Commissioner of Internal Revenue vs. Sony Philippines, Inc., 635 SCRA 234, G.R. No.

very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to
178697. November 17, 2010 grant authority to examine and assess a taxpayer.

Mendoza, J.
Facts:
On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734)
authorizing certain revenue officers to examine Sony’s books of accounts and other accounting
records regarding revenue taxes for “the period 1997 and unverified prior years.”
Same; Same; Same; In the absence of such an authority, the assessment or examination is a
nullity.—There must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized must
not go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.

After the examination of said books, the CIR found out, among others, that Sony Philippines is
liable for deficiency taxes and penalties for value added tax amounting to P11,141,014.41.

Sony Philippines contested such finding as it argued that the basis used by the CIR to assess
said deficiency were the records covering the period of January 1998 through March 1998
which was a period not covered by the letter of authority so issued. The CIR countered that
the LOA phrase “the period 1997 and unverified prior years” should be understood to mean
the fiscal year ending on March 31, 1998.

Eventually the case reached the Court of Tax Appeals and the CTA decided agreed with Sony
Philippines on this one. So did the CTA en banc.

Issue:

Whether or not the deficiency assessments against Sony Philippines is valid?

Held:

No. The LOA issued is clear on which period is covered by the examination to be conducted.
It’s only meant to cover the year “1997 and unverified prior years” not the year 1998. The
revenue officers who examined the records covering the period of January to March 1998 had
exceeded the jurisdiction granted to them by the LOA.

Further, the LOA which covered “1997 and unverified prior years” is in violation of
the principle that a Letter of Authority should cover a taxable period not exceeding one taxable
year. If the audit of a taxpayer shall include more than one taxable period, the other periods
or years shall be specifically indicated in the LOA (as embodied in Section C of Revenue
Memorandum Order No. 43-90 dated September 20, 1990).

CASE SYLLABI:

Taxation; Assessment; Letter of Authority (LOA); A Letter of Authority or (LOA) is the

authority given to the appropriate revenue officer assigned to perform assessment
functions.—Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority
given to the appropriate revenue officer assigned to perform assessment functions. It
empowers or enables said revenue officer to examine the books of account and other
accounting records of a taxpayer for the purpose of collecting the correct amount of tax. The
 Commissioner of Internal Revenue vs. Metro Star Superama Inc., 637 SCRA 633, G.R.
No. 185371. December 8, 2010
Mendoza, J.
Facts:
In January 2001, a revenue officer was authorized to examine the books of accounts of Metro
Star Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a
formal assessment notice against Metro Star advising the latter that it is liable to pay
P292,874.16 in deficiency taxes. Metro Star assailed the issuance of the formal assessment
notice as it averred that due process was not observed when it was not issued a pre-
assessment notice. Nevertheless, the Commissioner of Internal Revenue authorized the
issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star.
Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled in
favor of Metro Star.
Issue:
Whether or not due process was observed in the issuance of the formal assessment notice
against Metro Star.
Held:
No. It is true that there is a presumption that the tax assessment was duly issued. However,
this presumption is disregarded if the taxpayer denies ever having received a tax assessment
from the Bureau of Internal Revenue. In such cases, it is incumbent upon the BIR to prove by
competent evidence that such notice was indeed received by the addressee-taxpayer. The
onus probandi was shifted to the BIR to prove by contrary evidence that the Metro Star
received the assessment in the due course of mail. In the case at bar, the CIR merely alleged
that Metro Star received the pre-assessment notice in January 2002. The CIR could have simply
presented the registry receipt or the certification from the postmaster that it mailed the pre-
assessment notice, but failed. Neither did it offer any explanation on why it failed to comply
with the requirement of service of the pre-assessment notice. The Supreme Court emphasized
that the sending of a pre-assessment notice is part of the due process requirement in the
issuance of a deficiency tax assessment,” the absence of which renders nugatory any
assessment made by the tax authorities.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. But even so, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure.
Add notes as empahasized by Atty. Lock:
The case of CIR v. Menguito cited by the CIR in support of its argument that only the non-
service of the FAN is fatal to the validity of an assessment, cannot apply to this case because
the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which sought
to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of
Section 229 on protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the
law, but also of the facts on which an assessment would be made. Otherwise, the assessment
itself would be invalid. The regulation then, on the other hand, simply provided that a notice
be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.
The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for
it is well-settled that a void assessment bears no fruit.
CASE SYLLABI:
Taxation; Court of Tax Appeals; Appeals; Court will not lightly set aside the conclusions
reached by the Court of Tax Appeals (CTA) which by the very nature of its functions has
accordingly developed an exclusive expertise on the resolution unless there has been an
abuse or improvident exercise of authority.—The general rule is that the Court will not lightly
set aside the conclusions reached by the CTA which, by the very nature of its functions, has
accordingly developed an exclusive expertise on the resolution unless there has been an abuse
or improvident exercise of authority. In Barcelon, Roxas Securities, Inc. (now known as UBP
Securities, Inc.) v. Commissioner of Internal Revenue, the Court wrote: Jurisprudence has
consistently shown that this Court accords the findings of fact by the CTA with the highest
respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA
441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature
of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there
has been an abuse or improvident exercise of authority. Such findings can only be disturbed
on appeal if they are not supported by substantial evidence or there is a showing of gross error
or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered a decision which is valid in every
respect.
Same; Assessment; If the taxpayer denies ever having received an assessment from the
Bureau of Internal Revenue (BIR), it is incumbent upon the latter to prove by competent
evidence that such notice was indeed received by the addressee.—Jurisprudence is replete
with cases holding that if the taxpayer denies ever having received an assessment from the
BIR, it is incumbent upon the latter to prove by competent evidence that such notice was
indeed received by the addressee. The onus probandi was shifted to respondent to prove by
contrary evidence that the Petitioner received the assessment in the due course of mail. The
Supreme Court has consistently held that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption subject to
controversion and a direct denial thereof shifts the burden to the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee (Republic
vs. Court of Appeals, 149 SCRA 351).
Same; Same; Section 228 of the Tax Code clearly requires that the taxpayer must be informed
that he is liable for deficiency taxes through the sending of a Preliminary Assessment Notice
(PAN).—Section 228 of the Tax Code clearly requires that the taxpayer must first be informed
that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the
facts and the law upon which the assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in administrative
investigations — that taxpayers should be able to present their case and adduce supporting
evidence.

Same; Same; The sending of a Preliminary Assessment Notice (PAN) to taxpayer to inform
him of the assessment made is but part of the due process requirement in the issuance of a
deficiency tax assessment, the absence of which senders nugatory any assessment made by
the tax authorities.—It is clear that the sending of a PAN to taxpayer to inform him of the
assessment made is but part of the “due process requirement in the issuance of a deficiency
tax assessment,” the absence of which renders nugatory any assessment made by the tax
authorities. The use of the word “shall” in subsection 3.1.2 describes the mandatory nature of
the service of a PAN. The persuasiveness of the right to due process reaches both substantial
and procedural rights and the failure of the CIR to strictly comply with the requirements laid
down by law and its own rules is a denial of Metro Star’s right to due process. Thus, for its
failure to send the PAN stating the facts and the law on which the assessment was made as
required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.

Same; Same; While taxes are the lifeblood of the government, the power to tax has its limits
in spite of all its plenitude.—It is an elementary rule enshrined in the 1987 Constitution that
no person shall be deprived of property without due process of law. In balancing the scales
between the power of the State to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional rights of a citizen to due process
of law and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution.
Thus, while “taxes are the lifeblood of the government,” the power to tax has its limits, in spite
of all its plenitude.
SOUTH AFRICAN AIRWAYS v. CIR
G.R. No. 180356 | February 16, 2010
Petitioner: SOUTH AFRICAN AIRWAYS
Respondent: COMMISSIONER OF INTERNAL REVENUE
VELASCO, JR., J.:
Doctrine: If an international air carrier maintains flights to and from the Philippines, it shall
be taxed at the rate of 2 ½%of its Gross Philippine Billings, while international air carriers that
do not have flights to and from the Philippines but nonetheless earn income from other
activities in the country will be taxed at the regular rate of 32% (now 30%) of such income.
SUMMARY:
South African Airways is a foreign corporation organized and existing under and by virtue of
the laws of the Republic of South Africa. In the Philippines, it is an internal air carrier having no
landing rights in the country. South African Airways, however, has a general sales agent in
the Philippines, Aerotel. Aerotel sells passage documents for compensation or commission
for South African Airways’ off-line flights for the carriage of passengers and cargo between
ports or points outside the territorial jurisdiction of the Philippines. South African Airways filed
income tax returns and paid tax on its Gross Philippine Billings (GPB). South African Airways,
however, subsequently claim for refund contending that it was not liable to pay tax on its GPB.
CTA denied the claim on the ground that South African Airways is liable to pay the 32% (now
30%) regular corporate income tax.
W/N South African Airways engaged in trade or business in the Philippines subject to the
regular corporate income tax? YES. The general rule is that resident foreign corporations shall
be liable for a 32% income tax on their income from within the Philippines, except for resident
foreign corporations that are international carriers that derive income “from carriage of
persons, excess baggage, cargo and mail originating from the Philippines” which shall be taxed
at 2 ½% of their Gross Philippine Billings. South African Airways being an international carrier
with no flights originating from the Philippines, does not fall under the exception. As such, it
must fall under the general rule  Hence, it is liable for regular corporate income tax.
FACTS:
 Petition for Review on Certiorari seeking the reversal of CTA EB decision (affirming
decision of CTA division) DENYING its claim for tax refund.
 South African Airways is a foreign corporation organized and existing under and by
virtue of the laws of the Republic of South Africa. Its principal office is located at
Johannesburg International Airport, South Africa.
 In PH, it is an internal air carrier having no landing rights in the country. South
African Airways, however, has a general sales agent in the Philippines, Aerotel
Limited Corporation (Aerotel).
 Aerotel sells passage documents for compensation or commission for South
African Airways’ off-line flights for the carriage of passengers and cargo between
ports or points outside the territorial jurisdiction of the Philippines.
 South African Airways is not registered with the SEC as a corporation, branch office,
or partnership. It is not licensed to do business in PH.
 For the taxable year 2000, South African Airways filed separate quarterly and annual
income tax returns for its off-line flights
 February 5, 2003: South African Airways filed with the BIR a claim for the refund of
the amount of PhP 1,727,766.38 as erroneously paid tax on Gross Philippine Billings
(GPB) for the taxable year 2000.
 Claim was unheeded  South African Airways filed a Petition for Review with the
CTA for the refund of the said amount.
CTA First Division: DENIED petition for lack of merit
 Ruled that South African Airways is a resident foreign corporation engaged in trade
or business in the Philippines.
 South African Airways was not liable to pay tax on its GPB under Section 28(A)(3)(a)
of NIRC. BUT South African Airways is liable to pay a tax of 32% on its income
derived from the sales of passage documents in the Philippines.
CTA En Banc: AFFIRMED CTA Division’s Decision. MR Denied.
Hence, this petition.
ISSUES:
1. W/N South African Airways, as an off-line international carrier selling passage
documents through an independent sales agent in the Philippines, is engaged in trade
or business in the Philippines subject to the 32% (now 30%) income tax? YES
2. W/N the income derived by South African Airways from the sale of passage documents
covering petitioner’s off-line flights is Philippine-source income subject to Philippine
income tax? YES
3. W/N South African Airways is entitled to a refund or a tax credit of erroneously paid tax
on Gross Philippine Billings for the taxable year 2000 in the amount of P1,727,766.38?
HELD: CTA Decision SET ASIDE. The instant case is REMANDED to the CTA En Banc for further
proceedings and appropriate action, more particularly, the reception of evidence for both
parties and the corresponding disposition the case consistent with the SC’s decision
RATIO:
SOUTH AFRICAN AIRWAYS IS SUBJECT TO INCOME TAX AT THE RATE OF 32% (NOW 30%) OF
ITS TAXABLE INCOME
 South African Airways failed to sufficiently prove that it is exempted from being
taxed for its sale of passage documents in the Philippines.
o CIR v. Acesite (Philippines) Hotel Corporation: Tax refund partakes of the
nature of an exemption  it is strictly construed against the claimant who
 must discharge such burden convincingly.

To reiterate, the correct interpretation of the above provisions is that, if an international air
South African Airways’ contentions: carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of
its Gross Philippine Billings, while international air carriers that do not have flights to and
 With the new definition of GPB (the provision was amended), it is no longer liable
from the Philippines but nonetheless earn income from other activities in the country will
under Sec. 28(A)(3)(a).
be taxed at the rate of 32% of such income.
 Since 2 1/2% tax on GPB is inapplicable to it, South African Airways is also excluded
from the imposition of any income tax.
Other Matters:

a.
There were several amendments to the provision involving GPB, but the present Tax Code
(1997) provides:
"Gross Philippine Billings" refers to the amount of gross revenue derived from carriage of
b.
persons, excess baggage, cargo and mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the
ticket or passage document.
 Essentially, prior to the 1997 NIRC, GPB referred to revenues from uplifts anywhere
in the world, provided that the passage documents were sold in the Philippines.
 Now, it is the place of sale that is irrelevant; as long as the uplifts of passengers
and cargo occur to or from the Philippines, income is included in GPB.
Statutory Construction: Basically, SC said that the pronouncements made during the
deliberations are not controlling. It is a cardinal rule in the interpretation of statutes is
that the meaning and intention of the law-making body must be sought, first of all, in the
words of the statute itself.
Exception firmat regulam in casibus non exceptis, which means, a thing not being
excepted must be regarded as coming within the purview of the general rule. Sec. 28(A)(1)
of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32% tax
on all income from sources within the Philippines. Sec. 28(A)(3) is an exception to this
general rule.
 South African Airways, being an international carrier with no flights originating from
the Philippines, does not fall under the exception. As such, petitioner must fall under
the general rule.

c.
SC: South African Airways is correct in saying that since it does not maintain flights to or from
the Philippines, it is not taxable under Sec. 28(A)(3)(a) of the 1997 NIRC (GPB provision).
 BUT it is wrong when it said that in view of non-applicability of Sec. 28(A)(3)(a) to it,
it is precluded from paying any other income tax for its sale of passage documents
in the Philippines.
 CIR v. British Overseas Airways Corporation (BOAC): SC ruled that off-line air carriers
having general sales agents in the Philippines are engaged in or doing business in the
Philippines and that their income from sales of passage documents here is income
from within the Philippines.  The off-line air carrier liable for the 32% tax on its
taxable income. (Note: this case was decided under similar factual circumstances as
South African Airways)
 Sec. 28(A)(3)(a) of the 1997 NIRC does NOT, in any categorical term, exempt all
international air carriers from the coverage of Sec. 28(A)(1) – General Rule 32%
(now 30%) income tax.
 Had legislature’s intentions been to completely exclude all international air carriers
from the application of the general rule it would have used the appropriate language
to do so – BUT IT DID NOT!
 Thus, the logical interpretation of such provisions is that, if the GPB provision (2 ½%
Gross PH Billings) were applicable to a taxpayer, then the general rule (32% now
30% income tax) would not apply.
 If, however, GPB Provision does not apply, a resident foreign corporation, whether
an international air carrier or not, would be liable for the tax under Sec. 28(A)(1).
On the Denial of claim for refund: The CTA denied the claim on the basis that South
African Airways is liable for income tax. Thus, South African Airways raises the issue of
whether the existence of such liability would preclude their claim for a refund of tax paid
on the basis of Gross Philippine Billings.
 South African Airways avers that a deficiency tax assessment does not disqualify a
taxpayer from claiming a tax refund since a refund claim can proceed independently
of a tax assessment and that the assessment cannot be offset by its claim for refund.
 Argument is erroneous.
o South African Airways premises its argument on the existence of an
assessment.
o In the assailed Decision, CTA did not, in any way, assess South African
Airways of any deficiency corporate income tax.
o CTA merely pointed out that it is liable for the regular corporate income
tax.  There is no assessment to speak of.
 GR: Taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other.
 Exception: CIR v. CA, CityTrust (234 SCRA 348) SC, however, granted the offsetting of
a tax refund with a tax deficiency on the ground that such deficiency assessment is
intimately related to and inextricably intertwined with the right of CityTrust to claim
for a tax refund for the same year.
o To award such refund despite the existence of that deficiency assessment
is an absurdity and a polarity in conceptual effects. CityTrust cannot be
entitled to refund and at the same time be liable for a tax deficiency
 assessment for the same year.
o The grant of a refund is founded on the assumption that the tax return is
valid - the facts stated therein are true and correct.
o The deficiency assessment, although not yet final, created a doubt as to
and constitutes a challenge against the truth and accuracy of the facts
stated in said return which, by itself and without unquestionable evidence,
cannot be the basis for the grant of the refund.
o To avoid multiplicity of suits and unnecessary difficulties or expenses, it is
both logically necessary and legally appropriate that the issue of the
deficiency tax assessment against Citytrust be resolved jointly with its
claim for tax refund, to determine once and for all in a single proceeding
the true and correct amount of tax due or refundable.

 Note: In determining W/N South African Airways is entitled to the refund of the
amount paid, it would be necessary to determine how much the Government is
entitled to collect as taxes.
o This would necessarily include the determination of the correct liability of
the taxpayer and, certainly, a determination of this case would constitute
res judicata on both parties as to all the matters subject thereof or
necessarily involved therein.
o Given the finding of the CTA that South African Airways, although not liable
for GPB, is liable for income tax  the correctness of the return filed by
South African Airways is now put in doubt.
o Hence, SC cannot grant the prayer for a refund.

SC Court is unable to affirm CTA En Banc’s decision on the outright denial of petitioner’s
claim for a refund.

 Even though petitioner is not entitled to a refund due to the question on the
propriety of petitioner’s tax return subject of the instant controversy, it would not
be proper to deny such claim without making a determination of South African
Airways’ liability under Sec. 28(A)(1).
o Note: Tax under Sec. 28(A)(3)(a) is based on GPB, while Sec. 28(A)(1) is
based on taxable income, that is, gross income less deductions and
exemptions, if any.
o It cannot be assumed that South African Airways’ liabilities under the two
provisions would be the same.
o There is a need to make a determination of South African Airways’ liability
under Sec. 28(A)(1) to establish whether a tax refund is forthcoming or that
a tax deficiency exists.
G.R. No. 180390 July 27, 2011 Compromise Penalty 25,000.00 ₱9,472,393.75

PRUDENTIAL BANK, Petitioner, c. Savings Account Plus (page 1307 of the docket)
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
3,389,515,000.00
Basic x .30 ₱5,084,272.50
DECISION
200

DEL CASTILLO, J.:

Add: 25% Surcharge 1,271,068.13
A certificate of deposit need not be in a specific form; thus, a passbook of an interest-earning
deposit account issued by a bank is a certificate of deposit drawing interest.1 Compromise Penalty 25,000.00 ₱6,380,340.63

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the Decision3
dated March 30, 2007 and the Resolution4 dated October 30, 2007 of the Court of Tax Appeals
(CTA) in CTA EB No. 185.
Factual Antecedents
GRAND TOTAL ₱18,982,734.387
Petitioner protested the assessment on the ground that the documents subject matter of the
assessment are not subject to DST.8 However, respondent denied9 the protest on December
28, 2001.

Petitioner Prudential Bank5 is a banking corporation organized and existing under Philippine
law.6 On July 23, 1999, petitioner received from the respondent Commissioner of Internal
Revenue (CIR) a Final Assessment Notice No. ST-DST-95-0042-99 and a Demand Letter for
deficiency Documentary Stamp Tax (DST) for the taxable year 1995 on its Repurchase
Agreement with the Bangko Sentral ng Pilipinas [BSP], Purchase of Treasury Bills from the BSP,
and on its Savings Account Plus [SAP] product, in the amount of ₱18,982,734.38, broken down
as follows:
a. Repurchase Agreement — BSP Seller
Thus, petitioner filed a Petition for Review before the CTA which was raffled to its First Division
and docketed as CTA Case No. 6396.10
Ruling of the First Division of the Court of Tax Appeals
On February 10, 2006, the First Division of the CTA affirmed the assessment for deficiency DST
insofar as the SAP is concerned, but cancelled and set aside the assessment on petitioner’s
repurchase agreement and purchase of treasury bills11 with the BSP. Thus, it disposed of the
case as follows:

1,656,000,000.00 WHEREFORE, the instant petition is hereby PARTIALLY GRANTED. The subject Decision of the
Basic x .30 ₱2,484,000.00 Commissioner of Internal Revenue dated December 28, 2001 assessing petitioner of deficiency
200 documentary stamp taxes is hereby AFFIRMED insofar as the Savings Account Plus is
concerned. The deficiency assessment on petitioner's repurchase agreements and treasury
bills are hereby CANCELLED and SET ASIDE.
Add: 25% Surcharge 621,000.00
Accordingly, petitioner is hereby ORDERED TO PAY respondent the reduced amount of
Compromise Penalty 25,000.00 ₱3,130,000.00 ₱6,355,340.63 plus 20% delinquency interest from August 23, 1999 up to the time such
amount is fully paid pursuant to Section 249 (c) of the [old] NIRC, as amended, covered by
b. Purchase of [Treasury] Bills from BSP Assessment Notice No. ST-DST-95-0042-99 as deficiency documentary stamp tax for the
taxable year 1995, recomputed as follows:
Basic 5,038,610,000.00 x .30 ₱7,557,915.00
Savings Account Plus ₱5,084,272.50
200
Add: 25% Surcharge 1,271,068.13
Add: 25% Surcharge 1,889,478.75
 WHETHER X X X THE CTA EN BANC ERRED IN NOT ALLOWING THE WITHDRAWAL OF
TOTAL ₱6,355,340.63 THE PETITION AND/OR CANCELLATION OF THE DST ASSESSMENT ON PETITIONER’S
[SAP] ON THE GROUND THAT PETITIONER HAD ALREADY PAID AND SUBSTANTIALLY
COMPLIED WITH RR NO. 15-2006 AND RMO NO. 23-2006.23

SO ORDERED.12 Petitioner’s Arguments

Petitioner moved for partial reconsideration but the same was denied by the First Division of Petitioner contends that its SAP is not subject to DST because it is not included in the list of
the CTA in its Resolution dated May 22, 2006.13 documents under Section 180 of the old NIRC, as amended.24 Petitioner insists that unlike a
time deposit, its SAP is evidenced by a passbook and not by a deposit certificate. 25 In addition,
Thus, petitioner appealed to the CTA En Banc. its SAP is payable on demand and not on a fixed determinable future.26 To support its position,
petitioner relies on the legislative intent of the law prior to Republic Act (RA) No. 9243 27 and
the historical background of the taxability of certificates of deposit.28
Ruling of the Court of Tax Appeals En Banc

Petitioner further contends that even assuming that its SAP is subject to DST, the CTA En Banc
On March 30, 2007, the CTA En Banc denied the appeal for lack of merit. It affirmed the ruling
nonetheless erred in denying petitioner’s withdrawal of its petition considering that it has paid
of its First Division that petitioner’s SAP is a certificate of deposit bearing interest subject to
under the IVAP the amount of ₱5,084,272.50, which it claims is 100% of the basic tax of the
DST under Section 180 of the old National Internal Revenue Code (NIRC), as amended by
original assessment of the Bureau of Internal Revenue (BIR).29 Petitioner insists that the
Republic Act (RA) No. 7660.14
payment it made should be deemed substantial compliance considering the refusal of the
respondent to issue the letter of termination and authority to cancel assessment.30
Petitioner sought reconsideration but later moved to withdraw the same in view of its
availment of the Improved Voluntary Assessment Program (IVAP) pursuant to Revenue
Respondent’s Arguments
Regulation (RR) No. 18-200615 in relation to RR No. 15-200616 and Revenue Memorandum
Order (RMO) No. 23-2006.17
Respondent maintains that petitioner’s SAP is subject to DST conformably with the ruling in
International Exchange Bank v. Commissioner of Internal Revenue.31 It also contends that the
On October 30, 2007, the CTA En Banc rendered a Resolution18
denying petitioner’s motion to
CTA En Banc correctly denied the motion to withdraw since petitioner failed to comply with
withdraw for non-compliance with the requirements for abatement. It found that the amount
the requirements of the IVAP.32 Mere payment of the deficiency DST cannot be deemed
paid for purposes of the abatement program was not in accordance with Revenue
substantial compliance as tax amnesty, like tax exemption, must be construed strictly against
Memorandum Circular (RMC) No. 66-2006,19 which provides that the amount to be paid should
the taxpayer.33
be based on the original assessment or the court’s decision, whichever is higher.20 It also noted
that petitioner failed to comply with RMO No. 23-2006, specifically with the requirement to
submit the letter of termination and authority to cancel assessment signed by the Our Ruling
respondent.21 In the same Resolution, the CTA En Banc denied petitioner’s motion for
reconsideration for lack of merit.22 The petition lacks merit.

Issues Petitioner’s Savings Account Plus is subject to Documentary Stamp Tax.

Hence, the present recourse by petitioner raising the following issues: DST is imposed on certificates of deposit bearing interest pursuant to Section 180 of the old
NIRC, as amended, to wit:
I.
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts,
WHETHER X X X PETITIONER’S [SAP] WITH A HIGHER INTEREST IS SUBJECT TO instruments and securities issued by the government or any of its instrumentalities,
DOCUMENTARY STAMP TAX. certificates of deposit bearing interest and others not payable on sight or demand. – On all
loan agreements signed abroad wherein the object of the contract is located or used in the
Philippines; bills of exchange (between points within the Philippines), drafts, instruments and
II.
securities issued by the Government or any of its instrumentalities or certificates of deposits
drawing interest, or orders for the payment of any sum of money otherwise than at the sight
or on demand, or on all promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation, and on each renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (₱0.30) on each Two hundred pesos, or fractional
part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of
deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either
loan agreement, or promissory note issued to secure such loan, whichever will yield a higher
tax: provided, however, that loan agreements or promissory notes the aggregate of which does
not exceed Two hundred fifty thousand pesos (₱250,000.00) executed by an individual for his
purchase on installment for his personal use or that of his family and not for business, resale,
barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the
payment of the documentary stamp tax provided under this section. (Emphasis supplied.)
The fact that the SAP is evidenced by a passbook likewise cannot remove its coverage from
Section 180 of the old NIRC, as amended. A document to be considered a certificate of deposit
need not be in a specific form.41 Thus, a passbook issued by a bank qualifies as a certificate of
deposit drawing interest because it is considered a written acknowledgement by a bank that
it has accepted a deposit of a sum of money from a depositor.421avvphi1
In view of the foregoing, we find that the CTA En Banc correctly affirmed the ruling of its First
Division that petitioner’s SAP is a certificate of deposit bearing interest and that the same is
subject to DST.
The CTA En Banc’s denial of petitioner’s motion to withdraw is proper.

A certificate of deposit is defined as "a written acknowledgment by a bank or banker of the

The CTA En Banc denied petitioner’s motion to withdraw because it failed
receipt of a sum of money on deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the
relation of debtor and creditor between the bank and the depositor is created."34 to show that it was able to comply with the requirements of IVAP.

In this case, petitioner claims that its SAP is not a certificate of deposit bearing interest because
unlike a time deposit, its SAP is payable on demand and is evidenced by a passbook and not by
a certificate of deposit.
We do not agree.
To avail of the IVAP, a taxpayer must pay the 100% basic tax of the original assessment of the
BIR or the CTA Decision, whichever is higher43 and submit the letter of termination and
authority to cancel assessment signed by the respondent.44 In this case, petitioner failed to
submit the letter of termination and authority to cancel assessment as respondent found the
payment of ₱5,084,272.50 not in accordance with RMC No. 66-2006. Hence, we find no error
on the part of the CTA En Banc in denying petitioner’s motion to withdraw.

In China Banking Corporation v. Commissioner of Internal Revenue,35 we held that the Savings
Plus Deposit Account, which has the following features:
1. Amount deposited is withdrawable anytime;
Petitioner’s payment of ₱5,084,272.50, without the supporting documents, cannot be deemed
substantial compliance as tax amnesty must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.45 Nevertheless, the amount of ₱5,084,272.50 paid by
petitioner to the BIR must be considered as partial payment of petitioner’s tax liability.

2. The same is evidenced by a passbook;
3. The rate of interest offered is the prevailing market rate, provided the depositor
would maintain his minimum balance in thirty (30) days at the minimum, and
should he withdraw before the period, his deposit would earn the regular savings
deposit rate;
WHEREFORE, the petition is hereby DENIED. The assailed Decision dated March 30, 2007 and
the Resolution dated October 30, 2007 of the Court of Tax Appeals in CTA EB No. 185 are
hereby AFFIRMED with MODIFICATION that petitioner Prudential Bank’s payment be
considered as partial payment of its tax liability.
SO ORDERED.

is subject to DST as it is essentially the same as the Special/Super Savings Deposit Account in
Philippine Banking Corporation v. Commissioner of Internal Revenue,36 and the Savings
Account-Fixed Savings Deposit in International Exchange Bank v. Commissioner of Internal
Revenue,37 which are considered certificates of deposit drawing interests.38

Similarly, in this case, although the money deposited in a SAP is payable anytime, the
withdrawal of the money before the expiration of 30 days results in the reduction of the
interest rate.39 In the same way, a time deposit withdrawn before its maturity results to a lower
interest rate and payment of bank charges or penalties.40
CIR v. PL Management
FACTS:
PL earned P24M in 1997 from UMPC, where UMPC withheld P1.2M. In 1998 PL filed a lost for
its 1997 earnings and signified that it had a creditable withholding tax of P1,200,000.00 for
1997 to be as tax credit in 1998.
In 1999, it filed for a loss of P2.7M so it was not able to claim the P1.2M credit. On April 12,
2000, the respondent filed with CIR a claim for the refund of the P1.2M refund.
shall be considered irrevocable for that taxable period and no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor. The options are alternative.
The amount being claimed as a refund would remain in the account of the taxpayer until
utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy
to note that unlike the option for refund of excess income tax, which prescribes after two years
from the filing of the FAR, there is no prescriptive period for the carrying over of the same. PL
already chose to carry over the excess tax paid, refund can’t be availed.

CIR did not act so PL filed cases with CTA, which later denied claim of PL saying the refund
claim was filed out of time. Tax payment on nApril 13, 1998, claim of refund is on April 14,
2000, beyond the two year allowed.

Appeal with the CA was for PL, the CA saying that the prescriptive period is not jurisdictional
and might be suspended for reasons of equity.

ISSUE: Whether the two-yr prescriptive period for tax claim is non-jurisdictional and can be
suspended for equity

HELD: No, PL already chose to carry over the excess, refund can’t be availed of.

The Court of Appeals mistakenly understood the phrase "for that taxable period" as a
prescriptive period for the irrevocability rule. There is a misplaced application of the CIR v. BPI
case. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC
of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and
complication as regards said taxpayer's excess tax credit. The interpretation of the Court of
Appeals only delays the flip-flopping to the end of each succeeding taxable period.

The irrevocability rule:

Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file
a final adjustment return covering the total taxable income for the preceding calendar or fiscal
year. If the sum of the quarterly tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable income of that year the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes
paid, the refundable amount shown on its final adjustment return may be credited against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable years has been made, such option
Silk Air Singapore Ltd. V. CIR
25 January 2012
Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed by the SEC to do
business in the Philippines as an on-line international carrier operating the Cebu-
Singapore-Cebu and Davao-Singapore-Davao routes. In the course of its international
flight operations, petitioner purchased aviation fuel from Petron Corporation
(Petron) from July 1, 1998 to December 31, 1998, paying the excise taxes thereon in
the sum of P5,007,043.39. It filed an administrative claim for refund in the amount
of P5,007,043.39 representing excise taxes on the purchase of jet fuel from Petron,
which it alleged to have been erroneously paid. The claim is based on Section 135 (a)
and (b) of the 1997 Tax Code, which provides:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
Agencies. – Petroleum products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or
consumption outside the Philippines: Provided, That the petroleum
products sold to these international carriers shall be stored in a bonded
storage tank and may be disposed of only in accordance with the rules and
regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other
international agreements for their use or consumption: Provided, however,
That the country of said foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine
carriers, entities or agencies; and
Petitioner also invoked Article 4(2) of the Air Transport Agreement between the
Government of the Republic of the Philippines and the Government of the Republic
of Singapore (Air Transport Agreement between RP and Singapore). Due to inaction
of the CIR, it filed a petition for review with the CTA.
CTA denied the same, ruling that while petitioner’s country indeed exempts from
similar taxes petroleum products sold to Philippine carriers, petitioner nevertheless
failed to comply with the second requirement under Section 135 (a) of the 1997 Tax
Code as it failed to prove that the jet fuel delivered by Petron came from the latter’s
bonded storage tank.
On appeal, the CA affirmed the CTA, ruling that while petitioner is exempt from
paying excise taxes on petroleum products purchased in the Philippines by virtue of
Section 135 (b), petitioner is not the proper party to seek for the refund of the excise
taxes paid.
ISSUE: WON Silk Air has the legal personality to file an administrative claim for refund
of excise taxes allegedly erroneously paid to its supplier of aviation fuel in the
Philippines
HELD: No
Excise taxes, which apply to articles manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things imported
into the Philippines, is basically an indirect tax. While the tax is directly levied upon
the manufacturer/importer upon removal of the taxable goods from its place of
production or from the customs custody, the tax, in reality, is actually passed on to
the end consumer as part of the transfer value or selling price of the goods, sold,
bartered or exchanged. In early cases, we have ruled that for indirect taxes (such as
valued-added tax or VAT), the proper party to question or seek a refund of the tax
is the statutory taxpayer, the person on whom the tax is imposed by law and who
paid the same even when he shifts the burden thereof to another. Thus, in Contex
Corporation v. Commissioner of Internal Revenue, we held that while it is true that
petitioner corporation should not have been liable for the VAT inadvertently passed
on to it by its supplier since their transaction is a zero-rated sale on the part of the
supplier, the petitioner is not the proper party to claim such VAT refund. Rather, it is
the petitioner’s 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.
In the first Silkair case decided on February 6, 2008, this Court categorically declared:
The proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even
if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides
that “[u]nless otherwise specifically allowed, the return shall be filed and the excise
tax paid by the manufacturer or producer before removal of domestic products from
place of production.” Thus, Petron Corporation, not Silkair, is the statutory taxpayer
which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional
amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had
to pay as a purchaser.
The decision in the second Silkair case reiterated the rule that in the refund of indirect
taxes such as excise taxes, the statutory taxpayer is the proper party who can claim
the refund. We also clarified that petitioner Silkair, as the purchaser and end-
consumer, ultimately bears the tax burden, but this does not transform its status into
a statutory taxpayer.
The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of
the NIRC defines a taxpayer as “any person subject to tax.” In Commissioner of
Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the Court ruled that:

‘A “person liable for tax” has been held to be a “person subject to tax” and properly
considered a “taxpayer.” The terms “liable for tax” and “subject to tax” both connote
a legal obligation or duty to pay a tax.’

The excise tax is due from the manufacturers of the petroleum products and is paid
upon removal of the products from their refineries. Even before the aviation jet fuel
is purchased from Petron, the excise tax is already paid by Petron. Petron, being the
manufacturer, is the “person subject to tax.” In this case, Petron, which paid the
excise tax upon removal of the products from its Bataan refinery, is the “person liable
for tax.” Petitioner is neither a “person liable for tax” nor “a person subject to tax.”
There is also no legal duty on the part of petitioner to pay the excise tax; hence,
petitioner cannot be considered the taxpayer.

Even if the tax is shifted by Petron to its customers and even if the tax is billed as a
separate item in the aviation delivery receipts and invoices issued to its customers,
Petron remains the taxpayer because the excise tax is imposed directly on Petron as
the manufacturer.

Furthermore, petitioner has not demonstrated that it dutifully complied with its
contractual undertaking to timely submit to Petron a valid certificate of exemption
so that Petron may subsequently file a claim for excise tax credit/refund pursuant to
Revenue Regulations No. 3-2008 (RR 3-2008). It was indeed premature for petitioner
to assert that the denial of its claim for tax refund nullifies the tax exemption granted
to it under Section 135 (b) of the 1997 Tax Code and Article 4 of the Air Transport
Agreement.
 92. COMMISSIONER OF INTERNAL REVENUE (CIR), petitioner, vs. Pilipinas Shell Petroleum
Corporation, respondent.
G.R. No. 188497 April 25, 2012 VILLARAMA, JR., J.:
Because an excise tax is a tax on the manufacturer and not on the purchaser, and there
being no express grant under the NIRC of exemption from payment of excise tax to local
manufacturers of petroleum products sold to international carriers, and absent any
provision in the Code authorizing the refund or crediting of such excise taxes paid, the
Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden
of the excise tax to the international carriers who buys petroleum products from the local
manufacturers. The provision merely allows the international carriers to purchase
petroleum products without the excise tax component as an added cost in the price fixed
by the manufacturers or distributors/sellers. Consequently, the oil companies which sold
such petroleum products to international carriers are not entitled to a refund of excise
taxes previously paid on the goods.
Facts:
1. Respondent is engaged in the business of processing, treating and refining petroleum for the
purpose of producing marketable products and the subsequent sale thereof. Respondent filed
several formal claims with the Large Taxpayers Audit & Investigation Division II of the BIR on
the following dates:
a. On July 2002 for refund or tax credit in the total amount of P28,064,925.15,
representing excise taxes it allegedly paid on sales and deliveries of gas and
fuel oils to various international carriers during the period October to December
2001.
b. On October 2002, a similar claim for refund or tax credit was filed by
respondent with the BIR covering the period January to March 2002 in the
amount of P41,614,827.99.
c. On July 2003, a formal claim for refund or tax credit in the amount
of P30,652,890.55 covering deliveries from April to June 2002
2. Since no action was taken by the petitioner on its claims, respondent filed petitions for review
before the CTA on September and December of 2003.
3. CTA’s First Division ruled that respondent is entitled to the refund of excise taxes in the
reduced amount of P95,014,283.00. The CTA First Division relied on a previous ruling
rendered by the CTA En Banc in the case of “Pilipinas Shell Petroleum Corporation v. CIR (Nov.
2006)” where the CTA also granted respondent’s claim for refund on the basis of excise tax
exemption for petroleum products sold to international carriers of foreign registry for their
use or consumption outside the Philippines. Petitioner’s MR denied.
4. On appeal, CTA En Banc upheld the ruling of the First Division. Petitioner’s MR with CTA
likewise denied. Hence, this petition.
5. Respondent claims it is entitled to a tax refund because those petroleum products it sold to
international carriers are not subject to excise tax, hence the excise taxes it paid upon
withdrawal of those products were erroneously or illegally collected and should not have been
paid in the first place. Since the excise tax exemption attached to the petroleum products
themselves, the manufacturer or producer is under no duty to pay the excise tax thereon.
Issue: whether respondent as manufacturer or producer of petroleum products is exempt
from the payment of excise tax on such petroleum products it sold to international carriers?
Held: NO. CTA decision REVERSED and SET ASIDE. The claims for tax refund or credit filed by
respondent are DENIED for lack of basis.
1. Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods
or articles manufactured or produced in the Philippines for domestic sales or consumption or
for any other disposition and to things imported into the Philippines. These taxes are imposed
in addition to the value-added tax (VAT). As to petroleum products, Sec. 148 provides that
excise taxes attach to the following refined and manufactured mineral oils and motor fuels as
soon as they are in existence.
2. Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products
and indigenous petroleum are required to be paid before their removal from the place of
production. However, Sec. 135 provides: “Petroleum Products Sold to International Carriers
and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from
excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption
outside the Philippines: Provided, That the petroleum products sold to these international
carriers shall be stored in a bonded storage tank and may be disposed of only in accordance
with the rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner; x x x
3. Under Chapter II “Exemption or Conditional Tax-Free Removal of Certain Goods” of Title VI,
Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified goods or
articles, whereas Sections 134 and 135 provide for tax exemptions. While the exemption found
in Sec. 134 makes reference to the nature and quality of the goods manufactured (domestic
denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135
deals with the tax treatment of a specified article (petroleum products) in relation to its buyer
or consumer. Respondent’s failure to make this important distinction apparently led it to
mistakenly assume that the tax exemption under Sec. 135 (a) “attaches to the goods
themselves” such that the excise tax should not have been paid in the first place.
4. On July 1996, petitioner Commissioner issued Revenue Regulations 8-96 (“Excise Taxation of
Petroleum Products”) which provides: “SEC. 4. Time and Manner of Payment of Excise Tax on
Petroleum Products, Non-Metallic Minerals and Indigenous Petroleum – I. Petroleum
Products x x x x a) On locally manufactured petroleum products: The specific tax on
petroleum products locally manufactured or produced in the Philippines shall be paid by the
manufacturer, producer, owner or person having possession of the same, and such tax shall
be paid within fifteen (15) days from date of removal from the place of production.
5. Thus, if an airline company purchased jet fuel from an unregistered supplier who could not
present proof of payment of specific tax, the company is liable to pay the specific tax on the
date of purchase. Since the excise tax must be paid upon withdrawal from the place of
 production, respondent cannot anchor its claim for refund on the theory that the excise
taxes due thereon should not have been collected or paid in the first place.
6. Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An
“erroneous or illegal tax” is defined as one levied without statutory authority, or upon
property not subject to taxation or by some officer having no authority to levy the tax, or one
which is some other similar respect is illegal.
7. Respondent’s locally manufactured petroleum products are clearly subject to excise tax under
Sec. 148. Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC
allowing a refund of erroneous or excess payment of tax. Respondent’s claim is premised on
what it determined as a tax exemption “attaching to the goods themselves,” which must be
based on a statute granting tax exemption, or “the result of legislative grace.” Such a claim is
to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made
to rest on vague inference. Where the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption, the claimant must
show that he clearly falls under the exempting statute.
8. The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred
on international carriers who purchased the same for their use or consumption outside
the Philippines. The only condition set by law is for these petroleum products to be stored in
a bonded storage tank and may be disposed of only in accordance with the rules and
regulations to be prescribed by the Secretary of Finance, upon recommendation of the
Commissioner.
9. [JURISPRUDENCE] In addition, the Solicitor General, argues that respondent cannot shift the
tax burden to international carriers who are allowed to purchase its petroleum products
without having to pay the added cost of the excise tax. In Philippine Acetylene Co., Inc. v.
CIR, this Court held that petitioner manufacturer who sold its oxygen and acetylene gases to
NPC, a tax-exempt entity, cannot claim exemption from the payment of sales tax simply
because its buyer NPC is exempt from taxation. The Court explained that the percentage tax
on sales of merchandise imposed by the Tax Code is due from the manufacturer and not from
the buyer.
10. The language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on
specified buyers or consumers of the excisable articles or goods. Unlike Sec. 134 which
explicitly exempted the article or goods itself without due regard to the tax status of the buyer
or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold to
international carriers and other tax-exempt agencies and entities.
11. Considering that the excise taxes attaches to petroleum products “as soon as they are in
existence as such, ”there can be no outright exemption from the payment of excise tax on
petroleum products sold to international carriers. The sole basis then of respondent’s claim
for refund is the express grant of excise tax exemption in favor of international carriers under
Sec. 135 (a) for their purchases of locally manufactured petroleum products. Pursuant to our
ruling in Philippine Acetylene, a tax exemption being enjoyed by the buyer cannot be the basis
of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as
the manufacturer or seller. The excise tax imposed on petroleum products under Sec. 148 is
the direct liability of the manufacturer who cannot thus invoke the excise tax exemption
granted to its buyers who are international carriers.
12. In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an example of an
indirect tax where the tax burden can be shifted to the buyer. However, because of the tax
exemptions privileges being enjoyed by NPC under existing laws, the tax burden may not be
shifted to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC.
13. On April 1978, then President Ferdinand E. Marcos issued Presidential Decree (P.D.) No. 1359
which amended the 1077 Tax Code provided under 2nd par. of Sec. 134: “However, petroleum
products sold to an international carrier for its use or consumption outside of the Philippines
shall not be subject to specific tax, provided, that the country of said carrier exempts from tax
petroleum products sold to Philippine carriers.”
14. Founded on the principles of international comity and reciprocity, P.D. No. 1359 granted
exemption from payment of excise tax but only to foreign international carriers who are
allowed to purchase petroleum products free of specific tax provided the country of said
carrier also grants tax exemption to Philippine carriers. Both the earlier amendment in
the 1977 Tax Code and the present Sec. 135 of the 1997 NIRC did not exempt the oil companies
from the payment of excise tax on petroleum products manufactured and sold by them to
international carriers.
THUS:
15. Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being
no express grant under the NIRC of exemption from payment of excise tax to local
manufacturers of petroleum products sold to international carriers, and absent any provision
in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that
Sec. 135 (a) should be construed as prohibiting the shifting of the burden of the excise tax to
the international carriers who buys petroleum products from the local manufacturers. Said
provision thus merely allows the international carriers to purchase petroleum products
without the excise tax component as an added cost in the price fixed by the manufacturers or
distributors/sellers. Consequently, the oil companies which sold such petroleum products to
international carriers are not entitled to a refund of excise taxes previously paid on the goods.
16. Time and again, we have held that tax refunds are in the nature of tax exemptions which result
to loss of revenue for the government. Upon the person claiming an exemption from tax
payments rests the burden of justifying the exemption by words too plain to be mistaken and
too categorical to be misinterpreted, it is never presumed nor be allowed solely on the ground
of equity. These exemptions, therefore, must not rest on vague, uncertain or indefinite
inference, but should be granted only by a clear and unequivocal provision of law on the basis
of language too plain to be mistaken. Such exemptions must be strictly construed against the
taxpayer, as taxes are the lifeblood of the government.
DIAGEO PHILIPPINES vs CIR cost of the goods sold. Thus, the supplier remains the statutory taxpayer even if Diageo, the
purchaser, actually shoulders the burden of tax.
G.R. No. 183553; November 12, 2012
The person entitled to claim a tax refund is the statutory taxpayer or the person liable for or
FACTS: subject to tax. Statutes granting tax exemptions are construed stricissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly
shown and based on language in law too plain to be mistaken. Unfortunately, Diageo failed to
Petitioner is primarily engaged in the business of importing, exporting, manufacturing,
meet the burden of proof that it is covered by the exemption granted under Section 130(D) of
marketing, distributing, buying and selling, by wholesale, all kinds of beverages and liquors and
the Tax Code.
in dealing in any material, article, or thing required in connection with or incidental to its
principal business.
Diageo, not being the party statutorily liable to pay excise taxes and having failed to prove that
it is covered by the exemption granted under Section 130(D) of the Tax Code, is not the proper
Diageo purchased raw alcohol from its supplier for use in the manufacture of its beverage and
party to claim a refund or credit of the excise taxes paid on the ingredients of its exported
liquor products. The supplier imported the raw alcohol and paid the related excise taxes
locally produced liquor.
thereon before the same were sold to the petitioner. The purchase price for the raw alcohol
included, among others, the excise taxes paid by the supplier in the total amount of
P12,007,528.83.

Subsequently, Diageo exported its locally manufactured liquor products to Japan, Taiwan,
Turkey and Thailand and received the corresponding foreign currency proceeds of such export
sales.

Within two (2) years from the time the supplier paid the subject excise taxes, Diageo filed with
the BIR applications for tax refund/issuance of tax credit certificates corresponding to the
excise taxes which its supplier paid but passed on to it as part of the purchase price of the
subject raw alcohol invoking Section 130(D) of the Tax Code.

However, due to the failure of the respondent Commissioner of Internal Revenue (CIR) to act
upon Diageo’s claims, the latter was constrained to timely file a petition for review before the
CTA.

On December 27, 2005, the CIR filed its Answer assailing Diageo’s lack of legal personality to
institute the claim for refund because it was not the one that paid the alleged excise taxes but
its supplier. Subsequently, the CIR filed a motion to dismiss reiterating the same issue.

ISSUE:

WON Petitioner has the legal personality to file a claim for refund or tax credit for the excise
taxes paid by its supplier on the raw alcohol

HELD:

No. the phrase "any excise tax paid thereon shall be credited or refunded" requires that the
claimant be the same person who paid the excise tax. When the seller passes on the tax to his
buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of
the price of goods sold or services rendered. Accordingly, when the excise taxes paid by the
supplier were passed on to Diageo, what was shifted is not the tax per se but an additional
 CIR vs. ST. LUKES
 St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-
profit corporation
 The BIR assessed St. Luke's deficiency taxes for 1998 amounting to about P76M,
comprised of deficiency income tax, value-added tax, withholding tax on compensation
and expanded withholding tax. The BIR reduced the amount to P63.9M during trial in
the First Division of the CTA.
 St. Luke's filed an administrative protest with the BIR against the deficiency tax
assessments which BIR did not act upon.
 St. Lukes appealed to the CTA.
BIR claims:
1) Section 27(B) of the NIRC, which imposes a 10% preferential tax rate on the income
of proprietary non-profit hospitals, should be applicable to St. Luke's
2) St. Luke's was actually operating for profit in 1998 because only 13% of its revenues
came from charitable purposes. Moreover, the hospital's board of trustees, officers
and employees directly benefit from its profits and assets. approximately P1.73
billion from patient services in 1998.
On the other hand St. Lukes claims:
1) Its income does not inure to the benefit of any individual.
2) It is a non-stock and non-profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC which render it tax exempt. It
argued that the making of profit per se does not destroy its income tax exemption.
that the "income of whatever kind and character" of a charitable institution "from any of its
activities conducted for profit, regardless of the disposition made of such income, shall be
subject to tax."
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for
charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. This is based not only on a strict interpretation of a provision granting tax
exemption, but also on the clear and plain text of Section 30 of the NIRC which requires that
an institution be "operated exclusively" for charitable or social welfare purposes to be
completely exempt from income tax. An institution under Section 30(E) or (G) does not lose
its tax exemption if it earns income from its for-profit activities. Such income from for-profit
activities is merely subject to income tax, previously at the ordinary corporate rate but now
at the preferential 10% rate pursuant to Section 27(B).
Thus, St. Luke's failed to meet the requirements under Section 30(E) and (G) of the
NIRC to be completely tax exempt from all its income. However, it remains a proprietary non-
profit hospital under Section 27(B) of the NIRC as long as it does not distribute any of its
profits to its members and such profits are reinvested pursuant to its corporate purposes. St.
Luke's, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on
its net income from its for-profit activities.
Additional St. Lukes did not comply with no. 3 to be completely exempt from income tax:

 The CTA held that Section 27(B) of the NIRC does not apply to St. Luke's. The CTA
explained that to apply the 10% preferential rate, Section 27(B) requires a hospital to be
"non-profit."
ISSUE:
Whether or not St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of
the NIRC, which imposes a preferential tax rate of 10% on the income of proprietary non-
profit hospitals
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person.

HELD:
YES. There is no dispute that St. Luke's is organized as a non-stock and non-profit
charitable institution. However, this does not automatically exempt St. Luke's from paying
taxes. Even if St. Luke's meets the test of charity, a charitable institution is not ipso facto tax
exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property "actually, directly and exclusively" for
charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires
that a charitable institution must be "organized and operated exclusively" for charitable
purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that
the institution be "operated exclusively" for social welfare.

Even if the charitable institution must be "organized and operated exclusively" for
charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit"
without losing its tax exempt status for its not-for-profit activities. The only consequence is
China Banking v. CIR
GR No. 175108 February 27, 2013
The 20% final withholding tax on passive interest income should form part of a bank's total
gross receipts for purposes of computing the gross receipts tax.
For the four quarters of 1996, China Banking Corporation (CBC) paid P 93,119,433.50 as gross
receipts tax (GRT) on its income from the interests on loan investments, commissions, service
and collection charges, foreign exchange profit and other operating earnings. In computing its
taxable gross receipts, CBC included the 20% final withholding tax on its passive interest
income.
The Court of Tax Appeals (CTA) ruled in Asian Bank Corporation v. Commissioner of Internal
Revenue that the 20% final withholding tax on a bank's passive interest income should not
form part of its taxable gross receipts. On the strength of the aforementioned decision, CBC
filed with CIR a claim for refund of the alleged overpaid GRT for the four (4) quarters of 1996
in the aggregate amount of P6,646,829.67.
ISSUE:
Should the 20% final tax withheld on a CBC's passive income be included in the computation
of the GRT?
HELD:
Yes. In a series of cases, the Court has already resolved the issue of whether the 20% final
withholding tax should form part of the total gross receipts for purposes of computing the GRT.
In China Banking Corporation v. Court of Appeals, the SC ruled that the amount of interest
income withheld, in payment of the 20% final withholding tax, forms part of the bank's gross
receipts in computing the GRT on banks. In the aforementioned case, it asserts that "gross
receipts” comprise "the entire receipts without any deduction.” Clearly, then, the 20% final
withholding tax should form part of CBC's total gross receipts for purposes of computing the
GRT. Also worth noting is the fact that petitioner's reliance on Section 4 (e) of RR 12-80 is
misplaced as the same was already superseded by a more recent issuance, RR No. 17-84.
All told, CBC failed to point to any specific provision of law allowing the deduction, exemption
or exclusion from its taxable gross receipts, of the amount withheld as final tax. Besides, the
exclusion sought by CBC of the 20% final tax on its passive income from the taxpayer's tax base
constitutes a tax exemption, which is highly disfavored. A governing principle in taxation states
that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally
in favor of the taxing authority and should be granted only by clear and unmistakable terms.