36. GR No.

175410
SMI-Ed Philippines Technology, Inc. v. Commissioner of Internal
Revenue

Facts:

SMI-Ed Philippines Technology, Inc., petitioner, is a PEZA-registered corporation engaged in the

business of manufacturing ultra high-density microprocessors but failed to commence operations.
About ten months after its closure, it sold its buildings and some of its installed machineries and
equipment to Ibiden Philippines, Inc., another PEZA-registered enterprise for P893,550,000.00. It
was dissolved three months thereafter.

In its quarterly income tax returns, the petitioner subjected the entire gross sales of its properties to
5% final tax on PEZA-registered corporations thus paying taxes amounting to P44,677,500.00.

On February 2001, the petitioner filed an administrative claim for the refund of the P44,677,500.00
with the Bureau of Internal Revenue (BIR) alleging that the amount was erroneously paid. In its final
income tax returns filed the next month, it indicated the refundable amount and alleged that it
incurred a net loss of P2,233,464,538.00.

On September the next year, petitioner filed a petition for review before the Court of Tax Appeals
Division since the BIR did not act on its claim. The Court found that the fiscal incentives given to
PEZA-registered enterprises may be availed of only by those that had already commenced its
operations. In its decision, the Court said that since the petitioner had not commenced operations, it
was not entitled to 5% preferential tax but the sale of its capital assets should be subjected to 6%
capital gains tax citing Section 39(a)(1) of the NIRC. Thus SMI-Ed was found liable for the balance
P8,935,500.00 as deficiency tax.

The petitioner then filed a petition for review before the CTA En Banc arguing that the CTA Division
cannot make an assessment at the first instance and even if they had the power to do so, the period
to make an assessment had already prescribed. The Court dismissed the same for finding no
reversible error on the part of the CTA Division.

SMI-Ed subsequently filed a petition for review before the Supreme Court arguing in addition to that
filed with the CTA En Banc that the CTA En Banc erred in subjecting its machineries to 6% capital
gains tax since this is only applicable to the sale of lands and buildings and not of machineries and
equipment. Since about 81% of the proceeds constitute those of machineries and equipment, only
P170,200,000.00 should be subjected to the 6% capital gains tax.

The CTA argued in its comment that it never made an assessment since the determination of the
petitioners liability to capital gains tax is essential to settle the question regarding the latters tax
refund.
Issues:

1. Whether or not the Court of Tax Appeals by determining the category of tax made an
assessment;
2. Whether or not SMI-Ed Philippines is entitled to the 5% preferential tax rate given to PEZA-
registered entities;
3. Whether or not the petitioner is entitled to a refund.

Held:

The Supreme Court ruled in favor of SMI-Ed Philippines with regards the refund.

However, on the first issue, the Supreme Court ruled that in stating that SMI-Eds transactions are
subject to capital gains tax, the CTA did not make an assessment but is merely determining the proper
category of tax that the petitioner should have paid. Thus, the Supreme Court, in this issue, sided with
the CTA when the latter stated that the determination of such category was incidental to resolving
the principal issue of the entitlement of the petitioner to a refund for without this prior
determination, the petitioners request for refund can neither be granted nor denied outright.

On the second issue, the Supreme Court once again sided with the CTAs decision on the matter
stating that the petitioner is not entitled to the benefits given to PEZA-registered enterprises
including the 5% preferential tax rate since it never began its operations. Thus, since the petitioner
is not entitled to this preferential rate, it is subject to the ordinary tax rates under the NIRC.

According to the NIRC, only the presumed gain from the sale of the land and buildings may be
subjected to the 6% capital gains tax. The income from the sale of the machineries and equipment is
subject to the provisions on normal corporate income tax. However, since the petitioner had not
started its operations and it, in fact, suffered a net loss of more than P2 billion, it was not liable for
any income tax. Thus, the BIR was ordered to refund the 5% final tax paid by the petitioner less the
6% capital gains tax on the sale of the latters land and building.
37. GR No. 178087
Commissioner of Internal Revenue v. Kudos Metal Corporation

Facts:

The respondent Kudos Metal Corporation filed its income tax return for 1998 on April 15, 1999. On
September of the same year, the BIR served three notices of Presentation of Records upon the
respondent but the latter failed to comply with such notices which prompted the BIR to issue a
Subpoena duces tecum, the receipt of which was acknowledged by respondents president on
October 2000.

On December 2001, the respondents accountant, Pasco, executed a Waiver of the Defense of
Prescription which was notarized on January 2002; received by the BIR Enforcement Service and Tax
Fraud Division on January and February of the same year, respectively; and accepted by Salazar, the
Assistant Commissioner of the Enforcement Service.

On February 2003, a second waiver was executed by Pasco, which was notarized the next day,
received by the Tax Fraud Division at the end of the month, and again accepted by Salazar.

On August of the same year, the BIR issued a Preliminary Assessment Notice for the taxable year 1998
against Kudos Metal Corporation which was followed by a Formal Letter of Demand with Assessment
Notices for the same taxable year. This was dated September 2003 as was received by the respondent
on November.

Respondent thereafter filed a protest on various tax assessment about a month later. The BIR
rendered a final decision on the matter requesting the immediate payment of tax liabilities
amounting to P25,624,048.76.

The respondent then filed a petition for review before the CTA Division arguing that the right to asses
had already prescribed. The CTA Division ruled in favor of the respondent cancelling the assessment
notices for having been issued beyond the prescriptive period. It also found that the first waiver of
the statute of limitations was incomplete and defective since the assistant commissioner is not
authorized to sign the waiver; the waiver failed to indicate the date of acceptance which was
necessary to determine whether the waiver was within the prescriptive period; and the fact of receipt
by the respondent of its file copy was not indicated on the original copy which was required to give
notice of the acceptance by the BIR of the agreement. On the motion for reconsideration filed by the
petitioner, the CTA Division denied the same.

The CTA En Banc affirmed the cancellation of the assessment notices on appeal. However, it ruled
that the assistant commissioner was authorized to sign the waiver but the same was still invalid
based on the second and third grounds pointed out by the CTA Division. The CTA En Banc also ruled
that the second waiver was likewise invalid since it was executed after the expiration of the first
period agreed upon. The period agreed upon in the first waiver expired on December 2002 but the
second waiver, which was to extend the period until December 2003, was executed on February
2003.

To this effect, the petitioner filed a petition for Certiorari before the Supreme Court arguing that the
governments right to assess taxes is not barred by prescription because the waivers effectively
extended said period and that the respondent is estopped since the respondent was the one which
asked for additional time to submit documents when it executed the two waivers.

Issues:

1. Whether or not the waivers extended the period of assessment; and

2. Whether or not estoppel applies in the case at bar.

Held:

The Supreme Court denied the petition stating that assessment had already prescribed and the
defense of estoppel cannot be made in the case at bar.

The Court pointed out three infirmities on these waivers, due to which the said period was not
extended: that the waivers were executed without the written authority of Pasco to sign in behalf of
the respondent; that the waivers failed to indicate the date of acceptance; and that the fact of receipt
by the respondent of the file copy was not indicated in the original copy. Consequently, the
assessments made after the three-year assessment and collection period are void.

Moreover, since the BIR failed to verify whether authority was given by the respondent to the
accountant and to indicate the date of acceptance and the receipt by the respondent of the waivers,
it caused the defects in the same and thus, it must bear the consequences and cannot shift the blame
to the respondent-taxpayer. Consequently, the delay of the respondent in furnishing copies of the
needed documents cannot be taken against the same. Also, the BIR cannot use said delay for issuing
the assessments beyond the prescriptive period because with or without the documents, the CIR has
the power to assess based on the best evidence obtainable.
38. GR No. 198677
Commissioner of Internal Revenue v. BASF Coating + Inks
Philippines, Inc.

Facts:

The respondent is a duly organized corporation having its BIR-registered address at Las Pias City.
Majority of its members of the Board of Directors and stockholders resolved to dissolve the
corporation shortening its corporate term to March 31, 2001. Subsequently, the corporation moved
out of its registered address and transferred to Calamba, Laguna.

Thereafter, on June 2001, the respondent submitted to the BIR two letters: one of which was a notice
of the respondents dissolution and the other, a manifestation indicating the submission of various
documents supporting said dissolution including an update of information contained in its tax
registration.

A Formal Assessment Notice dated January 2003, assessing deficiencies in various categories of tax
for the taxable year 1999, was sent by registered mail to the respondents former address in Las Pias
City.

On March 2004, the BIR issued a First Notice Before Issuance of Warrant of Distraint and Levy sent
to the residence of one of the respondents directors. The respondent then filed a protest citing lack
of due process and prescriptions as grounds.

On January 2005, after the lapse of 180 days without action from the petitioner, the respondent filed
a petition for review before the CTA Division. The Court then ruled that because the petitioner was
aware of the respondents new address, the formers failure to send the Preliminary Assessment
Notice and the FAN should not be taken against the latter. Thus, since there were no valid notices
sent to the respondent, the subsequent assessments are considered void.

The CTA En Banc on appeal held that the petitioners right to assess the respondent for deficiency
taxes for the taxable year 1999 has already prescribed and that the FAN never attained finality since
the respondent did not receive it.

The petitioner elevated the case to the Supreme Court contending that the running of the three-year
prescription period to assess was suspended when the respondent failed to notify the former of its
change of address.

Issues:

1. Whether or not the three-year prescription period to assess was effectively suspended;
2. Whether or not there was a violation of the respondents right to due process.
Held:

The Supreme Court ruled in favor of the respondent thus ruling that there was no suspension of the
three-year period to assess and that there was indeed a violation of the respondents right to due
process.

In the case at bar, the petitioner was well aware of the new address in Calamba, Laguna as embodied
in various documents which form part of the respondents records with the BIR and are accomplished
and signed by the BIRs officers. Also, there are instances where the BIR officers conducted an
investigation for the respondents tax liabilities for 1999 before the issuance of the FAN in the latters
address in Laguna. In addition to this, two letters were sent to the respondents address in Laguna by
the BIR. Furthermore, prior to mailing the FAN, a Preliminary Assessment Notice was sent the
respondents old address but was returned to sender but the petitioner still insisted in mailing the
FAN to the same address.

Thus, despite the absence of the formal written notice of the respondents change of address, it is
evidenced by these occurrences that the petitioner became aware of the respondents new address
further implying that the three-year period was not suspended and has already prescribed.

Consequently, the petitioners issuance of the First Notice Before Issuance of Warrant of Distraint
and Levy violated the right of the respondent to due process because of the absence of a valid
assessment sent to the same. The Supreme Court stated that an invalid assessment bears no valid
fruit.
39. GR No. 187589
Commissioner of Internal Revenue v. The Stanley Works Sales
(Philippines), Inc.

Facts:

The respondent was appointed by Stanley Singapore as its sole agent for selling its products in the
Philippines.

On April 16, 1990, the respondent filed with the BIR its Annual Income Tax Return for the year 1989.
On March 1993, the BIR issued against the respondent a Pre-Assessment Notice for deficiency income
tax amounting to P41,284,968.34 for the taxable year 1989. A month after, BIR issued an Assessment
Notice to the respondent on the same subject. The respondent thereafter filed a protest letter and
requested reconsideration and cancellation of the assessment.

On November 1993, a Waiver of the Defense of Prescription Under the Statute of Limitations of the
National Internal Revenue Code was executed on behalf of the respondent. Under the terms of this
waiver, the respondent waives the right to set up the defense of prescription insofar as the
assessment and collection of any deficiency taxes for the year 1989 but not after June 30, 1994. Said
waiver was not signed by the petitioner or any of his authorized representatives and did not state
the date of acceptance.

On January 1994, the respondent wrote a letter to the Chief of the BIR Appellate Division and
requested the latter to take cognizance of the formers request for reconsideration. A month
thereafter, the respondent again sent a similar letter to the Revenue District Officer and asked for the
transmittal of the entire docket of the assessment to the BIR Appellate Division.

On September 1994 and 1995, the respondent filed a Supplemental Memorandum on its protest with
the BIR Regional Office and the BIR Appellate Division, respectively.

The BIR responded on November 2001 requiring the respondent to submit financial documents and
a month later, the respondent wrote the former asking for an extension of the period to submit the
said documents. On January 2002, the respondent sent a request for an extension to file a
Supplemental Memorandum.

On March 2002, the respondent submitted a Supplemental Memorandum alleging that the
petitioners right to collect the alleged deficiency income tax has already prescribed.

On March 22, 2004, the petitioner rendered a decision denying the respondents request for
reconsideration and ordering the latter to pay the deficiency income tax due plus interest.

The respondent then filed a petition for review before the CTA Division. The latter cancelled the
Assessment Notice sent by the BIR to the respondent. The Court found that although the assessment
was made within the prescribed period, the period of collection has already lapsed and that the
request for reconsideration did not suspend the running of the prescriptive period. Also, the Court
stated that the waiver was invalid.

The CTA En Banc affirmed this decision and further stated that the waiver executed by the
respondent could not be used by the petitioner as a basis for extending the period of assessment and
collection as there was no evidence that the latter had acted upon such waiver. Hence, the act being
unilateral, it produced no effect on the prescriptive period. The petitioner also argued that the
respondent is estopped from setting up the defense of prescription due to the repeated requests sent
to the petitioner. The CTA En Banc ruled that this measure cannot be used against the respondent
since the failure to act on the request for reconsideration was the fault of the petitioner.

Issues:

1. Whether or not the waiver was valid and thus effectively extending the period for collection;
and
2. Whether or not the respondent is estopped from setting up the defense of prescription.

Held:

The Supreme Court ruled in the negative on both issues.

First, that the waiver was not valid implying that the period for collection of the deficiency income
tax has prescribed. The court explained that the BIR cannot claim the benefits of extending the period
as a consequence of the waiver since the BIRs inaction resulted to the defects of the same. The waiver
is not a unilateral act of the taxpayer implying that the BIR must act on it; either agreeing or
disagreeing to the extension. Furthermore, such waiver should not be construed as a waiver to invoke
the defense of prescription but rather as an agreement between the taxpayer and the BIR to extend
the period of assessment or collection to a certain date.

The Court also does not agree that the petitioners claim that the respondent is barred to invoke the
defense of prescription because the repeated requests constituted estoppel. The repeated requests
were actually intended to urge the petitioner to act on the protest; not to persuade the same in
delaying the collection of the subject deficiency income tax. Also, since the BIR acted on these
requests even beyond the period on the waiver, there is no reason why the respondent should not
invoke prescription as a defense.
40. GR No. 161759
Commissioner of Customs v. Oilink International Corporation

Facts:

The respondent is a corporation owned by Union Refinery Corporation (URC) importing and
exporting oil, gas, and their refinements and by-products. These two entities have the same Board of
Directors.

On March 1998, Brillo, the District Collector of the Port of Manila, fomally demanded URC to pay its
taxes on oil imports from 1991-1995 at the Port of Lucanin in Mariveles, Bataan. Subsequent letters
in the following months were sent by Brillo and by Mendoza, Customs Commissioner, to URC
demanding the payment of the taxes and assessing the amount thereof. URC responded to some of
those demands by first, challenging the inconsistencies of such demands; second, insisting to only
pay a fraction of the amount by way of compromise; and third, proposing to pay in monthly
installments but paying an initial amount to be taken from the collectibles of Oilink from the National
Power Corporation.

Thereafter, Commissioner Tan made a final demand for the total liability to both URC and Oilink.
URCs President Manuel Co thus requested a complete finding of facts in support of the assessment
and also, Oilink formally protested such assessment on the grounds that it was not the party liable
for the deficiency taxes.

Commissioner Tan then sent a detailed computation of the assessment and stressed that the Bureau
of Customs will not issue any clearance to Oilink until the tax liability is paid.

Oilink then appealed to the CTA seeking to nullify the assessment for having been done without
authority and with grave abuse of discretion amounting to lack of jurisdiction since the government
in this case were shifting the imposition from URC to Oilink. The CTA declared the assessment null
and void.

The Commissioner of Customs then brought a petition for review before the Court of Appeals arguing
that: first, the CTA has no jurisdiction over the subject matter; second, Oilink has no cause of action;
and third, the CTA has erred in holding that it could not pierce the corporate veil. The CA denied such
petition stating that the CTA indeed has jurisdiction since the subject matter in the case at bar
involves payment of money by the respondent to the government. As to the piercing of the corporate
veil, the CA stated that the petitioner could not do so since it was not established that the wrongdoing
is by the respondent or that the respondent corporation was merely put up to avoid URCs payment
of taxes.

The case was elevated to the Supreme Court, the petitioner reiterating the same issues raised before
the CA.
Issues:

1. Whether or not the CTA has jurisdiction of the case;

2. Whether or not Oilink should first exhaust all administrative remedies thus having no cause
of action in the case at bar; and
3. Whether or not there was a ground to pierce the veil of corporate existence.

Held:

The Supreme Court affirmed the decision of the CA thus stating that the CTA has indeed jurisdiction
over the case, that Oilink has a valid cause of action, and that there was no ground to peirce the veil
of corporate existence.

On the first issue, the CTA has jurisdiction over the controversy citing Section 7 of RA 1125 as basis
(that the CTA has jurisdiction over the decisions of the Commissioner of Customs in cases involving
liability for Customs duties, fees, or other money charges).

On the second issue, the Supreme Court stated that Oilink in the case at bar has a valid cause of action
reiterating the CAs ruling that the principle of non-exhaustion of administrative remedies was not
an iron clad-rule because there are instances where the immediate resort to judicial action is proper
and this instance was one when such principle does not apply. The petitioner already denied the
protest made by the respondent and stressed that the demand to pay was final implying that the
exhaustion of administrative remedies would be futile because it was the petitioner demanding the
payment of the subject deficiency taxes.

On the third issue, the Supreme Court reiterated the ruling of the CA in stating that there was no
ground to pierce the corporate veil since the petitioner did not, in any way, establish that Oilink had
been set up to avoid the payment of taxes or for purposes of public inconvenience, justify wrong, or
circumvent the law.
41. GR No. 179343
Fishwealth Canning Corporation v. Commissioner of Internal
Revenue

Facts:

Fishwealth Canning Corporation was assessed by the BIR for tax deficiencies for the year 1999 in
which the former settled on August 2000. However, five days before the petitioner settled the first
tax assessments, the respondent reinvestigated petitioners books of accounts and other records
covering the same period and issued a subpoena duces tecum. Petitioner then requested the
cancellation of the subpoena arguing that the records had been previously examined.

Respondent then sent a Final Assessment Notice of income tax and VAT deficiencies for the taxable
year 1999 which the petitioner contested. Respondent issued a Final Decision on Disputed
Assessment which petitioner received August 4, 2005. The decision denied the letter of protest,
requested immediate payment of the assessed deficiency taxes, and reminded the petitioner that in
case the same disagrees, it may appeal to the CTA within 30 days from the date of receipt thereof.

Instead of appealing to the CTA, the petitioner filed a Letter of Reconsideration, dated August 31,
2005, which the respondent replied with a Preliminary Collection Letter dated September 6, 2005.
Petitioner then filed a petition for review before the CTA Division on October 20, 2005.

The respondent argued that the petition was filed out of time which was upheld by the CTA Division
and dismissed the petition. The case was elevated to the CTA En Banc which denied it stating that the
petition before the CTA Division was indeed filed out of time. Thus, the petitioner elevated the case
to the Supreme Court

Issue:

Whether or not a Letter of Reconsideration suspends the running of the period to appeal.

Held:

The Supreme Court dismissed the petition ruling that the petition filed before the CTA Division was
filed out of time emphasizing that a motion for reconsideration of the denial of administrative protest
does not toll the 30-day period to appeal. Since the assailed denial of the protest was received by the
petitioner on August 4, 2005, it had until September 3, 2005 to appeal before the CTA Division;
however, the same filed one on October thus it was filed out of time.
42. GR No. 187485
Commissioner of Internal Revenue v. San Roque Power Corporation

Facts:

San Roque Power Corporation constructed and developed San Roque Multi-Purpose Project which
comprised of the dam, spillway, and power plant. This project allegedly incurred excess in input VAT
for the taxable year 2001 which it declared in its Quarterly VAT Returns filed the same year. The
respondent filed with the BIR claims for refund of the incurred expenses representing unutilized
input taxes declared in the returns for the said taxable year.

On March 28, 2003, however, the respondent filed amended Quarterly VAT Returns for the taxable
year 2001 and increased its unutilized input VAT and consequently filed claims for refund of the
amended amount.

On April 10, 2003, merely thirteen days later, the respondent filed a petition for review before the
CTA Division due to the inaction of the petitioner on the formers claims for refund.

The CTA Division initially denied the respondents claim pointing out that the denial was due to the
lack of documentary requirements to substantiate the latters claim. San Roque then filed a Motion
for New Trial and/or Reconsideration with the same Court which partially granted the refund claim
limiting the same to what is reflected on the formers records. This decision was rendered on
November 29, 2007.

The petitioner thereafter filed a petition for review before the CTA En Banc praying for the denial of
the refund claim in its entirety arguing that the respondents judicial claim is prematurely filed.

The CTA En Banc denied said petition and stated that the claim is NOT prematurely filed emphasizing
that the court had repeatedly held in previous cases that the claim for refund with the BIR and the
subsequent appeal to the CTA must be filed within the two-year period. The Court also reiterated the
decision rendered in the case of Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue which stated that if the two-year period is about to expire but the
BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for review
before the CTA within the two-year period.

Issue:

Whether or not the 120-day period is mandatory thus implying the respondents premature filing of
the petition for review before the CTA Division.
Held:

The Supreme Court held that San Roque indeed filed the petition prematurely reversing the decisions
rendered by both the CTA Division and the CTA En Banc.

The Court stressed that the compliance within the 120-day waiting period is mandatory and
jurisdictional and failure to comply with this violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of action. This, in turn, implies
that the CTA never acquired jurisdiction over the taxpayers petition.

Also, the Atlas doctrine cited is misplaced since it does not interpret the 120+30-day periods but
rather stated that the two-year prescription period should be counted from the date of payment of
the output VAT, not from the close of the taxable quarter when the sales involving input VAT were
made.
43. GR No. 194105
Commissioner of Internal Revenue v. Team Sual Corporation

Facts:

Team Sual Corporation (TSC) is engaged in the sale of power generation services to the National
Power Corporation. On March 11, 2002, the respondent filed with the BIR a claim for refund of the
unutilized input VAT for the taxable year 2000. However, without awaiting the petitioners resolution
on the claim for refund, the respondent filed a petition for review with the CTA on the matter.

In its answer, herein petitioner asserted that TSC failed to comply with the conditions precedent for
claiming refund of unutilized input VAT pointing out that the latter failed to complete documents in
support of its application for refund.

The CTA Division granted the claim for refund but it limited such to what the respondent was able to
substantiate. The CIR sought reconsideration arguing in addition to its past contentions that the
petition was prematurely filed since TSC did not wait for the 120-day period to lapse. The Court
denied said motion stating that the petition was not prematurely filed notwithstanding that the 120-
day period has not yet lapsed.

The case was elevated to the CTA En Banc which affirmed the decision of the Division.

Issue:

Whether or not the petition for review was prematurely filed before the CTA Division.

Held:

The Supreme Court reversed the decision rendered by both CTA Division and En Banc stating that
the petition was indeed prematurely filed.

The Court, in its decision, cited the case of CIR v. San Roque Power Corporation and reiterated that the
120-day period that is given to the CIR within which to decide claims for refund of unutilized input
VAT is mandatory and jurisdictional. This implies that even if the period goes beyond the two-year
prescription period, the taxpayer should nonetheless wait for the same to lapse before filing a
petition for review before the CTA.
44. GR No. 198759
Philippine Airlines, Inc. v. Commissioner of Internal Revenue

Facts:

Philippine Airlines, Inc. (PAL) purchased jet fuel from Caltex to use for its domestic operations.
Subsequently, PAL received from Caltex an invoice for the purchased aviation fuel, a fraction of which
reflects excise tax for the transaction. A certification is later sent by Caltex stating the amount of
excise taxes, passing the burden of paying said taxes to PAL, and stating that it did not file any claim
for refund on said excise tax with the BIR.

PAL then sent a request letter to herein respondent for refund of the excise taxes passed on to it by
Caltex. The refund was based on its operating franchise which granted tax exemption privileges,
direct or indirect, on its purchase and/or importation of aviation gas, fuel, and oil.

Due to CIRs inaction, PAL filed before the CTA Division a petition for review on the refund. In its
answer, the CIR contended that since Caltex paid the excise taxes, PAL had no cause of action.

The CTA Division denied PALs petition stating that only a statutory taxpayer, Caltex in this case, may
seek a refund of the excise taxes it paid. The decision was also based on a Letter of Instruction (LOI)
which withdrew tax exemption privileges on the purchase of domestic petroleum products.

PAL moved for reconsideration but the same was denied thus elevating the case to the CTA En Banc.
The CTA En Banc then affirmed the decision rendered by the CTA Division. Hence, bringing the case
before the Supreme Court.

Issues:

1. Whether or not PAL is the proper party to claim for refund; and
2. Whether or not PAL is indeed exempted from the tax thus entitling it to said refund.

Held:

The Supreme Court ruled the petition to be meritorious thus holding that the PAL is the proper party
to the case and that PAL is exempt from payment of the excise taxes.

On the first issue, the Court stated that the instant case does not apply to the general rule mentioned
in the case of Silkair (Singapore) Pte. Ltd. v. CIR where the proper party to question, or seek a refund
of, and indirect tax such as an excise 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. The Supreme
Court emphasized that where the law clearly grants the party to which the economic burden of the
tax is shifted an exemption from both direct and indirect taxes, the abovementioned ruling is not
applicable even if it is not considered as the statutory taxpayer under the law.

Furthermore, the Court clarified that the LOI only applies to manufactured or produced domestic
products. Since the purchased fuel is imported and is merely resold to PAL, it cannot be considered
to be covered under the LOI.
45. GR No. 160949
Commissioner of Internal Revenue v. PL Management International
Philippines, Inc.

Facts:

The respondent, in its 1997 income tax return filed on April 13, 1998, signified that it had a creditable
withholding tax of P1.2M for the taxable year 1997. It opted to carry over this amount as tax credit
in taxable year 1998. However, in 1998, the respondent suffered net loss so it was unable to utilize
the tax credit claim.

Thus, on April 12, 2000, the respondent filed with the petitioner a claim for refund of the P1.2M but
the petitioner did not act on the claim prompting the respondent to file a petition for review before
the CTA.

The Court denied the petition on the ground of prescription stating that the action had prescribed on
April 12, 2000 but the same was filed on April 14, 2000.

The respondent elevated the case before the Court of Appeals which reversed the decision of the CTA
holding that the two-year prescriptive period was not jurisdictional and can be suspended for
reasons of equity.

Issue:

Whether or not the respondent is entitled to a refund.

Held:

The Supreme Court held that the respondent is not entitled to a refund but is permitted to apply the
P1.2M as tax credit in the succeeding taxable years until fully exhausted and based its decision to the
irrevocability rule. The Court stressed that the option to carry-over has been chosen by a corporate
taxpayer, it becomes irrevocable and no application for tax refund shall be allowed thereafter.

Since the respondent already opted to carry over the unutilized creditable withholding tax to taxable
year 1998, the carry-over could no longer be converted into a claim for refund but the respondent
remained entitled to utilize the amount in the succeeding taxable years until exhausted. Thus,
prescription is no longer of question since there is no prescriptive period for the carrying over the
amount as tax credit in subsequent taxable years.
46. GR No. 181459
Commissioner of Internal Revenue v. Manila Electric Company
(MERALCO)

Facts:

The respondent obtained a loan from Norddeuttsche Landesbank Girozentrale (NLG) Singapore
Branch. Under the loan agreements, the income received by NLG by way of the respondents interest
payments shall be paid in full without deductions since MERALCO shall bear the 10% final
withholding tax to be paid/remitted with the BIR. Pursuant to this, MERALCO paid/remitted to the
BIR said withholding tax covering the period from January 1999 to September 2003.

Sometime in 2001, MERALCO discovered that NLG is government-owned financial institution of

Germany. Thus on December of the same year, MERALCO filed a request for a BIR ruling on the tax
exempt status of NLG. On October 2003, the BIR declared that the interest payments made to NLG
are exempt from the 10% withholding tax since it is a financing institution owned and controlled by
the government of Germany.

On July 2004, pursuant to said ruling, the respondent filed a claim for refund representing the
erroneously paid final withholding tax on interest payments made to NLG. The petitioner denied the
respondents claim on the basis that the same had already prescribed.

The case was then elevated to the CTA Division which partially granted MERALCOs petition. The CTA
Division only granted the claim for refund representing final withholding tax erroneously paid and
remitted for the period December 2002 to September 2003 since the amount paid for the period
January 1999 to July 2002 has already prescribed. The CTA En Banc upheld this decision in toto.

Issue:

Whether or not the respondent is entitled to refund the whole erroneously paid amount.

Held:

The Supreme Court affirmed both the decisions of the CTA Division and En Banc thus partially
granting the refund.

The Court stressed that the two-year prescription period is mandatory regardless of any supervening
cause that may arise after payment and that this period run from the time the refund is ascertained,
the propriety thereof is determined by law (in the case at bar, from the date of payment), and not
upon the discovery by the taxpayer of the erroneous or excessive payment of taxes.
47. GR No. 173854
Commissioner of Internal Revenue v. Far East Bank & Trust
Company

Facts:

The respondent, in its 1995 Income Tax Return showed a total overpaid income tax in the amount of
P17,443,133.00. Out of this amount, only P13,645,109.00 was sought to be refunded by the
respondent and the rest was opted to be carried over to the next taxable year.

On May 1996, the respondent filed a claim for the refund of the P13,645,109.00 with the BIR.
However, the petitioner failed to act on the claim of the respondent so the latter was compelled to
bring the matter to the CTA.

The CTA denied the respondents claim for refund on the ground that the respondent failed to show
that the income derived from the rentals and sale of real property from which the taxes were
withheld were reflected in its 1994 Annual Income Tax Return.

On October 1999, the respondent filed a Motion for New Trial on excusable negligence and it prayed
that it be allowed to present new evidence to support its claim for refund. This was denied by the
CTA.

On appeal, the CA reversed the decision of the CTA stating that the respondent has duly proven that
the income derived from rentals and real property were included in the return as part of the gross
income.

Issue:

Whether or not the respondent has complied with all the requirements for a refund.

Held:

The Supreme Court held that the respondent failed to show that it was entitled to a refund therefore
it was not entitled to it. The Court enumerated the requirements for such: first, the claim must be
filed within the two-year prescription period; second, it must be shown on the return that the income
received was declared as part of the gross income; and third, the fact of withholding must be
established by a copy of a statement duly issued by the payor to the payee showing the amount paid
and the amount of the tax withheld. The Court found that the respondent did not comply with the
second and the third requirements.
Upon perusal of the respondents 1994 Income Tax Return, it was found that the document shows
that the gross income was derived solely from sales of services. Thus, the income derived from rentals
and sales of real property upon which the taxes were withheld were not included in the gross income
and since no income was reported, it follows that no tax was withheld.

Also, the third requisite was not satisfied since the respondent failed to present the Certificates of
Credible Tax Withheld at Source as required under Section 10 of Revenue Regulation No. 6-85.