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Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and
garments and other hospital supplies for export. Petitioners place of business is at the Subic Bay Freeport
Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay
Freeport Enterprise, pursuant to the provisions of Republic Act No. 7227. As an SBMA-registered firm,
petitioner is exempt from all local and national internal revenue taxes except for the preferential tax
provided for in Section 12 (c) [5] of Rep. Act No. 7227. Petitioner also registered with the Bureau of Internal
Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration.

In 1997 to 1998, petitioner purchased various supplies and materials necessary in the conduct of its
manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased
items, which led the petitioner to pay input taxes.

Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant
to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid.
Revenue district officer denied the first application letter, dated December 29, 1998.

Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit,
this time directly with Atty. Alberto Pagabao, the regional director of BIR. The second letter sought a refund
or issuance of a tax credit certificate in the amount of P1,108,307.72, representing erroneously paid input
VAT for the period January 1, 1997 to November 30, 1998.

Subsequently, petitioner then elevated the matter to the Court of Tax Appeals, in a petition for
review docketed as CTA Case No. 5895. Petitioner stressed that Section 112(A) if read in relation to Section
106(A)(2)(a) of the National Internal Revenue Code, as amended and Section 12(b) and (c) of Rep. Act No.
7227 would show that it was not liable in any way for any value-added tax.

On the other hand, the BIR asked the CTA to apply the rule that claims for refund are strictly
construed against the taxpayer. Since petitioner failed to establish both its right to a tax refund or tax credit
and its compliance with the rules on tax refund as provided for in Sections 204 and 229 of the Tax Code,
its claim should be denied, according to the BIR.


Whether or not the finding of the Court of Appeals that the VAT exemption embodied in Rep. Act
No. 7227 does not apply to petitioner as a purchaser is correct.

Whether or not the petitioner is entitled to a tax refund on its purchases of supplies and raw
materials for 1997 and 1998.

On the first issue, the Supreme Court stressed that the VAT is an indirect tax. As such, the amount
of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on
by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income
tax, which primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect tax,
such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same.
The VAT, thus, forms a substantial portion of consumer expenditures.

Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the
burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller
to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In
adding or including the VAT due to the selling price, the seller remains the person primarily and legally
liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final
purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for payment
of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears
the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although
not directly and legally liable for the payment thereof, ultimately bears the burden of the tax.

Under VAT, the transaction can have preferential treatment in the following ways:

(a) VAT Exemption. An exemption means that the sale of goods or properties and/or
services and the use or lease of properties is not subject to VAT (output tax) and the seller is not
allowed any tax credit on VAT (input tax) previously paid. This is a case wherein the VAT is
removed at the exempt stage.

The person making the exempt sale of goods, properties or services shall not bill any output tax to
his customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered
purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any
input tax on such purchase despite the issuance of a VAT invoice or receipt.

(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0%
rate, meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-
registered person, which is a taxable transaction for VAT purposes, shall not result in any output
tax. However, the input tax on his purchases of goods, properties or services related to such zero-
rated sale shall be available as tax credit or refund in accordance with these regulations.

Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast,
exemption only removes the VAT at the exempt stage, and it will actually increase, rather than reduce the
total taxes paid by the exempt firms business or non-retail customers. It is for this reason that a sharp
distinction must be made between zero-rating and exemption in designating a value-added tax.

Moreover, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted
by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration
issued by the BIR. As such, it is exempt from VAT on all its sales and importations of goods and services.
While it is true that the petitioner should not have been liable for the VAT inadvertently passed on
to it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper
party to claim such VAT refund.

Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the Consolidated Value-Added
Tax Regulations provide:

Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-registered person, which is a

taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on
his purchases of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.

Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT
credit with no corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the

On the second issue, the Court ruled that it may not be amiss to re-emphasize that the petitioner is
registered as a NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not
allowed any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption
from the burden of VAT on petitioners purchases did exist, petitioner is still not entitled to any tax credit
or refund on the input tax previously paid as petitioner is an exempt VAT taxpayer.

Rather, it is the petitioners suppliers who are the proper parties to claim the tax credit and
accordingly refund the petitioner of the VAT erroneously passed on to the latter.

Lastly, the Court ruled that petitioners VAT exemption under Rep. Act No. 7227 is limited to the
VAT on which it is directly liable as a seller and hence, it cannot claim any refund or exemption for any
input VAT it paid, if any, on its purchases of raw materials and supplies.
UNIVERSITY, respondents.



Private respondent is a non-stock, non-profit educational institution with auxiliary units and
branches all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which
has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit
engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships
for its research activities from international organizations, private foundations and government agencies.

On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a
demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged
deficiency contractors tax, and an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended March 31, 1978. Denying said tax liabilities, private
respondent sent petitioner a letter-protest and subsequently filed with the latter a memorandum contesting
the validity of the assessments.

On March 17, 1988, petitioner rendered a letter-decision canceling the assessment for deficiency
income tax but modifying the assessment for deficiency contractors tax by increasing the amount due to
P193,475.55. Unsatisfied, private respondent requested for a reconsideration or reinvestigation of the
modified assessment. At the same time, it filed in the respondent court a petition for review of the said
letter-decision of the petitioner. While the petition was pending before the respondent court, petitioner
issued a final decision dated August 3, 1988 reducing the assessment for deficiency contractors tax from
P193,475.55 to P46,516.41, exclusive of surcharge and interest.

On July 12, 1993, the respondent court cancelled the deficiency contractors tax assessment.


Whether or not private respondent is subject to 3% contractors tax under Section 205 of the Tax


The Supreme Court held that petitioner Commissioner of Internal Revenue erred in applying the
principles of tax exemption without first applying the well-settled doctrine of strict interpretation in the
imposition of taxes. It is obviously both illogical and impractical to determine who are exempted without
first determining who are covered by the aforesaid provision. The Commissioner should have determined
first if private respondent was covered by Section 205, applying the rule of strict interpretation of laws
imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption therefrom.
The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws that (a)
statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. Parenthetically, in answering the question
of who is subject to tax statutes, it is basic that in case of doubt, such statutes are to be construed most
strongly against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import.

To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the
independent contractor be engaged in the business of selling its services. Hence, to impose the three percent
contractors tax on Ateneos Institute of Philippine Culture, it should be sufficiently proven that the private
respondent is indeed selling its services for a fee in pursuit of an independent business. And it is only after
private respondent has been found clearly to be subject to the provisions of Sec. 205 that the question of
exemption therefrom would arise. Only after such coverage is shown does the rule of construction that tax
exemptions are to be strictly construed against the taxpayer come into play, contrary to petitioner’s position.

Furthermore, the research activity of the Institute of Philippine Culture is done in pursuance of
maintaining Ateneo’s university status and not in the course of an independent business of selling such
research with profit in mind. Thus, petitioner’s contention that it is the Institute of Philippine Culture that
is being taxed and not Ateneo is patently erroneous because the former is not an independent juridical entity
that is separate and distinct from the latter.



Philex is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the exploration and
operation of mine properties and commercial production and marketing of mine products.

On October 21, 2005, filed its original VAT return for 3rd quarter of taxable year 2005 and
amended VAT return for the same quarter on Dec 1, 2005. While on March 20, 2006, Philex filed its claim
for refund/tax credit of the amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of

The CTA Second Division ruled that the two-year prescriptive period specified in Section 112(A)
of RA 8424, as amended, applies not only to the filing of the administrative claim with the BIR, but also to
the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd quarter of 2005, its
administrative claim filed on 20 March 2006 was timely filed, while its judicial claim filed on 17 October
2007 was filed late and therefore barred by prescription. Philex prayed for reversal.

Subsequently, the CTA En Banc denied Philex and Affirmed CTA division’s decision.

In this case, while there is no dispute that Philex’s administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that on
March 20, 2006, Philex applied the administrative claim for refund of unutilized input VAT.

From March 20, 2006, which is also presumably the date Philex submitted supporting documents,
together with the aforesaid application for refund, the CIR has 120 days, or until July 18, 2006, within
which to decide the claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until
August 17, 2006, Philex should have elevated its claim for refund to the CTA. However, Philex filed its
Petition for Review only on October 17, 2007, which is 426 days way beyond the 30- day period prescribed
by law.


Whether or not the Philex’s claim for refund were timely filed.


The Supreme Court ruled that Philex claimed that it timely filed its administrative claim on March
20, 2006, within the 2-year prescriptive period invoking the Atlas doctrine. Even if the 2-year prescriptive
period is computed from the date of payment of the output VAT under Sec 229, Philex, still filed its claim
on time. However, the Atlas doctrine is immaterial in this case.

The commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philex’s
claim. Since the commissioner did not act on Philex’s claim on or before July 17, 2006, Philex had until
August 17, 2006, the last day of the 30-day period, to filed its judicial claim. However, Philex filed its
Petition for Review with CTA only on October 17, 2007, or 426 days after the last day of filing.
In short, Philex was late by one year and 61 days in filing its judicial claim.

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition
for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the
CTA Division.

Unlike in San Roque and Taganito, Philex’ case is not one of premature filing but of late filing.
Philex did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within the 30 days after the 120-day period, in fact 426 days after the lapse of the 120-day

In any event, whether governed by jurisprudence before, during, or after the Atlas case, Philex's
judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive period is
counted from the date of payment of the output VAT following the Atlas doctrine, or from the close of the
taxable quarter when the sales attributable to the input VAT were made following the Mirant and Aichi
doctrines, Philex's judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of judicial claim. The inaction of CIR
was deemed a denial. Philex had 30 days from the expiration of 120-day period. And it failed to do so.

Moreover, the taxpayer may within 2 years after the close of the taxable quarter when the sales are
made, apply for the issuance of tax credit certificate or refund of the creditable input tax due or paid to such
sales. In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit
within 2 years, which meant at any time within 2 years.

The two-year prescriptive period does not refer to the filing of judicial claim with the CTA but the
filing of the CTA but to the filing of the administrative claim with the commissioner refund/credit with the
CIR and not to appeals made to the CTA.

The commissioner will have 120 days from such filing to decide the claim. If the commissioner
decides the claim on the 120th day, or does not decide it on that day, the taxpayer has 30 days to file his
judicial claim with the CTA.

The 30-day period was adopted precisely to do away with the old rule, so that under the VAT
System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only
on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available
to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without
waiting for the Commissioner to decide until the expiration of the 120-day period.

Furthermore, RMC 49-03 provides that the mere filing by a taxpayer of a judicial claim with the
CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of his
jurisdiction to decide an administrative claim within the 120-day mandatory period, unless the
Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section
246 of the Tax Code.

However, the BIR Ruling No. DA-489-03 provides a valid claim for equitable estoppel under the
Tax Code. BIR ruling expressly states that the taxpayer-claimant need not wait for lapse of the 120-day
period before it could seek judicial relief with the CTA by way of petition for review. Prior to this, BIR
held that 120-day period is mandatory and jurisdictional.
It is still mandatory and jurisdictional but there are 2 exceptions to this rule:

1. The first exception is if the Commissioner, through a specific ruling, misleads a

particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is
applicable only to such particular taxpayer.

2. The second exception is where the Commissioner, through a general interpretative

rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial
claims with the CTA.

Section 112 (D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner
has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty
days after the Commissioner partially or fully denies the claim within the 120-day period, or (2) only within
thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day

By reasons stated above, the court denies the claim of Philex Mining Corporation.



During the period covering the taxable years 1995 to 1998, petitioner had been an assignee of
several Tax Credit Certificates (TCCs) from various BOI-registered entities for which petitioner utilized in
the payment of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments
of the said TCCs were approved by the Department of Finances One Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center (DOF Center), composed of representatives from the appropriate government
agencies, namely, the Department of Finance (DOF), the Board of Investments (BOI), the Bureau of
Customs (BOC) and the Bureau of Internal Revenue (BIR).

Taking ground on a BOI letter issued on 15 May 1998 which states that hydraulic oil, penetrating
oil, diesel fuels and industrial gases are classified as supplies and considered the suppliers thereof as
qualified transferees of tax credit, petitioner acknowledged and accepted the transfers of the TCCs from the
various BOI-registered entities.

Petitioners acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable
years 1995 to 1998, had been continuously approved by the DOF as well as the BIRs Collection Program
Division through its surrender and subsequent issuance by the Assistant Commissioner of the Collection
Service of the BIR of the Tax Debit Memos (TDMs).

On January 30, 2002, respondent issued the assailed Assessment against petitioner for deficiency
excise taxes for the taxable years 1995 to 1998, in the total amount of ₱739,003,036.32, inclusive of
surcharges and interests, based on the ground that the TCCs utilized by petitioner in its payment of excise
taxes have been cancelled by the DOF for having been fraudulently issued and transferred, pursuant to its
EXCOM Resolution No. 03-05-99. Thus, petitioner, through letters dated August 31, 1999 and September
1, 1999, was required by the DOF Center to submit copies of its sales invoices and delivery receipts showing
the consummation of the sale transaction to certain TCC transferors.

Petitioner contended that the BIR did not comply with the requirements of Revenue Regulations
12-99 in issuing the assessment letter dated January 30, 2002, hence, the assessment made against it is void.
They, likewise alleged that the assignment/transfer of the TCCs to petitioner by the TCC holders was
submitted to, examined and approved by the concerned government agencies which processed the
assignment in accordance with law and revenue regulations. Also, there is no basis for the imposition of
the 50% surcharge. Lastly,they alleged that the assessment and collection of alleged excise tax deficiencies
sought to be collected by the BIR against petitioner through the January 30, 2002 letter are already barred
by prescription under Section 203 of the National Internal Revenue Code.

On 27 March 2002, respondent, through Assistant Commissioner Edwin R. Abella served a

Warrant of Distraint and/or Levy on petitioner to enforce payment. However, on November 12, 2002,
respondent filed a Manifestation informing this Court that it had reduced the amount of deficiency excise
The CTA rendered an order that the petitioner shall pay the reduced amount representing petitioners
deficiency excise taxes for the taxable years 1995 to 1998 including the surcharge and delinquency interest.
This was, however, reversed by the CTA en banc.


Whether or not respondent cannot validly claim the right of innocent transferee for value. As
assignee/transferee of the TCCs, respondent merely succeeded to the rights of the TCC
assignors/transferors. Accordingly, if the TCCs assigned to respondent were void, it did not acquire any
valid title over the TCCs.

Whether or not the Government is estopped from collecting taxes due to the mistakes of its agents.


On the first issue, the Supreme Court held that respondent correctly pointed out that, however, the
issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are
not matters of first impression for this Court. Taking into consideration the definition and nature of tax
credits and TCCs, this Court's Second Division definitively ruled in the aforesaid Pilipinas Shell case that
the post audit is not a suspensive condition for the validity of TCCs, thus:

Art. 1181 tells us that the condition is suspensive when the acquisition of rights or
demandability of the obligation must await the occurrence of the condition. However, Art. 1181
does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather,
specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the
Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus
Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106
(c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and
others. Nowhere in the laws does the post-audit become necessary for the validity or effectivity of
the TCCs. Nowhere in the laws is it provided that a TCC is issued subject to a suspensive condition.

(T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the
dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions
found at the back of each TCC, which provide:

This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against
taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs
laws, rules and regulations.

To acknowledge application of payment, the One-Stop-Shop Tax Credit Center shall issue
the corresponding Tax Debit Memo (TDM) to the grantee.

The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall
accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column

Moreover, the foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to
pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of
the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it
would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is
no contemplation of the situation wherein there is no post-audit. Does the payment made become effective
if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or
regulation specifies a period when a post-audit should or could be conducted with a prescriptive period?
Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event
for its effectivity. Our system of laws and procedures abhors ambiguity.

Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very
purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by
the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject
to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-

The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition
and are thus valid and effective from their issuance.

In addition, Shell and Petron recognized an exception that holds the transferee/assignee liable if
proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject
TCCs. As earlier mentioned, the parties entered into a joint stipulation of facts stating that Petron did not
participate in the procurement or issuance of those TCCs. Thus, we affirm the CTA En Bancs ruling that
respondent was an innocent transferee for value thereof.

On the issue of estoppel, the Court held that the well-entrenched principle that estoppel does not
apply to the government, especially on matters of taxation. Taxes are the nations lifeblood through which
government agencies continue to operate and with which the State discharges its functions for the welfare
of its constituents. As an exception, however, this general rule cannot be applied if it would work injustice
against an innocent party.

Petron, in this case, was not proven to have had any participation in or knowledge of the CIRs
allegation of the fraudulent transfer and utilization of the subject TCCs. Respondents status as a transferee
in good faith and for value of these TCCs has been established and even stipulated upon by petitioner.
Respondent was thereby provided ample protection from the adverse findings subsequently made by the
Center. Given the circumstances, the CIRs invocation of the non-applicability of estoppel in this case is



CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and contractor’s taxes from Marubeni Corp after finding the
latter to have properly availed of the tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing and
construction, is duly registered in the Philippines with Manila branch office. CIR examined the Manila
branch’s books of accounts for fiscal year ending March 1985 and found that respondent had undeclared
income from contracts with NDC and Philphos for construction of a wharf/port complex and ammonia
storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes.
CIR claims that the income respondent derived were income from Philippine sources, hence subject to
internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review with CTA: the first, questioned
the deficiency income, branch profit remittance and contractor’s tax assessments and second questioned the
deficiency commercial broker’s assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return
on Oct 30, 1986.

On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under Title
3 and business tax under Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986 and
stated those who already availed amnesty under EO 41 should file an amended return to avail of the new
benefits. Marubeni filed a supplemental tax amnesty return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency
taxes. CA affirmed on appeal.


Whether or not Marubeni is exempted from paying tax.


The Supreme Court ruled in the affirmative. CIR claims Marubeni is disqualified from the tax
amnesty because it falls under the exception in Sec 4b of EO 41:

“Sec. 4. Exceptions. —The following taxpayers may not avail themselves of the amnesty
herein granted: xxx b) Those with income tax cases already filed in Court as of the effectivity
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a case
had already been filed and was pending before the CTA and Marubeni therefore fell under the exception.
However, the point of reference is the date of effectivity of EO 41 and that the filing of income tax cases
must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with CTA
on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed. Marubeni does not fall in
the exception and is thus, not disqualified from availing of the amnesty under EO 41 for taxes on income
and branch profit remittance.

The difficulty herein is with respect to the contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under EO 64, which expanded EO 41’s coverage. When EO 64 took
effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the amnesty for business, estate
and donor’s taxes. Instead, Section 8 said EO provided that:

“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to
or inconsistent with this amendatory Executive Order shall remain in full force and effect.”

Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be given a
retroactive effect unless it is so provided expressly or by necessary implication and no vested right or
obligations of contract are thereby impaired.

Lastly, Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable
for the deficiency tax because the income from the projects came from the “Offshore Portion” as opposed
to “Onshore Portion”. It claims all materials and equipment in the contract under the “Offshore Portion”
were manufactured and completed in Japan, not in the Philippines, and are therefore not subject to
Philippine taxes.

CIR argues that since the two agreements are turn-key, they call for the supply of both materials
and services to the client, they are contracts for a piece of work and are indivisible. The situs of the two
projects is in the Philippines, and the materials provided, and services rendered were all done and completed
within the territorial jurisdiction of the Philippines. Accordingly, respondent’s entire receipts from the
contracts, including its receipts from the Offshore Portion, constitute income from Philippine sources. The
total gross receipts covering both labor and materials should be subjected to contractor’s tax.

Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in
the Philippines because some of them were completed in Japan (and in fact subcontracted) in accordance
with the provisions of the contracts. All services for the design, fabrication, engineering and manufacture
of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These
services were rendered outside Philippines’ taxing jurisdiction and are therefore not subject to contractor’s
tax. Petition is thereby denied.