EN BANC

G.R. No. 198146, August 08, 2017

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT

CORPORATION, Petitioner, v.COMMISSIONER OF INTERNAL, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 27 September 2010 Decision2 and the 3 August 2011 Resolution3 of the
Court of Appeals in CA-G.R. SP No. 108156. The Court of Appeals nullified the Decisions dated 13 March
2008 and 14 January 2009 of the Secretary of Justice in OSJ Case No. 2007-3 for lack of jurisdiction.

The Facts

Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and
controlled corporation created under Republic Act No. 9136 (RA 9136), also known as the Electric Power
Industry Reform Act of 2001 (EPIRA).4 Section 50 of RA 9136 states that the principal purpose of PSALM is
to manage the orderly sale, disposition, and privatization of the National Power Corporation (NPC)
generation assets, real estate and other disposable assets, and Independent Power Producer (IPP) contracts
with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal
manner.

PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power
Plant (Pantabangan-Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant) on 8 September
2006 and 14 December 2006, respectively. First Gen Hydropower Corporation with its $129 Million bid and
SN Aboitiz Power Corporation with its $530 Million bid were the winning bidders for the Pantabangan-
Masiway Plant and Magat Plant, respectively.

On 28 August 2007, the NPC received a letter5 dated 14 August 2007 from the Bureau of Internal Revenue
(BIR) demanding immediate payment of P3,813,080,4726 deficiency value-added tax (VAT) for the sale of
the Pantabangan-Masiway Plant and Magat Plant. The NPC indorsed BIR's demand letter to PSALM.

On 30 August 2007, the BIR, NPC, and PSALM executed a Memorandum of Agreement (MOA),7 wherein they
agreed that:

A) NPC/PSALM shall remit under protest to the BIR the amount of Php 3,813,080,472.00, representing basic
VAT as shown in the BIR letter dated August 14, 2007, upon execution of this Memorandum of Agreement
(MOA).

B) This remittance shall be without prejudice to the outcome of the resolution of the Issues before the
appropriate courts or body.

C) NPC/PSALM and BIR mutually undertake to seek final resolution of the Issues by the appropriate courts
or body.

D) BIR shall waive any and all interests and surcharges on the aforesaid BIR letter, except when the case is
elevated by the BIR before an appellate court.

E) Nothing contained in this MOA shall be claimed or construed to be an admission against interest as to any
party or evidence of any liability or wrongdoing whatsoever nor an abandonment of any position taken by
NPC/PSALM in connection with the Issues.
F) Each Party to this MOA hereto expressly represents that the authorized signatory hereto has the legal
authority to bind [the] party to all the terms of this MOA.

G) Any resolution by the appropriate courts or body in favor of the BIR, other than a decision by the
Supreme Court, shall not constitute as precedent and sufficient legal basis as to the taxability of
NPC/PSALM's transactions pursuant to the privatization of NPC's assets as mandated by the EPIRA Law.

H) Any resolution in favor of NPC/PSALM by any appropriate court or body shall be immediately executory
without necessity of notice or demand from NPC/PSALM. A ruling from the Department of Justice (DOJ) that
is favorable to NPC/PSALM shall be tantamount to the filing of an application for refund (in cash)/tax credit
certificate (TCC), at the option of NPC/PSALM. BIR undertakes to immediately process and approve the
application, and release the tax refund/TCC within fifteen (15) working days from issuance of the DOJ ruling
that is favorable to NPC/PSALM.

I) Either party has the right to appeal any adverse decision against it before any appropriate court or body.

J) In the event of failure by the BIR to fulfill the undertaking referred to in (H) above, NPC/PSALM shall
assign to DOF its right to the refund of the subject remittance, and the DOF shall offset such amount against
any liability of NPC/PSALM to the National Government pursuant to the objectives of the EPIRA on the
application of the privatization proceeds.8 In compliance with the MOA, PSALM remitted under protest to the
BIR the amount of P3,813,080,472, representing the total basic VAT due.

On 21 September 2007, PSALM filed with the Department of Justice (DOJ) a petition for the adjudication of
the dispute with the BIR to resolve the issue of whether the sale of the power plants should be subject to
VAT. The case was docketed as OSJ Case No. 2007-3.

On 13 March 2008, the DOJ ruled in favor of PSALM, thus:

In cases involving purely question[s] of law, such as in the instant case, between and among the
government-owned and controlled corporation and government bureau, the issue is best settled in this
Department. In the final analysis, there is but one party in interest, the Government itself in this litigation.

xxxx

The instant petition is an original petition involving only [a] question of law on whether or not the sale of the
Pantabangan-Masiway and Magat Power Plants to private entities under the mandate of the EPIRA is subject
to VAT. It is to be stressed that this is not an appeal from the decision of the Commissioner of Internal
Revenue involving disputed assessments, refunds of internal revenue taxes, fees or other charges, or other
matters arising under the National Internal Revenue Code or other law.

xxxx

Moreover, it must be noted that respondent already invoked this Office's jurisdiction over it by praying in
respondent's Motion for Extension of Time to File Comment (On Petitioner's Petition dated 21 September
2007) and later, Omnibus Motion To Lift Order dated 22 October 2007 and To Admit Attached Comment.
The Court has held that the filing of motions seeking affirmative relief, such as, to admit answer, for
additional time to answer, for reconsideration of a default judgment, and to lift order of default with motion
for reconsideration, are considered voluntary submission to the jurisdiction of the court. Having sought this
Office to grant extension of time to file answer or comment to the instant petition, thereby submitting to the
jurisdiction of this Court [sic], respondent cannot now repudiate the very same authority it sought.

xxxx

When petitioner was created under Section 49 of R.A. No. 9136, for the principal purpose to manage the
orderly sale, disposition, and privatization of NPC generation assets, real estate and other disposable assets,
IPP contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an
optimal manner, there was, by operation of law, the transfer of ownership of NPC assets. Such transfer of
ownership was not carried out in the ordinary course of transfer which must be accorded with the required
elements present for a valid transfer, but in this case, in accordance with the mandate of the law, that is,
EPIRA. Thus, respondent cannot assert that it was NPC who was the actual seller of the Pantabangan-
Masiway and Magat Power Plants, because at the time of selling the aforesaid power plants, the owner then
was already the petitioner and not the NPC. Consequently, petitioner cannot also be considered a successor-
in-interest of NPC.

Since it was petitioner who sold the Pantabangan-Masiway and Magat Power Plants and not the NPC,
through a competitive and public bidding to the private entities, Section 24(A) of R.A. No. 9337 cannot be
applied to the instant case. Neither the grant of exemption and revocation of the tax exemption accorded to
the NPC, be also affected to petitioner.

xxxx

Clearly, the disposition of Pantabangan-Masiway and Magat Power Plants was not in the regular conduct or
pursuit of a commercial or an economic activity, but was effected by the mandate of the EPIRA upon
petitioner to direct the orderly sale, disposition, and privatization of NPC generation assets, real estate and
other disposable assets, and IPP contracts, and afterward, to liquidate the outstanding obligations of the
NPC.

xxxx

Verily, to subject the sale of generation assets in accordance with a privatization plan submitted to and
approved by the President, which is a one time sale, to VAT would run counter to the purpose of obtaining
optimal proceeds since potential bidders would necessarily have to take into account such extra cost of VAT.

WHEREFORE, premises considered, the imposition by respondent Bureau of Internal Revenue of deficiency
Value-Added Tax in the amount of P3,813,080,472.00 on the privatization sale of the Pantabangan-Masiway
and Magat Power Plants, done in accordance with the mandate of the Electric Power Industry Reform Act of
2001, is hereby declared NULL and VOID. Respondent is directed to refund the amount of
P3,813,080,472.00 remitted under protest by petitioner to respondent.9

The BIR moved for reconsideration, alleging that the DOJ had no jurisdiction since the dispute involved tax
laws administered by the BIR and therefore within the jurisdiction of the Court of Tax Appeals (CTA).
Furthermore, the BIR stated that the sale of the subject power plants by PSALM to private entities is in the
course of trade or business, as contemplated under Section 105 of the National Internal Revenue Code
(NIRC) of 1997, which covers incidental transactions. Thus, the sale is subject to VAT. On 14 January 2009,
the DOJ denied BIR's Motion for Reconsideration.10

On 7 April 2009,11 the BIR Commissioner (Commissioner of Internal Revenue) filed with the Court of Appeals
a petition for certiorari, seeking to set aside the DOJ's decision for lack of jurisdiction. In a Resolution dated
23 April 2009, the Court of Appeals dismissed the petition for failure to attach the relevant pleadings and
documents.12 Upon motion for reconsideration, the Court of Appeals reinstated the petition in its Resolution
dated 10 July 2009.13

The Ruling of the Court of Appeals

The Court of Appeals held that the petition filed by PSALM with the DOJ was really a protest against the
assessment of deficiency VAT, which under Section 20414 of the NIRC of 1997 is within the authority of the
Commissioner of Internal Revenue (CIR) to resolve. In fact, PSALM's objective in filing the petition was to
recover the P3,813,080,472 VAT which was allegedly assessed erroneously and which PSALM paid under
protest to the BIR.

Quoting paragraph H15 of the MOA among the BIR, NPC, and PSALM, the Court of Appeals stated that the
parties in effect agreed to consider a DOJ ruling favorable to PSALM as the latter's application for refund.

Citing Section 416 of the NIRC of 1997, as amended by Section 3 of Republic Act No. 8424 (RA 8424)17and
Section 718 of Republic Act No. 9282 (RA 9282),19 the Court of Appeals ruled that the CIR is the proper body
to resolve cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the NIRC or other laws administered by
the BIR. The Court of Appeals stressed that jurisdiction is conferred by law or by the Constitution; the
parties, such as in this case, cannot agree or stipulate on it by conferring jurisdiction in a body that has
none. Jurisdiction over the person can be waived but not the jurisdiction over the subject matter which is
neither subject to agreement nor conferred by consent of the parties. The Court of Appeals held that the
DOJ Secretary erred in ruling that the CIR is estopped from assailing the jurisdiction of the DOJ after having
agreed to submit to its jurisdiction. As a general rule, estoppel does not confer jurisdiction over a cause of
action to a tribunal where none, by law, exists.

In conclusion, the Court of Appeals found that the DOJ Secretary gravely abused his discretion amounting to
lack of jurisdiction when he assumed jurisdiction over OSJ Case No. 2007-3. The dispositive portion of the
Court of Appeals' 27 September 2010 Decision reads:

WHEREFORE, premises considered, we hereby GRANT the petition. Accordingly: (1) the [D]ecision dated
March 13, 2008, and the Decision dated January 14, 2009 both issued by the public respondent Secretary of
Justice in [OSJ Case No.] 2007-3 are declared NULL and VOID for having been issued without jurisdiction.

No costs.

SO ORDERED.20

PSALM moved for reconsideration, which the Court of Appeals denied in its 3 August 2011 Resolution.
Hence, this petition.

The Issues

Petitioner PSALM raises the following issues:

I. DID THE COURT OF APPEALS MISAPPLY THE LAW IN GIVING DUE COURSE TO THE PETITION FOR
CERTIORARI IN CA-G.R. SP NO. 108156?

II. DID THE SECRETARY OF JUSTICE ACT IN ACCORDANCE WITH THE LAW IN ASSUMING JURISDICTION
AND SETTLING THE DISPUTE BY AND BETWEEN THE BIR AND PSALM?

III. DID THE SECRETARY OF JUSTICE ACT IN ACCORDANCE WITH THE LAW AND JURISPRUDENCE IN
RENDERING JUDGMENT THAT THERE SHOULD BE NO VAT ON THE PRIVATIZATION, SALE OR DISPOSAL OF
GENERATION ASSETS?

IV. DOES PUBLIC RESPONDENT DESERVE THE RELIEF OF CERTIORARI?21

The Ruling of the Court

We find the petition meritorious.

I. Whether the Secretary of Justice has jurisdiction over the case.

The primary issue in this case is whether the DOJ Secretary has jurisdiction over OSJ Case No. 2007-3 which
involves the resolution of whether the sale of the Pantabangan-Masiway Plant and Magat Plant is subject to
VAT.

We agree with the Court of Appeals that jurisdiction over the subject matter is vested by the Constitution or
by law, and not by the parties to an action.22 Jurisdiction cannot be conferred by consent or acquiescence of
the parties23 or by erroneous belief of the court, quasi-judicial office or government agency that it exists.

However, contrary to the ruling of the Court of Appeals, we find that the DOJ is vested by law with
jurisdiction over this case. This case involves a dispute between PSALM and NPC, which are both wholly
government- owned corporations, and the BIR, a government office, over the imposition of VAT
on the sale of the two power plants. There is no question that originaljurisdiction is with the CIR, who
issues the preliminary and the final tax assessments. However, if the government entity disputes the tax
assessment, the dispute is already between the BIR (represented by the CIR) and another government
entity, in this case, the petitioner PSALM. Under Presidential Decree No. 24224(PD 242), all disputes
and claims solely between government agencies and offices, including government-owned or
controlled corporations, shall be administratively settled or adjudicated by the Secretary of
Justice, the Solicitor General, or the Government Corporate Counsel, depending on the issues and
government agencies involved. As regards cases involving only questions of law, it is the Secretary of
Justice who has jurisdiction. Sections 1, 2, and 3 of PD 242 read:

Section 1. Provisions of law to the contrary notwithstanding, all disputes, claims and
controversies solely between or among the departments, bureaus, offices, agencies and
instrumentalities of the National Government, including constitutional offices or agencies, arising
from the interpretation and application of statutes, contracts or agreements, shall henceforth be
administratively settled or adjudicated as provided hereinafter: Provided, That, this shall not apply to
cases already pending in court at the time of the effectivity of this decree.

Section 2. In all cases involving only questions of law, the same shall be submitted to and settled
or adjudicated by the Secretary of Justice, as Attorney General and ex officio adviser of all
government� owned or controlled corporations and entities, in consonance with Section 83 of the Revised
Administrative Code. His ruling or determination of the question in each case shall be conclusive
and binding upon all the parties concerned.

Section 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and
settled or adjudicated by:

(a) The Solicitor General, with respect to disputes or claims [or] controversies between or among the
departments, bureaus, offices and other agencies of the National Government;

(b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or
among the government-owned or controlled corporations or entities being served by the Office of the
Government Corporate Counsel; and

(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall
under the categories mentioned in paragraphs (a) and (b). (Emphasis supplied)

The use of the word "shall" in a statute connotes a mandatory order or an imperative obligation.25 Its use
rendered the provisions mandatory and not merely permissive, and unless PD 242 is declared
unconstitutional, its provisions must be followed. The use of the word "shall" means that administrative
settlement or adjudication of disputes and claims between government agencies and offices, including
government-owned or controlled corporations, is not merely permissive but mandatory and imperative.
Thus, under PD 242, it is mandatory that disputes and claims "solely" between government agencies and
offices, including government-owned or controlled corporations, involving only questions of law, be
submitted to and settled or adjudicated by the Secretary of Justice.

The law is clear and covers "all disputes, claims and controversies solely between or among the
departments, bureaus, offices, agencies and instrumentalities of the National Government,
including constitutional offices or agencies arising from the interpretation and application of
statutes, contracts or agreements." When the law says "all disputes, claims and controversies solely"
among government agencies, the law means all, without exception. Only those cases already pending in
court at the time of the effectivity of PD 242 are not covered by the law.

The purpose of PD 242 is to provide for a speedy and efficient administrative settlement or
adjudication of disputes between government offices or agencies under the Executive branch, as
well as to filter cases to lessen the clogged dockets of the courts. As explained by the Court
in Philippine Veterans Investment Development Corp. (PHIVIDEC) v. Judge Velez:26
Contrary to the opinion of the lower court, P.D. No. 242 is not unconstitutional. It does not diminish the
jurisdiction of [the] courts but only prescribes an administrative procedure for the settlement of certain
types of disputes between or among departments, bureaus, offices, agencies, and instrumentalities of the
National Government, including government-owned or controlled corporations, so that they need not always
repair to the courts for the settlement of controversies arising from the interpretation and application of
statutes, contracts or agreements. The procedure is not much different, and no less desirable, than the
arbitration procedures provided in Republic Act No. 876 (Arbitration Law) and in Section 26, R.A. 6715 (The
Labor Code). It is an alternative to, or a substitute for, traditional litigation in court with the added
advantage of avoiding the delays, vexations and expense of court proceedings. Or, as P.D. No. 242 itself
explains, its purpose is "the elimination of needless clogging of court dockets to prevent the waste of time
and energies not only of the government lawyers but also of the courts, and eliminates expenses incurred in
the filing and prosecution of judicial actions.27

PD 242 is only applicable to disputes, claims, and controversiessolely between or among the departments,
bureaus, offices, agencies and instrumentalities of the National Government, including government-owned
or controlled corporations, and where no private party is involved. In other words, PD 242 will only
apply when all the parties involved are purely government offices and government-owned or
controlled corporations.28 Since this case is a dispute between PSALM and NPC, both government-owned
and controlled corporations, and the BIR, a National Government office, PD 242 clearly applies and the
Secretary of Justice has jurisdiction over this case. In fact, the MOA executed by the BIR, NPC, and PSALM
explicitly provides that "[a] ruling from the Department of Justice (DOJ) that is favorable to NPC/PSALM
shall be tantamount to the filing of an application for refund (in cash)/tax credit certificate (TCC), at the
option of NPC/PSALM."29 Such provision indicates that the BIR and petitioner PSALM and the NPC
acknowledged that the Secretary of Justice indeed has jurisdiction to resolve their dispute.

This case is different from the case of Philippine National Oil Company v. Court of Appeals,30 (PNOC v. CA)
which involves not only the BIR (a government bureau) and the PNOC and PNB (both government� owned
or controlled corporations), but also respondent Tirso Savellano, a private citizen. Clearly, PD 242 is not
applicable to the case of PNOC v. CA. Even the ponencia in PNOC v. CA stated that the dispute in that case
is not covered by PD 242, thus:

Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present
dispute would still not be covered by P.D. No. .242. Section 1 of P.D. No. 242 explicitly provides that only
disputes, claims and controversies solely between or among departments, bureaus, offices, agencies, and
instrumentalities of the National Government, including constitutional offices or agencies, as well as
government-owned and controlled corporations, shall be administratively settled or adjudicated. While the
BIR is obviously a government bureau, and both PNOC and PNB are government-owned and
controlled corporations, respondent Savellano is a private citizen. His standing in the controversy
could not be lightly brushed aside. It was private respondent Savellano who gave the BIR the information
that resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the
compromise agreement in question; and who initiated the CTA Case No. 4249 by filing a Petition for
Review.31 (Emphasis supplied)

In contrast, since this case is a disputesolely between PSALM and NPC, both government-owned and
controlled corporations, and the BIR, a National Government office, PD 242 clearly applies and the Secretary
of Justice has jurisdiction over this case.

It is only proper that intra-governmental disputes be settled administratively since the opposing
government offices, agencies and instrumentalities are all under the President's executive
control and supervision. Section 17, Article VII of the Constitution states unequivocally that: "The
President shall have control of all the executive departments, bureaus and offices. He shall ensure
that the laws be faithfully executed." In Carpio v. Executive Secretary,32 the Court expounded on the
President's control over all the executive departments, bureaus and offices, thus:

This presidential power of control over the executive branch of government extends over all executive
officers from Cabinet Secretary to the lowliest clerk and has been held by us, in the landmark case
of Mondano vs. Silvosa, to mean "the power of [the President] to alter or modify or nullify or set aside what
a subordinate officer had done in the performance of his duties and to substitute the judgment of the former
with that of the latter." It is said to be at the very "heart of the meaning of Chief Executive."
Equally well accepted, as a corollary rule to the control powers of the President, is the "Doctrine of Qualified
Political Agency." As the President cannot be expected to exercise his control powers all at the same time
and in person, he will have to delegate some of them to his Cabinet members.

Under this doctrine, which recognizes the establishment of a single executive, "all executive and
administrative organizations are adjuncts of the Executive Department, the heads of the various executive
departments are assistants and agents of the Chief Executive, and, except in cases where the Chief
Executive is required by the Constitution or law to act in person on the exigencies of the situation demand
that he act personally, the multifarious executive and administrative functions of the Chief Executive are
performed by and through the executive departments, and the acts of the Secretaries of such departments,
performed and promulgated in the regular course of business, are, unless disapproved or reprobated by the
Chief Executive presumptively the acts of the Chief Executive."

Thus, and in short, "the President's power of control is directly exercised by him over the members of the
Cabinet who, in turn, and by his authority, control the bureaus and other offices under their respective
jurisdictions in the executive department."33

This power of control vested by the Constitution in the President cannot be diminished by law. As held
in Rufino v. Endriga,34 Congress cannot by law deprive the President of his power of control, thus:

The Legislature cannot validly enact a law that puts a government office in the Executive branch outside the
control of the President in the guise of insulating that office from politics or making it independent.If the
office is part of the Executive branch, it must remain subject to the control of the President.
Otherwise, the Legislature can deprive the President of his constitutional power of control over
"all the executive x x x offices." If the Legislature can do this with the Executive branch, then the
Legislature can also deal a similar blow to the Judicial branch by enacting a law putting decisions
of certain lower courts beyond the review power of the Supreme Court. This will destroy the system
of checks and balances finely structured in the 1987 Constitution among the Executive, Legislative, and
Judicial branches.35 (Emphasis supplied)

Clearly, the President's constitutional power of control over all the executive departments, bureaus and
offices cannot be curtailed or diminished by law. "Since the Constitution has given the President the power
of control, with all its awesome implications, it is the Constitution alone which can curtail such power."36This
constitutional power of control of the President cannot be diminished by the CTA. Thus, if two
executive offices or agencies cannot agree, it is only proper and logical that the President, as the
sole Executive who under the Constitution has control over both offices or agencies in dispute,
should resolve the dispute instead of the courts. The judiciary should not intrude in this
executive function of determining which is correct between the opposing government offices or
agencies, which are both under the sole control of the President. Under his constitutional power
of control, the President decides the dispute between the two executive offices. The judiciary
cannot substitute its decision over that of the President. Only after the President has decided or
settled the dispute can the courts' jurisdiction be invoked. Until such time, the judiciary should not interfere
since the issue is not yet ripe for judicial adjudication. Otherwise, the judiciary would infringe on the
President's exercise of his constitutional power of control over all the executive departments, bureaus, and
offices.

Furthermore, under the doctrine of exhaustion of administrative remedies, it is mandated that

where a remedy before an administrative body is provided by statute, relief must be sought by
exhausting this remedy prior to bringing an action in court in order to give the administrative
body every opportunity to decide a matter that comes within its jurisdiction. 37 A litigant cannot go
to court without first pursuing his administrative remedies; otherwise, his action is premature and his case is
not ripe for judicial determination.38 PD 242 (now Chapter 14, Book IV of Executive Order No. 292), provides
for such administrative remedy. Thus, only after the President has decided the dispute between government
offices and agencies can the losing party resort to the courts, if it so desires. Otherwise, a resort to the
courts would be premature for failure to exhaust administrative remedies. Non-observance of the doctrine of
exhaustion of administrative remedies would result in lack of cause of action,39 which is one of the grounds
for the dismissal of a complaint.

The rationale of the doctrine of exhaustion. of administrative remedies was aptly explained by the Court
in Universal Robina Corp. (Corn Division) v. Laguna Lake Development Authority:40
The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The thrust of
the rule is that courts must allow administrative agencies to carry out their functions and discharge their
responsibilities within the specialized areas of their respective competence. The rationale for this doctrine is
obvious. It entails lesser expenses and provides for the speedier resolution of the controversies. Comity and
convenience also impel courts of justice to shy away from a dispute until the system of administrative
redress has been completed.41

In requiring parties to exhaust administrative remedies before pursuing action in a court, the doctrine
prevents overworked courts from considering issues when remedies are available through administrative
channels.42 Furthermore, the doctrine endorses a more economical and less formal means of resolving
disputes,43 and promotes efficiency since disputes and claims are generally resolved more quickly and
economically through administrative proceedings rather than through court litigations.44

The Court of Appeals ruled that under the 1997 NIRC, the dispute between the parties is within the authority
of the CIR to resolve. Section 4 of the 1997 NIRC reads:

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 in 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. (Emphasis supplied)

The first paragraph of Section 4 of the 1997 NIRC provides that the power of the CIR to interpret the NIRC
provisions and other tax laws issubject to review by the Secretary of Finance, who is the alter ego of
the President. Thus, the constitutional power of control of the President over all the executive
departments, bureaus, and offices45 is still preserved. The President's power of control, which cannot be
limited or withdrawn by Congress, means the power of the President to alter, modify, nullify, or set aside
the judgment or action of a subordinate in the performance of his duties.46

The second paragraph of Section 4 of the 1997 NIRC, providing for the exclusive appellate jurisdiction of the
CTA as regards the CIR's decisions on matters involving disputed assessments, refunds in internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under NIRC, is in
conflict with PD 242. Under PD 242,all disputes and claims solely between government agencies and
offices, including government-owned or controlled corporations, shall be administratively settled or
adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel,
depending on the issues and government agencies involved.

To harmonize Section 4 of the 1997 NIRC with PD 242, the following interpretation should be adopted: (1)
As regards private entities and the BIR, the power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC
or other laws administered by the BIR is vested in the CIR subject to the exclusive appellate jurisdiction of
the CTA, in accordance with Section 4 of the NIRC; and (2) Where the disputing parties areall public
entities (covers disputes between the BIR and other government entities), the case shall be governed y PD
242.

Furthermore, it should be noted that the 1997 NIRC is a general law governing the imposition of national
internal revenue taxes, fees, and charges.47On the other hand, PD 242 is a special law that applies
only to disputes involving solely government offices, agencies, or instrumentalities. The difference
between a special law and a general law was clarified in Vinzons-Chato v. Fortune Tobacco Corporation:48

A general statute is one which embraces a class of subjects or places and does not omit any subject or place
naturally belonging to such class. A special statute, as the term is generally understood, is one which relates
to particular persons or things of a class or to a particular portion or section of the state only.

A general law and a special law on the same subject are statutes in pari materia and should, accordingly, be
read together and harmonized, if possible, with a view to giving effect to both. The rule is that where there
are two acts, one of which is special and particular and the other general which, if standing alone, would
include the same matter and thus conflict with the special act, the special law must prevail since it evinces
the legislative intent more clearly than that of a general statute and must not be taken as intended to affect
the more particular and specific provisions of the earlier act, unless it is absolutely necessary so to construe
it in order to give its words any meaning at all.

The circumstance that the special law is passed before or after the general act does not change the
principle. Where the special law is later, it will be regarded as an exception to, or a qualification of, the prior
general act; and where the general act is later, the special statute will be construed as remaining an
exception to its terms, unless repealed expressly or by necessary implication.49

Thus, even if the 1997 NIRC, a general statute, is a later act, PD 242, which is a special law, will
still prevail and is treated as an exception to the terms of the 1997 NIRC with regard solely to
intra-governmental disputes. PD 242 is a special law while the 1997 NIRC is a general law, insofar as
disputes solely between or among government agencies are concerned. Necessarily, such disputes must be
resolved under PD 242 and not under the NIRC, precisely because PD 242 specifically mandates the
settlement of such disputes in accordance with PD 242. PD 242 is a valid law prescribing the procedure for
administrative settlement or adjudication of disputes among government offices, agencies, and
instrumentalities under the executive control and supervision of the President.50

Even the BIR, through its authorized representative, then OIC Commissioner of Internal Revenue Lilian B.
Hefti, acknowledged in the MOA executed by the BIR, NPC, and PSALM, that the Secretary of Justice has
jurisdiction to resolve its dispute with petitioner PSALM and the NPC. This is clear from the provision in the
MOA which states:

H) Any resolution in favor of NPC/PSALM by any appropriate court or body shall be immediately executory
without necessity of notice or demand from NPC/PSALM. A ruling from the Department of Justice (DOJ)
that is favorable to NPC/PSALM shall be tantamount to the filing of an application for refund (in
cash)/tax credit certificate (TCC), at the option of NPC/PSALM. BIR undertakes to immediately
process and approve the application, and release the tax refund/TCC within fifteen (15) working
days from issuance of the DOJ ruling that is favorable to NPC/PSALM. (Emphasis supplied)

PD 242 is now embodied in Chapter 14, Book IV of Executive Order No. 292 (EO 292), otherwise known as
the Administrative Code of 1987, which took effect on 24 November 1989.51 The pertinent provisions read:

Chapter 14- Controversies Among Government

Offices and Corporations

SEC. 66. How Settled. - All disputes, claims and controversies, solely between or among the departments,
bureaus, offices, agencies and instrumentalities of the National Government, including government� owned
or controlled corporations, such as those arising from the interpretation and application of statutes,
contracts or agreements, shall be administratively settled or adjudicated in the manner provided in this
Chapter. This Chapter shall, however, not apply to disputes involving the Congress, the Supreme Court, the
Constitutional Commissions, and local governments.

SEC. 67. Disputes Involving Questions of Law. - All cases involving only questions of law shall be submitted
to and settled or adjudicated by the Secretary of Justice as Attorney-General of the National Government
and as ex officio legal adviser of all government-owned or controlled corporations. His ruling or decision
thereon shall be conclusive and binding on all the parties concerned.

SEC. 68. Disputes Involving Questions of Fact and Law.- Cases involving mixed questions of law and of fact
or only factual issues shall be submitted to and settled or adjudicated by:

(1) The Solicitor General, if the dispute, claim or controversy involves only departments, bureaus, offices
and other agencies of the National Government as well as government-owned or controlled corporations or
entities of whom he is the principal law officer or general counsel; and

(2) The Secretary of Justice, in all other cases not falling under paragraph (1).
SEC. 69. Arbitration. - The determination of factual issues may be referred to an arbitration panel composed
of one representative each of the parties involved and presided over by a representative of the Secretary of
Justice or the Solicitor General, as the case may be.

SEC. 70. Appeals. - The decision of the Secretary of Justice as well as that of the Solicitor General, when
approved by the Secretary of Justice, shall be final and binding upon the parties involved. Appeals may,
however, be taken to the President where the amount of the claim or the value of the property exceeds one
million pesos. The decision of the President shall be final.

SEC. 71. Rules and Regulations. - The Secretary of Justice shall promulgate the rules and regulations
necessary to carry out the provisions of this Chapter.

Since the amount involved in this case is more than one million pesos, the DOJ Secretary's decision may be
appealed to the Office of the President in accordance with Section 70, Chapter 14, Book IV of EO 292 and
Section 552 of PD 242. If the appeal to the Office of the President is denied, the aggrieved party can still
appeal to the Court of Appeals under Section 1, Rule 43 of the 1997 Rules of Civil Procedure.53However, in
order not to further delay the disposition of this case, the Court resolves to decide the substantive issue
raised in the petition.54

II. Whether the sale of the power plants is subject to VAT.

To resolve the issue of whether the sale of the Pantabangan-Masiway and Magat Power Plants by petitioner
PSALM to private entities is subject to VAT, the Court must determine whether the sale is "in the course of
trade or business" as contemplated under Section 105 of the NIRC, which reads:

SEC 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts
of sale or lease of goods, properties or services at the time of the effectivity of Republic Act 7716.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or
business. (Emphasis supplied)

Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition, and
privatization of the NPC generation assets, real estate and other disposable assets, and IPP contracts with
the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.

PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and Magat
Power Plants, is pursuant to PSALM's mandate under the EPIRA law and is not conducted in the course of
trade or business. PSALM cited the 13 May 2002 BIR Ruling No. 020-02, that PSALM's sale of assets is not
conducted in pursuit of any commercial or profitable activity as to fall within the ambit of a VAT-able
transaction under Sections 105 and 106 of the NIRC. The pertinent portion of the ruling adverted to states:

2. Privatization of assets by PSALM is not subject to VAT

Pursuant to Section 105 in relation to Section 106, both of the Tax Code of 1997, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods, is collected
from any person, who, in the course of trade or business, sells, barters, exchanges, leases goods or
properties, which tax shall be paid by the seller or transferor.

The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial
activity, including transactions incidental thereto.

Since the disposition or sale of the assets is a consequence of PSALM's mandate to ensure the orderly sale
or disposition of the property and thereafter to liquidate the outstanding loans and obligations of NPC,
utilizing the proceeds from sales and other property contributed to it, including the proceeds from the
Universal Charge, and not conducted in pursuit of any commercial or profitable activity, including
transactions incidental thereto, the same will be considered an isolated transaction, which will
therefore not be subject to VAT. (BIR Ruling No. 113-98 dated July 23, 1998)55 (Emphasis supplied)

On the other hand, the CIR argues that the previous exemption of NPC from VAT under Section 13 of
Republic Act No. 639556 (RA 6395) was expressly repealed by Section 24 of Republic Act No. 933757 (RA
9337), which reads:

SEC. 24. Repealing Clause. - The following laws or provisions of laws are hereby repealed and the persons
and/or transactions affected herein are made subject to the value-added tax subject to the provisions of
Title IV of the National Internal Revenue Code of 1997, as amended:

(A) Section 13 of R.A. No. 6395 on the exemption from value-added tax of National Power Corporation
(NPC);

(B) Section 6, fifth paragraph of R.A. No. 9136 on the zero VAT rate imposed on the sale of generated power
by generation companies; and

(C) All other laws, acts, decrees, executive orders, issuances and rules and regulations or parts thereof
which are contrary to and inconsistent with any provisions of this Act are hereby repealed, amended or
modified accordingly.

As a consequence, the CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-02
is also deemed revoked since PSALM is a successor-in-interest of NPC. Furthermore, the CIR avers that prior
to the sale, NPC still owned the power plants and not PSALM, which is just considered as the trustee of the
NPC properties. Thus, the sale made by NPC or its successors-in-interest of its power plants should be
subject to the 10% VAT beginning 1 November 2005 and 12% VAT beginning 1 February 2007.

We do not agree with the CIR's position, which is anchored on the wrong premise that PSALM is a successor-
in-interest of NPC. PSALM is not a successor-in-interest of NPC. Under its charter, NPC is mandated to
"undertake the development of hydroelectric generation of power and the production of electricity from
nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide
basis."58 With the passage of the EPIRA law which restructured the electric power industry into generation,
transmission, distribution, and supply sectors, the NPC is now primarily mandated to perform missionary
electrification function through the Small Power Utilities Group (SPUG) and is responsible for providing
power generation and associated power delivery systems in areas that are not connected to the transmission
system.59 On the other hand, PSALM, a government-owned and controlled corporation, was created under
the EPIRA law to manage the orderly sale and privatization of NPC assets with the objective of liquidating all
of NPC's financial obligations in an optimal manner. Clearly, NPC and PSALM have different functions.Since
PSALM is not a successor-in-interest of NPC, the repeal by RA 9337 of NPC's VAT exemption does
not affect PSALM.

In any event, even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is
not "in the course of trade or business" as contemplated under Section 105 of the NIRC, and thus, not
subject to VAT.The sale of the power plants is not in pursuit of a commercial or economic activity
but a governmental function mandated by law to privatize NPC generation assets.PSALM was
created primarily to liquidate all NPC financial obligations and stranded contract costs in an optimal manner.
The purpose and objective of PSALM are explicitly stated in Section 50 of the EPIRA law, thus:
SEC. 50. Purpose and Objective, Domicile and Term of Existence. - The principal purpose of the PSALM
Corp. is to manage the orderly sale, disposition, and privatization of NPC generation assets, real
estate and other disposable assets, and IPP contracts with the objective of liquidating all NPC
financial obligations and stranded contract costs in an optimal manner.

The PSALM Corp. shall have its principal office and place of business within Metro Manila.

The PSALM Corp. shall exist for a period of twenty-five (25) years from the effectivity of this Act, unless
otherwise provided by law, and all assets held by it, all moneys and properties belonging to it, and all its
liabilities outstanding upon the expiration of its term of existence shall revert to and be assumed by the
National Government. (Emphasis supplied)

PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is not
"in the course of trade or business" but purely for the specific purpose of privatizing NPC assets in order to
liquidate all NPC financial obligations. PSALM is tasked to sell and privatize the NPC assets within the term of
its existence.60 The EPIRA law even requires PSALM to submit a plan for the endorsement by the Joint
Congressional Power Commission and the approval of the President of the total privatization of the NPC
assets and IPP contracts. Section 47 of the EPIRA law provides:

SEC 47. NPC Privatization. - Except for the assets of SPUG, the generation assets, real estate, and other
disposable assets as well as IPP contracts of NPC shall be privatized in accordance with this Act. Within six
(6) months from the effectivity of this Act, the PSALM Corp. shall submit a plan for the endorsement by the
Joint Congressional Power Commission and the approval of the President of the Philippines, on the total
privatization of the generation assets, real estate, other disposable assets as well as existing IPP contracts
of NPC and thereafter, implement the same, in accordance with the following guidelines, except as provided
for in Paragraph (f) herein:

(a) The privatization value to the National Government of the NPC generation assets, real estate, other
disposable assets as well as IPP contracts shall be optimized;

(b) The participation by Filipino citizens and corporations in the purchase of NPC assets shall be encouraged.

In the case of foreign investors, at least seventy-five percent (75%) of the funds used to acquire NPC-
generation assets and IPP contracts shall be inwardly remitted and registered with the Bangko Sentral ng
Pilipinas;

(c) The NPC plants and/or its IPP contracts assigned to IPP Administrators, its related assets and assigned
liabilities, if any, shall be grouped in a manner which shall promote the viability of the resulting generation
companies (gencos), ensure economic efficiency, encourage competition, foster reasonable electricity rates
and create market appeal to optimize returns to the government from the sale and disposition of such
assets in a manner consistent with the objectives of this Act. In the grouping of the generation assets and
IPP contracts of NPC, the following criteria shall be considered:

(1) A sufficient scale of operations and balance sheet strength to promote the financial viability of the
restructured units;
(2) Broad geographical groupings to ensure efficiency of operations but without the formation of regional
companies or consolidation of market power;
(3) Portfolio of plants and IPP contracts to achieve management and operational synergy without dominating
any part of the market or the load curve; and
(4) Such other factors as may be deemed beneficial to the best interest of the National Government while
ensuring attractiveness to potential investors.

(d) All assets of NPC shall be sold in open and transparent manner through public bidding, and the same
shall apply to the disposition of IPP contracts;

(e) In cases of transfer of possession, control, operation or privatization of multi-purpose hydro facilities,
safeguards shall be prescribed to ensure that the national government may direct water usage in cases of
shortage to protect potable water, irrigation, and all other requirements imbued with public interest;
(f) The Agus and Pulangi complexes in Mindanao shall be excluded from an1ong the generation companies
that will be initially privatized. Their ownership shall be transferred to the PSALM Corp. and both shall
continue to be operated by the NPC. Said complexes may be privatized not earlier than ten (10) years from
the effectivity of this Act, and, except for Agus III, shall not be subject to Build-Operate-Transfer (B-O-T),
Build-Rehabilitate-Operate-Transfer (B-R-O-T) and other variations thereof pursuant to Republic Act No.
6957, as amended by Republic Act No. 7718. The privatization of Agus and Pulangi complexes shall be left
to the discretion of PSALM Corp. in consultation with Congress;

(g) The steamfield assets and generating plants of each geothermal complex shall not be sold separately.
They shall be combined and each geothermal complex shall be sold as one package through public bidding.
The geothermal complexes covered by this requirement include, but are not limited to, Tiwi-Makban, Leyte A
and B (Tongonan), Palinpinon, and Mt. Apo;

(h) The ownership of the Caliraya-Botokan-Kalayaan (CBK) pump storage complex shall be transferred to
the PSALM Corporation;

(i) Not later than three (3) years from the effectivity of this Act, and in no case later than the initial
implementation of open access, at least seventy percent (70%) of the total capacity of generating assets of
NPC and of the total capacity of the power plants under contract with NPC located in Luzon and Visayas shall
have been privatized: Provided, That any unsold capacity shall be privatized not later than eight (8) years
from the effectivity of this Act; and

(j) NPC may generate and sell electricity only from the undisposed generating assets and IPP contracts of
PSALM Corp. and shall not incur any new obligations to purchase power through bilateral contracts with
generation companies or other suppliers.

Thus, it is very clear that the sale of the power plants was an exercise of a governmental function
mandated by law for the primary purpose of privatizing NPC assets in accordance with the
guidelines imposed by the EPIRA law.

In the 2006 case of Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay),61 the Court
ruled that the sale of the vessels of the National Development Company (NDC) to Magsaysay Lines, Inc. is
not subject to VAT since it was not in the course of trade or business, as it was involuntary and made
pursuant to the government's policy of privatization. The Court cited the CTA ruling that the phrase "course
of business" or "doing business" connotes regularity of activity. Thus, since the sale of the vessels was an
isolated transaction, made pursuant to the government's privatization policy, and which transaction could no
longer be repeated or carried on with regularity, such sale was not in the course of trade or business and
was not subject to VAT.

Similarly, the sale of the power plants in this case is not subject to VAT since the sale was made pursuant to
PSALM's mandate to privatize NPC assets, and was not undertaken in the course of trade or business. In
selling the power plants, PSALM was merely exercising a governmental function for which it was created
under the EPIRA law.

The CIR argues that the Magsaysay case, which involved the sale in 1988 of NDC vessels, is not applicable
in this case since it was decided under the 1986 NIRC. The CIR maintains that under Section 105 of the
1997 NIRC, which amended Section 9962 of the 1986 NIRC, the phrase "in the course of trade or business"
was expanded, and now covers incidental transactions. Since NPC still owns the power plants and PSALM
may only be considered as trustee of the NPC assets, the sale of the power plants is considered an incidental
transaction which is subject to VAT.

We disagree with the CIR's position. PSALM owned the power plants which were sold. PSALM's ownership of
the NPC assets is clearly stated under Sections 49, 51, and 55 of the EPIRA law. The pertinent provisions
read:

SEC. 49. Creation of Power Sector Assets and Liabilities Management Corporation. - There is hereby
created a government-owned and -controlled corporation to be known as the "Power Sector
Assets and Liabilities Management Corporation," hereinafter referred to as "PSALM Corp.," which
shall take ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate
and all other disposable assets. All outstanding obligations of the NPC arising from loans, issuances of
bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM
Corp. within one hundred eighty (180) days from the approval of this Act.

SEC 51. Powers. - The Corporation shall, in the performance of its functions and for the attainment of its
objectives, have the following powers:

(a) To formulate and implement a program for the sale and privatization of the NPC assets and IPP contracts
and the liquidation of the NPC debts and stranded costs, such liquidation to be completed within the term of
existence of the PSALM Corp.;

(b) To take title to and possession of, administer and conserve the assets transferred to it; to sell
or dispose of the same at such price and under such terms and conditions as it may deem necessary or
proper, subject to applicable laws, rules and regulations;

xxxx

SEC. 55. Property of PSALM Corp.-The following funds, assets, contributions and other property shall
constitute the property of PSALM Corp.:

(a) The generation assets, real estate, IPP contracts, other disposable assets of NPC, proceeds
from the sale or disposition of such assets and residual assets from B-O-T, R-O-T, and other variations
thereof;

(b) Transfers from the National Government;

(c) Proceeds from loans incurred to restructure or refinance NPC's transferred liabilities: Provided,
however, That all borrowings shall be fully paid for by the end of the life of the PSALM Corp.;

(d) Proceeds from the universal charge allocated for stranded contract costs and the stranded debts of the
NPC;

(e) Net profit of NPC;

(f) Net profit of TRANSCO;

(g) Official assistance, grants, and donations from external sources; and

(h) Other sources of funds as may be determined by PSALM Corp. necessary for the above-mentioned
purposes. (Emphasis supplied)

Under the EPIRA law, the ownership of the generation assets, real estate, IPP contracts, and other
disposable assets of the NPC was transferred to PSALM. Clearly, PSALM is not a mere trustee of the NPC
assets but is the owner thereof. Precisely, PSALM, as the owner of the NPC assets, is the government entity
tasked under the EPIRA law to privatize such NPC assets.

In the more recent case of Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue
(Mindanao 11)63 which was decided under the 1997 NIRC, the Court held that the sale of a fully depreciated
vehicle that had been used in Mindanao II's business was subject to VAT, even if such sale may be
considered isolated. The Court ruled that it does not follow that an isolated transaction cannot be an
incidental transaction for VAT purposes. The Court then cited Section 105 of the 1997 NIRC which shows
that a transaction "in the course of trade or business" includes "transactions incidental thereto." Thus, the
Court held that the sale of the vehicle is an incidental transaction made in the course of Mindanao II's
business which should be subject to VAT.

The CIR alleges that the sale made by NPC and/or its successors-in� interest of the power plants is an
incidental transaction which should be subject to VAT. This is erroneous. As previously discussed, the power
plants are already owned by PSALM, not NPC. Under the EPIRA law, the ownership of these power plants
was transferred to PSALM for sale, disposition, and privatization in order to liquidate all NPC financial
obligations. Unlike the Mindanao II case, the power plants in this case were not previously used in PSALM's
business. The power plants, which were previously owned by NPC were transferred to PSALM for the specific
purpose of privatizing such assets. The sale of the power plants cannot be considered as an incidental
transaction made in the course of NPC's or PSALM's business. Therefore, the sale of the power plants should
not be subject to VAT.

Hence, we agree with the Decisions dated 13 March 2008 and 14 January 2009 of the Secretary of Justice in
OSJ Case No. 2007-3 that it was erroneous for the BIR to hold PSALM liable for deficiency VAT in the
amount of P3,813,080,472 for the sale of the Pantabangan-Masiway and Magat Power Plants. The
P3,813,080,472 deficiency VAT remitted by PSALM under protest should therefore be refunded to PSALM.

However, to give effect to Section 70, Chapter 14, Book IV of the Administrative Code of 1987 on appeals
from decisions of the Secretary of Justice, the BIR is given an opportunity to appeal the Decisions dated 13
March 2008 and 14 January 2009 of the Secretary of Justice to the Office of the President within 10 days
from finality of this Decision.64

WHEREFORE, we GRANT the petition. We SET ASIDE the 27 September 2010 Decision and the 3 August
2011 Resolution of the Court of Appeals in CA-G.R. SP No. 108156. The Decisions dated 13 March 2008 and
14 January 2009 of the Secretary of Justice in OSJ Case No. 2007-3 are REINSTATED. No costs.

SO ORDERED.
 THIRD DIVISION

G.R. No. 193625, August 30, 2017

AICHI FORGING COMPANY OF ASIA, INC., Petitioner, v. COURT OF TAX APPEALS - EN BANC AND
COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

MARTIRES, J.:

The Commissioner of Internal Revenue (CIR) is given 120 days to decide1 an administrative claim for
refund/credit of unutilized or unapplied input Value Added Tax (VAT) attributable to zero-rated sales. In case
of a decision rendered or inaction after the 120-day period, the taxpayer may institute a judicial claim by
filing an appeal before the Court of Tax Appeals (CTA) within 30 days from the decision or inaction.2 Both
120- and 30-day periods are mandatory and jurisdictional.3 An appeal taken prior to the expiration of the
120-day period without a decision or action of the Commissioner is premature and, thus, without a cause of
action. Accordingly, the appeal must be dismissed for lack of jurisdiction.

The Case

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court filed by petitioner
Aichi Forging Company of Asia, Inc. (AICHI) seeking the reversal and setting aside of the 18 February 2010
Decision4 and 20 July 2010 Resolution5 of the CTA En Banc in CTA-EB Case No. 519, which affirmed the 20
March 2009 Decision and 29 July 2009 Resolution of the CTA Second Division (CTA Division) in CTA Case No.
6540 that partially granted the claim of AICHI for tax refund/credit of unutilized or unapplied input VAT
attributable to zero-rated sales.

The Antecedents

AICHI is a domestic corporation duly organized and existing under the laws of the Philippines, and is
principally engaged in the manufacture, production, and processing of all kinds of steel and steel
byproducts, such as closed impression die steel forgings and all automotive steel parts. It is duly registered
with the Bureau of Internal Revenue (BIR) as a VAT taxpayer and with the Board of Investments (BOI) as an
expanding producer of closed impression die steel forgings.

On 26 September 2002, AICHI filed with the BIR District Office in San Pedro, Laguna, a written claim for
refund and/or tax credit of its unutilized input VAT credits for the third and fourth quarters of 2000 and the
four taxable quarters of 2001. AICHI sought the tax refund/credit of input VAT for the said taxable quarters
in the total sum of P18,030,547.776 representing VAT payments on importation of capital goods and
domestic purchases of goods and services.7

As respondent CIR failed to act on the refund claim, and in order to toll the running of the prescriptive
period provided under Sections 229 and 112 (D) of the National Internal Revenue Code (Tax Code), AICHI
filed, on 30 September 2002, a Petition for Review before the CTA Division.8

The Issues

The issue for resolution before the court was whether AICHI was entitled to a refund or issuance of a tax
credit certificate of unutilized input VAT attributable to zero-rated sales and unutilized input tax on
importation of capital goods for the period 1 July 2000 to 31 December 2001 (or six consecutive taxable
quarters). Corollary thereto was the issue on whether the administrative claim (refund claim with the BIR)
and judicial claim (Petition for Review with the CTA) were filed within the statutory periods for filing the
claims.

The Proceedings before the CTA Division

After finding that both the administrative and judicial claims were filed within the statutory two-year
prescriptive period,9 the CTA Division partially granted the refund claim of AICHI.
The CTA Division denied AICID's refund claim with respect to its purchase of capital goods for the period 1
July 2000 to 31 December 2001 because of the latter's failure to show that the goods purchased formed part
of its Property, Plant and Equipment Account and that they were subjected to depreciation allowance. As to
the claim for refund of input VAT attributable to zero-rated sales, the CTA only partially granted the claim
due to lack of evidence to substantiate the zero-rating of AICID's sales. In particular, the CTA denied VAT
zero-rating on the sales to BOI-registered enterprises on account of non-submission of the required BOI
Certification.10 The dispositive portion of the decision11 partially granting the refund claim reads as
follows:cha nRoblesv irt ual Lawlib rary

WHEREFORE, premises considered, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
Respondent Commissioner of Internal Revenue is hereby ORDERED TO REFUND or TO ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner the reduced amount of SIX MILLION NINE HUNDRED
NINETY ONE THOUSAND THREE HUNDRED TWENTY and 40/100 PESOS
(P6,991,320.40), representing unutilized input VAT attributable to zero-rated sales for the period covering
July 1, 2000 to December 31, 2001.12
Only the CIR moved for reconsideration13 of the said decision. The CTA Division denied the motion,14hence,
the appeal by the CIR to the CTA En Banc.

The Proceedings before the CTA En Banc

The CIR questioned the partial grant of the refund claim in favor of AICHI. It claimed that the court did not
acquire jurisdiction over the refund claim in view of AICHI's failure to observe the 30-day period to claim
refund/tax credit as specified in Sec. 112 of the Tax Code, i.e., appeal to the CTA may be filed within 30
days from receipt of the decision denying the claim or after expiration of 120 days (denial by inaction). With
the filing of the administrative claim on 26 September 2002, the CIR had until 20 January 2003 to act on the
matter; and if it failed to do so, AICHI had the right to elevate the case before the CTA within 30 days from
20 January 2003, or on or before 20 February 2003. However, AICHI filed its Petition for Review on 30
September 2002, or before the 30-day period of appeal had commenced. According to the CIR, this period is
jurisdictional, thus, AICHI's failure to observe it resulted in the CTA not acquiring jurisdiction over its
appeal.15

The CTA En Banc was not persuaded. The court ruled that the law does not prohibit the simultaneous filing
of the administrative and judicial claims for refund.16 It further declared that what is controlling is that both
claims for refund are filed within the two-year prescriptive period.17 In sum, the CTA En Banc affirmed the
assailed decision and resolution of the CTA Division, disposing as follows: chanRob lesvi rtua lLawl ibra ry

WHEREFORE, the instant Petition for Review is hereby DISMISSED for lack of merit. Accordingly, the
March 20, 2009 Decision and July 29, 2009 Resolution of the CTA Former Second Division in CTA Case No.
6540 entitled, "Aichi Forging Company of Asia, Inc. vs. Commissioner of Internal Revenue" are
hereby AFFIRMED in toto.18
This time, both the CIR and AICHI separately filed motions for reconsideration of the CTA En Banc decision.
In the assailed resolution of the CTA En Banc, the court ruled: cha nRoblesv irt ual Lawlib rary

WHEREFORE, premises considered, there having no new matters or issues advanced by the petitioner-CIR
in its Motion which may compel this Court to reverse, modify or amend the March 20, 2009 Decision of the
CTA En Banc, petitioner's "Motion for Reconsideration" is hereby DENIED for lack of merit. On the other
hand, respondent-AICHI's (sic) Motion for Reconsideration is hereby DENIED for being filed out of time.19
On 24 September 2010, or sixty days from receipt of the said resolution, AICHI, through a new counsel,
filed the instant petition alleging grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the CTA En Banc when it issued the assailed decision and resolution.

The Present Petition for Certiorari

To support its petition, AICHI raised the following grounds: chanRoble svi rtual Lawli bra ry

A. PETITIONER'S MOTION FOR RECONSIDERATION (of the Decision promulgated on 18 February

2010) WAS FILED ON TIME;

B. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE SAID MOTION WAS FILED OUT OF TIME,
IN THE INTEREST OF SUBSTANTIAL JUSTICE, AND DUE TO GROSS NEGLIGENCE OF PETITIONER'S
FORMER COUNSEL, THE HONORABLE COURT OF TAX APPEALS EN BANC SHOULD HAVE
CONSIDERED PETITIONER'S MOTION FOR RECONSIDERATION;

C. PETITIONER IS ENTITLED TO THE CLAIMED REFUND AS EVIDENCED BY THE CERTIFICATION

ISSUED BY THE BOARD OF INVESTMENTS.20
Citing Section 1, Rule 15 of A.M. No. 05-11-07-CTA or the Revised Rules of the Court of Tax Appeals
(Revised CTA Rules),21 AICHI claims that it has fifteen (15) days from receipt of the questioned decision of
the CTA En Banc within which to file a motion for reconsideration. Considering that it received the 18
February 2010 Decision of the CTA En Banc on 25 February 2010, and that it filed the Motion for
Reconsideration on 12 March 2010, AICHI asserts that the filing of the said motion was made within the
prescriptive period provided in the law.22

AICHI also ascribes gross negligence on the part of its former counsel when it repeatedly failed to avail of
the remedies under the law after obtaining unfavorable decisions and/or resolutions of the CTA, to wit: (1)
failure to file a motion for reconsideration or new trial from the decision of the CTA Division partially denying
AICHI's claim for refund; and (2) failure to appeal to the Supreme Court after receiving the resolution of the
CTA En Banc denying AICHI's motion for reconsideration of the decision of the CTA En Banc. Such gross
negligence of the former counsel, AICHI claims, does not bind the latter and, thus, its motion for
reconsideration of the decision of the CTA En Banc ought to have been considered by the latter.23

Finally, AICHI argues that it is entitled to the refund of unutilized input VAT because its sales to Asian
Transmission Corporation and Honda Philippines are qualified for zero-rating, the latter being a HOI-
registered enterprise, as evidenced by a Certification issued by the BOI. Said certification was attached by
AICHI in its motion for reconsideration from the CTA En Banc decision.24

Without giving it due course, we required the respondents to submit their comment to the said petition.25

The Arguments of the CIR

In its Comment,26 the CIR anchored its opposition to the petition on the following arguments: chanRoblesv irt ual Lawlib rary

I. PETITIONER FAILED TO AVAIL OF THE PROPER REMEDY.

II. THE CTA EN BANC DID NOT ERR WHEN IT DENIED PETITIONER'S MOTION FOR RECONSIDERATION.

III. PETITIONER IS NOT ENTITLED TO ITS CLAIM FOR REFUND.27

The CIR maintains that under Republic Act No. 9282 (R.A. No. 9282)28 and the Revised CTA Rules,29 an
aggrieved party may appeal a decision or ruling of the CTA En Banc by filing a verified petition for review
under Rule 45 of the Rules of Court. Conformably thereto, the petitioner should have filed a petition for
review on certiorari under Rule 45 instead of a special civil action for certiorari under Rule 65. Being
procedurally flawed, the instant petition must be dismissed outright.30

As to the timeliness of the motion for reconsideration, the CIR contends that the petitioner had mistakenly
reckoned the counting of the 15-day period to file the motion for reconsideration from the receipt of the
decision of the CTA En Banc. The CIR maintains that the reckoning point should be the petitioner's receipt of
the decision of the CTA Division. Considering that no such motion for reconsideration within the 15-day
period was filed by the petitioner before the CTA Division, the CIR concludes that the petitioner's right to
question the decision of the CTA Division had already lapsed and, accordingly, the petitioner may no longer
move for a reconsideration of a decision which it never questioned.31

Anent petitioner AICHI's entitlement to the claim for refund, the CIR contends that the BOI Certification,
which was attached to the petitioner's Motion for Reconsideration, dated 12 March 2010, should not be
considered at all as it was presented only during appeal (before the CTA En Banc). In any event, the
certification does not prove AICHI's claim for refund. In said certification, it is required by the terms and
conditions that AICHI must comply with the production schedule of 3,900 metric tons or the peso equivalent
of P257,400,000.00. However, this data is not verifiable from the petitioner's Quarterly VAT Returns or from
the testimonies of its witness. The CIR, thus, submits that the noncompliance with the BOI terms and
conditions further warrants the denial of AICHI's claim for refund.32

The Issues

Based on the opposing contentions of the parties, the issues for resolution are the following: (1) whether
AICHI availed of the correct remedy; (2) whether AICHI can still question the CTA Division ruling; and (3)
whether AICHI sufficiently proved its entitlement to the refund or tax credit.

The Court's Ruling

We deny the petition.

 I.

The CTA had no jurisdiction over the judicial claim.

AICHI's judicial claim was filed prematurely and, thus, without cause of action.

First, we invoke the age-old rule that when a case is on appeal, the Court has the authority to review
matters not specifically raised or assigned as error if their consideration is necessary in reaching a just
conclusion of the case.33 Guided by this principle, we shall discuss the timeliness of AICHI's judicial claim,
although not raised by the parties in the present petition, in order to determine whether the CTA validly
acquired jurisdiction over it. The matter of jurisdiction cannot be waived because it is conferred by law and
is not dependent on the consent or objection or the acts or omissions of the parties or any one of them.34 In
addition, courts have the power to motu proprio dismiss an action over which it has no jurisdiction. The
grounds for motu proprio dismissal by the court are provided in Rule 9, Section 1 of the Revised Rules of
Court, to wit:
chanRoblesvi rtua lLawl ibra ry

SECTION 1. Defenses and objections not pleaded - Defenses and objections not pleaded either in a motion
to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the
evidence on record that the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the action is barred by a prior
judgment or by statute of limitations, the court shall dismiss the claim. (emphasis supplied)
On the judicial claim for refund or tax credit of AICHI, the CTA did not validly acquire jurisdiction over such
judicial claim because the appeal before the court was made prematurely. When the CTA acts without
jurisdiction, its decision is void. Consequently, the answer to the second issue, i.e., whether AICHI can still
question the CTA ruling, becomes irrelevant.

The present case stemmed from a claim for refund or tax credit of alleged unutilized input VAT attributable
to zero-rated sales and unutilized input VAT on the purchase of capital goods for the third and fourth
quarters of 2000 and the four taxable quarters of 2001. The refund or tax credit of input taxes
corresponding to the six taxable quarters were combined into one administrative claim filed before the
BIR on 26 September 2002. On the other hand, the judicial claim was filed before the CTA, through a
petition for review, on 30 September 2002, or a mere four days after the administrative claim was filed.
It is not disputed that the administrative claim was not acted upon by the BIR.

Convinced that the judicial claim of AICHI was properly made, the CTA Division took cognizance of the case
and proceeded with trial on the merits. Among the issues presented by the parties was the timeliness of
both the administrative and judicial claims of AICHI. In its decision, the CTA Division categorically found that
both the dates of filing the administrative claim and judicial claim were within the two-year prescriptive
period reckoned from the close of each of the taxable quarters from the third quarter of 2000 up to the last
quarter of 2001, to wit: chanRoblesv irtual Lawlib rary

Reckoning
Expiry date Date of filing Date of
point of
of of filing of
Year Quarter counting
prescriptive administrative judicial
the 2-year
period claim claim
period
September September September 26, September
2000 3rd
30, 2000 30, 2002 2002 30, 2002
December December 31, September 26, September
4th
31, 2000 2002 2002 30, 2002
March 31, March 31, September 26, September
2001 1st
2001 2003 2002 30, 2002
June 30, June 30, September 26, September
2nd
2001 2003 2002 30, 2002
 September September September 26, September
3rd
30, 2001 30, 2003 2002 30, 2002
December December 31, September 26, September
4th
31, 2001 2003 2002 30, 2002
The relevant provisions of the 1997 Tax Code35 at the time AICHI filed its claim for refund or credit of
unutilized input tax reads:chanRoblesvi rt ualLawlibra ry

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: x x x

(B) Capital Goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of
input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not
been applied against output taxes.

The application may be made only within two (2) years after the close of the taxable quarter when
the importation or purchase was made.

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with
the Court of Tax Appeals. (emphasis supplied)
The law contemplates two kinds of refundable amounts: (1) unutilized input tax paid on capital goods
purchased, and (2) unutilized input tax attributable to zero-rated sales. The claim for tax refund or credit is
initially filed before the CIR who is vested with the power and primary with jurisdiction to decide on refunds
of taxes, fees or other charges, and penalties imposed in relation thereto.36 In every case, the filing of the
administrative claim should be done within two years. However, the reckoning point of counting such two-
year period varies according to the kind of input tax subject matter of the claim. For the input tax paid on
capital goods, the counting of the two-year period starts from the close of the taxable quarter when the
purchase was made; whereas, for input tax attributable to zero-rated sale, from the close of the taxable
quarter when such zero-rated sale was made (not when the purchase was made).

From the submission of the complete documents to support the claim, the CIR has a period of one hundred
twenty (120) days to decide on the claim. If the CIR decides within the 120-day period, the taxpayer may
initiate a judicial claim by filing within 30 days an appeal before the CTA. If there is no decision within the
120-day period, the CIR's inaction shall be deemed a denial of the application.37 In the latter case, the
taxpayer may institute the judicial claim, also by an appeal, within 30 days before the CTA.

Generally, the 120-day waiting period is both mandatory and jurisdictional.

In a long line of cases,38 the Court had interpreted the 120-day period as both mandatory and jurisdictional
such that the taxpayer is forced to await the expiration of the period before initiating an appeal before the
CTA. This must be so because prior to the expiration of the period, the CIR still has the statutory authority
to render a decision. If there is no decision and the period has not yet expired, there is no reason to
complain of in the meantime. Otherwise stated, there is no cause of action yet as would justify a resort to
the court.

A premature invocation of the court's jurisdiction is fatally defective and is susceptible to dismissal for want
of jurisdiction. Such is the very essence of the doctrine of exhaustion of administrative remedies under
which the court cannot take cognizance of a case unless all available remedies in the administrative level are
first utilized. Whenever granted by law a specific period of time to act, an administrative officer must be
given the full benefit of such period. Administrative remedies are exhausted upon the full expiration of the
period without any action.

The first test case regarding the mandatory and jurisdictional nature of the 120+30-day waiting
periods39provided in Section 112 (D)40 of the 1997 Tax Code is CIR v. Aichi Forging Company of Asia, Inc.
(Aichi), G.R. No. 184823, 6 October 2010.41 In that landmark case, the Court rejected as without legal basis
the assertion of the respondent taxpayer that the non� observance of the 120-day period is not fatal to the
filing of a judicial claim as long as both the administrative and the judicial claims are filed within the two-
year prescriptive period. The Court explained that Section 112 (D) contemplated two scenarios: (1) a
decision is made before the expiration of the 120-day period; and (2) no decision after such 120-day period.
In either instance, the appeal with the CTA can only be made within 30 days after the decision or inaction.
Emphatically, Aichi announced that the 120-day period is crucial in filing an appeal with the CTA.

The exception: Judicial claims filed from 10 December 2003 up to 6 October 2010

Nonetheless, in the subsequent landmark decision of CIR v. San Roque Power Corporation, Taganito Mining
Corporation v. CIR, and Philex Mining Corporation v. CIR (San Roque),42 the Court recognized an instance
when a prematurely filed appeal may be validly taken cognizance of by the CTA. San Roquerelaxed the strict
compliance with the 120-day mandatory and jurisdictional period, specifically for Taganito Mining
Corporation, in view of BIR Ruling No. DA-489-03, dated 10 December 2003, which expressly declared
that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of petition for review." Pertinently, the prematurely filed appeal of San Roque
Power Corporation before the CTA was dismissed because it came before the issuance of BIR Ruling No. DA-
489-03. On the other hand, Taganito Mining Corporation's appeal was allowed because it was taken after the
issuance of said BIR Ruling.43

Subsequently, in Taganito Mining Corporation v. CIR,44 the Court reconciled the doctrines in San Roqueand
the 2010 Aichi case by enunciating that during the window period from 10 December 2003 (issuance of BIR
Ruling No. DA-489-03) to 6 October 2010 (date of promulgation of Aichi), taxpayer-claimants need not
observe the stringent 120-day period. We said -
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during
the period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the
Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a
judicial claim for refund of excess input VAT before the CTA. Before and after the aforementioned period
(i.e., December 10, 2003 to October 6, 2010), the observance of the 120- day period
is mandatory and jurisdictional to the filing of such claim. (emphasis supplied)
Here, it is not disputed that AICHI had timely filed its administrative claim for refund or tax credit before the
BIR. The records show that the claim for refund/tax credit of input taxes covering the six separate taxable
periods from the 3rd Quarter of 2000 up to the 4th Quarter of 2001 was made on 26 September 2002. Both
the CTA Division and CTA En Banc correctly ruled that it fell within the two-year statute of limitations.
However, its judicial claim was filed a mere four days later on 30 September 2002, or beforethe window
period when the taxpayers need not observe the 120-day mandatory and jurisdictional period.
Consequently, the general rule applies.

AICHI is similarly situated as San Roque Power Corporation in San Roque - both filed their appeals to the
CTA without waiting for the 120-day period to lapse and before the aforesaid window period. As in San
Roque, AICHI failed to comply with the mandatory 120-day waiting period, thus, the CTA ought to have
dismissed the appeal for lack of jurisdiction.

The judicial claim need not fall within the 2-year period.

Both the CTA Division and CTA En Banc were convinced that a simultaneous filing of the administrative and
judicial claims is permissible so long as the two claims fall within the two-year prescriptive period.

We do not agree.

Aichi already settled the matter concerning the proper interpretation of the phrase "within two (2) years x x
x apply for the issuance of a tax credit certificate or refund" found in Section 112 (D) of the 1997 Tax
Code. Aichi clarified that the phrase refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA. All that is required under the law is that the appeal to the CTA is brought within
30 days from either decision or inaction.

Under the foregoing interpretation, there may be two possible scenarios when an appeal to the CTA is
considered fatally defective even when initiated within the two-year prescriptive period: first, when there is
no decision and the appeal is taken prior to the lapse of the 120-day mandatory period,45except only the
appeal within the window period from 10 December 2003 to 6 October 2010;46 second, the appeal is
taken beyond 30 days from either decision or inaction "deemed a denial."47 In contrast, an
appeal outside the 2-year period is not legally infirm for as long as it is taken within 30 days from the
decision or inaction on the administrative claim that must have been initiated within the 2-year prescriptive
period. In other words, the appeal to the CTA is always initiated within 30 days from decision or
inaction regardless whether the date of its filing is within or outside the 2-year period of limitation.

To repeat, except only to the extent allowed by the window period, there is no legal basis for the insistence
that the simultaneous filing of both administrative and judicial claims (pursuant to Section 112 of the Tax
Code) is pennissible for as long as both fall within the 2-year prescriptive period.

Existing jurisprudence involving petitioner Aichi

There are two other cases involving AICHI wherein we resolved the same issue on the timeliness of the
judicial claims before the CTA - the first is the landmark case of Aichi (hereinafter 2010 Aichi); and the
second is Commissioner v. Aichi Forging Company of Asia, Inc. (2014 Aichi),48 promulgated in 2014.

Worth mentioning is the predominantly striking similarities between the two cases: (1) both involved
applications for refund/tax credit of unutilized input VAT under Section 112 of the Tax Code; (2) the
administrative claims were timely filed before the CIR; (3) the judicial claims before the CTA were
premature;49 and (4) the judicial claims were filed after 10 December 2003, or the date of the issuance
ofBIR Ruling No. DA-489-03.50 Yet, the Court arrived at divergent conclusions on the application of the 120-
day period - in 2010 Aichi, the Court applied the strict compliance with the mandatory 120-day waiting
period; whereas, in 2014 Aichi, the premature filing was allowed following the exception laid down in San
Roque (2013). Thus, the Court denied the judicial claim in 2010 Aichi due to the CTA's lack of jurisdiction
over it, but sustained such jurisdiction in 2014 Aichi.

We clarify.

In 2010 Aichi, the Court passed upon the timeliness of the judicial claim with the CTA without considering
BIR Ruling No. DA-489-03. The reason is simple: none of the parties, especially Aichi, had raised the matter
on the effect of the said BIR Ruling. It is reasonable to think that Aichi saw no need to present the issue
since the CTA already gave due course to its petition and the Commissioner questioned, on motion for
reconsideration, the simultaneous filing of both the administrative and judicial claims only after the CTA First
Division partially ruled in favor of Aichi. The CTA First Division denied the motion holding that the law does
not prohibit the simultaneous filing of the administrative and judicial claims for refund. The CTA En Banc
subsequently sustained the CTA First Division, although we dismissed such reasoning in view of the clear
wordings of Section 112.

It was only in the 2013 case of San Roque that BIR Ruling No. DA-489-03 was raised for the first time and,
thus, the Court was presented a clear opportunity to discuss its legal effect. The doctrine on the exception to
the strict application of the 120-day period laid down in San Roque became the controlling law that was
followed in numerous subsequent cases, one of which is 2014 Aichi. Thus, even though the appeal with the
CTA in 2010 Aichi fell within the window period, the exception could not be applied as this was first
recognized only in 2013 when San Roque was promulgated. On the other hand, it is different in 2014
Aichi as it must yield to San Roque.

The present case, just like 2014 Aichi, is very much similar to 2010 Aichi, with the only notable distinction
being the date of filing of the appeal with the CTA. As stated previously, the appeal in this case came before
the window period. However, such distinction is not significant as our conclusions here and in 2010 Aichi are
the same, that is, the CTA did not acquire jurisdiction in view of the mandatory and jurisdictional nature of
the 120-day waiting period.

Considering our holding that the CTA did not acquire jurisdiction over the appeal of AICHI, the decision
partially granting the refund claim must therefore be set aside as a void judgment.
The rule is that where there is want of jurisdiction over a subject matter, the judgment is rendered null and
void.51 A void judgment is in legal effect no judgment, by which no rights are divested, from which no right
can be obtained, which neither binds nor bars anyone, and under which all acts performed and all claims
flowing out are void.52 We quote our pronouncement in Canero v. University of the Philippines:53
A void judgment is not entitled to the respect accorded to a valid judgment, but may be entirely disregarded
or declared inoperative by any tribunal in which effect is sought to be given to it. It has no legal or binding
effect or efficacy for any purpose or at any place. It cannot affect, impair or create rights. It is not entitled
to enforcement and is, ordinarily, no protection to those who seek to enforce. In other words, a void
judgment is regarded as a nullity, and the situation is the same as it would be if there was no judgment.
Since the judgment of the CTA Division is void, it becomes futile for any of the parties to question it. It,
therefore, does not matter whether AICHI had timely filed a motion for reconsideration to question either
the decision of the CTA En Banc or the CTA Division.

II.

The petitioner adopted the wrong remedy in assailing the decision of the CTA En Banc.

We agree with the CIR that the filing of the present Petition for Certiorari under Rule 65 of the 1997 Rules of
Court is procedurally flawed. What the petitioner should have done to question the decision of the CTA En
Banc was to file before this Court a petition for review under Rule 45 of the same Rules of Court. This is in
conformity with Section 11 of R.A. No. 9282, the pertinent text reproduced here: chanRoble svi rtual Lawli brary

SECTION 11. Section 18 of the same Act is hereby amended as follows:

SEC. 18. Appeal to the Court ofTax Appeals En Banc. - No civil proceeding involving matter arising under the
National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be
maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA
and disposed of in accordance with the provisions of this Act.

A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new
trial, may file a petition for review with the CTA en banc.

SEC. 19. Review by Certiorari. - A party adversely affected by a decision or ruling of the CTA en banc may
file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules
of Civil Procedure.
Likewise, Section 1, Rule 16 the Revised CTA Rules provides: cha nRoblesv irt ual Lawlib rary

RULE16

APPEAL

SECTION 1. Appeal to Supreme Court by petition for review on certiorari.- A party adversely affected by a
decision or ruling of the Court en banc may appeal therefrom by filing with the Supreme Court a verified
petition for review on certiorari within fifteen days from receipt of a copy of the decision or resolution, as
provided in Rule 45 of the Rules of Court. If such party has filed a motion for reconsideration or for new
trial, the period herein fixed shall run from the party's receipt of a copy of the resolution denying tl1e motion
for reconsideration or for new trial.
A petition for certiorari under Rule 65 of the Rules of Court is a special civil action that may be resorted to
only in the absence of appeal or any plain, speedy and adequate remedy in the ordinary course of law.54

In this case, there is a plain, speedy and adequate remedy that is available appeal by certiorari under Rule
45. Appeal is available because the 20 July 2010 Resolution of the CTA En Banc was a final disposition as it
denied AICHI's full claim for refund or tax credit of creditable input taxes. The proper remedy to obtain a
reversal of judgment on the merits, final order or resolution is appeal. AICHI's resort to certiorari
proceedings under Rule 65 is, therefore, erroneous and it deserves nothing less than an outright dismissal.

In several cases, the Court had allowed the liberal application of the Rules of Court. Thus, we treated as
appeal by certiorari under Rule 45 what otherwise was denominated or styled as a petition for certiorari
under Rule 65, provided the petition must have been filed within the reglementary period of 15 days from
receipt of the assailed decision or resolution. Outside of this circumstance, there should be a strong and
justifiable reason for a departure from the established rule of procedure. As the Court had held, it is only for
the most persuasive of reasons can such rules be relaxed to relieve a litigant of an injustice not
commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.55
Here, the petition was filed on the 60th day following the receipt of the assailed resolution of the CTA En
Banc, or outside of the 15-day period of appeal by certiorari under Rule 45 but within the 60-day period for
filing a petition for certiorari under Rule 65. Unfortunately, petitioner AICHI had not demonstrated any
justifiable reason for us to relax the rules and disregard the procedural infirmity of its adopted remedy.
What the petitioner merely did was invoke substantial justice by ascribing gross negligence on the part of its
previous counsel. It cites its previous counsel's failure to file a motion for reconsideration of the CTA
Division's ruling partially denying its claim for refund, and to promptly file an appeal before this Court from
the denial of its motion for reconsideration assailing the decision of the CTA En Banc.

We are not persuaded.

The well-settled rule is that negligence and mistakes of counsel bind the client. The exception is when the
negligence of counsel is so gross as to constitute a violation of the due process rights of the client56 Even so,
it must be convincingly shown that the client was so maliciously deprived of information that he or she could
not have acted to protect his or her interests.57 In Bejarasco, Jr. v. People,58 this court reiterated:
c hanRoble svirtual Lawlib ra ry

For the exception to apply . . . the gross negligence should not be accompanied by the client's own
negligence or malice, considering that the client has the duty to be vigilant in respect of his interests by
keeping himself up-to-date on the status of the case. Failing in this duty, the client should suffer whatever
adverse judgment is rendered against him.
If indeed the petitioner was earnest in recovering the full amount of its refund claim, it could have avoided
the negative consequences of the failure to move for dismissal from the CTA Division's partial denial of its
claim by simply making a follow-up from its lawyer regarding the status of its case. Worse, it committed the
same mistake again by staying passive even after denial of its motion for reconsideration from the decision
of the CTA En Banc. Party-litigants share in the responsibility of prosecuting their complaints with
assiduousness and should not be expected to simply sit back, relax, and await a favorable
outcome.59 Absent any other compelling reasons, we cannot apply the exception to the rule that the
negligence of counsel binds the client so as to excuse the wrongful resort to a petition for certiorari instead
of an appeal. Besides, AICHI's citation of the negligence of counsel was meant for the CTA to grant its
motion for reconsideration, not for this Court to give due course to the present petition. Thus, there is no
cogent justification for granting to the petitioner the preferential treatment of a liberal application of the
rules.

It must be emphasized, however, that the outright dismissal of the petition for being the wrong remedy
does not mean that the CTA decision and resolution stand. As discussed, the decision of the CTA Division is
null and void; therefore, no right can be obtained from it or that all claims flowing out of it is void.

Epilogue

Petitioner AICHI came to this court expecting a reversal of the partial denial of its claim for refund/credit so
that it could recover more in addition to what it had been allowed by the CTA. Regrettably, AICHI comes out
empty-handed in our judgment. We could not rule on the jurisdiction of the CTA any other way. The law and
jurisprudence speak loud and clear. Our solemn duty is to obey it.

All told, the CTA has no jurisdiction over AICHI's judicial claim considering that its Petition for Review was
filed prematurely, or without cause of action for failure to exhaust the administrative remedies provided
under Section 112 (D) of the Tax Code, as amended. In addition, AICHI availed of the wrong remedy.
Likewise, we find no need to pass upon the issue on whether petitioner AICHI had substantiated its claim for
refund or tax credit. Indisputably, we must deny AICHI's claim for refund.

WHEREFORE, for lack of jurisdiction, the 20 March 2009 Decision and 29 July 2009 Resolution of the Court
of Tax Appeals Second Division in CTA Case No. 6540, and the 18 February 2010 Decision and 20 July 2010
Resolution of the Court of Tax Appeals En Banc in CTA-EB Case No. 519 are hereby VACATEDand SET
ASIDE.

Consequently, the petition before this Court is DENIED. No costs.

SO ORDERED.
 [G.R. No. 125355. March 30, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF

APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents. Court

DECISION

PARDO, J.:

What is before the Court is a petition for review on certiorari of the decision of
the Court of Appeals, reversing that of the Court of Tax Appeals, which
[1] [2]

affirmed with modification the decision of the Commissioner of Internal

Revenue ruling that Commonwealth Management and Services Corporation,
is liable for value added tax for services to clients during taxable year 1988.

Commonwealth Management and Services Corporation (COMASERCO, for

brevity), is a corporation duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the letter to perform collection, consultative and
other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.

On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an

assessment to private respondent COMASERCO for deficiency value-added
tax (VAT) amounting to P351,851.01, for taxable year 1988, computed as
follows:

"Taxable sale/receipt P1,679,155.00

10% tax due thereon 167,915.50

25% surcharge 41,978.88

20% interest per annum 125,936.63

Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01" [3]

COMASERCO's annual corporate income tax return ending December 31,

1988 indicated a net loss in its operations in the amount of P6,077.00. J lexj
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest
objecting to the latter's finding of deficiency VAT. On August 20, 1992, the
Commissioner of Internal Revenue sent a collection letter to COMASERCO
demanding payment of the deficiency VAT.

On September 29,1992, COMASERCO filed with the Court of Tax Appeals a [4]

petition for review contesting the Commissioner's assessment. COMASERCO

asserted that the services it rendered to Philamlife and its affiliates, relating to
collections, consultative and other technical assistance, including functioning
as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis.
It averred that it was not engaged id the business of providing services to
Philamlife and its affiliates. COMASERCO was established to ensure
operational orderliness and administrative efficiency of Philamlife and its
affiliates, and not in the sale of services. COMASERCO stressed that it was
not profit-motivated, thus not engaged in business. In fact, it did not generate
profit but suffered a net loss in taxable year 1988. COMASERCO averred that
since it was not engaged in business, it was not liable to pay VAT.

On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the
Commissioner of Internal Revenue, the dispositive portion of which reads:

"WHEREFORE, the decision of the Commissioner of Internal

Revenue assessing petitioner deficiency value-added tax for the
taxable year 1988 is AFFIRMED with slight modifications.
Accordingly, petitioner is ordered to pay respondent
Commissioner of Internal Revenue the amount of P335,831.01
inclusive of the 25% surcharge and interest plus 20% interest
from January 24, 1992 until fully paid pursuant to Section 248 and
249 of the Tax Code.

"The compromise penalty of P16,000.00 imposed by the

respondent in her assessment letter shall not be included in the
payment as there was no compromise agreement entered into
between petitioner and respondent with respect to the value-
added tax deficiency." [5]

On July 26, 1995, respondent filed with the Court of Appeals, petition for
review of the decision of the Court of Appeals.

After due proceedings, on May 13, 1996, the Court of Appeals rendered
decision reversing that of the Court of Tax Appeals, the dispositive portion of
which reads: Lexj uris
 "WHEREFORE, in view of the foregoing, judgment is hereby
rendered REVERSING and SETTING ASIDE the questioned
Decision promulgated on 22 June 1995. The assessment for
deficiency value-added tax for the taxable year 1988 inclusive of
surcharge, interest and penalty charges are ordered CANCELLED
for lack of legal and factual basis."
[6]

The Court of Appeals anchored its decision on the ratiocination in another tax
case involving the same parties, where it was held that COMASERCO was
[7]

not liable to pay fixed and contractor's tax for services rendered to Philamlife
and its affiliates. The Court of Appeals, in that case, reasoned that
COMASERCO was not engaged in business of providing services to
Philamlife and its affiliates. In the same manner, the Court of Appeals held
that COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling services.

On July 16, 1996, the Commissioner of Internal Revenue filed with this Court
a petition for review on certiorari assailing the decision of the Court of
Appeals.

On August 7, 1996, we required respondent COMASERCO to file comment

on the petition, and on September 26, 1996, COMASERCO complied with the
resolution.
[8]

We give due course to the petition.

At issue in this case is whether COMASERCO was engaged in the sale of

services, and thus liable to pay VAT thereon.

Petitioner avers that to "engage in business" and to "engage in the sale of

services" are two different things. Petitioner maintains that the services
rendered by COMASERCO to Philamlife and its affiliates, for a fee or
consideration, are subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is derived from
rendering the service. Juri smis

We agree with the Commissioner.

Section 99 of the National Internal Revenue Code of 1986, as amended by

Executive Order (E.O.) No. 273 in 1988, provides that:
 "Section 99. Persons liable. - Any person who, in the course of
trade or business, sells, barters or exchanges goods, renders
services, or engages in similar transactions and any person who
imports goods shall be subject to the value-added tax (VAT)
imposed in Sections 100 to 102 of this Code." [9]

COMASERCO contends that the term "in the course of trade or business"
requires that the "business" is carried on with a view to profit or livelihood. It
avers that the activities of the entity must be profit- oriented. COMASERCO
submits that it is not motivated by profit, as defined by its primary purpose in
the articles of incorporation, stating that it is operating "only on
reimbursement-of-cost basis, without any profit." Private respondent argues
that profit motive is material in ascertaining who to tax for purposes of
determining liability for VAT.

We disagree.

On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded
VAT Law (EVAT), amending among other sections, Section 99 of the Tax
Code. On January 1, 1998, Republic Act 8424, the National Internal Revenue
Code of 1997, took effect. The amended law provides that:

"SEC. 105. Persons Liable. - Any person who, in the course of

trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections
106 and 108 of this Code.

"The value-added tax is an indirect tax and the amount of tax may
be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services. This rule shall likewise apply to
existing sale or lease of goods, properties or services at the time
of the effectivity of Republic Act No.7716.

"The phrase "in the course of trade or business" means the

regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a
nonstock, nonprofit organization (irrespective of the disposition of
its net income and whether or not it sells exclusively to members
of their guests), or government entity. Jjj uris
 "The rule of regularity, to the contrary notwithstanding, services as
defined in this Code rendered in the Philippines by nonresident
foreign persons shall be considered as being rendered in the
course of trade or business."

Contrary to COMASERCO's contention the above provision clarifies that even

a non-stock, non-profit, organization or government entity, is liable to pay VAT
on the sale of goods or services. VAT is a tax on transactions, imposed at
every stage of the distribution process on the sale, barter, exchange of goods
or property, and on the performance of services, even in the absence of profit
attributable thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity, regardless
of whether or not the entity is profit-oriented.

The definition of the term "in the course of trade or business" incorporated in
the present law applies to all transactions even to those made prior to its
enactment. Executive Order No. 273 stated that any person who, in the
course of trade or business, sells, barters or exchanges goods and services,
was already liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay VAT for
the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 defines the
[10]

phrase "sale of services" as the "performance of all kinds of services for

others for a fee, remuneration or consideration." It includes "the supply of
technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial
undertaking or project." [11]

On February 5, 1998, the Commissioner of Internal Revenue issued BIR

Ruling No. 010-98 emphasizing that a domestic corporation that provided
[12]

technical, research, management and technical assistance to its affiliated

companies and received payments on a reimbursement-of-cost basis, without
any intention of realizing profit, was subject to VAT on services rendered. In
fact, even if such corporation was organized without any intention of realizing
profit, any income or profit generated by the entity in the conduct of its
activities was subject to income tax. lex

Hence, it is immaterial whether the primary purpose of a corporation indicates

that it receives payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.

At any rate, it is a rule that because taxes are the lifeblood of the nation,
statutes that allow exemptions are construed strictly against the grantee and
liberally in favor of the government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language of the law; it cannot
be merely implied therefrom. In the case of VAT, Section 109, Republic Act
[13]

8424 clearly enumerates the transactions exempted from VAT. The services
rendered by COMASERCO do not fall within the exemptions.

Both the Commissioner of Internal Revenue and the Court of Tax Appeals
correctly ruled that the services rendered by COMASERCO to Philamlife and
its affiliates are subject to VAT. As pointed out by the Commissioner, the
performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As the
government agency charged with the enforcement of the law, the opinion of
the Commissioner of Internal Revenue, in the absence of any showing that it
is plainly wrong, is entitled to great weight. Also, it has been the long
[14]

standing policy and practice of this Court to respect the conclusions of quasi-
judicial agencies, such as the Court of Tax Appeals which, by the nature of its
functions, is dedicated exclusively to the study and consideration of tax cases
and has necessarily developed an expertise on the subject, unless there has
been an abuse or improvident exercise of its authority.[15]

There is no merit to respondent's contention that the Court of Appeals'

decision in CA-G. R. No. 34042, declaring the COMASERCO as not engaged
in business and not liable for the payment of fixed and percentage taxes,
binds petitioner. The issue in CA-G. R. No. 34042 is different from the present
case, which involves COMASERCO's liability for VAT. As heretofore stated,
every person who sells, barters, or exchanges goods and services, in the
course of trade or business, as defined by law, is subject to VAT. Jksm

WHEREFORE, the Court GRANTS the petition and REVERSES the decision
of the Court of Appeals in CA-G. R. SP No. 37930. The Court hereby
REINSTATES the decision of the Court of Tax Appeals in C. T. A. Case No.
4853.

No costs.

SO ORDERED.