxed only in
the country where they are consumed. Thus, exports are zero-rated, while
imports are taxed. Confusion in zero rating arises because petitioner equates the
performance of a particular type of service with the consumption of its output
abroad. The consumption contemplated by law does not imply that the service be
done abroad in order to be zero-rated. 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 performer's
release from any past or future liability. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines. Unlike goods,
services cannot be physically used in or bound for a specific place when
their destination is determined. Instead, there can only be a predetermined end
of a course when determining the service location or position for legal purposes.
However, the law clearly provides for an exception to the destination principle;
that is, for a zero percent VAT rate for services that are performed in the
Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP.
Further, the cost of respondent's service to be zero-rated need not be tacked in
as part of the cost of goods exported. The law neither imposes such requirement
nor associates services with exported goods. It simply states that the services
performed by VAT-registered persons in the Philippines if paid in acceptable
foreign currency and accounted for in accordance with the rules and regulations
of the BSP, are zero-rated. The service rendered by respondent is clearly
different from the product that arises from the rendition of such service. The
activity that creates the income must not be confused with the main business in
the course of which that income is realized. The law neither makes a qualification
nor adds a condition in determining the tax situs of a zero-rated service. Under
this criterion, the place where the service is rendered determines the jurisdiction
to impose the VAT. Performed in the Philippines, such service is necessarily
subject to its jurisdiction, for the State necessarily has to have "a substantial
connection" to it, in order to enforce a zero rate. The place of payment is
immaterial; much less is the place where the output of the service will be further
or ultimately used.
Page 37
G.R. No. 148380
December 9, 2005
OCEANIC WIRELESS vs. COMMISSIONER OF INTERNAL REVENUE
Facts: On March 17, 1988, petitioner received from the Bureau of Internal
Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total
amount of P8,644,998.71. Petitioner filed its protest against the tax assessments
and requested a reconsideration or cancellation of the same in a letter to the BIR
Commissioner.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts
Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax
assessments while denying petitioners request for reinvestigation. Said letter
likewise requested petitioner to pay within 10 days from receipt thereof,
otherwise the case shall be referred to the Collection Enforcement Division of the
BIR National Office for the issuance of a warrant of distraint and levy without
further notice.
Upon petitioners failure to pay the subject tax assessments within the prescribed
period, the Assistant Commissioner for Collection, acting for the Commissioner of
Internal Revenue, issued the corresponding warrants of distraint and/or levy and
garnishment. Petitioner filed a Petition for Review with the Court of Tax Appeals
(CTA) to contest the issuance of the warrants to enforce the collection of the tax
assessments. The CTA dismissed the petition for lack of jurisdiction.
Petitioner filed a Motion for Reconsideration arguing that the demand letter
cannot be considered as the final decision of the Commissioner of Internal
Revenue on its protest because the same was signed by a mere subordinate and
not by the Commissioner himself. With the denial of its motion for
reconsideration, petitioner consequently filed a Petition for Review with the Court
of Appeals contending that there was no final decision to speak of because the
Commissioner had yet to make a personal determination as regards the merits of
petitioners case. The Court of Appeals denied the petition.
Issue: Whether the demand letter for tax deficiency issued and signed by a
subordinate officer who was acting in behalf of the CIR is deemed final and
executor and subject to an appeal to the CTA.
Ruling: Yes.
A demand letter for payment of delinquent taxes may be considered a decision
on a disputed or protested assessment. The determination on whether or not a
demand letter is final is conditioned upon the language used or the tenor of the
letter being sent to the taxpayer. In this case, the letter of demand,
unquestionably constitutes the final action taken by the Bureau of Internal
Revenue on petitioners request for reconsideration when it reiterated the tax
deficiency assessments due from petitioner, and requested its payment. Failure
to do so would result in the issuance of a warrant of distraint and levy to enforce
its collection without further notice. In addition, the letter contained a notation
indicating that petitioners request for reconsideration had been denied for lack of
Page 37
supporting documents. The demand letter received by petitioner verily signified a

character of finality. Therefore, it was tantamount to a rejection of the request for
reconsideration.
This now brings us to the crux of the matter as to whether said demand letter
indeed attained finality despite the fact that it was issued and signed by the Chief
of the Accounts Receivable and Billing Division instead of the BIR Commissioner.
The general rule is that the Commissioner of Internal Revenue may delegate any
power vested upon him by law to Division Chiefs or to officials of higher rank. He
cannot, however, delegate the four powers granted to him under the National
Internal Revenue Code (NIRC).
As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR
Commissioner to delegate the powers vested in him under the pertinent
provisions of the Code to any subordinate official with the rank equivalent to a
division chief or higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the
Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify
any existing ruling of the Bureau;
(c) The power to compromise or abate under Section 204(A) and (B) of this
Code, any tax deficiency: Provided, however, that assessments issued by the
Regional Offices involving basic deficiency taxes of five hundred thousand pesos
(P500,000) or less, and minor criminal violations as may be determined by rules
and regulations to be promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner, discovered by regional and district
officials, may be compromised by a regional evaluation board which shall be
composed of the Regional Director as Chairman, the Assistant Regional Director,
heads of the Legal, Assessment and Collection Divisions and the Revenue
District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept.
It is clear from the above provision that the act of issuance of the demand letter
by the Chief of the Accounts Receivable and Billing Division does not fall under
any of the exceptions that have been mentioned as non-delegable.
Thus, the authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and effect.
Page 37
G.R. No. 168118
August 28, 2006
THE MANILA BANKING CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE
Facts: The Manila Banking Corp. was incorporated in 1961 and was engaged in
commercial banking industry until 1987. On May 22, 1987, Bangko Sentral ng
Pilipinas issued a resolution prohibiting the bank from engaging in business by
reason of insolvency. The bank ceased to operate. Meanwhile, Comprehensive
Tax Reform Act of 1987 became effective. One of the changes introduced by this
law is the imposition of Minimum Corporate Income Tax (MCIT). On 1999, the
bank was authorized by the BSP to operate as a thrift bank. Petitioner sent a
request letter to the BIR on whether it is entitled to the four (4)-year grace period
to pay its minimum corporate income tax as provided by the new law. The
following year, it filed with the BIR its income tax return for taxable year 1999.
The BIR then issued a ruling stating that the petitioner is entitled to the four (4)year grace period. Pursuant to the ruling, the bank filed with the BIR a claim for
refund of the sum it earlier paid. Due to inaction of the BIR, the bank filed with the
CTA a petition for review. The CTA denied the petition, finding that the banks
payment of corporate income tax is in order, contending that the bank is not a
new corporation. It is the same corporation registered with the SEC, there was
merely an interruption of business operations.
Issue: Whether the bank is entitled to a refund of its minimum corporate income
tax paid to the BIR for taxable year 1999.
Ruling: Revenue Regulation No. 4-95 implementing certain provisions of R.A.
No. 7906 provides: Sec. 6. Period of exemption. All thrift banks created and
organized under the provisions of the Act shall be exempt from the payment of all
taxes, fees, and charges of whatever nature and description, except the
corporate income tax imposed under Title II of the NIRC and as specified in
Section 2(A) of these regulations, for a period of five (5) years from the date of
commencement of operations; while for thrift banks which are already existing
and operating as of the date of effectivity of the Act (March 18, 1995), the tax
exemption shall be for a period of five (5) years reckoned from the date of such
effectivity. For purposes of these regulations, date of commencement of
operations shall be understood to mean the date when the thrift bank was
registered with the Securities and Exchange Commission or the date when the
Certificate of Authority to Operate was issued by the Monetary Board of the
Bangko Sentral ng Pilipinas, whichever comes later. As mentioned earlier,
petitioner bank was registered with the BIR in 1961. However, in 1987, it was
found insolvent by the Monetary Board of the BSP and was placed under
receivership. After twelve (12) years, or on June 23, 1999, the BSP issued to it a
Certificate of Authority to Operate as a thrift bank. Earlier, or on January 21,
1999, it registered with the BIR. Then it filed with the SEC its Articles of
Incorporation which was approved on June 22, 1999. It is clear from the abovequoted provision of Revenue Regulations No. 4-95 that the date of
commencement of operations of a thrift bank is the date it was registered with the
SEC or the date when the Certificate of Authority to Operate was issued to it by
the Monetary Board of the BSP, whichever comes later.
Page 37
G.R. Nos. 139786 & 140857
September 27, 2006
COMMISSIONER OF INTERNAL REVENUE vs. CITYTRUST INVESTMENT

PHILS., INC. and ASIANBANK CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE
Facts: In G.R. No. 139786, Citytrust, respondent, is a domestic corporation

engaged in quasi-banking activities. In 1994, Citytrust reported the amount
of P110, 788,542.30 as its total gross receipts and paid the amount of P5,
539,427.11 corresponding to its 5% GRT. Meanwhile, on January 30, 1996, the
CTA, in Asian Bank Corporation v. Commissioner of Internal Revenue (ASIAN
BANK case), ruled that the basis in computing the 5% GRT is the gross receipts
minus the 20% FWT. In other words, the 20% FWT on a banks passive income
does not form part of the taxable gross receipts.
On July 19, 1996, Citytrust, inspired by the above-mentioned CTA ruling, filed
with the Commissioner a written claim for the tax refund or credit in the amount
ofP326, 007.01. It alleged that its reported total gross receipts included the 20%
FWT on its passive income amounting to P32, 600,701.25. Thus, it sought to be
reimbursed of the 5% GRT it paid on the portion of 20% FWT or the amount
of P326, 007.01. On the same date, Citytrust filed a petition for review with the
CTA, which eventually granted its claim. On appeal by the Commissioner, the
Court of Appeals affirmed the CTA Decision, citing as main bases Commissioner
of Internal Revenue v. Tours Specialist Inc. and Commissioner of Internal
Revenue v. Manila Jockey Club holding that monies or receipts that do not
redound to the benefit of the taxpayer are not part of its gross receipts.
In G.R. No. 140857, for the taxable quarters ending June 30, 1994 to June 30,
1996, Asianbank filed and remitted to the Bureau of Internal Revenue (BIR) the
5% GRT on its total gross receipts. On the strength of the January 30, 1996 CTA
Decision in the ASIAN BANK case, Asianbank filed with the Commissioner a
claim for refund of the overpaid GRT amounting to P2,022,485.78. To toll the
running of the two-year prescriptive period for filing of claims, Asianbank also
filed a petition for review with the CTA. On February 3, 1999, the CTA allowed
refund in the reduced amount of P1, 345,743.01, the amount proven by
Asianbank. Unsatisfied, the Commissioner filed with the Court of Appeals a
petition for review. On November 22, 1999, the Court of Appeals reversed the
CTA Decision and ruled in favor of the Commissioner stating that: It is true that
Revenue Regulation No. 12-80 provides that the gross receipts tax on banks and
other financial institutions should be based on all items of income actually
received. Actual receipt here is used in opposition to mere accrual. Accrued
income refers to income already earned but not yet received. (Rep. v.
Lim Tian Teng Sons & Co., 16 SCRA 584).
Issue: Does the twenty percent (20%) final withholding tax (FWT) on a banks
passive income form part of the taxable gross receipts for the purpose of
computing the five percent (5%) gross receipts tax (GRT)?
Page 37
Ruling:
The issue of whether the 20% FWT on a banks interest income forms part of the
taxable gross receipts for the purpose of computing the 5% GRT is no longer
novel. As commonly understood, the term gross receipts means the entire
receipts without any deduction. Deducting any amount from the gross receipts
changes the result, and the meaning, to net receipts. Any deduction from gross
receipts is inconsistent with a law that mandates a tax on gross receipts, unless
the law itself makes an exception. This interpretation has remained unchanged
throughout the various re-enactments of the present Section 121 of the Tax
Code. On the presumption that the legislature is familiar with the
contemporaneous interpretation of a statute given by the administrative agency
tasked to enforce the statute, the reasonable conclusion is that the legislature
has adopted the BIRs interpretation. In other words, the subsequent reenactments of the present Section 121, without changes in the term interpreted
by the BIR, confirm that its interpretation carries out the legislative purpose.
Actual receipt of interest income is not limited to physical receipt. Actual receipt
may either be physical receipt or constructive receipt. When the depositary bank
withholds the final tax to pay the tax liability of the lending bank, there is prior to
the withholding a constructive receipt by the lending bank of the amount
withheld. From the amount constructively received by the lending bank, the
depositary bank deducts the final withholding tax and remits it to the government
for the account of the lending bank. Thus, the interest income actually received
by the lending bank, both physically and constructively, is the net interest plus the
amount withheld as final tax.
NOTE: There is no double taxation because The GRT is a percentage tax under
Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT
is an income tax under Title II of the Code (Tax on Income). The two concepts
are different from each other. This Court defined that a percentage tax is a
national tax measured by a certain percentage of the gross selling price or gross
value in money of goods sold, bartered or imported; or of the gross receipts or
earnings derived by any person engaged in the sale of services. It is not
subject to withholding. An income tax, on the other hand, is a national tax
imposed on the net or the gross income realized in a taxable year. It is subject
to withholding. Thus, there can be no double taxation here as the Tax Code
imposes two different kinds of taxes.
Page 37
G.R. No. 159593
October 16, 2006
COMMISSIONER OF INTERNAL REVENUE vs. MIGRANT PAGBILAO

CORPORATION
Facts: Migrant Pagbilao Corporation (MPC) is a corporation engaged in the

business of power generation and distribution. It accumulated input taxes in the
amount of 39,330,500.85 from April 1, 1996 to December 31, 1996. MPC claims
that it paid these input taxes to the suppliers of capital goods and services for the
construction and development of power plants. MPC applied for tax credit/refund
on the unutilized VAT paid on capital goods. Without waiting for the BIR
Commissioner to answer, MPC filed a petition for review to toll the running of the
2-year prescriptive period for claiming a refund under the law. The BIR in its
answer denied MPCs application citing that MPCs claim for refund is still being
investigated before the BIR, that the action is premature, and that tax credit laws
are construed against MPC. Upon investigation, the Revenue Officer
recommended for the approval of the tax credit but it reduced the amount from
39,330,500.85 to 28,745,502.40, as duly proven by valid invoices or official
receipts. The CTA ruled that indeed, MPC is entitled to tax credit but the amount
is reduced in line with the Revenue Officers findings. The BIR filed a motion for
reconsideration that was subsequently denied. On appeal, the BIR raised that
MPC being an electric utility is subject to franchise tax and not VAT and since it is
VAT exempt, it cant claim tax refund. The CA denied BIRs appeal upholding that
it is not allowed to change its theory on appeal.
Issues: 1. Whether the BIR is allowed to change its theory on appeal.
2. Whether Input VAT on capital goods and services is allowed.
Ruling:
1. The SC prohibited the BIR from changing its theory on the case and raising a
new issue on appeal. As a rule, a party is never allowed to change its theory or
raise a totally new issue on appeal. On exceptional cases, the rules may be
relaxed allowing new issues on appeal but it is only done for good and sufficient
causes in order to pave way for justice. The BIR has not shown any good or
sufficient cause for relaxing the rules.
2. Input VAT on capital goods and services may be claimed as tax refund. The
BIR is erroneous in stating that a VAT exempt or zero rated VAT payer is not
allowed to claim tax credits. Pertinent provisions of the Tax Code allow that Input
VAT on capital goods be claimed as tax credit. Sec 106 (b) of the Tax Code of
1986 as amended by RA 7716 expressly states that A VAT- registered person
may apply for the issued 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.
Page 37
G.R. No. 154126
October 11, 2005
ALLIED BANKING CORPORATION vs. THE QUEZON CITY GOVERNMENT,

THE QUEZON CITY TREASURER, THE QUEZON CITY ASSESSOR AND THE
CITY MAYOR OF QUEZON CITY
Facts: The Quezon City government enacted City Ordinance No. 357, Series of
1995 Section 3 of which reads: The City Assessor shall undertake a general
revision of real property assessments using as basis the newly approved
schedule specified in Sections 1 and 2 hereof. He shall apply the new
assessment level of 15% for residential and 40% for commercial and industrial
classification, respectively as prescribed in Section 8 (a) of the 1993 Quezon City
Revenue Code to determine the assessed value of the land. Provided; however,
that parcels of land sold, ceded, transferred and conveyed for remuneratory
consideration after the effectivity of this revision shall be subject to real estate tax
based on the actual amount reflected in the deed of conveyance or the current
approved zonal valuation of the Bureau of Internal Revenue prevailing at the time
of sale, cession, transfer and conveyance, whichever is higher, as evidenced by
the certificate of payment of the capital gains tax issued therefor. Allied Banking
Corporation, a purchaser of a parcel of land, questioned its validity.
Issue: Whether section 3 can be the basis of collecting real property taxes?
Ruling: No.
The proviso in question is invalid as it adopts a method of assessment or
appraisal of real property contrary to the Local Government Code, its
Implementing Rules and Regulations and the Local Assessment Regulations No.
1-92 issued by the Department of Finance. Local Assessment Regulations No. 192 suggests three approaches in estimating the fair market value, namely: (1) the
sales analysis or market data approach; (2) the income capitalization approach;
and (3) the replacement or reproduction cost approach. The Code did not intend
to have a rigid rule for the valuation of property, which is affected by a multitude
of circumstances which no rule could foresee or provide for. Accordingly, this
Court holds that the proviso directing that the real property tax be based on the
actual amount reflected in the deed of conveyance or the prevailing BIR zonal
value is invalid not only because it mandates an exclusive rule in determining the
fair market value but more so because it departs from the established procedures
stated in the Local Assessment Regulations No. 1-92 and unduly interferes with
the duties statutorily placed upon the local assessor by completely dispensing
with his analysis and discretion which the Code and the regulations require to be
exercised. Using the consideration appearing in the deed of conveyance to
assess or appraise real properties is not only illegal since the appraisal,
assessment, levy and collection of real property tax shall not be left to any private
person, but it will completely destroy the fundamental principle in real property
taxation that real property shall be classified, valued and assessed on the basis
of its actual use regardless of where located, whoever owns it, and whoever uses
it. Necessarily, allowing the parties to a private sale to dictate the fair market
value of the property will dispense with the distinctions of actual use stated in the
Code and in the regulations.
Page 37
G.R. No. 154993
October 25, 2005
LUZ R. YAMANE, IN HER CAPACITY AS THE CITY TREASURER OF MAKATI

CITY vs. BA LEPANTO CONDOMINIUM CORPORATION
Facts: On 15 December 1998, the Corporation received a Notice of Assessment

dated 14 December 1998 signed by the City Treasurer. The Notice of
Assessment stated that the Corporation is liable to pay the correct city business
taxes, fees and charges, computed as totaling P1,601,013.77 for the years 1995
to 1997. The Notice of Assessment was silent as to the statutory basis of the
business taxes assessed. The Corporation responded with a written tax protest
dated 12 February 1999, addressed to the City Treasurer. The protest was
rejected by the City Treasurer in a letter dated 4 March 1999. From the denial of
the protest, the Corporation filed an Appeal with the Regional Trial Court of
Makati. On 1 March 2000, the Makati RTC rendered a decision dismissing the
appeal for lack of merit. From this decision of the RTC, the Corporation filed a
Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court
of Appeals.
Issue: Whether Rule 42 is the proper remedy?
Ruling: No.
The RTC, in reviewing denials of protests by local treasurers, exercises original
jurisdiction, hence Rule 41 is the proper remedy. Rule 42 is proper when the RTC
has rendered judgment in the exercise of its appellate jurisdiction. As defined in
the case of Garcia vs. De Jesus(G.R. Nos. 88158 & 97108-09, 4 March 1992,
206 SCRA 779: Original jurisdiction is the power of the Court to take judicial
cognizance of a case instituted for judicial action for the first time under
conditions provided by law. Appellate jurisdiction is the authority of a Court higher
in rank to re-examine the final order or judgment of a lower Court which tried the
case now elevated for judicial review.
With the definitions, the review taken by the RTC over the denial of the protest by
the local treasurer would fall within that courts original jurisdiction. In short, the
review is the initial judicial cognizance of the matter. Moreover, labeling the said
review as an exercise of appellate jurisdiction is inappropriate, since the denial of
the protest is not the judgment or order of a lower court, but of a local
government official.
NOTE: The doctrinal weight of the pronouncement is confined to cases and
controversies that emerged prior to the enactment of Republic Act No. 9282, the
law which expanded the jurisdiction of the Court of Tax Appeals (CTA). Republic
Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises
exclusive appellate jurisdiction to review on appeal decisions, orders or
resolutions of the Regional Trial Courts in local tax cases original decided or
resolved by them in the exercise of their originally or appellate jurisdiction.
Moreover, the provision also states that the review is triggered by filing a petition
for review under a procedure analogous to that provided for under Rule 42 of the
1997 Rules of Civil Procedure.
Page 37
G.R. No. 161997
October 25, 2005
COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE NATIONAL

BANK
Facts: In April 1991, respondent Philippine National Bank (PNB) issued to the
Bureau of Internal Revenue (BIR) PNB Cashiers Check for P180,000,000.00.
The check represented PNBs advance income tax payment for the banks 1991
operations and was remitted in response to then President Corazon C. Aquinos
call to generate more revenues for national development. The BIR acknowledged
receipt of the amount by issuing Payment Order and BIR Confirmation Receipt.
Later, PNB requested the issuance of a tax credit certificate (TCC) to be utilized
against future tax obligations of the bank. For the first and second quarters of
1991, PNB also paid additional taxes amounting to P6,096,150.00 and
P26,854,505.80, respectively. Inclusive of the P180 Million aforementioned, PNB
paid and BIR received in 1991 the aggregate amount of P212, 950,656.79. This
final figure, if tacked to PNBs prior years excess tax credit (P1,385,198.30) and
the creditable tax withheld for 1991 (P3,216,267.29), adds up to
P217,552,122.38. By the end of 1991, PNBs annual income tax liability, per its
1992 annual income tax return, amounted to P144,253,229.78, which, when
compared to its claimed total credits and tax payments of P217,552,122.38,
resulted to a credit balance in its favor in the amount of P73,298,892.60. This
credit balance was carried-over to cover tax liability for the years 1992 to 1996,
but, as PNB alleged, was never applied owing to the banks negative tax position
for the said inclusive years, having incurred losses during the 4-year period. On
July 28, 1997, PNB wrote then BIR Commissioner to inform her about the above
developments and to reiterate its request for the issuance of a TCC, this time for
the unutilized balance of its advance payment made in 1991 amounting to
P73,298,892.60. Replying, the BIR Commissioner denied PNBs claim for tax
credit on the reason, among others, that the same has already prescribed on the
ground that it was filed beyond the two (2) year prescriptive period.
Issue: Can PNB claim for the issuance of TCC even beyond the two-year
prescriptive period under Section 230(now Section 229) of the NIRC?
Ruling: Yes.
PNBs request for issuance of a tax credit certificate on the balance of its
advance income tax payment cannot be treated as a simple case of excess
payment as to be automatically covered by the two (2)-year limitation in Section
230. Section 230 of the Tax Code, as couched, particularly its statute of
limitations component, is, in context, intended to apply to suits for the recovery of
internal revenue taxes or sums erroneously, excessively, illegally or wrongfully
collected. Considering the special circumstance that the tax credit PNB has
been seeking is to be sourced not from any tax erroneously or illegally collected
but from advance income tax payment voluntarily made in response to then
President Aquinos call to generate more revenues for the government, in no way
Page 37
can the amount of P180 million advanced by PNB in 1991 be considered as

erroneously or illegally paid tax.
Page 37
Page 37

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G.R. No.

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