FUNDAMENTALS OF TAXATION

BRITISH AMERICAN TOBACCO, vs. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenues.PHILIP MORRIS PHILIPPINES MANUFACTURING, INC., FORTUNE TOBACCO CORP., MIGHTY CORPORATION, and JT INTERNATIONAL [G.R. No. 163583. April 15, 2009.](Motion for Reconsideration of the 2008 case)Facts: To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2 which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to determine their current net retail price is conducted. In June 2001 British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack. 3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof for the purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack. Thus filed before the Regional Trial Court (RTC) of Makati, Branch 61, a petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. The trial court rendered a decision upholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003Issue/ Held: W/N the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.- NORatio: In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the four-fold test has been met in the present case. As held in the assailed Decision, the instant case neither involves a suspect classification nor impinges on a fundamental right. Consequently, the rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge. It has been held that "in the areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification." Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest. Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the

controverted municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from its coverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply to future conditions as well. This is not the case here. The classification freeze provision uniformly applies to all cigarette brands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brand from its operation nor single out a brand for the purpose of imposition of excise taxes.

HON. SECRETARY OF FINANCE, and HON. GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenue, vs. LA SUERTE CIGAR AND CIGARETTE FACTORY, TELENGTAN BROTHERS & SONS, INC.s. [G.R. No. 166498. June 11, 2009.]Facts: BIR issued the assailed Revenue Regulations No. 9-2003, Section 2 of which amended Revenue Regulations No. 1-97, by providing for a periodic review every two years or earlier of the current net retail prices of new brands of cigars and cigarettes and their variants to establish and update their tax classification. Respondents filed a case for injunction with the trial court assailing the validity of Revenue Regulations No. 9-2003 and praying for the issuance of a temporary restraining order and/or writ of preliminary injunction to enjoin the implementation of said regulation insofar as it authorizes the BIR to update the tax classification of cigarettes registered after January 1, 1997. The complaint was later amended to include Revenue Regulations No. 22-2003 (implementing the the revised tax classification). Respondents asserted that Section 145 of the NIRC does not give the BIR the power to reclassify cigarettes introduced into the market after January 1, 1997, hence, the reclassification thereof by the BIR constitutes usurpation of legislative powers.Petitioners, on the other hand, maintained that the assailed revenue regulations constitute a valid exercise of subordinate legislation having been issued pursuant to the powers of the Commissioner of Internal Revenue and the Secretary of Finance.Issue/ Held: W/N the BIR has the power to periodically review or re-determine the current net retail prices of new brands for the purpose of updating their tax classification pursuant to Revenue Regulations Nos. 9-2003 and 22-2003- NORatio: This issue has been settled in the recent case of British American Tobacco v. Camacho where the Court held, among others, that Revenue Regulations Nos. 9-2003, 22-2003, and Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine, are invalid insofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or earlier. Consequently, the upward reclassification of Astro and Memphis in Annex "A" of Revenue Regulations No. 22-2003 is invalid.

COMMISSIONER OF INTERNAL REVENUE, vs. ENRON SUBIC POWER CORPORATION. [G.R. No. 166387. January 19, 2009.]Facts: Enron received from the CIR a formal assessment notice requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment. Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the Court of Tax Appeals (CTA). CTA granted Enron's petition and ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the assessment notice sent to Enron failed to comply with the requirements of a valid written notice under Section 228 of the NIRC and RR No. 12-99.Issue/ Held: W/N the assessment notices sent by the CIR constitute a valid written notice under Section 228 of the NIRC and RR No. 12-99- NORatio: The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR's duties in correctly assessing a taxpayer. The

requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was made.

DAVAO ORIENTAL ELECTRIC COOPERATIVE, INC., vs. THE PROVINCE OF DAVAO ORIENTAL. [G.R. No. 170901. January 20, 2009.]Facts: Petitioner was organized under Presidential Decree (PD) No. 269 which granted a number of tax and duty exemption privileges to electric cooperatives. PD No. 1955 by then President Ferdinand E. Marcos withdrew all exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts, and other charges granted to private business enterprises and/or persons engaged in any economic activity. The Fiscal Incentive Review Board (FIRB) issued FIRB Resolution No. 13-85, the Ministry of Finance issued Local Tax Regulation No. 3-85, and the Office of the Local Government Finance, Region XI, Davao City issued Regional Office Memorandum Circular No. 42-85, all of which reiterated the withdrawal of tax exemptions previously granted to business entities including electric cooperatives. Pres. Marcos issued PD No. 2008, requiring the Minister of Finance to immediately restore the tax exemption of all electric cooperatives. Pres. Corazon C. Aquino issued Executive Order (EO) No. 93 which withdrew all tax and duty exemptions granted to private entities effective March 10, 1987. But Memorandum Order No. 65, dated January 23, 1987, suspended the implementation of the said EO until June 30, 1987 for cooperatives. Effective July 1, 1987, FIRB No. 24-87 restored the tax and duty exemption privileges of electric cooperatives under PD No. 269. FIRB Resolution No. 24-87 Respondent filed a complaint for collection of delinquent real property taxes against petitioner for the years 1984 until 1989. Petitioner contends that it was exempt from the payment of real estate taxes from 1984 to 1989 because the restoration of tax exemptions under FIRB Resolution No. 24-87 retroacts to the date of withdrawal of said exemptions. Further questions the classification made by respondent of some of its properties as real properties when it believes them to be personal properties, hence, not subject to realty tax. The RTC rendered its decision in favor of petitioner. Respondent appealed to the CA which set aside the ruling of the RTC.Issues/ Held:W/N the FIRB Resolution retroacts to the date of effectivity of PD 1955- NOW/N the petitioner is liable for the unpaid taxes- YESRatio: Even a cursory reading of the resolution, quoted above, bares no indicia of retroactivity of its application. FIRB Resolution No. 24-87 is crystal clear in stating that "the tax and duty exemption privileges of electric cooperatives granted under the terms and conditions of Presidential Decree No. 269 . . . are restored effective July 1, 1987." There is no other way to construe it.Having failed to appeal the assessment of its properties to the Board of Assessment Appeals cannot now assail the validity of the tax assessment against it before the courts. Petitioner failed to exhaust its administrative remedies, and the consequence for such failure is clear — the tax assessment, as computed and issued by the Office of the Provincial Assessor, became final. Petitioner is deemed to have admitted the correctness of the assessment of its properties. In addition, Section 64 of PD No. 464 requires that the taxpayer must first pay under protest the tax assessed against him before he could seek recourse from the courts to assail its validity.

COMMISSIONER OF INTERNAL REVENUE, vs. UNITED INTERNATIONAL PICTURES, AB. [G.R. No. 169565. January 21, 2009.]Facts: After trial, the CTA found that respondent complied with all the requirements for the refund of creditable withholding taxes. Nonetheless, in comparing respondent's 1997

income tax return and the certificate of tax withheld issued by its withholding agent, it found that respondent understated its income. Thus, the CTA granted the petition but ordered the BIR to refund (or to issue tax credit certificates) only to the extent of P6,285,892.05. CA affirmed the findings of the CTA and dismissed the petition.Issue/ Held: W/N the CA erred in dismissing the certiorari- NORatio: Under our tax system, the CTA is a highly specialized body that reviews tax cases. For this reason, its findings of fact are binding on the Court unless such findings are not supported by substantial evidence. In this case, the CTA concluded that respondent was entitled to refund but only to the extent of P6,285,892.05. As pointed out by the CA, the CTA exhaustively explained why it granted the refund albeit less than what respondent claimed. We find no reason to disturb the CTA's findings of fact.

PHILLIPS SEAFOOD (PHILIPPINES) CORPORATION, vs. THE BOARD OF INVESTMENTS. [G.R. No. 175787. February 4, 2009.]Facts: etitioner registered with respondent Bureau of Investments (BOI) as an existing and expansion producer of soft shell crabs and other seafood products, on a non-pioneer status. Petitioner was granted an Income Tax Holiday (ITH) for six (6) years. BOI approved the registration of petitioner as a "New Producer of Processed Fish" with an ITH for four years. BOI informed petitioner that the ITH previously granted would be applicable only to the period from 13 August 1999 to 21 October 1999 or before petitioner's transfer to a "not less-developed area". Petitioner’s petition for review filed in the Office of the President was dismissed on the ground of lack of jurisdiction. In the main argues that the review by the Office of the President of the decisions of respondent BOI must be allowed; otherwise, the President's constitutional power to review the decisions of department secretaries will be rendered illusory if said decisions may be reviewed only by the Court of Appeals.Issue/ Held: W/N the Office of the President has jurisdiction over the petition - NORatio: Petitioner cannot invoke Article 36 of E.O. No. 226 to justify its appeal to the Office of the President. Article 36, along with Article 7, which allows recourse to the Office of the President, applies to specific instances, namely, controversies between a registered enterprise and a government agency and decisions concerning the registration of an enterprise, respectively. Expressio unius est exclusio alterius. This enumeration is exclusive so that other controversies outside of its purview, including petitioner's entitlement to an ITH, can invoke only the appellate judicial relief provided under Article 82. In the instant case, the denial of petitioner's application for an Income Tax Holiday is not within the cases where the law expressly provides for appellate recourse to the Office of the President. That being the case should have elevated its appeal to the Court of Appeals under Rule 43.

COMMISSIONER OF CUSTOMS, vs. GELMART INDUSTRIES PHILIPPINES, INC.. [G.R. No. 169352. February 13, 2009.]Facts: In the instant Petition petitioner, through the Office of the Solicitor General, argues that the subject shipments of respondent were misdeclared as "100% polyester knitted fabrics" and "100% cotton knitted fabrics" when they were, in fact, 100% polyester polar fleece, fleece textile materials, and cotton fabrics with 3% spandex skirtings. The shipments were allegedly correctly forfeited in favor of the government in accordance with Sec. 2503 of the Tariff and Customs Code. Moreover, the subject shipments which allegedly consisted of regulated items violated or exceeded the import permits of respondent. CTA reversed the decree of forfeiture issued by petitioner and lifted the warrants of distraint. Upon respondent's motion, the CTA amended its decision and directed the release of the subject shipments without the payment of duties and taxes on the ground that the same were imported tax and duty-free subject to the condition that the imported materials will subsequently be re-exported as finished products.Petitioner also asserts that although respondent is allowed to subcontract a portion of the manufacturing process (involving the subject shipments), it violated the rules of the Garment and Textile Export Board (GTEB) and the Bureau of Customs which allegedly

allowed respondent to subcontract only a small or incidental portion of the manufacturing process.Issues/ Held:W/N the instant petition is procedurally flawed- YESW/N respondent unlawfully sub-contracted a part of the manufacturing process for which the subject shipments were intended- NORatio: Petitioner's failure to file a motion for reconsideration of the assailed decision of the CTA First Division, or at least a petition for review with the CTA en banc, invoking the latter's exclusive appellate jurisdiction to review decisions of the CTA divisions, rendered the assailed decision final and executory. Necessarily, all the arguments professed by petitioner on the validity of the seizure, detention and ultimate forfeiture of the subject shipments have been foreclosed. It should be noted at this juncture, however, that the order of default against petitioner (which had not been lifted) did not result in depriving him of standing to file a petition for review. A defaulted party's right to appeal from a judgment by default on the ground that the amount of the judgment is excessive, or is different in kind from that prayed for, or that the plaintiff failed to prove the material allegations of his complaint, or that the decision is contrary to law, has been consistently acknowledged by the Court. Nonetheless, let it be reiterated that the instant petition is so procedurally flawed that its outright denial is warranted. Republic Act No. 3137 (R.A. No. 3137), 17 which governs respondent's operations as a bonded manufacturing warehouse, as well as the pertinent rules of the GTEB, allow respondent to manufacture garments and apparel articles intended for exportation in whole or in part in its bonded manufacturing warehouse.Sec. 1 (19), Part 1 of the Rules and Regulations of the GTEB defines a manufacturer as a firm manufacturing textile and/or garments for export and provides that, "Manufacturers under R.A. No. 3137 may perform a portion of the manufacturing processes within the premises while other processes to complete his finished products may be done through subcontractors and/or homeworkers." Thus, unlike other manufacturers who are required to have at least one complete production line within his manufacturing premises, which Gelmart nonetheless had complied with because it has a complete manufacturing line for its lace and bra divisions, Gelmart is actually required only to ensure that the goods released from its bonded manufacturing warehouse for embroidery had been previously stamped or cut in accordance with the pattern to be manufactured in accordance with Sec. 4, par. XI of R.A. No. 3137.

LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES, in their capacities as President, Treasurer and Secretary of Adamson Management Corporation, vs. COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her capacity as Commissioner of the Bureau of Internal Revenues.COMMISSIONER OF INTERNAL REVENUE, vs. COURT OF APPEALS, COURT OF TAX APPEALS, ADAMSON MANAGEMENT CORPORATION, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYESs. [G.R. No. 120935. May 21, 2009.]Facts:Lucas Adamson and AMC sold common shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). AMC paid the capital gains tax .The Commissioner issued a "Notice of Taxpayer" to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The notice contained a schedule for preliminary conference. Commissioner filed with the Department of Justice (DOJ) her Affidavit of Complaint against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes. AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the DOJ a motion to suspend proceedings on the ground of prejudicial question, pendency of a civil case with the Supreme Court, and pendency of their letter-request for re-investigation with the Commissioner. After the preliminary investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. Lucas G. Adamson, Therese June D. Adamson and Sara S. de los

Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150. They filed a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that there was yet no final assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases. CTA ruled in favor of them and dismissed the charges. Court of Appeals reversed the trial court's decision and reinstated the criminal complaints.Issue/ Held: W/N the Commissioner's recommendation letter can be considered as a formal assessment of private respondents' tax liability- NOW/ N the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a formal assessment- NOW/N t he CTA has jurisdiction to take cognizance of both the criminal and civil cases here at barRatio:In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiner's findings is not an assessment since it is yet indefinite. We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1. It was not addressed to the taxpayers.2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein.3. The letter was never mailed or sent to the taxpayers by the Commissioner.The law (SEC 269 of NIRC) is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment. Thus, the applicability of Ungab v. Cusi is evident to the cases at bar. In this seminal case, the Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him.RA 8424 and RA 9282 have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an assessment of the tax liability of private respondents.

COMMISSIONER OF INTERNAL REVENUE, vs. FIRST EXPRESS PAWNSHOP COMPANY, INC.. [G.R. Nos. 172045-46. June 16, 2009.]Facts: Respondent received the assessment notices and then filed its written protest on the said assessments. Since petitioner did not act on the protest during the 180-day period, respondent filed a petition before the CTA. Respondent contended that petitioner did not consider the supporting documents on the interest expenses and donations which resulted in the deficiency income tax. Respondent maintained that pawnshops are not lending investors whose services are subject to VAT, hence it was not liable for deficiency VAT. Respondent also alleged that no deficiency DST was due because Section 180 12 of the National Internal Revenue Code (Tax Code) does not cover any document or transaction which relates to respondent. Respondent also argued that the issuance of a pawn ticket did not constitute a pledge under Section 195 13 of the Tax Code. In its Answer filed before the CTA alleged that the assessment was valid and correct and the taxpayer had the burden of proof to impugn its validity or correctness. Petitioner maintained that respondent is subject to 10% VAT based on its gross receipts pursuant to Republic Act No. 7716, or the Expanded Value-Added Tax Law (EVAT). CTA first division partially granted the petition while the CTA En Banc promulgated a Decision affirming respondent's liability to pay the VAT and ordering it to pay DST on its pawnshop tickets. However, the CTA En Banc found that respondent's deposit on subscription was not subject to DST. Issue/ Held:

W/N the CTA erred on a question of law in disregarding the rule on finality of assessments prescribed under Section 228 of the Tax Code- NOW/N the respondent is subject to DST- NORatio: It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest attached the GIS and Balance Sheet. Further cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term "relevant supporting documents" should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit.The deposit on stock subscription as reflected in respondent's Balance Sheet as of 1998 is not a subscription agreement subject to the payment of DST. There is no P800,000 worth of subscribed capital stock that is reflected in respondent's GIS. The deposit on stock subscription is merely an amount of money received by a corporation with a view of applying the same as payment for additional issuance of shares in the future, an event which may or may not happen. Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the Tax Code. Hence, the tax assessment cannot be considered as final, executory and demandable. Further's deposit on subscription is not subject to the payment of DST. Consequently is not liable to pay the deficiency DST of P12,328.45 The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between the subscriber and the corporation.

PILIPINAS SHELL PETROLEUM CORPORATION, vs. COMMISSIONER OF CUSTOMS. [G.R. No. 176380. June 18, 2009.]Facts: Shell settled its liabilities for customs duties and internal revenue taxes using tax credit certificates (TCCs) that were transferred to it for value by several Board of Investment (BOI)-registered companies. The transfers of the TCCs to Shell were processed by the transferors-BOI-registered companies and were eventually approved by the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (the Center). In a letter dated November 3, 1999 (Center's November 3 letter), the Center, through the Secretary of the DOF, informed Shell that it was cancelling the TCCs transferred to and used as payment by the oil company, pursuant to its EXCOM Resolution No. 03-05-99. Shell objected to the cancellation of the TCCs claiming that it had been denied due process. Shell filed with the CTA a Petition for Review questioning the BOC collection efforts for lack of legal and factual basis. CTA consequently declared that it is the filing of the collection cases in court that should instead be considered as the final decision of the respondent, and only then should the 30-day period to appeal commence. The appellate court annulled and set aside the CTA rulings in its decision.Issue/ Held: W/N the CTA has jurisdiction over the case- NORatio: The present case does not involve a tax protest case within the jurisdiction of the CTA to resolve. A tax protest case, under the TCCP, involves a protest of the liquidation of import entries. A liquidation is the final computation and ascertainment by the collector of the duties on imported merchandise, based on official reports as to the quantity, character, and value thereof, and the collector's own finding as to the applicable rate of duty; it is akin to an assessment of internal revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is definitely determined.

In the present case, the facts reveal that Shell received three sets of letters:a. the Center's November 3 letter, signed by the Secretary of Finance, informing it of the cancellation of the TCCs;b. the respondent's November 19 letter requiring it to replace the amount equivalent to the amount of the cancelled TCCs used by Shell; and c. the respondent's collection letters issued through Atty. Valera, formally demanding the amount covered by the cancelled TCCs.None of these letters, however, can be considered as liquidation or an assessment of Shell's import tax liabilities that can be the subject of an administrative tax protest proceeding before the respondent whose decision is appealable to the CTA. Shell's import tax liabilities had long been computed and ascertained in the original assessments, 16 and Shell paid these liabilities using the TCCs transferred to it as payment. It is even an error to consider the letters as a "reassessment" because they refer to the same tax liabilities on the same importations covered by the original assessments. The letters merely reissued the original assessments that were previously settled by Shell with the use of the TCCs. However, on account of the cancellation of the TCCs, the tax liabilities of Shell under the original assessments were considered unpaid; hence, the letters and the actions for collection. When Shell went to the CTA, the issues it raised in its petition were all related to the fact and efficacy of the payments made, specifically the genuineness of the TCCs; the absence of due process in the enforcement of the decision to cancel the TCCs; the facts surrounding the fraud in originally securing the TCCs; and the application of estoppel. These are payment and collection issues, not tax protest issues within the CTA's jurisdiction to rule upon.

CALIFORNIA MANUFACTURING COMPANY, INC., vs. THE CITY OF LAS PIÑAS and the HON. RIZAL Y. DEL ROSARIO, CITY TREASURERs. [G.R. No. 178461. June 22, 2009.]Facts: Earlier filed a Petition for Review on Certiorari questioning the assessments issued by the City of Las Piñas through the City Treasurer for local and real property. During the pendency of this case offered to compromise the case by paying fifty percent (50%) of the amount assessed. Since petitioner's factory in Las Piñas had already ceased operations and in order to facilitate the issuance of the clearance for the cessation of its business, the decision to enter into a compromise was adopted by the respondents.Petitioner has already settled and paid the amount of P36,522,817.24 7 in accordance with the compromised 50% of the assessed amount. Issue/ Held: W/N the compromise agreement is valid- YESRatio: Article 1306 of the Civil Code of the Philippines provides that contracting parties may establish such stipulations, clauses, terms, and conditions, as they may deem convenient, provided that they are not contrary to law, morals, good customs, public order, or public policy. A compromise agreement is a contract whereby the parties make reciprocal concessions, avoid litigation, or put an end to one already commenced. It is an accepted, even desirable and encouraged, practice in courts of law and administrative tribunals. A compromise agreement intended to resolve a matter already under litigation is a judicial compromise. Having judicial mandate and entered as its determination of the controversy, it has the force and effect of a judgment. It transcends its identity as a mere contract between the parties as it becomes a judgment that is subject to execution in accordance with the Rules of Court. Thus, a compromise agreement that has been made and duly approved by the court attains the effect and authority of res judicata, although no execution may be issued unless the agreement receives the approval of the court where the litigation is pending and compliance with the terms of the agreement is decreed.

Spouses FRANCISCO and BETTY WONG and Spouses JOAQUIN and LOLITA WONG, vs. CITY OF ILOILO, ROMEO MANIKAN as City Treasurer of Iloilo, MELANIE UY and the ESTATE OF FELIPE UYs. [G.R. No. 161748. July 3, 2009.]

Facts: The respective estates of the Hodges spouses sold the property to Vicente Chan. For some reason, however, Chan was not able to register the property in his name.Subsequently, Chan passed away and his estate sold the same property to petitioners Francisco and Joaquin Wong. Because the estate of Chan was unable to produce the estate tax clearance and the owner's duplicate of title were only allowed to annotate a notice of adverse claim. The Iloilo City Treasurer Romeo Manikan issued a general notice of delinquency in the payment of real estate taxes. Because no one contested the said notice or settled the tax delinquency of the subject property, the City Treasurer sent the notice of sale to the last known judicial administrator of the estates of the Hodges. However, the said notice was returned with the annotation "cannot be located". The property was sold at public auction wherein respondent Melanie Uy was the highest bidder. Francisco and Betty Wong filed a complaint for the annulment of the auction sale and Government of Iloilo, City Treasurer Romeo Manikan and the spouses Felipe and Melanie Uy in the Regional Trial Court (RTC) of Iloilo City. RTC upheld the validity of the tax sale and dismissed the complaints. It reasoned that because petitioners were not the registered owners of the property, they were not real parties-in-interest who could assail the validity of the said sale.Aggrieved moved for reconsideration. In a resolution, the RTC granted the motion and set aside the decision. At the Court of Appeals level, the CA reversed and set aside the assailed resolutions of the RTCIssue/ Held: W/N the auction sale was valid- YESRatio: Section 83 of PD 464 states that the RTC shall not entertain any complaint assailing the validity of a tax sale of real property unless the complainant deposits with the court the amount for which the said property was sold plus interest equivalent to 20% per annum from the date of sale until the institution of the complaint. This provision was adopted in Section 267 of the Local Government Code, albeit the increase in the prescribed rate of interest to 2% per month. In this regard, National Housing Authority v. Iloilo City holds that the deposit required under Section 267 of the Local Government Code is a jurisdictional requirement, the nonpayment of which warrants the dismissal of the action. Because petitioners in this case did not make such deposit, the RTC never acquired jurisdiction over the complaints. Consequently, inasmuch as the tax sale was never validly challenged, it remains legally binding.

SPOUSES EDUARDO and LETICIA MONTAÑO, vs. ROSALINA FRANCISCO, THE CITY GOVERNMENT OF ILOILO, ROMEO V. MANIKAN, City Treasurer of Iloilo City, and ERLINDA C. ZARANDIN, Head of the Treasurer's Enforcement Groups. [G.R. No. 160380. July 30, 2009.]Facts: Petitioners spouses Eduardo and Leticia Montaño established that they executed a Deed of Conditional Sale with the Government Service Insurance System (GSIS) covering a parcel of land together with the house and improvements thereon. One Atty. Salvador Paja went to their house and claimed that the lot was already owned by respondent Rosalina Francisco.Leticia Montaño made inquiries regarding the alleged sale of the lot. She went to the Register of Deeds and discovered an annotation at the back of TCT No. T-41681, stating that a Certificate of Sale of Delinquent Real Property was executed by the City Treasurer's Office in favor of Rosalina Francisco covering the parcel of land for the sum of P2,225.19 representing taxes, penalties and cost of sale pursuant to the provision of Section 76 of Presidential Decree (P.D.) No. 464. Leticia Montaño also went to the Office of the City Treasurer where she learned that respondent Francisco purchased the subject property in a public auction sale of delinquent real property conducted by public respondents. Petitioners averred that they were neither given any notice of tax delinquency nor informed of the schedule of the public auction sale. They were also not furnished a copy of the sale certificate. Moreover, they did not receive any notice of their right to redeem the subject property.

Issue/ Held: W/N the tax delinquency proceedings made on the subject lot was regular and legal- YESRatio: The pertinent provision of law in this case is Section 73 of P.D. No. 464.In Talusan v. Tayag, the Court held that for purposes of the collection of real property taxes, the registered owner of the property is considered the taxpayer. Hence, only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale. In this case, the Court of Appeals correctly held that the GSIS, as the registered owner of the subject property, was the taxpayer that was entitled to the notice of tax delinquency and that of the auction sale, as well as other related notices. It found that the GSIS was not deprived of its property without due process and that notice was regularly served. It pointed out that it had already upheld the validity of the assessment of the real property taxes upon GSIS and the auction sale proceedings in GSIS v. City Assessor of Iloilo City.

TAX DEFICIENCY SALES

AMEURFINA MELENCIO-HERRERA and EMILINA MELENCIO-FERNANDO, vs. HON. ELEUTERIO F. GUERRERO, Presiding Judge of the Regional Trial Court of Cavite City, Branch XVIII; TAGAYTAY-TAAL TOURIST DEVELOPMENT CORPORATION; PROVINCE OF BATANGAS; MUNICIPALITY OF LAUREL, BATANGAS; MUNICIPALITY OF TALISAY, BATANGAS; and CITY OF TAGAYTAY. [G.R. Nos. 141451-52. September 17, 2009.]Facts: Tagaytay-Taal Tourist Development Corporation (TTTDC) is the registered owner of two (2) parcels of land TTTDC incurred real estate tax liabilities on the said properties for the tax years 1976 to 1983. For failure of TTTDC to settle its delinquent real estate tax obligations, the City Government of Tagaytay (City of Tagaytay) offered the properties for sale at public auction. Being the only bidder, a certificate of sale was executed in favor of the City of Tagaytay and was correspondingly inscribed on the titles of the properties . City of Tagaytay filed an unnumbered petition for entry of new certificates of title in its favor before the Regional Trial Court (RTC) of Cavite. RTC granted the petition. TTTDC appealed to the CA. Meanwhile, during the pendency of the case before the CA, TTTDC filed a petition for nullification of the public auction involving the disputed properties . The RTC denied this motion. Petitioners make reference to Section 83 of P.D. No. 464 to assail the jurisdiction of the RTC in entertaining the petition for the annulment of the auction sale of the contested properties. They aver that compliance with Section 83 of P.D. No. 464 (Bond required for suits assiling validity of tax sales) is a jurisdictional requirement. Issue/ Held: W/N compliance with Section 83 is a jurisdictional requirement- NORatio: This provision may only be used in a voidable tax sale. When the sale is void because the property subjected to real estate tax is not situated within the jurisdiction of the taxing authority, the provision cannot be invoked. In this case, there is already a final and executory decision by the Supreme Court in G.R. No. 106812 that the properties are situated outside the territorial jurisdiction of the City of Tagaytay. Thus, there was no basis for the collection of the real estate tax.

SPS. HU CHUAN HAI & LEONCIA LIM HU vs. SPS. RENATO & MARIA AURORA UNICOFIRST DIVISIONSPOUSES HU CHUAN HAI and LEONCIA LIM HU, vs. SPOUSES RENATO UNICO and MARIA AURORA J. UNICOs. [G.R. No. 146534. September 18, 2009.]Facts: Spouses Renato and Maria Aurora J. Unico purchased a 800-sq. m. residential property, and also built a house on the land and resided there. Respondents, however, neither registered the sale in the Registry of Deeds nor declared the property in their names for purposes of taxation. They also failed to pay realty taxes. Due to respondents' tax delinquency, the property was sold at public auction to petitioner spouses Hu Chuan Hai and Leoncia Lim. Respondents decided to pay realty taxes on the property for the first

time but they were informed that it was already registered in the names of petitioners. Respondents filed a complaint for annulment of sale and damages. The RTC found that the City Treasurer sent the notice of tax sale and advertisement to the spouses de los Santos instead of respondents who were the actual occupants of the property. Thus, it nullified the tax sale. The CA affirmed the RTC decision in toto. Hence, this recourse. Issue/ Held: W/N the tax sale is valid- Ratio: This case is similar to Talusan v. Tayag 408 Phil. 373 (2001). In Talusan, it was ruled that “the decision of a land registration court in a petition for consolidation of ownership and registration precludes another action for annulment of auction sale. With regard to determining to whom the notice of sale should have been sent, settled is the rule that, for purposes of real property taxation, the registered owner of the property is deemed the taxpayer. Thus, in identifying the real delinquent taxpayer, a local treasurer cannot rely solely on the tax declaration but must verify with the Register of Deeds who the registered owner of the particular property is. Respondents not only neglected to register the transfer of the property but also failed to declare the property in their names as required by Section 6 of PD 464. TCT No. 236631 issued to the spouses de los Santos was never cancelled and respondents never paid realty tax on the property since they acquired it. Thus, the spouses de los Santos remained the registered owners of the property in the Torrens title and tax declaration. Since the transfer of the property to respondents was never registered, the City Treasurer correctly sent notice of the tax sale and advertisement to the spouses de los Santos and the tax sale conducted in connection therewith was valid.”

COMMISSIONER OF INTERNAL REVENUE vs. UCPBSECOND DIVISIONCOMMISSIONER OF INTERNAL REVENUE, vs. UNITED COCONUT PLANTERS BANK.[G.R. No. 179063. October 23, 2009.]Facts: United Coconut Planters Bank (UCPB) granted loans to George C. Co, Go Tong Electrical Supply Co., Inc., and Tesco Realty Co. that the borrowers caused to be secured by several real estate mortgages. When the latter later failed to pay their loans, UCPB filed a petition for extrajudicial foreclosure of the mortgaged properties. Eventually, the executive judge finally signed the certificate of sale and approved its issuance to UCPB as the highest bidder. UCPB presented the certificate of sale to the Register of Deeds of Manila for annotation on the transfer certificates of title of the foreclosed properties. The bank paid creditable withholding taxes (CWT) and documentary stamp taxes (DST) in relation to the extrajudicial foreclosure sale. It then submitted an affidavit of consolidation of ownership to the Bureau of Internal Revenue (BIR) with proof of tax payments and other documents in support of the bank's application for a tax clearance certificate and certificate authorizing registration. Petitioner Commissioner of Internal Revenue (CIR), however, charged UCPB with late payment of the corresponding DST and CWT, citing Section 2.58 of Revenue Regulation 2-98. The CIR theorized that the three-month redemption period was to be counted from the date of the foreclosure sale. Here, he said, the redemption period lapsed three months from December 31, 2001 or on March 31, 2002. UCPB protested the assessment. It claimed that the redemption period lapsed on June 1, 2002 or three months after the executive judge of Manila approved the issuance of the certificate of sale. "Foreclosure" under Section 47 of the General Banking Law, said UCPB, referred to the date of approval by the executive judge, and not the date of the auction sale. The CTA Second Division set aside the decision of the CIR .CTA En Banc affirmed the decision of the Second Division. Issue/ Held: W/N the three-month redemption period for juridical persons should be reckoned from the date of the auction sale.- NO, it is from the approval of the auction sale by the executive judge. Ratio: Supreme Court had occasion under its resolution in Administrative Matter 99-10-05-0 to rule that the certificate of sale shall issue only upon approval of the executive judge who must, in the interest of fairness, first determine that the requirements for extrajudicial

foreclosures have been strictly followed. For instance, in United Coconut Planters Bank v. Yap, this Court sustained a judge's resolution requiring payment of notarial commission as a condition for the issuance of the certificate of sale to the highest bidder. Under Section 2.58 of Revenue Regulation 2-98, the CWT return and payment become due within 10 days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year. On the other hand, under Section 5 of Revenue Regulation 06-01, the DST return and payment become due within five days after the close of the month when the taxable document was made, signed, accepted, or transferred. The BIR confirmed and summarized the above provisions under Revenue Memorandum Circular 58-2008. UCPB had, therefore, until July 10, 2002 to pay the CWT and July 5, 2002 to pay the DST. Since it paid both taxes on July 5, 2002, it is not liable for deficiencies. Thus, the Court finds no reason to reverse the decision of the CTA.

DOCUMENTARY STAMP TAX

PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS BANK, INC.), vs. COMMISSIONER OF INTERNAL REVENUE. [G.R. No. 170574. January 30, 2009.]Facts: For the taxable years 1996 and 1997 offered its "Special/Super Savings Deposit Account" (SSDA) to its depositors. The SSDA is a form of a savings deposit evidenced by a passbook and earning a higher interest rate than a regular savings account. Petitioner believes that the SSDA is not subject to Documentary Stamp Tax (DST) under Section 180 of the 1977 National Internal Revenue Code (NIRC), as amended. Commissioner of Internal Revenue (respondent) sent petitioner a Final Assessment Notice assessing deficiency DST based on the outstanding balances of its SSDA. Petitioner maintains that the tax assessments are erroneous because Section 180 of the 1977 NIRC does not include deposits evidenced by a passbook among the enumeration of instruments subject to DST.Issue/ Held: W/N the SSDA is subject to documentary stamp tax- YESRatio: Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the face value of any certificate of deposit drawing interest. As correctly observed by the CTA, a certificate of deposit is a written acknowledgment by a bank of the receipt of a sum of money on deposit which the bank promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor or creditor between the bank and the depositor is created. Petitioner's SSDA has the following features: 1. Although the money placed in the SSDA can be withdrawn anytime, the money is subject to a holding period in order to earn a higher interest rate. Otherwise, in case of premature withdrawal, the depositor will not earn the preferred interest ranging from 8% or higher but only the normal interest rate on regular savings deposit.2. In order to qualify for an SSDA, the depositor must place a substantial amount of money of not less than P50,000. This amount is even larger than what is needed to open a time deposit which is P20,000. Aside from the substantial amount of money required, this amount must be maintained within a certain period just like a time deposit.3. On the issue of penalty, in an SSDA, if the depositor withdraws the money and the balance falls below the "minimum balance" of P50,000, the interest is reduced. This condition is identical to that imposed on a time deposit that is withdrawn before maturity. Based on these features, it is clear that the SSDA is a certificate of deposit drawing interest subject to DST even if it is evidenced by a passbook and non-negotiable in character.

H. TAMBUNTING PAWNSHOP, INC., vs. COMMISSIONER OF INTERNAL REVENUE. [G.R. No. 171138. April 7, 2009.]Facts: The case stemmed from a Pre-Assessment Notice issued by the Commissioner of Internal Revenue (CIR) against H. Tambunting Pawnshop, Inc. (Tambunting) for, among others, deficiency documentary stamp tax (DST) of P50,910. Thereafter, the CIR issued an assessment notice 5 with the corresponding demand letters 6 for the payment of the DST and the corresponding compromise penalty for taxable year 1997.

Tambunting filed its written protest to the assessment notice alleging that it was not subject to documentary stamp tax under Section 195 7 of the National Internal Revenue Code (NIRC) because documentary stamp taxes were applicable only to pledge contracts, and the pawnshop business did not involve contracts of pledge. The CIR ruled in favor of petitioner but the Court of Appeals ruled that the pawn tickets are subject to DST.Issue/ Held: W/N the pawn tickets issued by petitioner are subject to DST- YESRatio: True, the pawn ticket is neither a security nor a printed evidence of indebtedness. But, precisely being a receipt for a pawn, it documents the pledge. A pledge is a real contract, hence, it is necessary in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. Consequently, the issuance of the pawn ticket by the pawnshop means that the thing pledged has already been placed in its possession and that the pledge has been constituted. The law imposes DST on documents issued in respect of the specified transactions, such as pledge, and not only on papers evidencing indebtedness. Therefore, a pawn ticket, being issued in respect of a pledge transaction, is subject to documentary stamp tax.

METROPOLITAN BANK AND TRUST CO., vs. COMMISSIONER OF INTERNAL REVENUE. [G.R. No. 178797. August 4, 2009.]Facts: Metrobank offers to the public a product called the Universal Savings Account (UNISA). UNISA is for a depositor able to maintain a savings deposit with Metrobank with substantial average daily balance. A depositor is entitled to a higher interest rate in a UNISA, than in a regular savings account. When a depositor opens a UNISA, he/she is issued a passbook by Metrobank. The depositor may withdraw from his/her UNISA anytime. However, to be entitled to the preferential interest rate, the depositor must be able to conform to the stated minimum deposit balance for the specified holding period for the UNISA, otherwise, his/her account will revert to a regular savings account. An Assessment notice and a Formal Letter of Demand to Metrobank, was issued requesting the latter to pay the deficiency DST on the UNISA for 1999, together with surcharge, interest, and compromise penalty.Metrobank filed with the CIR a protest against the Assessment. Said protest was denied by the CIR in a Decision.Petitioner filed a Petition for Review with the CTA Second Division which failed to find merit in the Petition of Metrobank . CTA en banc affirmed the Decision Issue/ Held: W/N the UNISA was subject to DST in 1999 under Section 180 of the NIRC- NO, not because it is exempt, but because of the TAX AMNESTY Availed of by MetrobankRatio: The Court agrees with the CTA en banc that the pivotal issue in this case had been squarely resolved in the BDO case and the IEB case, which involved assessments issued by the BIR against the banks BDO and IEB for DST on their respective special savings accounts, closely similar to the UNISA of Metrobank. Also, in a more recent case, Philippine Banking Corporation (Now: Global Business Bank, Inc.) v. Commissioner of Internal Revenue (PBC case), 19 the Court again considered the Special/Super Savings Deposit Account (SSDA) of PBC, evidenced by a passbook, as a certificate of deposit bearing interest on which DST under Section 180 of the NIRC could be imposed, citing both the BDO case and the IEB case.In the absence of any compelling reason, the Court cannot depart from the foregoing jurisprudence. There can be no doubt that the UNISA — the special savings account of Metrobank, granting a higher tax rate to depositors able to maintain the required minimum deposit balance for the specified holding period, and evidenced by a passbook — is a certificate of deposit bearing interest, already subject to DST even under the then Section 180 of the NIRC. Hence, the assessment by the CIR against Metrobank for deficiency DST on the UNISA for 1999 was only proper.Nevertheless, the Court takes note of an intervening event, which significantly affects its resolution of the Petition at bar. To avail itself of the tax amnesty, Metrobank paid 5% of the resulting increase in its networth, following the amendment of its statement of assets and liabilities as of 31 December 2005, to include therein previously undeclared assets and/or liabilities. The all-encompassing words of Republic Act No. 9480 are that those who

availed themselves of the tax amnesty, by paying the amnesty tax and complying with all of its conditions, "shall be immune from the payment of taxes, as well as addition thereto, and the appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years". The Court has absolutely no basis to limit the immunity, resulting from the payment by Metrobank of the amnesty tax, only to income tax, and to exclude DST therefrom.

PHIL. HEALTH CARE PROVIDERS, INC. vs. COMMISSIONER OF INTERNAL REVENUESPECIAL FIRST DIVISIONPHILIPPINE HEALTH CARE PROVIDERS, INC., vs. COMMISSIONER OF INTERNAL REVENUE.[G.R. No. 167330. September 18, 2009.]Facts: Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and the deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code. Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments. The CTA ruled that petitioner is liable for the VAT but not the DST. Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. CA held that petitioner's health care agreement was in the nature of a non-life insurance contract subject to DST.In a decision dated June 12, 2008, the Supreme Court denied the petition and held that petitioner's health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity. Unable to accept the verdict filed the present motion for reconsideration and supplemental motion for reconsideration. In its motion for reconsideration reveals for the first time that it availed of a tax amnesty under RA 9480 7 (also known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005. Issue/ Held: W/N petitioner is liable for the DST- NORatio: A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious. Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium". 19 The payments do not vary with the extent, frequency or type of services provided.The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years?The Court held that it was not. Applying the "principal objects and purpose test", there is significant American case law supporting the argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the members of a group with health services, is not engaged in the insurance business. American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. In short, even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business. Overall appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect of petitioner's business is miniscule compared to its non-insurance activities.

Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance business. We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly against the HMO. Not all the necessary elements of a contract of insurance are present in petitioner's agreements. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual insurance contracts.Furthermore, it was held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480. There is no other conclusion to draw than that petitioner's liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480

CHINA BANKING CORP. vs. COMMISSIONER OF INTERNAL REVENUETHIRD DIVISIONCHINA BANKING CORPORATION, vs. THE COMMISSIONER OF INTERNAL REVENUE.[G.R. No. 172359. October 2, 2009.]Facts: Petitioner China Banking Corporation was engaged in the transaction of accepting special savings deposits (SSD), otherwise known as "Savings Plus Deposit”. Petitioner received a Pre-Assessment Notice 5 (PAN) issued by respondent Commission on Internal Revenue, assessing it for deficiency documentary stamp tax on its Reverse Repurchase Agreements (RRA) and SSDs for the taxable years 1994 and 1995 Subsequently received a Final Assessment Notice (FAN) .Issue/ Held: W/N Special Savings Deposits are subject to documentary stamp tax – YESRatio: Contrary to the claim of petitioner, the SSDs are in fact "certificates of deposits drawing interest" subject to documentary stamp tax as provided for in Section 180 of the 1997 NIRC. In herein petition's version of the special savings deposit is called the "Savings Plus Deposit Accounts". Said accounts have the following features as can be gathered from the petition:1. Amount deposited is withdrawable anytime 2. The same is evidenced by a passbook 3. The rate of interest offered is the prevailing market rate, provided the depositor would maintain his minimum balance in thirty (30) days at the minimum, and should he withdraw before the period, his deposit would earn the regular savings deposit rate. Based on the foregoing, the conclusion is certain in that petitioner's SSDs are "certificates of deposits drawing interest" as contemplated in Section 180 of the 1997 National Internal Revenue Code. Petitioner's "Savings Plus Deposit" is essentially the same as the "Savings Account-Fixed Savings Deposit" in International, as well as the "Special/Super Savings Account" in PBC wherein this Court ruled that said accounts are subject to documentary stamp tax.

REAL PROPERTY TAXATION

NATIONAL POWER CORPORATION, vs. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER, LA UNION and MUNICIPAL ASSESSOR OF BAUANG, LA UNIONs. [G.R. No. 171470. January 30, 2009.]Facts: The National Power Corporation (NAPOCOR) claims in this case that the machineries and equipment used in a project covered by a BOT agreement, to which it is a party along with First Private Power Corporation (FPPC), should be accorded the tax-

exempt status it enjoys. The BOT Agreement provided, via an Accession Undertaking, for the creation of the Bauang Private Power Corporation (BPPC) that will own, manage and operate the power plant/station, and assume and perform FPPC's obligations under the BOT agreement. The Local Board of Assessment Appeals of the Province of La Union (LBAA), the Central Board of Assessment Appeals (CBAA) and the Court of Tax Appeals (CTA) were one in rejecting NAPOCOR's claim.Issue/ Held: W/N the machineries and equipment used in the project involved in the BOT agreement are taxable- YESRatio: Consistent with the BOT concept and as implemented, BPPC — the owner-manager-operator of the project — is the actual user of its machineries and equipment. BPPC's ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCOR's is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the CTA committed no reversible error in denying NAPOCOR's claim for tax exemption.

MANILA INTERNATIONAL AIRPORT AUTHORITY, vs. CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF PASAY. [G.R. No. 163072. April 2, 2009.]Facts: Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO 903), otherwise known as the Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Under Sections 3 and 22 of EO 903, approximately 600 hectares of land, including the runways, the airport tower, and other airport buildings, were transferred to MIAA. MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the taxable years 1992 to 2001. MIAA's real property tax delinquency for its real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties). City of Pasay, through its City Treasurer, issued notices of levy and warrants of levy for the NAIA Pasay properties. The Court of Appeals held that as a government-owned corporation, MIAA's tax exemption under Section 21 of EO 903 has already been withdrawn upon the effectivity of the Local Government Code.Issue/ Held: W/N MIAA is exempt from the real property taxes imposed by Pasay City- NORatio: MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133 (o) of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.

THE PROVINCIAL ASSESSOR OF MARINDUQUE, vs. THE HONORABLE COURT OF APPEALS AND MARCOPPER MINING CORPORATION. [G.R. No. 170532. April 30, 2009.]Facts: Petitioner issued against respondent an Assessment Notice for real property taxes due on the latter's real properties, including its Siltation Dam and Decant System. Respondent paid the tax demanded, but appealed the assessment before the Local Board of Assessment Appeals (LBAA) on the ground that the subject property is exempt from real property taxation under Section 234 (e) of Republic Act (R.A.) No. 7160 6 or the Local Government Code of 1991. LBAA dismissed respondent's appeal for having been filed out of time. It further held that the subject property is taxable as an improvement on the principal real property. Respondent appealed to the Central Board of Assessment Appeals (CBAA) which, in a Decision, held that respondent's appeal with the LBAA was timely, but the same lacked legal basis because the subject property was neither machinery nor an equipment but a permanent improvement, and therefore not tax exemptIssue/ Held: W/N he subject property is tax exempt under Sec. 234 (e) of R.A. No. 7160- NO

Ratio: As held in MCIAA V MARCOS, the exemption granted under Sec. 234 (e) of R.A. No. 7160 to "[m]achinery and equipment used for pollution control and environmental protection" is based on usage. The term usage means direct, immediate and actual application of the property itself to the exempting purpose. 46 Section 199 of R.A. No. 7160 defines actual use as "the purpose for which the property is principally or predominantly utilized by the person in possession thereof". It contemplates concrete, as distinguished from mere potential, use. Thus, a claim for exemption under Sec. 234 (e) of R.A. No. 7160 should be supported by evidence that the property sought to be exempt is actually, directly and exclusively used for pollution control and environmental protection. There is no allegation nor evidence in respondent's pleadings that it had complied with the procedural requirement under Sec. 206. There is nothing in the records which would indicate that, within 30 days from its filing of Tax Declaration No. 05-35697 on November 17, 1993 filed with the provincial assessor an application for exemption or any documentary evidence of the exempt status of the subject property.

GOVERNMENT SERVICE INSURANCE SYSTEM, vs. CITY TREASURER and CITY ASSESSOR of the CITY OF MANILAs. [G.R. No. 186242. December 23, 2009.]Facts: GSIS owns or used to own two (2) parcels of land, the Katigbak and Concepcion-Arroceros property. City Treasurer of Manila addressed a letter to GSIS President and General Manager informing him of the unpaid real property taxes due on the aforementioned properties for years 1992 to 2002. City Treasurer of Manila issued separate Notices of Realty Tax Delinquency for the subject properties, with the usual warning of seizure and/or sale. GSIS, through its legal counsel, wrote back emphasizing the GSIS' exemption from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291. Two days after, GSIS filed a petition for certiorari and prohibition with prayer for a restraining and injunctive relief before the Manila RTC. The RTC dismissed GSIS' petitionIssues/ Held:W/N GSIS under its charter is exempt from real property taxation- YESAssuming that it is so exempt, W/N GSIS is liable for real property taxes for its properties leased to a taxable entity- YESW/N the properties of GSIS are exempt from levy- YESRatio: Significantly, the Court, in City of Davao, stated the observation that the GSIS' tax-exempt status withdrawn in 1992 by the LGC was restored in 1997 by RA 8291, even with the effectivity of the Local Government Code. While recognizing the exempt status of GSIS owing to the reenactment of the full tax exemption clause under Sec. 39 of RA 8291 in 1997, the ponencia in City of Davao appeared to have failed to take stock of and fully appreciate the all-embracing condoning proviso in the very same Sec. 39 which, for all intents and purposes, considered as paid "any assessment against the GSIS as of the approval of this Act." Apart from the foregoing consideration, the Court's fairly recent ruling in Manila International Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. The foregoing notwithstanding, the leased Katigbak property shall be taxable pursuant to the "beneficial use" principle under Sec. 234 (a) of the LGC. The tax exemption the property of the Republic or its instrumentality carries ceases only if, as stated in Sec. 234 (a) of the LGC of 1991, "beneficial use thereof has been granted, for a consideration or otherwise, to a taxable person." GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133 (o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its beneficial use to MHC,

doubtless a taxable person. Thus, the real estate tax assessment of PhP54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency is concerned as assessed over said property. Taxable entity having beneficial use of leased property is the one liable for real property taxes thereon. Being in possession and having actual use of the Katigbak property since November 1991, MHC is liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of Lease to shoulder such assessment. Throughout GSIS' life under three different charters, the need to ensure the solvency of GSIS fund has always been a legislative concern, a concern expressed in the tax-exempting provisions. Thus, even granting arguendo that GSIS' liability for realty taxes attached from 1992, when RA 7160 effectively lifted its tax exemption under PD 1146, to 1996, when RA 8291 restored the tax incentive, the levy on the subject properties to answer for the assessed realty tax delinquencies cannot still be sustained.

LOCAL TAXATION

The CITY OF ILOILO, Mr. ROMEO V. MANIKAN, in his capacity as the Treasurer of Iloilo City, vs. SMART COMMUNICATIONS, INC. (SMART). [G.R. No. 167260. February 27, 2009.]Facts: SMART received a letter of assessment from petitioner requiring it to pay deficiency local franchise and business taxes (which it incurred for the years 1997 to 2001. SMART protested the assessment by sending a letter to the City Treasurer. It claimed exemption from payment of local franchise and business taxes based on Section 9 of its legislative franchise under Republic Act (R.A.) No. 7294 (SMART's franchise). Under SMART's franchise, it was required to pay a franchise tax equivalent to 3% of all gross receipts, which amount shall be in lieu of all taxes. SMART contends that the "in lieu of all taxes" clause covers local franchise and business taxes. SMART similarly invoked R.A. No. 7925 or the Public Telecommunications Policy Act (Public Telecoms Act) whose Section 23 declares that any existing privilege, incentive, advantage, or exemption granted under existing franchises shall ipso facto become part of previously granted-telecommunications franchise. SMART contends that by virtue of Section 23, tax exemptions granted by the legislature to other holders of telecommunications franchise may be extended to and availed of by SMART. Issue/ Held: W/N SMART is exempt from local franchise and business taxes- NORatio: We have indeed ruled that by virtue of Section 193 of the LGC, all tax exemption privileges then enjoyed by all persons, save those expressly mentioned, have been withdrawn effective January 1, 1992 — the date of effectivity of the LGC. The first clause of Section 137 of the LGC states the same rule. However, the withdrawal of exemptions, whether under Section 193 or 137 of the LGC, pertains only to those already existing when the LGC was enacted. The intention of the legislature was to remove all tax exemptions or incentives granted prior to the LGC. As SMART's franchise was made effective on March 27, 1992 — after the effectivity of the LGC — Section 193 will therefore not apply in this case. But while Section 193 of the LGC will not affect the claimed tax exemption under SMART's franchise, we fail to find a categorical and encompassing grant of tax exemption to SMART covering exemption from both national and local taxes

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE DIVISION OF CITY OF MANILA, vs. COCA-COLA BOTTLERS PHILIPPINES, INC.. [G.R. No. 181845. August 4, 2009.]Facts: Tax Ordinances No. 7988 and No. 8011 of the City of Manila were later declared by the Court null and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila 8 (Coca-Cola case) . However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void City of Manila assessed respondent on the basis of

Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest. Respondent filed a protest with petitioner Toledo , who did not respond to the protest of respondent. Respondent sought the cancellation of the assessment in the RTC. The RTC granted the Motion for Reconsideration of respondent, decreed the cancellation and withdrawal of the assessment against the latter, and barred petitioners from further imposing/assessing local business taxes against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax Ordinance No. 8011. The CTA also dismissed the petition for review filed by the treasurer. The CTA First Division reasoned that the Petition for Review of petitioners was not only filed out of time — it also failed to comply with the provisions of Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA. Petitioners thereafter filed a Petition for Review before the CTA en banc. The CTA en banc similarly denied the petition Issues/ Held:W/N the questioned assessment is valid- NORatio: Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void and without any legal effect. Therefore cannot be taxed and assessed under the amendatory laws — Tax Ordinance No. 7988 and Tax Ordinance No. 8011. Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the same person twice by the same jurisdiction for the same thing". It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation", the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character. It is apparent from a perusal of Section 143 of the LGC that when a municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143 (a) of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under Section 143 (h) of the same Code. Section 143 (h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are "not otherwise specified in preceding paragraphs". In the same way, businesses such as respondent's, already subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143 (a) of the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143 (h) of the LGC.

EVELYN ONGSUCO, ET AL. vs. MARIANO M. MALONESEVELYN ONGSUCO and ANTONIA SALAYA, vs. HON. MARIANO M. MALONES, both in his private and official capacity as Mayor of the Municipality of Maasin, Iloilo. [G.R. No. 182065. October 27, 2009.]Facts: Petitioners are stall holders at the Maasin Public Market. After a meeting with the stall holders, Sangguniang Bayan of Maasin approved Municipal Ordinance No. 98-01, entitled "The Municipal Revised Revenue Code." The Code contained a provision for increased rentals for the stalls and the imposition of goodwill fees in the amount of P20,000.00 and P15,000.00 for stalls located on the first and second floors of the municipal public market, respectively. The same Code authorized respondent to enter into lease contracts over the said market stalls, and incorporated a standard contract of lease for the stall holders at the municipal public market. Sangguniang Bayan of Maasin approved Resolution No. 68, series of 1998, moving to have the meeting declared inoperative as a public hearing, because majority of the persons affected by the imposition of the goodwill fee failed to agree to the said measure. However, Resolution No. 68, series of 1998, of the Sangguniang Bayan of Maasin was vetoed by respondent on 30 September 1998. Respondent wrote a letter to petitioners informing them that they were occupying stalls in the newly renovated municipal public market without any lease contract, as a consequence

of which, the stalls were considered vacant and open for qualified and interested applicants. Petitioners filed a Petition for Prohibition/Mandamus, with Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction, against respondent. The RTC found that petitioners could not avail themselves of the remedy of mandamus or prohibition. Because they failed to show a clear legal right to the use of the market stalls without paying the goodwill fees and also on the ground of non-exhaustion of administrative remedies. This decision was affirmed by the Court of Appeals. Issues/ Held: W/N there was a need for the exhaustion of administrative remedies- NOW/N the imporsition of the goodwill fees is valid- NO, it is defective due to lack of public hearingsRatio: The rule on the exhaustion of administrative remedies is intended to preclude a court from arrogating unto itself the authority to resolve a controversy, the jurisdiction over which is initially lodged with an administrative body of special competence. Thus, a case where the issue raised is a purely legal question, well within the competence; and the jurisdiction of the court and not the administrative agency, would clearly constitute an exception. There is no dispute herein that the notices sent to petitioners and other stall holders at the municipal public market were sent out, informing them of the supposed "public hearing" to be held on 11 August 1998. Even assuming that petitioners received their notice, the "public hearing" was already scheduled, and actually conducted, only five days later. This contravenes Article 277 (b) (3) of the Implementing Rules and Regulations of the Local Government Code which requires that the public hearing be held no less than ten days from the time the notices were sent out, posted, or published. When the Sangguniang Bayan of Maasin sought to correct this procedural defect through Resolution No. 68, series of 1998 vetoed the said resolution. Although the Sangguniang Bayan may have had the power to override respondent's veto, it no longer did so. The defect in the enactment of Municipal Ordinance No. 98 was not cured when another public hearing was held on 22 January 1999, after the questioned ordinance was passed by the Sangguniang Bayan and approved by respondent on 17 August 1998. Section 186 of the Local Government Code prescribes that the public hearing be held prior to the enactment by a local government unit of an ordinance levying taxes, fees, and charges. Since no public hearing had been duly conducted prior to the enactment of Municipal Ordinance No. 98-01, said ordinance is void and cannot be given any effect. Consequently, a void and ineffective ordinance could not have conferred upon respondent the jurisdiction to order petitioners' stalls at the municipal public market vacant.

TAX EXEMPTION

AGENCIA EXQUISITE OF BOHOL, INCORPORATED, vs. COMMISSIONER OF INTERNAL REVENUE.COMMISSIONER OF INTERNAL REVENUE, vs. AGENCIA EXQUISITE OF BOHOL, INCORPORATED.EXQUISITE PAWNSHOP and JEWELRY, INC., vs. COMMISSIONER OF INTERNAL REVENUE.[G.R. No. 158644. February 12, 2009.]Facts: Commissioner of Internal Revenue Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91 classifying the pawnshop business as akin to the lending investor's business activity "which is broad enough to encompass the business of lending money at interest by any person whether natural or juridical" and imposing on both a 5% lending investor's tax based on their gross income, pursuant to then Section 116 of the National Internal Revenue Code of 1977, as amended. The RMO was later clarified by Revenue Memorandum Circular (RMC) No. 43-91 dated May 27, 1991. Pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued Assessment Notice against Agencia Exquisite

of Bohol, Inc. (AEBI) demanding payment for 5% lending investors' tax for 1995, plus interest and charges. AEBI filed its Administrative Protest which the BIR Revenue Regional Director denied. Consequently, AEBI filed with the CTA a Petition for Review. CTA rendered its Decision in favor of AEBI cancelling the Assessment Notice and declaring RMO No. 15-91 and RMC No. 43-91, in so far as they classify pawnshops as lending investors subject to 5% lending investors' tax, null and void.The BIR then sought recourse before the CA in a Petition for Review then the CA rendered a Decision reversing and setting aside the decision of the CTA.Issue/ Held: W/N pawnshops are liable for the payment of the 5% lending investor's tax- NORatio: In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., this Court held that pawnshops are not included in the term lending investors for the purpose of imposing the 5% percentage tax under then Section 116 of the National Internal Revenue Code of 1977, as amended by Executive Order No. 273. Thus, while pawnshops are indeed engaged in the business of lending money, they cannot be deemed "lending investors" for the purpose of imposing the 5% lending investor's tax.Again, in Commissioner of Internal Revenue v. Trustworthy Pawnshop, Inc., this Court reiterated its ruling in Lhuillier that pawnshops are not included in the term lending investors for the purpose of imposing the 5% percentage tax.The CITY OF ILOILO, Mr. ROMEO V. MANIKAN, in his capacity as the Treasurer of Iloilo City, vs. SMART COMMUNICATIONS, INC. (SMART). [G.R. No. 167260. February 27, 2009.]Facts: SMART received a letter of assessment from petitioner requiring it to pay deficiency local franchise and business taxes (which it incurred for the years 1997 to 2001. SMART protested the assessment by sending a letter to the City Treasurer. It claimed exemption from payment of local franchise and business taxes based on Section 9 of its legislative franchise under Republic Act (R.A.) No. 7294 (SMART's franchise). Under SMART's franchise, it was required to pay a franchise tax equivalent to 3% of all gross receipts, which amount shall be in lieu of all taxes. SMART contends that the "in lieu of all taxes" clause covers local franchise and business taxes. SMART similarly invoked R.A. No. 7925 or the Public Telecommunications Policy Act (Public Telecoms Act) whose Section 23 declares that any existing privilege, incentive, advantage, or exemption granted under existing franchises shall ipso facto become part of previously granted-telecommunications franchise. SMART contends that by virtue of Section 23, tax exemptions granted by the legislature to other holders of telecommunications franchise may be extended to and availed of by SMART. Issue/ Held: W/N SMART is exempt from local franchise and business taxes- NORatio: We have indeed ruled that by virtue of Section 193 of the LGC, all tax exemption privileges then enjoyed by all persons, save those expressly mentioned, have been withdrawn effective January 1, 1992 — the date of effectivity of the LGC. The first clause of Section 137 of the LGC states the same rule. However, the withdrawal of exemptions, whether under Section 193 or 137 of the LGC, pertains only to those already existing when the LGC was enacted. The intention of the legislature was to remove all tax exemptions or incentives granted prior to the LGC. As SMART's franchise was made effective on March 27, 1992 — after the effectivity of the LGC — Section 193 will therefore not apply in this case. But while Section 193 of the LGC will not affect the claimed tax exemption under SMART's franchise, we fail to find a categorical and encompassing grant of tax exemption to SMART covering exemption from both national and local taxes COMMISSIONER OF INTERNAL REVENUE, vs. PHILIPPINE AIRLINES, INC.. [G.R. No. 180043. July 14, 2009.]Facts: For the period January to December 2001, the Philippine Long Distance Telephone Company (PLDT) collected from respondent the 10% Overseas Communication Tax (OCT) on the amount paid by the latter for overseas telephone calls it had made through the former. Respondent filed with the BIR an administrative claim for refund of the OCT it

alleged to have erroneously paid in 2001. Petitioner failed to act on the request for refund of respondent, which prompted respondent to file with the CTA in Division, a Petition for Review. The CTA granted the petition After a Petitioner filed an appeal with the CTA en banc which denied petitioner's appeal. Issue/ Held: W/N the “in lieu of all other taxes” phrase in Sec. 13 and 14 of PD 1590 applies to grant the exemption- YESRatio: According to Section 120 of the NIRC, the person paying for the services rendered (respondent, in this case) shall pay the OCT to the person rendering the service (PLDT); the latter, in turn, shall remit the amount to the BIR. If this Court deems that final tax on interest income — which is also an income tax, but distinct from basic corporate income tax — is included among "all other taxes" from which respondent is exempt, then with all the more reason should the Court consider OCT, which is altogether a different type of tax, as also covered by the said exemption.Petitioner further avers that respondent cannot avail itself of the benefit of the "in lieu of all other taxes" proviso in Section 13 of Presidential Decree No. 1590 when it made no actual payment of either the basic corporate income tax or the franchise tax.Petitioner made the same averment in the PAL case (G.R. No. 160528, 9 October 2006, 504 SCRA 90), which the Court rejected for the following reasons:“A careful reading of Section 13 rebuts the argument of the CIR that the "in lieu of all other taxes" proviso is a mere incentive that applies only when PAL actually pays something. It is clear that PD 1590 intended to give respondent the option to avail itself of Subsection (a) or (b) as consideration for its franchise. Either option excludes the payment of other taxes and dues imposed or collected by the national or the local government. PAL has the option to choose the alternative that results in lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.”It must do well for petitioner to remember that a statute's clauses and phrases should not be taken as detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts. A strict interpretation of the word "pay" in Section 13 of Presidential Decree No. 1590 would effectively render nugatory the other rights categorically conferred upon the respondent by its franchise.Section 13 of Presidential Decree No. 1590 clearly gives respondent the option to "pay" either basic corporate income tax on its net taxable income or franchise tax on its gross revenues, whichever would result in lower tax.

NATIONAL POWER CORPORATION, vs. PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO [G.R. No. 171586. July 15, 2009.]Facts: NPC is a GOCC that entered into an Energy Conversion Agreement (ECA) under a build-operate-transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the agreement, Mirant will build and finance a thermal power plant in Quezon, and operate and maintain the same for 25 years, after which, Mirant will transfer the power plant to the Respondent without compensation. NPC also undertook to pay all taxes that the government may impose on Mirant. Quezon then assessed Mirant real property taxes on the power plant and its machineries. Issues/ Held:W/N Petitioner file the protest against the real property tax assessment?- NOW/N Petitioner claim exemption from the RPT given the BOT arrangement with Mirant?- NOW/N payment under protest required before an appeal to the LBAA is made?- YESRatio: The two entities vested with personality to contest an assessment are (a) the owner or (b) the person with legal interest in the property. NPC is neither the owner nor the possessor/user of the subject machineries even if it will acquire ownership of the plant at the end of 25 years. The Court said that legal interest should be an interest that is actual and material, direct and immediate, not simply contingent or expectant. While the Petitioner does indeed assume responsibility for the taxes due on the power plant and its

machineries, the tax liability referred to is the liability arising from law that the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable between the parties to a contract. The local government units can neither be compelled to recognize the protest of a tax assessment from the Petitioner, an entity against whom it cannot enforce the tax liability. To successfully claim exemption under Section 234 (c) of the LGC, the claimant must prove two elements: a) the machineries and equipment are actually, directly, and exclusively used by local water districts and government-owned or controlled corporations; and b) the local water districts and government-owned and controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Since neither the Petitioner nor Mirant satisfies both requirements, the claim for exemption must fall. If a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to "first pay the tax" under protest. The case of Ty does not apply as it involved a situation where the taxpayer was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. A claim for tax exemption, whether full or partial, does not question the authority of local assessors to assess real property tax.

SMART COMMUNICATIONS, INC., vs. THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO CITYs. [G.R. No. 155491. July 21, 2009.]Facts: Smart obtained its legislative franchise under R.A. No. 7294. Sec. 9 of said law provides that “The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of' this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be   in lieu of all taxes   on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.” On January 1, 1992, the Local Government Code (R.A. No. 7160) took effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local government units. R.A. No. 7716 or the VAT Law was enacted which specifically expressed under Section 20, repealing provisions of all special laws (that includes the legislative franchise R.A. No. 7294, a special law) relative to the rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and regulations, or parts thereof which are inconsistent with it. It is in effect, rendered ineffective the “in lieu of all taxes” clause in R.A. No. 7294. Tax Code of the City of Davao, Section 1, Article 10 thereof, provides: “Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.Smart filed a special civil action for declaratory relief for the ascertainment of its rights and obligations under the Tax Code of the City of Davao and contends that its telecenter in Davao City is exempt from payment of franchise tax to the City. Issues/ Held:W/N SMART possesses exemption from Franchise Tax under Section 9, RA 7294 which contains “in lieu of taxes” clause- NOW/N “In lieu of taxes” clause applies to national taxes or local taxes or both- National onlyW/N there was a violation to the Constitutional prohibition against “impairment of contracts- NO

Ratio: R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart is exempted from. It is not clear whether the “in lieu of all taxes” provision in the franchise of Smart would include exemption from local or national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal. In this case, the doubt must be resolved in favor of the City of Davao. The “in lieu of all taxes” clause applies only to national internal revenue taxes and not to local taxes. It is clear that the “in lieu of all taxes” clause apply only to taxes under the NIRC and not to local taxes. If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. It should be noted that the “in lieu of all taxes” clause in R.A. No. 7294 has become functus officio with the abolition of the franchise tax on telecommunications companies. Currently, Smart along with other telecommunications companies pays the uniform 10% value-added tax. The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the sale or exchange of services, as provided in R.A. No. 7716, as amended by the Expanded Value Added Tax Law (R.A. No. 8241).There is no violation of Article III, Section 10 of the 1987 Philippine Constitution. The franchise of Smart does not expressly provide for exemption from local taxes. Absent the express provision on such exemption under the franchise, we are constrained to rule against it. Due to this ambiguity in the law, the doubt must be resolved against the grant of tax exemption. The Contract Clause has never been thought as a limitation on the exercise of the State’s power of taxation save only where a tax exemption has been granted for a valid consideration.

COMMISSIONER OF INTERNAL REVENUE, vs. BANK OF THE PHILIPPINE ISLANDS. [G.R. No. 178490. July 7, 2009.]Facts: CTA held that respondent Bank of the Philippine Islands (BPI) already exercised the irrevocable option to carry over its excess tax credits for the year 1998 to the succeeding years 1999 and 2000 and was, therefore, no longer entitled to claim the refund or issuance of a tax credit certificate for the amount thereof. Court of Appeals annulled and set aside the Decision. The Court of Appeals conceded that BPI indeed opted to carry over its excess tax credit in 1998 to 1999 by placing an "x" mark on the corresponding box of its 1998 ITR. Nonetheless, there was no actual carrying over of the excess tax credit, given that BPI suffered a net loss in 1999, and was not liable for any income tax for said taxable period, against which the 1998 excess tax credit could have been applied. Issue/ Held: W/N the Irrevocability Rule under Sec. 76 of the NIRC operate to bar petitioner from asking for a tax refund- YES Ratio: When BPI-Family was decided by this Court, it did not yet have the irrevocability rule to consider. Hence, BPI-Family cannot be cited as a precedent for this case.The factual background of Philam Asset Management, Inc. v. Commissioner of Internal Revenue, cited by the CIR, is closer to the instant Petition. Both involve tax credits acquired and claims for refund filed more than a decade after those in BPI-Family, to which Section 76 of the NIRC of 1997 already apply.The Court, in Philam, recognized the two options offered by Section 76 of the NIRC of 1997 to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are: (1) filing for a tax refund or (2) availing of a tax credit. These two options under Section 76 are alternative in nature. The choice of

one precludes the other. The Court categorically declared in Philam that: "Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable." It mentioned no exception or qualification to the irrevocability rule. Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. BPI itself never denied that its original intention was to carry over the excess income tax credit it acquired in 1998, and only chose to refund the said amount when it was unable to apply the same to any tax liability in the succeeding taxable years. There can be no doubt that BPI opted to carry over its excess income tax credit from 1998; it only subsequently changed its mind — which it was barred from doing by the irrevocability rule.

KEPCO PHILIPPINES CORPORATION, vs. COMMISSIONER OF INTERNAL REVENUE. [G.R. No. 179356. December 14, 2009.]

Facts: Korea Electric Power Corporation (KEPCO) Philippines Corporation (petitioner) is an independent power producer engaged in selling electricity to the National Power Corporation (NPC). Petitioner forged a Rehabilitation Operation Maintenance and Management Agreement with NPC for the rehabilitation and operation of Malaya Power Plant Complex in Pililia, Rizal. Petitioner filed with the Commissioner of Internal Revenue administrative claims for tax refund and unutilized input VAT payments attributable to its zero-rated sale transactions with NPC. Petitioner also filed a judicial claim before the Court of Tax Appeals (CTA).Issue/ Held: W/N the refund should be allowed- NORatio: Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to taxable operations. "Capital goods or properties" refer to goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services. For petitioner's purchases of domestic goods and services to be considered as "capital goods or properties," three requisites must concur. First, useful life of goods or properties must exceed one year; second, said goods or properties are treated as depreciable assets under Section 34 (f) and; third, goods or properties must be used directly or indirectly in the production or sale of taxable goods and services. From petitioner's evidence, the account vouchers specifically indicate that the disallowed purchases were recorded under inventory accounts, instead of depreciable accounts. That petitioner failed to indicate under its fixed assets or depreciable assets account, goods and services allegedly purchased pursuant to the rehabilitation and maintenance of Malaya Power Plant Complex, militates against its claim for refund. As correctly found by the CTA, the goods or properties must be recorded and treated as depreciable assets under Section 34 (F) of the NIRC. A general ledger is a record of a business entity's accounts which make up its financial statements. Information contained in a general ledger is gathered from source documents such as account vouchers, purchase orders and sales invoices. In case of variance between the source document and the general ledger, the former is preferred. The account vouchers presented by petitioner confirm that the purchases cannot qualify as capital goods for they are held as inventory items and not charged to any depreciable asset account. Petitioner has proffered no explanation why the disallowed items were not listed under depreciable asset accounts.

VALUE ADDED TAX

FORT BONIFACIO DEVELOPMENT CORPORATION, vs. COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8, BIRs.FORT BONIFACIO DEVELOPMENT CORPORATION, vs. COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUEs.[G.R. No. 170680. April 2, 2009.]Facts: It was under Rep. Act No. 7716 that VAT was imposed for the first time on the sale of real properties. FBDC acquired by way of sale from the national government, a vast tract of land that formerly formed part of the Fort Bonifacio military reservation, located in what is now the Fort Bonifacio Global City (Global City) in Taguig City. Since the sale was consummated prior to the enactment of Rep. Act No. 7716, no VAT was paid thereon. FBDC then proceeded to develop the tract of land, and from October, 1966 onwards it has been selling lots located in the Global City to interested buyers. Between July and October 1997, FBDC sent two (2) letters to the BIR requesting appropriate action on whether its use of its presumptive input VAT on its land inventory, to the extent of P28,413,783.00 in partial payment of its output VAT for the fourth quarter of 1996, was in order. After investigating the matter, the BIR recommended that the claimed presumptive input tax credit be disallowed. Eventually, FBDC received an Assessment Notice in the amount of P45,188,708.08, representing deficiency VAT for the 4th quarter of 1996, including surcharge, interest and penalty. After respondent Regional Director denied FBDC's motion for reconsideration/protest, FBDC filed a petition for review with the Court of Tax Appeals (CTA), which rendered a decision affirming the assessment made by the respondents. FBDC assailed the CTA decision through a petition for review filed with the Court of Appeals which rendered a decision affirming the CTA decision. The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the basis for the inventory of goods, materials and supplies upon which the transitional input VAT would be based "shall be left to regulation by the appropriate administrative authority". This is based on the phrase "filing of an inventory as prescribed by regulations" found in Section 105.Issue/ Held: W/N Section 105 of the Old NIRC may be interpreted in such a way as to restrict its application in the case of real estate dealers only to the improvements on the real property belonging to their beginning inventory, and not the entire real property itself- NORatio: Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax credit. Goods, as commonly understood in the business sense, refer to the product which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute their "goods". Such real properties are the operating assets of the real estate dealer.It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the enabling statute if such rule or regulation is to be valid. In case of conflict between a statute and an administrative order, the former must prevail. Indeed, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105 of the Old NIRC absent statutory authority or basis to make and justify such limitation. A contrary conclusion would mean the CIR could very well moot the law or arrogate legislative authority unto himself by retaining sole discretion to provide the definition and scope of the term "goods". It is clear that those regularly engaged in the real estate business are accorded the same treatment as the merchants of other goods or properties available in the market. In the same way that a milliner considers hats as his goods and a rancher considers cattle as his goods, a real estate dealer holds real property, whether or not it contains improvements, as his goods.

FORT BONIFACIO DEV'T. CORP. vs. COMMISSIONER OF INTERNAL REVENUE, ET AL.EN BANC

FORT BONIFACIO DEVELOPMENT CORPORATION, vs. COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8, BIRs.FORT BONIFACIO DEVELOPMENT CORPORATION, vs. COMMISSIONER OF INTERNAL REVENUE, REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE[G.R. No. 170680. October 2, 2009.]Facts: Motion for Reconsideration of the April 2, 2009 Held: DeniedRatio: 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 language of Section 105 is explicit. It precludes reading into the law that the transitional input tax credit is limited to the amount of VAT previously paid. When the aforesaid section speaks of "eight percent (8%) of the value of such inventory" followed by the clause "or the actual value-added tax paid on such goods, materials and supplies", the implication is clear that under the first clause, "eight percent (8%) of the value of such inventory", the law does not contemplate the payment of any prior tax on such inventory. This is distinguished from the second clause, "the actual value-added tax paid on the goods, materials and supplies" where actual payment of VAT on the goods, materials and supplies is assumed. Had the intention of the law been to limit the amount to the actual VAT paid, there would have been no need to explicitly allow a claim based on 8% of the value of such inventory.It is apparent that 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. During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments.

SAN ROQUE POWER CORP. vs. COMMISSIONER OF INTERNAL REVENUETHIRD DIVISION [G.R. No. 180345. November 25, 2009.]SAN ROQUE POWER CORPORATION, vs. COMMISSIONER OF INTERNAL REVENUE.Facts: Petitioner entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be able to generate additional power and energy for the Luzon Power Grid, by developing and operating the San Roque Multipurpose Project. The PPA provides that petitioner shall be responsible for the design, construction, installation, completion and testing and commissioning of the Power Station and it shall operate and maintain the same, subject to the instructions of the NPC. During the cooperation period of 25 years commencing from the completion date of the Power Station, the NPC shall purchase all the electricity generated by the Power Plant. Because of the exclusive nature of the PPA between petitioner and the NPC applied for and was granted five Certificates of Zero Rate by the BIR For the period January to December 2002 filed with the respondent its Monthly VAT Declarations and Quarterly VAT Returns. Its Quarterly VAT Returns showed excess input VAT payments on account of its importation and domestic purchases of goods and services. Petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input VAT. Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the latter to file with the CTA in Division, a Petition for Review. After a

hearing on the merits, the CTA Second Division denied petitioner's claim for tax refund or credit. Issue/ Held: W/N petitioner may claim a tax refund or credit – YESRatio: To claim refund or tax credit under Section 112 (A) must comply with the following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not been applied against output taxes during and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106 (A) (2) (1) and (2); 106 (B); and 108 (B) (1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) the claim is filed within two years after the close of the taxable quarter when such sales were made. Based on the evidence presented complied with the abovementioned requirements. It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries.

TARIFF AND CUSTOMS CODE

COMMISSIONER OF CUSTOMS, vs. COURT OF TAX APPEALS, LAS ISLAS FILIPINAS FOOD CORPORATION and PAT-PRO OVERSEAS CO., LTD.s. [G.R. Nos. 171516-17. February 13, 2009.]Facts: In decisions dated February 14, 2005 and February 16, 2005, the Collectors held that because LIFFC did not secure an import allocation from the SRA, the shipment was an illegal importation of refined sugar. They ordered its forfeiture in favor of the government. On appeal, the Commissioner affirmed the decisions of both Collectors. On April 15, 2005s appealed to the Court of Tax Appeals (CTA) via petitions for review. In a resolution, the CTA granted the motion and ordered the release of the shipment subject to LIFFC's filing of a continuing surety bondIssue/ Held: W/N the order of release was improper- YESRatio: Under Section 1202 of the TCCP, importation takes place when merchandise is brought into the customs territory of the Philippines with the intention of unloading the same at port. An exception to this rule is transit cargo entered for immediate exportation.For an entry for immediate exportation to be allowed under this provision, the following must concur:(a) there is a clear intent to export the article as shown in the bill of lading, invoice, cargo manifest or other satisfactory evidence; (b) the Collector must designate the vessel or aircraft wherein the articles are laden as a constructive warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft;(c) the imported articles are directly transferred from the vessel or aircraft designated as a constructive warehouse to the exporting vessel or aircraft and(d) an irrevocable domestic letter of credit, bank guaranty or bond in an amount equal to the ascertained duties, taxes and other charges is submitted to the Collector (unless it appears in the bill of lading, invoice, manifest or satisfactory evidence that the articles are destined for transshipment). None of the requisites above was present in this case. While respondents insist that the shipment was sent to the Philippines only for temporary storage and warehousing, the bill of lading clearly denominated "South Manila, Philippines" as the port of discharge. This not only negated any intent to export but also contradicted LIFFC's representation. Moreover,

the shipment was unloaded from the carrying vessel for the purpose of storing the same at LIFFC's warehouse. Importation therefore took place and the only logical conclusion is that the refined sugar was truly intended for domestic consumption.

SECRETARY OF FINANCE, vs. ORO MAURA SHIPPING LINES. [G.R. No. 156946. July 15, 2009.]Facts: The Maritime Industry Authority (MARINA) authorized the importation of one (1) unit vessel M/V "HARUNA. The Bureau of Customs (BOC) also required Glory Shipping Lines to post a bond in the amount equal to 150% of the duties, taxes and other charges due on the importation, conditioned on the re-exportation of the vessel upon termination of the charter period, but in no case to extend beyond the year 1999. Glory Shipping Lines' re-export bond expired. Almost two (2) months after, Glory Shipping Lines sent a Letter of Guarantee to the Collector guaranteeing to renew the Re-Export Bond on vessel M/V "HARUNA" on or before May 20, 1994; otherwise, it would pay the duties and taxes on said vessel. Glory Shipping Lines never complied with its Letter of Guarantee; neither did it pay the duties and taxes and other charges due on the vessel despite repeated demands made by the Collector of the Port of Mactan. Since the re-export bond was not renewed, the Collector of the Port of Mactan assessed it customs duties and other charges ,thereafter, it sent Glory Shipping Lines several demand letters. Glory Shipping Lines failed to pay the assessed duties despite receipt of these demand letters. Haruna Maritime S.A. and Glory Shipping Lines sold the M/V "HARUNA" to the respondent without informing or notifying the Collector of the Port of Mactan.Kariton and Company (Kariton), representing the respondent, inquired with the DOF if it could pay the duties and taxes due on the vessel, with the information that the vessel was acquired by Glory Shipping lines through a bareboat charter and was previously authorized by the DOF to be released under a re-export bond. After discovering that the vessel M/V "HARUNA" had been sold to the respondent, the Collector of the Port of Mactan sent the respondent a demand letter for the unpaid customs duties and charges of Glory Shipping Lines. When the respondent failed to pay, the Collector of the Port of Mactan instituted seizure proceedings against the vessel M/V "HARUNA" for violation of Section 2530, par. 1, subpar. (1) to (5) of the Tariff and Customs Code of the Philippines (TCCP).Collector of the Port of Mactan ordered the forfeiture of the vessel in favor of the Government, after finding that both Glory Shipping Lines and the respondent acted fraudulently in the transaction.The Cebu District Collector, acting on the respondent's appeal, reversed the decision of the Collector of the Port of Mactan. The Commissioner of Customs affirmed the decision of the Cebu District Collector and recommended his approval to the petitioner. In a 4th Indorsement , the petitioner affirmed the Commissioner's recommendation, but ordered a re-assessment of the vessel based on the entered value, without allowance for depreciation. CTA granted the respondent's petition and set aside the petitioner's 4th Indorsement, thus affirming the previous decision of the Commissioner of Customs. The CA affirmed the findings of the CTA in its decision Issue/ Held: W/N Secretary of Finance can order a re-assessment of the vessel M/V "HARUNA."- YESRatio: Significantly, the respondent never explained the considerable disparity between the dutiable value declared by Glory Shipping Lines and the dutiable value it declared — difference of P5,000,000.00 — so as to overturn or contradict this prima facie finding of fraud. We The exercise of due diligence alone would have alerted it to Glory Shipping Lines' acquisition cost and the vessel's declared value of its first entry. The respondent, being in the shipping business, should have known the standard prices of vessels and that the value it proposed to MARINA, as described in the second phase above, is extraordinarily low compared to the vessel's originally declared valuation. All these strengthen, rather than weaken, the prima facie evidence of fraud that the law dictates when an unconscionable disparity of valuations exists.Neither can the respondent hide behind the excuse that the vessel's dutiable value at P1,100,000.00 was approved by MARINA via the Authority to Import, taking into

consideration the vessel's depreciation brought about by its ordinary wear and tear. Nowhere in the TCCP does it state that the depreciated value of an imported item can be used as the basis to determine an imported item's dutiable value. Even assuming that the depreciated value of the vessel can be considered in determining the vessel's dutiable value, still, the Court finds that the decrease of 80% from the original price after the passage of only 19 months cannot be believed and thus should not be accepted. Assuming further that MARINA merely committed a mistake in approving the vessel's proposed acquisition cost at P1,100,000.00, and that the Collector of the Port of Manila similarly erred, estoppel generally finds no application against the State when it acts to rectify mistakes, errors, irregularities, or illegal acts, of its officials and agents, irrespective of rank. The Court’s finding of fraud leads to conclude that the assessment of the Collector of the Port of Manila cannot become final and conclusive pursuant to Section 1603 of the TCCP.