Philippine American Life and General Insurance
(PHILAMLIFE) vs Secretary of Finance
G.R. No. 198756
January 13, 2015
Facts:
PHILAMLIFE intended to divest its shares from PHILAMCARE
and was then able to sold it to STI INVESTMENTS, INC. for
an amount based on the prevailing market rate of the
shares via public bidding. However, the book value of the
shares sold is more than the selling price. When the subject
taxpayer applied for the issuance of tax clearance
certificate and Certificate Authorizing Registration, they
were advised to secure a ruling due to the potential donor’s
tax implication.
In the BIR Ruling, the CIR denied the tax
exemption and held that the subject transaction is subject
to donor’s tax. (Dili nalng nato e detail ngano subject sa
donor’s tax ky tax remedies man ang topic).
Petitioner then appealed the ruling of the CIR to
the Finance Secretary who also confirmed the ruling of the
CIR in its entirety. Petitioner ELEVATED THE CASE TO THE
COURT OF APPEALS.
CA dismissed the case for lack of jurisdiction. It
held that CIR’s ruling was in the exercise of his power under
NIRC to interpret tax laws. Hence, a petition for review for
that matter comes within the jurisdiction of COURT OF TAX
APPEALS and not in CA.
Petitioner’s contention:
1. POWER TO INTERPRET TAX LAWS & DECIDE TAX
CASES (note duha ni ka power under Section 4)
Power to Interpret tax laws – any adverse decisions of the
CIR is appealable to the Finance Secretary
Power to Decide Tax Cases – CTA has the exclusive and
appellate jurisdiction on reviewing matters in the exercise
of this power by CIR.
Petitioner argued that their case does not fall in
the first paragraph of Section 4 of NIRC (power to interpret
tax laws). Their case does not also fall under the second
paragraph (power to decide tax cases) because according to
RA 1125, this relates only to customs cases. Hence, there is
a gap in the law because it was not indicated clearly where
to elevate the case on the adverse decision of the Finance
Secretary under the Second paragraph.
This gap, petitioner submits, was remedied by
Bristish American Tabacco v. Camacho wherein the Court
ruled that where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by
the administrative agency, the regular courts have
jurisdiction to pass upon the same.
2. APPLICABILITY OF SECTION 100 OF THE NIRC AND
RR 06-2008 AND RMC 25-2011.
Petitioner argued that the transaction cannot be
subjected to donor’s tax because it has no donative intent
nor actual donation. The fact that the shares are sold in an
arm’s length transaction is enough to prove that there was
no donation. Moreover, they alleged that sale thru public
bidding (as in this case) is not among those included
transactions subject to donor’s tax.
Respondent’s contention:
Even assuming that CTA has no jurisdiction over
the case, petitioner should have appealed the case to the
Office of the President as DOF is not among the agencies
enumerated under Rules of Court whose decisions are
subject to petitioner for review in regular courts. They also
use the constitutional provision that the president exercises
control over executive departments, bureaus and offices.
Issue:
1. WON CA has jurisdiction in petitions for review on the
decisions/rulings issued by the finance secretary in relation
to the exercise by the CIR of its POWER TO DECIDE TAX
CASES.
2. WON CTA has jurisdiction in deciding the validity of the
Revenue Regulations and Revenue Memorandum Circulars
issued by the Finance Secretary.
Rule:
1. No.
Admittedly, there is no provision in law that
expressly provides where exactly the ruling of the Secretary
of Finance under the adverted NIRC provision is appealable
to. However,We find that Sec. 7(a)(1) of RA 1125, as
amended, addresses the seeming gap in the law as it vests
the CTA, albeit impliedly, with jurisdiction over the CA
petition as “other matters”arising under the NIRC or other
laws administered by the BIR. As stated:
Sec. 7. Jurisdiction. - The CTA shall exercise:
Exclusive appellate jurisdiction to review by appeal, as
herein provided:
1. Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau
of Internal Revenue. (emphasis supplied).
Even though the provision suggests that it only
covers rulings of the Commissioner, We hold that it is,
nonetheless, sufficient enough to include appeals from the
Secretary’s review under Sec. 4 of the NIRC.
2. Yes.
The recent case of City of Manila vs Grecia-
Cuerdo over-rules the British American case depicted by the
petitioner.
City of Manila diametrically opposes British
American Tobacco to the effect that it is now within the
power of the CTA, through its power of certiorari, to rule on
the validity of a particular administrative rule or regulation
so long as it is within its appellate jurisdiction. Hence, it can
now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity
of the revenue regulation or revenue memorandum circular
on which the said assessment is based.
Guided by the doctrinal teaching in resolving the
case at bar, the fact that the CA petition not only contested
the applicability of Sec. 100 of the NIRC over the sales
transaction but likewise questioned the validity of Sec.
7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA
of its jurisdiction over the controversy, contrary to
petitioner’s arguments.
Commissioner of Internal Revenue v. Court of Tax
Appeals and Petron Corporation, G.R. No.
207843, July 15, 2015
DOCTRINE: The CTA has no jurisdiction to determine the
validity of a ruling issued by the CIR or the COC in
the exercise of their quasi-legislative powers to interpret
tax laws. The phrase "other matters arising under this
Code," as stated in the second paragraph of Section 4 of the
NIRC, should be understood as pertaining to those matters
directly related to the preceding phrase "disputed
assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto". It
cannot extend to evaluating the soundness of the
interpretation of tax laws by the CIR.
FACTS: (Short Version)
Petron imports alkylate as a raw material for the
manufacture of motor gasoline. It claims that its
importation of akylate is exempt from excise tax. A Customs
Memorandum Circular (CMC) was issued stating that
Alkylate is subject to excise tax under Section 148( e) of the
NIRC. CIR then issued assessment to Petron for deficiency
tax. filed before the CTA a petition for review raising the
issue of whether its importation of alkylate is subject to
excise tax as contemplated under Section 148 (e) of the
NIRC. CIR filed a motion to dismiss on the grounds of lack of
jurisdiction and prematurity. CTA ruled in favor of Petron,
stating that (a) the controversy was not essentially for the
determination of the constitutionality, legality or validity of
a law, rule or regulation but a question on the propriety or
soundness of the CIR's interpretation of Section 148 (e) of
the NIRC which falls within the exclusive jurisdiction of the
CTA under Section 4 thereof, particularly under the phrase
"other matters arising under [the NIRC]";17 and (b) there
are attending circumstances that exempt the case from the
rule on non-exhaustion of administrative remedies, such as
the great irreparable damage that may be suffered by
Petron from the CIR's final assessment of excise tax on its
importation. CIR is now alleging that the CTA committed
grave abuse of discretion because it does not have
jurisdiction to take cognizance of the case.
(Long Version)
Petron, which is engaged in the manufacture and marketing
of petroleum products, imports alkylate as a raw material
or blending component for the manufacture of ethanol-
blended motor gasoline.For the period January 2009 to
August 2011, as well as for the month of April 2012, Petron
transacted an aggregate of 22 separate importations for
which petitioner the Commissioner of Internal Revenue
(CIR) issued Authorities to Release Imported Goods
(ATRIGs), categorically stating that Petron's importation of
alkylate is exempt from the payment of the excise tax. In
June 2012, Petron imported 12,802,660 liters of alkylate
and paid value-added tax (VAT) in the total amount of
41,657,533.00 as evidenced by Import Entry and Internal
Revenue Declaration (IEIRD) No. SN 122406532. Based on
the Final Computation, said importation was subjected by
the Collector of Customs of Port Limay, Bataan, upon
instructions of the Commissioner of Customs (COC), to
excise taxes of P4.35 per liter, or in the aggregate amount
of P55,691,571.00, and consequently, to an additional VAT
of 12% on the imposed excise tax in the amount of
P6,682,989.00.
The imposition of the excise tax was supposedly premised
on Customs Memorandum Circular (CMC) No. 164-2012
dated July 18, 2012, implementing the Letter dated June 29,
2012 issued by the CIR, which states that: [A]lkylate which
is a product of distillation similar to that of naphta, is
subject to excise tax under Section 148( e) of the National
Internal Revenue Code (NIRC) of 1997.
In view of the CIR's assessment, Petron filed before the CTA
a petition for review, docketed as CTA Case No. 8544,
raising the issue of whether its importation of alkylate as a
blending component is subject to excise tax as
contemplated under Section 148 (e) of the NIRC.
CIR filed a motion to dismiss on the grounds of lack of
jurisdiction and prematurity.
CTA gave due course to Petron's petition, finding that: (a)
the controversy was not essentially for the determination
of the constitutionality, legality or validity of a law, rule or
regulation but a question on the propriety or soundness of
the CIR's interpretation of Section 148 (e) of the NIRC which
falls within the exclusive jurisdiction of the CTA under
Section 4 thereof, particularly under the phrase "other
matters arising under [the NIRC]";17 and (b) there are
attending circumstances that exempt the case from the rule
on non-exhaustion of administrative remedies, such as the
great irreparable damage that may be suffered by Petron
from the CIR's final assessment of excise tax on its
importation. CIR sought immediate recourse to the Court,
through the instant petition, alleging that the CTA
committed grave abuse of discretion when it assumed
authority to take cognizance of the case despite its lack of
jurisdiction to do so
ISSUE/S: WON CTA had jurisdiction - NO
HELD: NO. The case does not fall within the jurisdiction of
the CTA because the phrase "other matters arising under
this Code," as stated in the second paragraph of Section 4
of the NIRC, should be understood as pertaining to those
matters directly related to the preceding phrase "disputed
assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto". It
cannot extend to evaluating the soundness of the
interpretation of tax laws by
the CIR. Moreover, Section 4 of the NIRC confers upon the
CIR both: (a) the power to interpret tax laws in the exercise
of her quasi-legislative function; and (b) the power to
decide tax cases in the exercise of her quasi-judicial
function. It also delineates the jurisdictional authority to
review the validity of the CIR's exercise of the said powers,
thus:
SEC. 4. Power of the Commissioner to Interpret Tax Laws
and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance. The power to
decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under this Code or other
laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to
the exclusive appellate jurisdiction of the Court of Tax
Appeals.
The CTA is a court of special jurisdiction, with power to
review by appeal decisions involving tax disputes rendered
by either the CIR or the COC. Conversely, [the CTA] has no
jurisdiction to determine the validity of a ruling issued by
the CIR or the COC in the exercise of their quasilegislative
powers to interpret tax laws.
In this case, Petron's tax liability was premised on the COC's
issuance of CMC No. 164-2012, which gave effect to the
CIR's June 29, 2012 Letter interpreting Section 148 (e) of the
NIRC as to include alkylate among the articles subject to
customs duties, hence, Petron's petition before the CTA
ultimately challenging the legality and constitutionality of
the CIR's aforesaid interpretation of a tax provision.
In line with the foregoing discussion, however, the CIR
correctly argues that the CTA had no jurisdiction to take
cognizance of the petition as its resolution would
necessarily involve a declaration of the validity or
constitutionality of the CIR's interpretation of Section 148
(e) of the NIRC, which is subject to the exclusive review by
the Secretary of Finance and ultimately by the regular
courts.
Hence, as the CIR's interpretation of a tax provision involves
an exercise of her quasi-legislative functions, the proper
recourse against the subject tax ruling expressed in CMC
No. 164-2012 is a review by the Secretary of Finance and
ultimately the regular courts.
There being no protest ruling by the customs collector that
was appealed to the COC, the filing of the petition before
the CTA was premature as there was nothing yet to review.
Verily, the fact that there is no decision by the COC to
appeal from highlights Petron's failure to exhaust
administrative remedies prescribed by law. Before a party
is allowed to seek the intervention of the courts, it is a pre-
condition that he avail of all administrative processes
afforded him, such that if a remedy within the
administrative machinery can be resorted to by giving the
administrative officer every opportunity to decide on a
matter that comes within his jurisdiction, then such remedy
must be exhausted first before the court's power of judicial
review can be sought, otherwise, the premature resort to
the court is fatal to one's cause of action.
DISPOSITIVE: WHEREFORE, the petition is GRANTED. The
Resolutions dated February 13, 2013 and May 8, 2013 of the
Court of Tax Appeals (CTA), Second Division in CTA Case No.
8544 are hereby REVERSED and SET ASIDE. The petition for
review filed by private respondent Petron Corporation
before the CTA is DISMISSED for lack of jurisdiction and
prematurity.
SECRETARY OF FINANCE v ORO MAURA SHIPPING LINES
Brion; June 15, 2009
Topic: Tariff and Customs
Quick Facts
Glory Shipping Lines owed the Collector of the Port of
Mactan P1,296,710.00 for the importation of M/V
“HARUNA.” Without
notifying the Collector of the Port of Mactan, Glory sold the
M/V “HARUNA” to Oro Maura Shipping Lines. Oro Maura
through
Kariton inquired with the DOF if it could pay the duties and
taxes due on the vessel. The DOF referred Kariton’s letter
which
ended up with the Collector of Customs of the Port of
Manila which accepted the declared value of the vessel at
P1,100,000.00
and assessed duties and taxes amounting to P149,989.00,
which Oro Maura duly paid in 1995. Upon learning of the
sale, the Collector of the Port of Mactan ordered the
forfeiture of the vessel in favor of the Government.
DOF ordered a reassessment of the dutiable value of the
vessel based on the original entered value, without
allowance for
depreciation.The CA ruled that the earlier assessment made
by the Collector of the Port of Manila had already become
final and
conclusive on all parties, pursuant to Sections 1407 and
1603 of the TCCP.
Doctrine/tax: Section 1603. Finality of Liquidation. – When
articles have been entered and passed free of duty or final
adjustments of duties made, with subsequent delivery,
such entry and passage free of duty or settlements of duties
will, after
the expiration of one (1) year, from the date of the final
payment of duties, in the absence of fraud or protest or
compliance
audit pursuant to the provisions of this Code, be final and
conclusive upon all parties, unless the liquidation of the
import entry
was merely tentative. Section 2503. Undervaluation,
Misclassification and Misdeclaration of Entry. –
Xxx That an undervaluation, misdeclaration in weight,
measurement or quantity of more than thirty percent (30%)
between the
value, weight, measurement, or quantity declared in the
entry, and the actual value, weight, quantity, or
measurement shall
constitute a prima facie evidence of fraud penalized under
Section 2530 of this Code.
Facts:
In 1992, the Maritime Industry Authority (MARINA)
authorized the importation of M/V “HARUNA”; under a
Bareboat Charter, for a period of 5 years from its actual
delivery to the charterer. The original parties to the
bareboat charter agreement were Haruna Maritime S.A and
Glory Shipping Lines (Glory), the charterer. The Department
of Finance (DOF), allowed the temporary registration of the
M/V “HARUNA” and its tax and duty-free release to Glory.
The Bureau of Customs (BOC) also required Glory to post a
bond in the amount equal to 150% of the duties, taxes and
other charges due on the importation, conditioned on the
re-exportation of the vessel upon termination of the
charter period, but in no case to extend beyond the year
1999. Glory posted Ordinary Re-Export Bond for
P1,952,000.00, conditioned on the re-export of the vessel
within a period of one 1 year or, in case of default, to pay
customs duty, tax and other charges on the importation of
the vessel in the amount of P1,296,710.00. M/V “HARUNA”
arrived at the Port of Mactan with a dutiable value of
P6,171,092.00 and estimated customs duty of
P1,296,710.00.
When Glory’s re-export bond expired, Glory sent a Letter of
Guarantee to the Collector guaranteeing to renew the Re-
Export Bond on vessel M/V “HARUNA” otherwise, it would
pay the duties and taxes on said vessel. Glory Shipping Lines
never complied with its Letter of Guarantee; neither did it
pay the duties and taxes and other charges due on the
vessel (P1,952,000.00) despite repeated demands made by
the Collector of the Port of Mactan.
Without informing or notifying the Collector of the Port of
Mactan, Haruna Maritime S.A. and Glory Shipping Lines sold
the M/V “HARUNA” to Oro Maura Shipping Lines. Kariton
and Company (Kariton), representing Oro Maura, inquired
with the DOF if it could pay the duties and taxes due on the
vessel. The DOF referred Kariton’s letter which ended up
with the Collector of Customs of the Port of Manila which
accepted the declared value of the vessel at P1,100,000.00
and assessed duties and taxes amounting to P149,989.00,
which Oro Maura duly paid in 1995.
In 1997, after discovery of the sale, the Collector of the Port
of Mactan sent Oro Maura a demand letter for the unpaid
customs duties and charges of Glory Shipping Lines. It later
ordered the forfeiture of the vessel in favor of the
Government, after finding that both Glory Shipping Lines
and the respondent acted fraudulently in the transaction.
The Collector of the Port of Mactan found that the
respondent defrauded the BOC of the proper customs duty,
but the District Collector of Cebu held otherwise on appeal
and absolved the respondent from any participation in the
fraud committed by Glory Shipping Lines. These factual
findings and conclusion were affirmed by the Commissioner
of Customs, by the CTA and, ultimately, by the CA. Although
in agreement with the conclusion, DOF, however, ordered
a reassessment of the dutiable value of the vessel based on
the original entered value, without allowance for
depreciation.
The CA ruled that the earlier assessment made by the
Collector of the Port of Manila had already become final
and conclusive on all parties, pursuant to Sections 1407 and
1603 of the TCCP.
Hence to SC:
DOF arguments:
1. The Commissioner and the Secretary may at any time
direct the re assessment of dutiable articles and order the
collection of deficiency duties. Even assuming that Sections
1407 and 1603 of the TCCP apply to the present case, the
one-year limitation does not run where the article was
misdeclared or undervalued, until a deficiency assessment
has been issued and settled in full.
2. Oro Maura being a direct and actual party to the
importation, should have ensured that the imported article
was properly declared and assessed the correct duties.
Oro Maura’s arguments:
1. The appraisal of the Collector can only be altered or
modified within a year from payment of duties, per Sections
1407 and 1603 of the TCCP; it is only when there is fraud or
protest or when the import entry was merely tentative that
settlement of duties will not attain finality.
2. Allegation that there was misdeclaration or
undervaluation of the vessel is not supported by the
evidence.
ISSUE:
WON the Secretary of Finance can order a re-assessment of
the vessel M/V “HARUNA.”
HELD: Yes
Ratio:
A closer scrutiny of the surrounding circumstances of the
case and the respondent’s actions reveal the existence of
fraud. Our finding of fraud leads us to conclude that the
assessment of the Collector of the Port of Manila cannot
become final and conclusive pursuant to Section 1603 of
the TCCP, which states:
Section 1603. Finality of Liquidation. – When articles have
been entered and passed free of duty or final adjustments
of duties
made, with subsequent delivery, such entry and passage
free of duty or settlements of duties will, after the
expiration of one
(1) year, from the date of the final payment of duties, in the
absence of fraud or protest or compliance audit pursuant to
the
provisions of this Code, be final and conclusive upon all
parties, unless the liquidation of the import entry was
merely tentative.
An undisputed given in the facts of the case is the valuation
of P6,171,092.00 that Glory Shipping Lines gave when the
vessel first entered the country. When Oro Maura made its
request with the MARINA for authorization to import the
same vessel after a span of only 19 months, the respondent
proposed an acquisition cost of only P1,100,000.00.
Consistent with this proposal, the respondent, through
Kariton, gave the vessel the same declared value in its own
Import Entry filed with the Collector of the Port of Manila.
Thus, in a little over a year and a half, the declared value of
the vessel decreased by P5,000,000.00, or an astonishing
80% of its original price. We find this drop in value within a
short period of 19 months to be too fantastic to be accepted
without question, even allowing for depreciation. Equally
fantastic is the change in the customs duties, taxes and
other charges due which fell from P1,296,710.00 in March
1993 to P149,989.00 in January 1995, all because of the
sale, the new application by the vendee, and the change in
the Port where the assessment and collection were made.
The drop alone from the undisputed original entry valuation
of P6,171,092.00 to the respondent’s new valuation of
P1,100,000.00 (or a decrease of 80% from the original
valuation) is already a prima facie evidence of fraud that the
rulings below did not properly appreciate simply because
they disregarded the records of the original entry of the
vessel through the Port of Mactan. Section 2503 of the TCCP
provides in this regard that: Section 2503. Undervaluation,
Misclassification and Misdeclaration of Entry. –
Xxx That an undervaluation, misdeclaration in weight,
measurement or quantity of more than thirty percent (30%)
between the
value, weight, measurement, or quantity declared in the
entry, and the actual value, weight, quantity, or
measurement shall
constitute a prima facie evidence of fraud penalized under
Section 2530 of this Code.
The 80% drop in valuation existing in this case renders the
consideration and application of Section 2503 unavoidable.
Significantly, Oro Maura never explained the considerable
disparity between the dutiable value declared by Glory
Shipping Lines and the dutiable value it declared –
difference of P5,000,000.00 – so as to overturn or
contradict this prima facie finding of fraud.
The respondent, being in the shipping business, should
have known the standard prices of vessels and that the
value it proposed to MARINA, is extraordinarily low
compared to the vessel’s originally declared valuation. Oro
Maura’s Complicity Oro Maura fully participated in moves
to defraud the BOC. With the knowledge that the vessel was
released under a reexport bond, the respondent should
have known that this original entry was subject to specific
conditions, among them, the obligation to guarantee the
re-export of the vessel within a given period, or otherwise
to pay the customs duties on the vessel.
It should have known, too, of the conditions of the vessel’s
release under the re-export bond and of the state of Glory
Shipping Lines’ status of compliance. There was an original
but incomplete importation by Glory Shipping Lines that the
respondent could not have simply disregarded proceeds
from knowledge of the vessel’s history and the application
of the relevant law. In this respect, Section 1202 of the TCCP
provides:
Importation begins when the carrying vessel or aircraft
enters the jurisdiction of the Philippines with intention to
unlade therein. Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon
the articles, or secured to be paid, at a port of entry and the
legal permit for withdrawal shall have been granted, or in
case said articles are free of duties, taxes and other charges,
until they have legally left the jurisdiction of the customs.
Nature of a tax lien
Section 1204. Liability of Importer for Duties. – Unless
relieved by laws or regulations, the liability for duties, taxes,
fees and other charges attaching on importation
constitutes a personal debt due from the importer to the
government which can be discharged only by payment in
full of all duties, taxes, fees and other charges legally
accruing. It also constitutes a lien upon the articles
imported which may be enforced while such articles are in
custody or subject to the control of the government.
Consequently, when the respondent bought the vessel
from Glory Shipping Lines on December 2, 1994, the
obligation to pay the BOC P1,296,710.00 as customs duties
had already attached to the vessel and the non-renewal of
the re-export bond made this liability due and demandable.
The subsequent transfer of ownership of the vessel from
Glory Shipping Lines to the respondent did not extinguish
this liability. We find in favor of DOF and uphold his order
for the re-assessment of the value of the vessel based on
the entered value, which in this case should follow the
unpaid assessment made by the Collector of Customs of the
Port of Mactan.