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FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE- Transitional Input Value

Added Tax

FACTS:

Petitioner was a real estate developer that bought from the national government a parcel of land that used to be the

Fort Bonifacio military reservation. At the time of the said sale there was as yet no VAT imposed so Petitioner did not pay

any VAT on its purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said

sale for VAT purposes (because the VAT had already been imposed in the interim), Petitioner claimed transitional input

VAT corresponding to its inventory of land. The BIR disallowed the claim of presumptive input VAT and thereby assessed

Petitioner for deficiency VAT.

ISSUE:

Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a real estate

dealer and if so (i) is the transitional input VAT applied only to the improvements on the real property or is it applied on

the value of the entire real property and (ii) should there have been a previous tax payment for the transitional input

VAT to be creditable?

HELD:

YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the improvements but on the

value of the entire real property and regardless of whether there was in fact actual payment on the purchase of the real

property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business subject to a

different treatment from those engaged in the sale of other goods or properties or in any other commercial trade or

business. On the scope of the basis for determining the available transitional input VAT, the CIR has no power to limit the

meaning and coverage of the term "goods" in Section 105 of the Tax Code without statutory authority or basis. The

transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes

in the acquisition of their beginning inventory of goods, materials and supplies.

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Almeda vs Bathala

Facts: In May 1997, respondent Bathala Marketing Industries, Inc. (lessee) entered into a contract of lease with

petitioners (lessors). Provisions of the contract of lease include:

6th - Lessee shall pay an increased rent if there is any new tax imposed on the property

7th - In case of supervening extraordinary inflation or devaluation of the PHP, the value of PHP at the time of the

establishment of the obligation shall be the basis of payment

Petitioners later demanded payment of VAT and 73% adjusted rentals pursuant to the foregoing provisions. Respondent

refused and filed an action for declaratory relief. Petitioners filed an action for ejectment.

Issue: Whether or not declaratory relief is proper.

Held: YES. Petitioners insist that respondent was already in breach of the contract when the petition was filed, thus,

respondent is barred from filing an action for declaratory relief. However, after petitioners demanded payment of

adjusted rentals and in the months that followed, respondent complied with the terms and conditions set forth in their

contract of lease by paying the rentals stipulated therein. Respondent religiously fulfilled its obligations to petitioners

even during the pendency of the present suit. There is no showing that respondent committed an act constituting a

breach of the subject contract of lease. Thus, respondent is not barred from instituting before the trial court the petition

for declaratory relief.

Petitioners further claim that the instant petition is not proper because a separate action for rescission, ejectment and

damages had been commenced before another court; thus, the construction of the subject contractual provisions should

be ventilated in the same forum.

As a rule, the petition for declaratory relief should be dismissed in view of the pendency of a separate action for unlawful

detainer. In this case, however, the trial court had not yet resolved the rescission/ejectment case during the pendency of

the declaratory relief petition. In fact, the trial court, where the rescission case was on appeal, initiated the suspension of

the proceedings pending the resolution of the action for declaratory relief.

COMMISSIONER OF INTERNAL REVENUE VS. AQUAFRESH SEAFOODS, INC. - Fair Market Value

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FACTS:

Aquafresh Seafoods sold two parcels of located at Barrio Banica in Roxas City and paid the corresponding CGT and DST

due on the sale. However, the BIR assessed Aquafresh Seafoods based on its conclusion that the lots were classified as

commercial and not residential as claimed by the taxpayer. Aquafresh Seafoods defense was that there was already a

pre-defined zonal value for the said lots and thus the BIR could not reclassify the same to be commercial lots.

ISSUE:

Is the requirement (under Section 6 of the Tax Code) of consultation with competent appraisers both from the public and

private sectors in determining fair market value applicable in this case?

HELD:

YES. The BIRs position that the requirement of consultation with appraisers is mandatory only when formulating or

making changes in the schedule of zonal values is wrong. The Court held that the BIRs act of classifying the subject

properties involved a re-classification and revision of the prescribed zonal values. It was likewise added that the

application of the rule of assigning zonal values based on the predominant use of property only applies when the

property is located in an area or zone where the properties are not yet classified and their zonal values are not yet

determined. If a determination has already been made, the BIR has no discretion as regards its classification and/or

valuation.

FORT BONIFACIO DEVELOPMENT CORPORATION (Corp.) v. COMMISSIONER OF INTERNAL REVENUE (CIR), REGIONAL

DIRECTOR, REVENUE REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8, BIR

&

FORT BONIFACIO DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE, REVENUE DISTRICT

OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE.

G.R. No. 158885 & G.R. No. 170680, 10-2-2009, EN BANC, LEONARDO-DE CASTRO,J.:

ONE LINE: Administrative rule or regulation cannot contravene the law on which it is based. (Sec. 4.105-1 of RR 7-95 is

an administrative rule and regulation implementing an existing law Term used in Tanada v Tuvera)

NATURE:Motion for Reconsideration of SCs Decision dated April 2, 2009 which granted the consolidated petitions of

petitioner Fort Bonifacio Development Corporation (Corp.) where the C CIR was (1) restrained from collecting from the

Corp. the amount of P28,413,783.00 representing the transitional input tax credit due it for the fourth quarter of 1996;

and (2) directed to refund to the Corp. the amount of P347,741,695.74 paid as output VAT for the third quarter of 1997

in light of the persisting transitional input tax credit available to the Corp. for the said quarter, or to issue a tax credit

corresponding to such amount.

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FACTS: In the April 2, 2009 Decision, which is what CIR wants to be reconsidered in this case, the Court struck down

Section 4.105-1 of RR 7-95 for being in conflict with the law. It held that the CIR had no power to limit the meaning and

coverage of the term "goods" in Section 105 of the Old NIRC sans statutory authority or basis and justification to make

such limitation. This it did when it restricted the application of Section 105 in the case of real estate dealers only to

improvements on the real property belonging to their beginning inventory.

ISSUES: 1. WON CIR Revenue Regulations 7-95 validly repealed Section 105 as amended by EO 273.2. WON CIR Revenue Regulations # 6-97 repealed CIR Revenue Regulations # 7-95

HELD: 1. NO, admin rule and reg less than statutes 2. YES, no repealing cause does not mean a lack of intent to repeal.

1. + EO No. 273 [1987] contains first VAT law. It amended several provisions of the Internal Revenue Code of

1986 (Old NIRC). In anticipation of the probable burdens of the shift to the VAT system it allowed newly VAT-registered

persons to avail ofa transitional input tax credit as provided for in Section 105 of the Old NIRC. Section 105 as amended

by EO 273.

Sec. 105. Transitional Input Tax Credits. A person who becomes liable to value-added tax or any person who

elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be

allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of

such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher,

which shall be creditable against the output tax.

+ RA 7716 [1996] - amended Sec.100 of Old NIRC by imposing for the first time value-added-tax on sale of real

properties. The amendment basically states that a 10% VAT shall be imposed upon goods or properties among others.

It clarified that the term goods and properties shall mean all tangible and intangible objects which are capable of

pecuniary estimation and shall include: (A) Real properties held primarily for sale to customers or held for lease in the

ordinary course of trade or business; xxx

However, RA 7716 did not amend the provisions of SEC 105 of the Old NIRC, regarding transitional input tax

credit.

+ RA 8424 (1997) - National Internal Revenue Code of 1997 (New NIRC) however amended Sec. 105 specifically by Sec.

111(A) of the New NIRC The provisions on the transitional input tax credit are now embodied in Section 111(A) of the

New NIRC, which reads:

Section 111. Transitional/Presumptive Input Tax Credits. (A) Transitional Input Tax Credits. - A person who

becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the

filing of an inventory according to rules and regulations prescribed by the Secretary of finance, upon

recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and

supplies equivalent for 8% of the value of such inventory or the actual value-added tax paid on such goods,

materials and supplies, whichever is higher, which shall be creditable against the output tax. *Emphasis SCs.+

Rule on statutory construction sections of the law cannot be interpreted apart from each other. All of it must be

considered in fixing the meaning of any of its parts in order to produce a harmonious whole.

Rule applied- statutory definition of the term "goods or properties" leaves no room for doubt. Sec. 100. Value-addedtax on sale of goods or properties. (a) Rate and base of tax.xxx. (1) The term goods or properties shall mean all

tangible and intangible objects which are capable of pecuniary estimation and shall include: (A) Real properties held

primarily for sale to customers or held for lease in the ordinary course of trade or business; xxx.

Sec 100 of the Old NIRC defined the term "goods or properties" by the unambiguous terms "real properties

held primarily for sale to costumers or held for lease in the ordinary course of business." The term "goods" as used in

Section 105 of the same code could not have a different meaning. This has been explained in the prior Decision.

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ADMINISTRATIVE RULE IN ISSUE: RR No. 7-95 is an Administrative Rule and Regulation based upon the existing statutes

Old and New NIRC. Section 4.100-1 of which made by the BIR which includes in its enumeration of "goods or properties"

such "real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business."

Said definition was taken from the very statutory language of Section 100 of the Old NIRC.

Section 4.105-1 of RR no. 7-95 however limited this definition to "improvements" - BIR thus not only

contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the same revenueregulation itself has provided.

Section 4.105-1 of RR 7-95 restricted the definition of "goods", viz:

However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements,

such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity

of EO 273 (January 1, 1988).

Par 3, Art. 7 of NCC, states that an administrative rule or regulation cannot contravene the law on which it is

based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the term "goods" is concerned.

This is already a legislative act that is beyond the authority of the CIR and the Secretary of Finance more so

when the law which the administrative rule is contravening is also the law which it is based upon. Admin rules should not

be in contradiction to, but in conformity with, the standards prescribed by law.

RULE: In order to be valid, an administrative rule or regulation must conform, not contradict, the provisions of the

enabling law. An implementing rule or regulation cannot modify, expand, or subtract from the law it is intended to

implement. Any rule that is not consistent with the statute itself is null and void.

Thus, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit under

Section 105 is a nullity.

2. On January 1, 1997, RR 6-97 was issued by the Commissioner of Internal Revenue. RR 6-97 was basically a

reiteration of the same Section 4.105-1 of RR 7-95, except that the RR 6-97 deleted the following paragraph.

However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements,

such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity

of E.O. 273 (January 1, 1988).

It is clear, therefore, that under RR 6-97, the allowable transitional input tax credit is not limited to

improvements on real properties. The particular provision of RR 7-95 has effectively been repealed by RR 6-97 which is

now in consonance with Section 100 of the NIRC, insofar as the definition of real properties as goods is concerned.

The failure to add a specific repealing clause would not necessarily indicate that there was no intent to repeal

RR 7-95. The fact that the aforequoted paragraph was deleted created an irreconcilable inconsistency and repugnancy

between the provisions of RR 6-97 and RR 7-95.

Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., G.R. No. 195909, September 26, 2012

Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc.

G.R. No. 195909 September 26, 2012

In a nutshell:

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St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized as a non-stock and non-profit corporation. St.

Lukes accepts both paying and non-paying patients. With respect to its non-paying patients, St. Lukes is exempted from

income tax pursuant to Sec. 30 (E) and (G) of the NIRC for being a non-stock corporation or organization operated

exclusively for charitable or social welfare purposes. Accepting paying patients does not destroy the exemption of St.

Lukes under Sec. 30 of the NIRC. Instead, the last paragraph of Sec. 30 of the NIRC provides that St. Lukes activities

conducted for profit, regardless of the disposition of such income, shall be subject to tax imposed under this Code.

What is the income tax rate to be applied to St. Lukes activities conducted for profit? With respect to its paying

patients, St. Lukes is subject to the 10% preferential tax rate of proprietary non-profit hospitals under Section 27(B).

Relevant Sections:

Before discussing the case, let us take a look at the relevant sections of the law in question.

Section 27(B) of the National Internal Revenue Code (NIRC) states:

(B) roprietary Educational Institutions and ospitals.Proprietary educational institutions and hospitals which are

non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof:

Provided, That if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the

total gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection

(A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term unrelated trade,

business or other activity means any trade, business or other activity, the conduct of which is not substantially related to

the exercise or performance by such educational institution or hospital of its primary purpose or function. A proprietary

educational institution is any private school maintained and administered by private individuals or groups with an

issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher

Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in

accordance with existing laws and regulations. (Emphasis supplied)

In comparison, Section 30(E) and Section 30(G) state:

Sec. 30. Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in

respect to income received by them as such:

x x x x

(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific,

athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or

inure to the benefit of any member, organizer, officer or any specific person;

x x x x

(G) Civic League or organization not organized for profit but operated exclusively for the promotion of social welfare

x x x x

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of theforegoing organizations from any of their properties, real or personal, or from any of their activities conducted for

profit regardless of the disposition of such income, shall be subject to tax imposed under this Code.

(Emphasis supplied)

CASE DIGEST

Facts:

St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized as a non-stock and non-profit corporation.

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The BIR assessed St. Lukes deficiency taxes for 1998 comprised of deficiency income tax, value-added tax, and

withholding tax. The BIR claimed that St. Lukes should be liable for income tax at a preferential rate of 10% as provided

for by Section 27(B). Further, the BIR claimed that St. Lukes was actually operating for profit in 1998 because only 13%

of its revenues came from charitable purposes. Moreover, the hospitals board of trustees, officers and employees

directly benefit from its profits and assets.

On the other hand, St. Lukes maintained that it is a non-stock and non-profit institution for charitable and

social welfare purposes exempt from income tax under Section 30(E) and (G) of the NIRC. It argued that the making of

profit per se does not destroy its income tax exemption.

Issue:

The sole issue is whether St. Lukes is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC,

which imposes a preferential tax rate of 10^ on the income of proprietary non-profit hospitals.

Ruling:

Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit hospitals under

Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed

together without the removal of such tax exemption.

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit

educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must

be proprietary and non-profit. Proprietary means private, following the definition of a proprietary educational

institution as anyprivate school maintained and administered by private individuals or groups with a government

permit. Non-profit means no net income or asset accrues to or benefits any member or specific person, with all the

net income or asset devoted to the institutions purposes and all its activities conducted not for profit.

Non-profit does not necessarily mean charitable. In Collector of Internal Revenue v. Club Filipino Inc. de

Cebu, this Court considered as non-profit a sports club organized for recreation and entertainment of its stockholders

and members. The club was primarily funded by membership fees and dues. If it had profits, they were used for

overhead expenses and improving its golf course. The club was non-profit because of its purpose and there was no

evidence that it was engaged in a profit-making enterprise.

The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court defined

charity in Lung Center of the Philippines v. Quezon Cityas a gift, to be applied consistently with existing laws,

for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of

education or religion, by assisting them to establish themselves in life or [by] otherwise lessening the burden of

government. owever, despite its being a tax exempt institution, any income such institution earns from activities

conducted for profit is taxable, as expressly provided in the last paragraph of Sec. 30.

To be a charitable institution, however, an organization must meet the substantive test of charity in Lung

Center. The issue in Lung Centerconcerns exemption from real property tax and not income tax. However, it provides

for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the

burden of government. In other words, charitable institutions provide for free goods and services to the public

which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the government forgoestaxes which should have been spent to address public needs, because certain private entities already assume a part

of the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the

government is compensated by its relief from doing public works which would have been funded by appropriations from

the Treasury

The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress decided

to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of the NIRC is materially

different from Section 28(3), Article VI of the Constitution. (Emphasis supplied)

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Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax. On the other

hand, Section 28(3), Article VI of the Constitution does not define a charitable institution, but requires that the

institution actually, directly and exclusively use the property for a charitable purpose.(Emphasis supplied)

To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable

institution use the property actually, directly and exclusively for charitable purposes. (Emphasis supplied)

To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution must

be organized and operated exclusively forcharitable purposes. Likewise, to be exempt from income taxes, Section

30(G) of the NIRC requires that the institution be operated exclusively for social welfare.(Emphasis supplied)

owever, the last paragraph of Section 30 of the NIRC qualifies the words organized and operated exclusively

by providing that:

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the

foregoing organizations from any of their properties, real or personal, or from any of their activities conducted

for profit regardless of the disposition made of such income, shall be subject to tax imposed under this

Code.(Emphasis supplied)

In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts any

activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt.

Thus, even if the charitable institution must be organized and operated exclusively for charitable purposes, it

is nevertheless allowed to engage in activities conducted for profit without losing its tax exempt status for its not-for-

profit activities. The only consequence is that the income of whatever kind and character of a charitable institution

from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject

to tax. Prior to the introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary

corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%. (Emphasis supplied)

The Court finds that St. Lukes is a corporation that is not operated exclusively for charitable or social welfare

purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict

interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section

30(E) and (G) of the NIRC requires that an institution be operated exclusively for charitable or social welfare purpose sto be completely exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it

earns income from its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30,

is merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant

to Section 27(B).(Emphasis supplied)

St. Lukes fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax exempt

from all its income. However, it remains a proprietary non-profit hospital under Section 27(B) of the NIRC as long as it

does not distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes.

St. Lukes, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its

for-profit activities.

St. Lukes is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC. owever, St.

Lukes has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St. Lukes is a corporationfor purely charitable and social welfare purposes and thus exempt from income tax.

In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that good faith and honest

belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement

the tax law, are sufficient justification to delete the imposition of surcharges and interest.

WHEREFORE, St. Lukes Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 based

on the 10% preferential income tax rate under Section 27(8) of the National Internal Revenue Code. However, it is

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not liable for surcharges and interest on such deficiency income tax under Sections 248 and 249 of the National

Internal Revenue Code. All other parts of the Decision and Resolution of the Court of Tax Appeals are AFFIRMED.

RIZAL COMMERCIAL BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: For resolution is petitioners Motion for Reconsideration of our Decision affirming the Decision of the Court of

Tax Appeals En Banc , denying petitioners etition for Relief from Judgment and Motion for Reconsideration. As founded

by the CTA, the Commissioner failed to act on the disputed assessment within 180 days from date of submission ofdocuments. Petitioner opted to file a petition for review before the CTA. Unfortunately, the petition for review was filed

out of time, it was filed more than 30 days after the lapse of the 180-day period. Consequently, it was dismissed by the

CTA for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed

assessment became final, demandable and executory.

Now on the present petition, etitioner reiterates its claim that its former counsels failure to file petition for review with

the CTA within the period set by Section 228 of the NIRC was excusable. etitioner maintains that its counsels neglect in

not filing the petition for review within the reglementary period was excusable. It alleges that the counsels secretary

misplaced the Resolution hence the counsel was not aware of its issuance and that it had become final and executory.

ISSUE: When does the Inaction of the Commissioner to resolve an issue brought before its office, renders the allowance

of a filing of a petition for review before the Court of tax Appeals.

RULING: The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters as are

clearly within its jurisdiction. It is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not

only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction

of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal,

provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the

180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which

to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax

Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely

directory but mandatory and it is beyond the power of the courts to extend the same.

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission ofdocuments, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the

expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and

appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However,

these options are mutually exclusive, and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission

of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the

petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period.

Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for

reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remainedunacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal

the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first

option, i.e., filing a petition for review which was however filed out of time, petitioner can not successfully resort to the

second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals,

on the pretext that there is yet no final decision on the disputed assessment because of the Commissioners inaction.

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DISPOSITIVE PORTION: WHEREFORE, in view of the foregoing, petitioners motion for reconsideration is DENIED. SO

ORDERED.MANUEL

PROPER PARTY TO FILE A CLAIM FOR REFUND

DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his capacity as Executor of the Estate of JOSE

SAN AGUSTIN vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: "Atty. Jose San Agustin died leaving his wife Dra. Felisa L. San Agustin as sole heir. Probate proceedings were

instituted thus, notice of decedent's death was sent to the CIR.

An estate tax return reporting an estate tax due of P1,676,432.00 was filed on behalf of the estate, with a request for an

extension of 2 years for the payment of the tax, because the decedent's widow does not have sufficient funds, and that

the payment would have to come from the estate. However an extension of only 6 months was granted, subject to the

imposition of penalties and interests under Sections 248 and 249 of the NIRC.

When the probate court allowed the will, the executor submitted to the probate court an inventory of the estate with a

motion for authority to withdraw funds for the payment of the estate tax, which was granted. Thereafter, the executor

paid the estate tax in the amount of P1,676,432 as reported in the Tax Return filed with the BIR. This was well within the6 months extension period granted by the BIR.

Later, the widow of the deceased, received a Pre-Assessment Notice from the BIR, showing a deficiency estate tax of

P538,509.50, which, including surcharge, interest and penalties, amounted to P976,540.00.

Within the given period, the executor filed a letter with the petitioner expressing readiness to pay the basic deficiency

estate tax of P538,509.50 as soon as the probate court approves withdrawal thereof, but, requesting that the surcharge,

interest, and other penalties, amounting to P438,040.38 be waived, considering that the assessed deficiency arose only

on account of the difference in zonal valuation used by the Estate and the BIR, and that the estate tax due per return of

P1,676,432.00 was already paid in due time within the extension period.

To Commissioner persistence it issued an Assessment Notice again reiterating the demand in the pre- assessment notice

and requesting payment on or before 30 days upon receipt. The executor requested a reconsideration of the assessment

of P976,549.00 and waiver of the surcharge, interest, etc.

The request for reconsideration was not acted upon until January 21, 1993, when the executor received a letter, stating

that there is no legal justification for the waiver of the interests, surcharge and compromise penalty in this case, and

requiring full payment of P438,040.38 representing such charges within 10 days from receipt thereof. Thus, respondent

estate paid the amount of P438,040.38 under protest. A Petition for Review was filed by the executor with the CTA

praying for a refund of the amount of P438,040.38.

The Commissioner opposed the said petition, alleging that the CTA's jurisdiction was not properly invoked inasmuch as

no claim for a tax refund of the deficiency tax collected was filed with the BIR before the petition was filed, in violation of

Sections 204 and 230 of the NIRC. Moreover, there is no statutory basis for the refund of the deficiency surcharges,

interests and penalties charged by the Commissioner upon the estate of the decedent.

Upholding its jurisdiction over the dispute, the CTA rendered its Decision, modifying the CIR's assessment for surcharge,

interests and other penalties from P438,040.38 to P13,462.74, representing interest on the deficiency estate tax, for

which reason the CTA ordered the reimbursement to the respondent estate the balance of P423,577.64.

The decision of the CTA was appealed by the CIR to the CA, the CA granted the petition of the CIR and held that the Court

of Tax Appeals did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void.

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ISSUE: Whether or not the filing of a claim for refund is essential before the filing of the petition for review.

RULING: The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of

Internal Revenue. The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge

and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector (now

Commissioner) of Internal Revenue set up several defenses, one of which was that petitioner had failed to first file a

written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a

written claim for refund was fatal to petitioner's recourse to it, the Court of Tax Appeals dismissed the petition for lack of

jurisdiction. On appeal to this Court, the tax court's ruling was reversed; the Court held:

"We agree with petitioner that Section 7 of Republic Act No.1125, creating the Court of Tax Appeals, in providing for

appeals from -

'(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue

taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal

Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue -

allows an appeal from a decision of the Collector in cases involving' disputed assessments' as distinguished from cases

involving' refunds of internal revenue taxes, fees or other charges, x x'; that the present action involves a disputedassessment'; because from the time petitioner received assessments Nos. 17-EC-00301-55 and 17-AC-600107-56

disallowing certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he already

protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the

petitioner paid the disputed assessments under protest before filing his petition for review with the Court a quo, only to

forestall the sale of his properties that had been placed under distraint by the respondent Collector since December 4,

1957. To hold that the taxpayer has now lost the right to appeal from the ruling on, the disputed assessment but must

prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes

paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless

ceremony that would only delay the ! disposition of the case, for the Collector (now Commissioner) would cer1ainly

disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not

be interpreted as to result in absurdities."5

The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the

interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer's

appeal to it.

DISPOSITIVE PORTION: WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for surcharge,

interest and penalties is modified and recomputed to be in the amount of P148,090.00 surcharge of P134,627.37 and

interest of P13,462.74. Petitioner estate having since paid the sum of P438,040.38, respondent Commissioner is hereby

ordered to refund to the Estate of Jose San Agustin the overpaid amount of P289,950.38. No costs. SO ORDERED.SORO

Commissioner of Internal Revenue vs Seagate Technology Philippines

(11 February 2005)

Ponente: Panganiban, J. (TANK ALL TAT IS OLY AND MIGTY that this guy is the ponente of the friggin case.

Haaaaaay.)

Nature: Petition for review on certiorari of a decision of the Court of Appeals

DOCTRINE: ON VALIDITY OF REVENUE RULES AND REGULATIONS

The contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or administer

such laws will have to be adopted.

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The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail

over the clear VAT nature of respondents transactions. The scope of such regulations is not within the statutory

authority x x x granted by the legislature.

1. Amere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport todo any more than interpret the latter. The courts will not countenance one that overrides the statute it seeks

to apply and implement.

Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision

under our VAT law requires an additional application to be made for such taxpayers transactions to be

considered effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt

simply because an application therefor was not made or, if made, was denied. To allow the additional

requirement is to give unfettered discretion to those officials or agents who, without fluid consideration, are

bent on denying a valid application. Moreover, the State can never be estopped by the omissions, mistakes or

errors of its officials or agents.

2. Grantia argumentithat such an application is required by law, there is still the presumption of regularity inthe performance of official duty. Respondents registration carries with it the presumption that, in the

absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof

given. Besides, it is also presumed that the law has been obeyed by both the administrative officials and the

applicant.

3. Even though such an application was not made , all the special laws we have tackled exempt respondent notonly from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the

implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and

attain global competitiveness as envisioned in those laws.

FACTS:

Seagate Technology Philippines is a resident foreign corporation duly registered with SEC to do business in thePhilippines. Principal office address: Cebu Township One, Special Economic Zone, Brgy Cantao-an, Naga, Cebu.

Seagate is registered on 6 June 1997 with the Phil Export Zone Authority (PEZA) to engage in manufacture ofrecording components used in computers for export

Seagate is a VAT-registered entity; it filed its VAT returns for the period of 1 Apr 1998 to 30 June 1999 04 October 1999 Seagate filed an administrative claim for refund of VAT input taxes but it received no final

action from the CIR regarding the claim for refund

CIRs defences:o Seagates claim is subject to administrative routinary investigation;o Seagate has burden of proof that the taxes sought to be refunded were erroneously/illegally

collected;

o It is incumbent upon Seagate to prove that it is indeed entitled to the refund/credit sought. Failure onthe part of the [respondent] to prove the same is fatal to its claim for tax credit. He who claims

exemption must be able to justify his claim by the clearest grant of organic or statutory law. An

exemption from the common burden cannot be permitted to exist upon vague implications;

o Granting, without admitting, that Seagate is a Philippine Economic Zone Authority (PEZA) registeredEcozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No.

([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As Seagates business is not

subject to VAT, the capital goods and services it alleged to have purchased are considered not used

in VAT taxable business. Seagate is not entitled to refund of input taxes on such capital goods

pursuant to Section 4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services

pursuant to Section 4.103 of said regulations.

o Seagate must also show that they complied with provisions on filing a written claim for refund withintwo years from the payment of the tax,

CA ruled to grant the claim for refund/issuance of tax credit certificate (TCC). Such amount represented theunutilized but substantiated input VAT paid on capital goods purchased for the specified period.

-Reasoning of the CA: Seagate availed itself of ONLY the incentives under EO 226, and not of PD 66 and RA

7916. Company is, therefore, considered exempt only from the payment of income tax when it opted for the

income tax holiday in lieu of the 5 percent preferential tax on gross income earned . As a VAT-registered

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entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT.

Seagate also correctly filed its administrative claim for refund/TCC.

ISSUE/S:

(As submitted by the petitioner) WoN Seagate is entitled to the refund or issuance of Tax Credit Certificate for the

alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999.

HELD:

YES, SEAGATE is entitled to the refund/issuance of Tax Credit Certificate.

As a PEZA-registered enterprise within a special economic zone (aka ECOZONE, a selected area with highly-developed or

which has the potential to be developed into, agro-industrial, industrial, tourist-recreational, commercial, banking,

investment and financial centers. RA 7916, The Special Economic Zone Act of 1995.), respondent is entitled to the fiscal

incentives and benefits provided for by EITHER PD 66 (law creating the Export Processing Zone Authority- EPZA) or EO

226 (Omnibus Investments Code).

It shall also enjoy all the privileges, benefits, advantages, or exemptions under RA 7227 (Bases Conversion and

Development Act of 1992) and RA 7844 (Export Development Act of 1994).

RATIO:

Preferential Tax Treatment Under Special Laws

If Seagate avails itself of:

PD 66 Seagate shall not be subject to internal revenue laws and regulations for raw materials, supplies, articles,

equipment, machineries, spare parts and wares, except those prohibited by law, brought into the zone to be stored,

broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured,

mixed or used directly or indirectly in such activities.

It shall enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange and financial assistance; and

exemption from export taxes, local taxes, and licenses.

EO 226 Seagate shall be exempt from same internal revenue laws and regulations. Under this law, Seagate shall further

be entitled to an income tax holiday; additional deduction for labor expense; simplification of customs procedure;

unrestricted use of consigned equipment; access to a bonded manufacturing warehouse system; privileges for foreignnationals employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw materials; and

exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment and spare parts,

export taxes, duties, imposts and fees, local taxes and licenses, and real property taxes.

It can be seen from the following laws that Seagate (respondent) enjoys preferential tax treatment. It is not subject to

internal revenue laws and regulations, and is even entitled to tax credits.

Nature of VAT and the Tax Credit Method

VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every importation of goods,

whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or

properties or on each rendition of services in the course of trade or business as they pass along the production and

distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller,transferor or lessor.

It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or

services.

It should be understood not in the context of the person or entity that is primarily, directly and legally liable for

its payment, but in terms of its nature as a tax on consumption. In either case, though, the same conclusion is arrived

at.

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Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged

on its sales or outputs the VAT paid on its purchases, inputs and imports.

If at the end of a taxable quarter the OUTPUT taxes (charged by the seller) are equal to thw INPUT taxes (passed on

by suppliers), NO PAYMENT IS REQUIRED.

BUT when the OUTPUT taxes EXCEED the INPUT taxes, the excess has to be paid.

If the INPUT taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter/s.

If the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital

goods, any excess over the output taxes shall instead be refunded to the taxpayer or creditedagainst other internal

revenue taxes.

Zero-Rated vs Effectively Zero-Rated Transactions

Difference between ZERO-RATED TRANSACTIONS and EFFECTIVELY ZERO-RATED TRANSACTIONS: SOURCE.

Zero-rated transactions: refer generally to EXPORT SALE of goods and supply of service. Tax rate is set at zero, which

when applied to the tax base, obviously resulting in no tax chargeable against the purchaser. The seller charges NO

OUTPUT TAX, but can claim a refund of/a tax credit certificate for the VAT previously charged by suppliers.

Effectively zero-rated transactions: sale of goods/supply of services to persons or entities whose exemption under

special laws/international agreements to which the Philippines is a signatory effectively subjects such transactions to a

zero rate. As applied to a tax base, the rate does not yield any tax chargeable against the purchaser. The seller who

charges ZERO OUTPUT TAX on such transactions can also claim a refund of/ a tax credit certificate for the VAT previously

charged by suppliers.

Zero Rating and Exemption

For VAT computation, zero rating and exemption are the same but the EXTENT of RELIEF is not the same.

Applying the destination principle (that goods and services are taxed only in the country where these are CONSUMED.

Exports are zero-rated but imports are taxed) to the exportation of goods:

Automatic zero-rating Effective zero-rating

-intended to be enjoyed by the seller who

is directly and legally liable for the VAT

-makes the seller internationally

competitive by allowing the refund/credit

of input taxes attributable to export sales

-benefits the purchaser who is not directly

and legally liable for the payment of VAT

but will ultimately bear the burden of tax

shifted by the suppliers

For both instances of zero-rating: TOTAL RELIEF for the purchaser from the burden of tax.

For exemption: PARTIAL RELIEF only, because the purchaser is not allowed any tax refund/credit for input taxes paid.

Exempt Transaction vs Exempt Party

Object of exemption from VAT: either the TRANSACTION itself or the PARTIES to the transaction

Exempt Transaction Exempt Party/Entity

-involves goods or services which, by their

nature, are specifically listed as expressly

exempted from VAT in the Tax Code

-this is without regard to the tax status of

the party to the transaction

-transaction is not subject to VAT but the

seller is not allowed any tax refund/credit

for any input taxes paid

-person/entity granted VAT exemption

under the Tax Code, a special law, or

international agreement to which the

Philippines is a signatory, and by virtue of

which its taxable transactions become

exempt from VAT.

-such party is also not subject to VAT, but

may be allowed refund/credit, depending

on its registration as a VAT or non-VAT

taxpayer

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VAT is a tax on consumption. While the LIABILITY is imposed on one person, the BURDEN may be passed on to another. If

a special law exempts a party as seller from its direct LIABILITY for VAT but does not relieve the same party as a

PURCHASER from its INDIRECT burden of VAT as shifted by its VAT-registered suppliers, the PURCHASE TRANSACTION IS

NOT EXEMPT. Applied to this case, the purchase transactions entered into by Seagate are NOT exempt.

Special laws may exempt certain transactions from VAT but the Tax Code provides that those under PD 66 are not.

Purchase transactions entered into are not VAT-exempt. These are not subject to VAT; Seagate is required to register.

Sales transactions: zero-rated/taxed under 10%, depending on application of destination principle.

Since purchases of Seagate are not exempt from VAT, rate applied is zero. Its exemption under PD 66 and RA 7916

subjects transactions to zero rate, since the ecozone within which it is registered is managed by PEZA as a SEPARATE

CUSTOMS TERRITORY (there is a legal fiction of foreign territory).

Under the cross-border principle(which is not clearly defined by any law or administrative issuance SO I REALLY DONT

UNDERSTAND WHY THE COURT USED THIS), no VAT shall be imposed to form part of the cost of goods destined for

consumption outside of the territorial border of the taxing authority.

If exports of goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds

for such exports from the national territory -- except specifically declared areas -- to an ecozone.

Sales made by a VAT-registered person in the customs territory to aPEZA-registered entity are considered exports to a

foreign country. Sales by a PEZA-registered entity to a VAT-registered person in the customs territory are deemed

imports from a foreign country.

Ecozone is considered foreign soil. If respondent is located in an export processing zone within that ecozone, sales to the

export processing zone, even without being actually exported, shall in fact be viewed as constructively exportedunder

EO 226. Considered as export sales, such purchase transactions by respondent would indeed be subject to a zero rate.

Tax Exemptions: Broad and Express

Applying the special laws mentioned, Seagate is an exempt entity from internal revenue laws and regulations. Such

exemption covers BOTH INDIRECT and DIRECT taxes, stemming from the nature of VAT as a tax on consumption, for

which liability is imposed on one but the burden is passed on to another.

More proof of express exemption of Seagate from taxes:

1. RA 7916 states that no taxes, local and national, shall be imposed on business establishments operating withinthe ecozone. Law does not exclude VAT from prohibition so it is deemed included.

2. RA 7846 amended RA 7916, same prohibition applied except real property taxes.3. D 66 provides for same prohibition. This exemption puts the govt at an initial disadvantage but the reduced

tax collection redounds to the national economy by enticing business investments and creating more job

opportunities

4. Rules implementing the PEZA reiterate that merchandise shall not be subject to internal revenue laws andregulations

5. Export processing zone enterprises registered patently enjoy exemption from national internal revenue taxeson imported capital equipment needed

6. RA 7227: exemptions from local and national taxes are ipso facto accorded to ecozones7. RA 7844; Tax credits granted by this law shall be continuously enjoyed by exporters within the ecozone.

Tax Refund as Tax Exemption

Tax exemptions are construed strictissimi juris against the taxpayer and liberally in favour of the taxing authority.

Tax refunds are in the nature of such exemptions. The claimants of such refunds bear the burden of proving the factual

basis of their claims. In this case, all the cited legal provisions CLEARLY grant tax exemptions to Seagate.

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Seagate is an exempt entity, but its transactions are not exempt. The end result, though, is the same: IT IS NOT SUBJECT

TO VAT.

1. The contemporaneous construction of our tax laws by BIR authorities who are called upon to execute oradminister such laws will have to be adopted. Their prior tax issuances have held inconsistent positions

brought about by their probable failure to comprehend and fully appreciate the nature of the VAT as a tax on

consumption and the application of the destination principle.

Revenue Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any VAT-

registered suppliers sale of goods, property or services from the customs territory to any registered

enterprise operating in the ecozone -- regardless of the class or type of the latters EZA registration -- is legally

entitled to a zero rate.

2. Policies of the law should prevail. PD 66, RA 7916, RA 8748, EO 226, RA 72273. RA 7844: The State is able to drive home the point that exporting is indeed the key to national survival and the

means through which the economic goals of increased employment and enhanced incomes can most

expeditiously be achieved.

VAT Registration, Not Application, for Effective Zero-rating,

Indispensable to VAT Refund

(NOTE: LOOK AT THIS PART CLOSELY BECAUSE THIS IS THE PART RELATED TO THE TOPIC ON PUR SYLLABUS. YES,AFTER ALL THE VAT SHIZZZZ, ITO LANG TALAGA.)

The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail

over the clear VAT nature of respondents transactions. The scope of such regulations is not within the statutory

authority x x x granted by the legislature.

1. Amere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport todo any more than interpret the latter. The courts will not countenance one that overrides the statute it seeks

to apply and implement.

Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision

under our VAT law requires an additional application to be made for such taxpayers transactions to be

considered effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt

simply because an application therefor was not made or, if made, was denied. To allow the additionalrequirement is to give unfettered discretion to those officials or agents who, without fluid consideration, are

bent on denying a valid application. Moreover, the State can never be estopped by the omissions, mistakes or

errors of its officials or agents.

2. Grantia argumentithat such an application is required by law, there is still the presumption of regularity inthe performance of official duty. Respondents registration carries with it the presumption that, in the

absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof

given. Besides, it is also presumed that the law has been obeyed by both the administrative officials and the

applicant.

3. Even though such an application was not made , all the special laws we have tackled exempt respondent notonly from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the

implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and

attain global competitiveness as envisioned in those laws.

A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero

rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as

already clearly indicated in, its VAT registration papers and photocopied documents attached thereto. Hence, its

transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT

exemption would be determined, not by their nature, but by the taxpayers neg ligence -- a result not at all

contemplated. Administrative convenience cannot thwart legislative mandate.

Tax Refund or Credit in Order

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Seagates purchase transactions are subject to a zero VAT rate; tax refund/credit is in order. It opted for the income tax

holiday regime instead of the 5% preferential tax regime.

The VAT is a tax imposed on consumption, not on business. Although respondent as an entity is exempt, the

transactions it enters into are not necessarily so. The VAT payments made in excess of the zero rate that is imposable

may certainly be refunded or credited.

Compliance with all the requisites for VAT Refund or Credit

Seagate complied with all the requisites of claiming a VAT refund/credit.

1. Seagate is a VAT registered entity.2. Input taxes paid on capital goods of Seagate are duly supported by VAT invoices and have not been offset

against any input taxes.

3. There is not question as to either the filing of such claims within the prescriptive period/validity of the VATreturns have been raised. The tax exemption under all special laws mentioned is broad enough to cover even

the enforcement of internal revenue laws.

There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from national

and local taxes, but also to grant them tax credits.

Dispositive: WHEREFORE, the Petition is DENIED and the Decision is AFFIRMED. No pronouncement as to costs.

Concurring/Dissenting Opinions: None.

Vote: Sandoval-Gutierrez, Corona, Carpio-Morales, Garcia, JJ., concur.

Coconut Oil Refiners Association, Inc. vs. Ruben Torres (Case Digest)

June 29, 2011

Facts:

This is a Petition to enjoin and prohibit the public respondent Ruben Torres in his capacity as Executive Secretary from

allowing other private respondents to continue with the operation of tax and duty-free shops located at the Subic SpecialEconomic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ). The petitioner seeks to declare Republic Act No. 7227

as unconstitutional on the ground that it allowed only tax-free (and duty-free) importation ofraw

materials, capitaland equipment. It reads:

The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or

movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as

provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation

or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory

shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of

thePhilippines [RA 7227, Sec 12 (b)].

Petitioners contend that the wording of Republic Act No. 7227 clearly limits the grant of tax incentives to the importation

ofraw materials, capitaland equipmentonly thereby violating the equal protection clause of the Constitution.

He also assailed the constitutionality of Executive Order No. 97-A for being violative of their right to equal protection.

They asserted that private respondents operating inside the SSEZ are not different from the retail establishments located

outside.

The respondent moves to dismiss the petition on the ground of lack of legal standing and unreasonable delay in filing of

the petition.

http://resjudicata.blog.com/2011/06/29/coconut-oil-refiners-association-inc-vs-ruben-torres-case-digest/http://resjudicata.blog.com/2011/06/29/coconut-oil-refiners-association-inc-vs-ruben-torres-case-digest/

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Issues:

(1) Statutory Construction; Political Law; Taxation Law:

Whether or not there is a violation of equal protection clause.

(2) Political Law:

Whether or not the case can be dismiss due to lack of the petitioners legal standing.

(3) Remedial Law:

Whether or not the case can be dismissed due to unreasonable delay in filing of the petition.

Held:

(1) The SC ruled in the negative. The phrase tax and duty-free importations of raw materials, capital and equipment was

merely cited as an example of incentives that may be given to entities operating within the zone. Public respondent

SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely tosupport their restrictive interpretation, does not apply when words are mentioned by way of example.

The petition with respect to declaration of unconstitutionality of Executive Order No. 97-A cannot be, likewise,

sustained. The guaranty of the equal protection of the laws is not violated by a legislation based which was based on

reasonable classification. A classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the

purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class.

Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the

laws. There is a substantial distinctions lying between the establishments inside and outside the zone. There are

substantial differences in a sense that, investors will be lured to establish and operate their industries in the so-called

secured area and the present business operators outside the area. There is, then, hardly any reasonable basis to extend

to them the benefits and incentives accorded in R.A. 7227.

(2) No. Anent the claim on lack of legal standing, respondents argue that petitioners, being mere suppliers of the local

retailers operating outside the special economic zones, do not stand to suffer directinjury in the enforcement of the

issuances being assailed herein. Assuming this is true, this Court has nevertheless held that in cases of paramount

importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit

may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review.

(3) No. With respect to the other alleged procedural flaws, even assuming the existence of such defects, this Court, in the

exercise of its discretion, brushes aside these technicalities and takes cognizance of the petition considering the

importance to the public of the present case and in keeping with the duty to determine whether the other branches of

the government have kept themselves within the limits of the Constitution

CIR v Benguet Corporation

Re: A petition for declaratory relief to Test the validity of Ordinance No. 3379 passed by the Municipal Board of the City

of Manila on March 24, 1950.

Ponente: BAUTISTA ANGELO, J.:

http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/134587_88.htmhttp://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/134587_88.htm

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DOCTRINE: While as a rule an ad valorem tax is a property tax, the rule should not be taken in its absolute sense if the

nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has

been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount

to the value of the property used in connection with the occupation, privilege or act which is taxed. If it is really

imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be

considered an excise tax."

QUICK FACTS: The Association composed of all brokers and public service operators of motor vehicles in the City of

Manila challenged the validity of Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax it is in

reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends

against the rule of uniformity of taxation; and (3) it constitutes double taxation.

FACTS:

Tax: 10% VAT on selling price of gold pursuant to Sec. 99 of NIRC.

Benguet Corporation is a domestic corporation engaged in the exploration, development and operation of mineral

resources, and the sale or marketing thereof to various entities. It is a value added tax (VAT) registered enterprise.

The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC as amended by

E.O. 273 s. 1987 then in effect, 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 is liable for output VAT at rates ofeither 10% or 0% (zero-rated) depending on the classification of the transaction under Sec. 100 of the NIRC.

In January of 1988, Benguet applied for and was granted by the BIR a zero-rated status on its sale of gold to Central Bank.

On 28 August 1988, (BIR) VAT Ruling No. 3788-88 was issued which declared that the sale of gold to Central Bank is

considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by EO 273. Relying on

its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during the period of 1 August 1989

to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It

then filed applications for tax refunds/credits corresponding to input VAT.

However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that was issued

subsequent to the consummation of the subject sales of gold to the Central Bank which provides that sales of gold to the

Central Bank shall not be considered as export sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-92

withdrew, modified, and superseded all inconsistent BIR issuances.

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Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only if it would not

be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.

? Contention: the so-called property tax is in reality a license tax which is beyond the power of the Municipal Board of

the City of Manila, the said ordinance offends against the rule of uniformity of taxation; and it constitutes doubletaxation.

Benguet Corporations Contention: Retroactive application of BIR VAT Ruling No. 008-92 would violate Sec. 246 of the

NIRC, which mandates the non-retroactivity of rulings or circulars issued by the Commissioner of Internal Revenue that

would operate to prejudice the taxpayer.

CFI of manila: Sustained validity of ordinance and dismissed the petition. Hence the appeal.

ISSUE: WON the new BIR ruling which changed the VAT categorization of respondents transactions with the Central

Bank from zero-rated to 10% can be applied retroactively to Benguets sale of gold to the Central Bank .

DECISION: No.

HELD:

At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by Benguet

ordained that gold sales to the Central Bank were zero-rated. Benguet should not be faulted for relying on the BIRs

interpretation of the said laws and regulations.

While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain unpaid on account of

the errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous

interpretation of law, these principles must give way to exceptions based on and in keeping with the interest of justice

and fair play. (Similar to the ABS-CBN case).

The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR of the amount

equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR in a zero-ratedscenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear

that Benguet suffered economic prejudice when its consummated sales of gold to the Central Bank were taken out of the

zero-rated category. The change in the VAT rating of Benguets transactions with the Central Bank resulted in the twin

loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time

subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money

terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.

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Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed, this relief would

only address Benguets overpayment of income tax but not the other burdens discussed above. Verily, this remedy is not

a feasible option for Benguet because the very reason why it was issued a deficiency tax assessment is that its input VAT

was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and

cumbersome refund process is prejudice enough.

FILINVEST vs CIR

Facts: Filinvest Development Corporation filed a claim for refund or in the alternative the issuance of a tax credit

certificate (TCC) with the Commissioner of Internal Revenue (CIR) representing excess creditable withholding taxes

fortaxableyears 1994, 1995, 1996.

The CIR did not resolve the claim for refund and the two-year prescriptive period was about to lapse which prompted the

petitioner to file a petition for review before the Court of Tax Appeals (CTA). In the petition, it prayed for refund or in

the alternative the issuance of TCC amounting P3,173,868.00.The amount of P1,004,236.00 representing

excess/unutilized creditable withholding taxes for 1994 was no longer included as it wasalreadybarredbyprescription.

Eventually, CTA dismissed the petition for review. Motion for review was filed before the Court of Appeals which was

dismissed so as the motion for reconsideration, denied.

Then here comes the petition before the Supreme Court which was also denied but later in the motion for

reconsideration it was at last granted. The petitioner alleged among others that the CA erred in relying on CTA cases

where they cited in its decision as jurisprudential basis to support its ruling.

Issue: Whether or not decisions of the CTA are jurisprudential basis for coming up a decision.

Held: The SC ruled that the CA was wrong in relying decisions of the CTA as jurisprudential basis in resolving the case.

By tradition and in our system of administration, the Supreme Court has the last word on what the law is, and that its

decisions applying or interpreting the laws or the Constitution form part of the legal system of the country, all other

courts should take their bearings from the decisions of this court.

The principle of stare decisis et non quieta movere, as embodied in ART 8 of the CIVIL CODE of the Philippines,enjoins

adherence to judicial precedents. It requires our courts to follow a rule already established in a final decision of the SC.

That decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land.MICROSOFT PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE- VAT Zero Rating

FACTS:

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Microsoft renders marketing services to two affiliated nonresident foreign corporations with their services being paid for

in foreign currency. Microsoft filed a claim for refund for unutilized input VAT but the CTA denied the same on the basis

that the official receipts issued did not bear the imprinted word zero-rated on its face and are thus not valid evidence

of Microsofts sales.

ISSUE:

Is Microsoft entitled to a refund?

HELD:

NO. The regulations in effect when the sales were made by Microsoft clearly indicate in the portion outlining the

Invoicing Requirements that the word zero-rated must be imprinted in the invoice. Without such, the invoice are not

considered as VAT invoices and thus could not give rise to any input tax. The Court added that the reason for enforcing

this rule even if only based on regulation is that it prevents buyers from falsely claiming input VAT from their purchases

when no VAT is actually paid.

CIR v. PL Management

FACTS:

PL earned P24M in 1997 from UMPC, where UMPC withheld P1.2M. In 1998 PL filed a lost for its 1997 earnings and

signified that it had a creditable withholding tax of P1,200,000.00 for 1997 to be as tax credit in 1998.

In 1999, it filed for a loss of P2.7M so it was not able to claim the P1.2M credit. On April 12, 2000, the respondent filed

with CIR a claim for the refund of the P1.2M refund.

CIR did not act so PL filed cases with CTA, which later denied claim of PL saying the refund claim was filed out of time.

Tax payment on nApril 13, 1998, claim of refund is on April 14, 2000, beyond the two year allowed.

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

reasons of equity.

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

HELD: No, L already chose to carry over the excess, refund cant be availed of.

The Court of Appeals mistakenly understood the phrase "for that taxable period" as a prescriptive period for the

irrevocability rule. There is a misplaced application of the CIR v. BPI case. The evident intent of the legislature, in addingthe last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid

confusion and complication as regards said taxpayer's excess tax credit. The interpretation of the Court of Appeals only

delays the flip-flopping to the end of each succeeding taxable period.

The irrevocability rule:

Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return

covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made

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during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation

shall either:

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

(B) Carry over the excess credit; or

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

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable

amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for

the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly

income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option

shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit

certificate shall be allowed therefor. The options are alternative.

The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable

years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess

income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying

over of the same. L already chose to carry over the excess tax paid, refund cant be availed.

CIR v. Mirant (Philippines) Operations Group

15 June 2011

FACTS:

Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern

Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these

companies with maintenance and management services in connection with the operation, construction and

commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively.

On September 20, 2001, Mirant wrote the BIR a letter claiming a refund of 87,345,116.00 representing overpaid income

tax.

CTA 1st Division: Partially granted Mirants claim for refund but the amount was reduced to 38 million whichconstitutes the duly substantiated unutilized creditable withholding taxes.

ISSUE: WON Mirant is entitled to a tax refund or to the issuance of a tax credit certificate and, if it is, then what is the

amount to which it is entitled.

HELD: YES but it is limited to the substantiated claim.

Ratio:

1. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due

for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen

to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for

the issuance of a tax credit certificate for the amount representing such overpayment.

2. Mirant complied with all the requirements for the refund of its unutilized creditable withholding taxes for taxable year

2000.

The requisites for claiming a tax credit or a refund of creditable withholding tax:

1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax;

2) It must be shown on the return that the income received was declared as part of the gross income; and

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3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing

the amount paid and the amount of the tax withheld.

Mirant complied with all the legal requirements and it is entitled, as it opted, to a refund of its excess creditable

withholding tax for the taxable year 2000 in the amount of 38,620,427.00.