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SCOPE AND LIMITATIONS OF TAXATION
(Constitutional Limitations)
City of Manila, Hon. Alfredo S. Lim, as Mayor of the City of Manila, et al. vs. Hon. Angel Valera
Colet, as Presiding Judge, Regional Trial Court of Manila (Br. 43), et al.
G.R. No. 120051, December 10, 2014, J. Leonardo-De Castro
It is already well-settled that although the power to tax is inherent in the State, the same is not
true for the LGUs to whom the power must be delegated by Congress and must be exercised within the
guidelines and limitations that Congress may provide. In the case at bar, the sanggunian of the
municipality or city cannot enact an ordinance imposing business tax on the gross receipts of
transportation contractors, persons engaged in the transportation of passengers or freight by hire,
and common carriers by air, land, or water, when said sanggunian was already specifically prohibited
from doing so. Any exception to the express prohibition under Section 133(j) of the LGC should be just
as specific and unambiguous. Section 21(B) of the Manila Revenue Code, as amended, is null and void
for being beyond the power of the City of Manila and its public officials to enact, approve, and
implement under the LGC.
Facts:
Before the Court are 10 consolidated Petitions, the issue at the crux of which is the
constitutionality and/or validity of Section 21(B) of Ordinance No. 7794 of the City of Manila,
otherwise known as the Revenue Code of the City of Manila, as amended by Ordinance No. 7807.
The Manila Revenue Code was enacted on June 22, 1993 by the City Council of Manila and
approved on June 29, 1993 by then Manila Mayor Alfredo S. Lim (Lim). Section 21(B) of said Code
originally provided:
Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes Under
the NIRC. – On any of the following businesses and articles of commerce subject to the excise,value-added or percentage taxes under the National Internal Revenue Code, hereinafter
referred to as NIRC, as amended, a tax of three percent (3%) per annum on the gross sales or
receipts of the preceding calendar year is hereby imposed:
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee,
transportation contractors, persons who transport passenger or freight for hire, and common
carriers by land, air or water, except owners of bancas and owners of animal-drawn two-
wheel vehicle.
Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila on
September 27, 1993 and approved by Mayor Lim on September 29, 1993, already amending several
provisions of the Manila Revenue Code. Section 21 of the Manila Revenue Code, as amended,imposed a lower tax rate on the businesses that fell under it, and paragraph (B) thereof read as
follows:
Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes Under
the NIRC – On any of the following businesses and articles of commerce subject to theexcise, value-added or percentage taxes under the National Internal Revenue Code
hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE
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PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is
hereby imposed:
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee,
transportation contractors, persons who transport passenger or freight for hire, and common
carriers by land, air or water, except owners of bancas and owners of animal-drawn two-
wheel vehicle.
The City of Manila, through its City Treasurer, began imposing and collecting the business
tax under Section 21(B) of the Manila Revenue Code, as amended, beginning January 1994.
Thereafter, several corporations affected by the imposition of said tax, impugned the
constitutionality of Section 21(B) of Ordinance No. 7794 of the City of Manila.
Issue:
Whether or not Section 21(B) of the Manila Revenue Code, as amended, was in conformity
with the Constitution and the laws and, therefore, valid.
Ruling:
No. Section 21(B) of the Manila Revenue Code, as amended, is null and void for being
beyond the power of the City of Manila and its public officials to enact, approve, and implement
under the LGC.
It is already well-settled that although the power to tax is inherent in the State, the same is
not true for the LGUs to whom the power must be delegated by Congress and must be exercised
within the guidelines and limitations that Congress may provide. The Court expounded in Pelizloy
Realty Corporation v. The Province of Benguet that:
The power to tax “is an attribute of sovereignty,” and as such, inheres in the State.Such, however, is not true for provinces, cities, municipalities and barangays as they are not
the sovereign; rather, they are mere “territorial and political subdivisions of the Republic of
the Philippines”.
The rule governing the taxing power of provinces, cities, municipalities and barangays is
summarized in Icard v. City Council of Baguio:
It is settled that a municipal corporation unlike a sovereign state is clothed with no
inherent power of taxation. The charter or statute must plainly show an intent to confer
that power or the municipality, cannot assume it. And the power when granted is to be
construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the municipality. Inferences, implications,deductions – all these – have no place in the interpretation of the taxing power of a
municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is
delegated to it either by the Constitution or by statute. Section 5, Article X of the 1987 Constitution
is clear on this point:
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Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
Per Section 5, Article X of the 1987 Constitution, “the power to tax is no longer vestedexclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees
and other charges.” Nevertheless, such authority is “subject to such guidelines and limitations as the
Congress may provide”.
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic
Act No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs
local taxation and fiscal matters.
Among the common limitations on the taxing power of LGUs is Section 133(j) of the LGC,
which states that “unless otherwise provided herein,” the taxing power of LGUs shall not extend to“taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except asprovided in this Code.” Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from
imposing any tax on the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or water. Yet,
confusion arose from the phrase “unless otherwise provided herein,” found at the beginning of the
said provision. The City of Manila and its public officials insisted that said clause recognized the
power of the municipality or city, under Section 143(h) of the LGC, to impose tax “on any business
subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as
amended.” And it was pursuant to Section 143(h) of the LGC that the City of Manila and its public
officials enacted, approved, and implemented Section 21(B) of the Manila Revenue Code, as
amended.
The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h) of thesame Code, and Section 21(B) of the Manila Revenue Code, as amended, was manifestly in
contravention of the former. First , Section 133(j) of the LGC is a specific provision that explicitly
withholds from any LGU, i.e.,whether the province, city, municipality, or barangay, the power to tax
the gross receipts of transportation contractors, persons engaged in the transportation of
passengers or freight by hire, and common carriers by air, land, or water. In contrast, Section 143 of
the LGC defines the general power of the municipality (as well as the city, if read in relation to
Section 151 of the same Code) to tax businesses within its jurisdiction. While paragraphs (a) to (g)
thereof identify the particular businesses and fix the imposable tax rates for each, paragraph (h) is
apparently the “catch-all provision” allowing the municipality to impose tax “on any business, nototherwise specified in the preceding paragraphs, which the sanggunian concerned may deem
proper to tax[.]”
The succeeding proviso of Section 143(h) of the LGC, viz., “Provided, That on any business
subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as
amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the
preceding calendar year,” is not a specific grant of power to the municipality or city to impose
business tax on the gross sales or receipts of such a business. Rather, the proviso only fixes a
maximum rate of imposable business tax in case the business taxed under Section 143(h) of the
LGC happens to be subject to excise, value added, or percentage tax under the NIRC.
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In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance
imposing business tax on the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or water, when
said sanggunian was already specifically prohibited from doing so. Any exception to the express
prohibition under Section 133(j) of the LGC should be just as specific and unambiguous.
TAX CREDIT OR REFUND
SILKAIR (SINGAPORE) PTE. LTD., vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 184398, February 25, 2010, J. LEONARDO-DE CASTRO,
The tax burden for an indirect tax may be shifted to another. However, the tax liability remains
with the statutory taxpayer. As such, it is the statutory taxpayer who is the proper party to question, or
claim a refund or tax credit of an indirect tax.
Facts:
Silkair (Singapore) PTE. LTD., (Silkair, for brevity) a foreign corporation organized under
the laws of Singapore with a Philippine representative office in Cebu City, is an online international
carrier plying the Singapore-Cebu-Singapore and Singapore-Cebu-Davao-Singapore routes. On June
24, 2002, Silkair filed with the BIR an administrative claim for the refund of Three Million Nine
Hundred Eighty-Three Thousand Five Hundred Ninety Pesos and Forty-Nine Centavos
(P3,983,590.49) in excise taxes which it allegedly erroneously paid on its purchases of aviation jet
fuel from Petron Corporation (Petron) from June to December 2000. Thereafter, due to BIR’sinaction and to prevent the lapse of the two-year prescriptive period within which to judicially
claim a refund under Section 229 of the NIRC, Silkair filed a petition for review with the CTA.
Silkair based its claim on BIR Ruling No. 339-92 dated December 1, 1992, which declared
that its Singapore-Cebu-Singapore route is an international flight by an international carrier andthat the petroleum products it purchased should not be subject to excise taxes under Section 135 of
Republic Act No. 8424 or the 1997 National Internal Revenue Code (NIRC). The aforementioned
provision exempts from excise taxes the entities covered by tax treaties, conventions and other
international agreements; with due regard to the principle of reciprocity, which as it contended, can
be found under Article 4(2) of the Air Transport Agreement entered between the Republic of the
Philippines and the Republic of Singapore.
The CTA First Division found that notwithstanding Silkair’s qualification for tax exemption,
nevertheless it was still not entitled to the same for failure to present proof that it was authorized
to operate in the Philippines. With the CTA En Banc, it has been held that Silkair is not the proper
party to file the instant claim for refund.
Issue:
Whether or not petitioner is the proper party to claim for the refund/tax credit of excise
taxes paid on aviation fuel.
Ruling:
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It is Petron, not Silkair, which is the proper party to question, or seek a refund of, an indirect
tax.
Under Section 130(A)(2) of the NIRC provides that "[u]nless otherwise specifically allowed,
the return shall be filed and the excise tax paid by the manufacturer or producer before removal of
domestic products from place of production." When Petron removes its petroleum products from
its refinery in Limay, Bataan, it pays the excise tax due on the petroleum products thus removed.
Petron, as manufacturer or producer, is the person liable for the payment of the excise tax as shown
in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is the taxpayer that is
primarily, directly and legally liable for the payment of the excise taxes. However, since an excise
tax is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by
treating it as part of the cost of the goods and tacking it on the selling price.
In the case at bar, even if the burden of the tax was shifted or passed on to Silkair as the
purchaser and end-consumer, it does not transform the latter’s status into a statutory taxpayer as
the tax liability remains with Petron, the manufacturer or seller. The additional amount which
Silkair paid is not a tax but a part of the purchase price which it had to pay to obtain the goods.
Clearly, the proper party to question, or claim a refund or tax credit of an indirect tax is thestatutory taxpayer, which is Petron, as it is the company on which the tax is imposed by law and
which paid the same.
TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. vs. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 157594, March 9, 2010, J. Leonardo-De Castro
Under the old rule, whether a PEZA-registered enterprise was exempt or subject to VAT
depended on the type of fiscal incentives availed of by the said enterprise. If the PEZA-registered
enterprise is paying the 5% preferential tax in lieu of all other taxes, it cannot claim tax credit/refund
for the VAT paid on purchases. Conversely, if the taxpayer is availing of the income tax holiday, it can
claim VAT credit. However, upon the issuance by the BIR of RMC No. 74-99 on October 15, 1999, theCross Border Doctrine was clearly established. In effect, PEZA-registered enterprises are VAT-exempt
and no VAT can be passed on to them. Thus, any sale by a supplier from the Customs Territory to a
PEZA-registered enterprise as export sale should not be burdened by output VAT; hence, it is now
impossible to claim for a tax credit/refund.
Facts:
Toshiba Information Equipment (Phils.), Inc. (Toshiba, for brevity) is a domestic
corporation principally engaged in the business of manufacturing and exporting of electric
machinery, equipment systems, accessories, parts, components, materials and goods of all kinds,
including those relating to office automation and information technology and all types of computer
hardware and software, such as but not limited to HDD-CD-ROM and personal computer printedcircuit board. It is registered with the Philippine Economic Zone Authority (PEZA) as an Economic
Zone (ECOZONE) export enterprise in the Laguna Technopark, Inc. It is also registered as a VAT-
taxpayer. In its VAT returns for the first and second quarters of 1997, Toshiba declared input VAT
payments on its domestic purchases of taxable goods and services in the aggregate sum of
P3,875,139.65, with no zero-rated sales. Subsequently it submitted to the BIR its amended VAT
returns for the same period, indicating zero-rated sales totaling P7,494,677,000.00.
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On March 30, 1999, Toshiba filed two separate applications for tax credit/refund of its
unutilized input VAT payments for the first half of 1997 in the total amount of P3,685,446.73. The
next day, it likewise filed with the CTA a Petition for Review to toll the running of the two-year
prescriptive period under Section 230 of the Tax Code of 1977, as amended. The said claim was
however opposed by the Commissioner of Internal Revenue (CIR).
The CTA eventually decided in favor of Toshiba. However, the amount to be credited or
refunded to it was reduced to P1,385,292.02. Both parties filed Motions for Reconsideration which
were however both denied by the CTA. Unsatisfied, the CIR filed a Petition for Review with the
Court of Appeals. The appellate court ruled that Toshiba was not entitled to the refund of its alleged
unused input VAT payments because it was a tax-exempt entity under Section 24 of Republic Act
No. 7916.
Issue:
Whether Toshiba can claim for tax credit/refund of its unutilized input VAT payments.
Ruling:
The Petition is impressed with merit.
Upon the failure of the CIR to timely plead and prove before the CTA the defenses or
objections that Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916, and that its
export sales were VAT-exempt transactions under Section 103(q) of the Tax Code of 1977, as
amended, the CIR is deemed to have waived the same. It was only in its Motion for Reconsideration
of the CTA decision in favor of Toshiba that those were alleged. Surely, said defenses or objections
were already available to the CIR when the CIR filed his Answer to the Petition for Review of
Toshiba in CTA Case No. 5762.
More importantly, the arguments of the CIR that it was VAT-exempt and that its export saleswere VAT-exempt transactions are inconsistent with the explicit admissions of the CIR in the Joint
Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a registered VAT entity and that
it was subject to zero percent (0%) VAT on its export sales. The admission having been made in a
stipulation of facts at pre-trial by the parties, it must be treated as a judicial admission.
The said judicial admissions of the CIR are consistent with the ruling of this Court in a
previous case (Toshiba case) involving the same parties. It is now a settled rule that based on the
Cross Border Doctrine, PEZA-registered enterprises, such as Toshiba, are VAT-exempt and no VAT
can be passed on to them. The Court explained in the Toshiba case that – PEZA-registered enterprise, which would necessarily be located within ECOZONES,
are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as
amended, which imposes the five percent (5%) preferential tax rate on grossincome of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of
Section 8 of the same statute which establishes the fiction that ECOZONES are
foreign territory.
The Court, nevertheless, noted in the Toshiba case that the rule which considers any sale by
a supplier from the Customs Territory to a PEZA-registered enterprise as export sale, which should
not be burdened by output VAT, was only clearly established on October 15, 1999, upon the
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issuance by the BIR of RMC No. 74-99. It categorically declared that all sales of goods, properties,
and services made by a VAT-registered supplier from the Customs Territory to an ECOZONE
enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latter’s type or class
of PEZA registration; and, thus, the nature of a PEZA-registered or an ECOZONE enterprise as a
VAT-exempt entity was affirmed. Prior to October 15, 1999, whether a PEZA-registered enterprise
was exempt or subject to VAT depended on the type of fiscal incentives availed of by the said
enterprise.
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-
registered enterprise the option to choose between two sets of fiscal incentives: (a) The five
percent (5%) preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and
(b) the income tax holiday provided under Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 1987, as amended.
In the case at bar, Toshiba is claiming the refund of unutilized input VAT payments on its
local purchases of goods and services attributable to its export sales for the first and second
quarters of 1997. Such export sales took place before October 15, 1999, when the old rule on the
VAT treatment of PEZA-registered enterprises still applied. The BIR, as late as July 15, 2003, when itissued RMC No. 42-2003, accepted applications for credit/refund of input VAT on purchases prior
to RMC No. 74-99, filed by PEZA-registered enterprises which availed themselves of the income tax
holiday. It has been settled that if the PEZA-registered enterprise is paying the 5% preferential tax
in lieu of all other taxes, the said PEZA-registered taxpayer cannot claim TCC or refund for the VAT
paid on purchases. However, if the taxpayer is availing of the income tax holiday, it can claim VAT
credit provided: a) the taxpayer-claimant is VAT-registered; b) purchases are evidenced by VAT
invoices or receipts, whichever is applicable, with shifted VAT to the purchaser prior to the
implementation of RMC No. 74-99; and c) the supplier issues a sworn statement under penalties of
perjury that it shifted the VAT and declared the sales to the PEZA-registered purchaser as taxable
sales in its VAT returns. Therefore, under the old rule, Toshiba in availing of the income tax holiday
option, can be subject to VAT, both indirectly (as purchaser to whom the seller shifts the VAT
burden) and directly (as seller whose sales were subject to VAT, either at ten percent [10%] or zeropercent [0%]).
After what truly appears to be an exhaustive review of the evidence presented by Toshiba,
the CTA made the following findings: 1) the amended quarterly VAT returns of Toshiba for 1997
showed that it made no other sales, except zero-rated export sales, for the entire year, in the sum of
P3,875,139.65; 2) as not all of said amount was actually incurred by the company and duly
substantiated by invoices and official receipts, the CTA could not allow the credit/refund of the said
total input VAT and 3) ultimately, Toshiba was entitled to the credit/refund of unutilized input VAT
payments attributable to its zero-rated sales in the amounts of P1,158,016.82 and P227,265.26, for
the first and second quarters of 1997, respectively, or in the total amount of P1,385,282.08.
Since the aforementioned findings of fact of the CTA are borne by substantial evidence onrecord, unrefuted by the CIR, and untouched by the Court of Appeals, they are given utmost respect
by this Court. The Court will not lightly set aside the conclusions reached by the CTA which, by the
very nature of its functions, is dedicated exclusively to the resolution of tax problems and has
accordingly developed an expertise on the subject unless there has been an abuse or improvident
exercise of authority.
MERGER OR CONSOLIDATION OF CORPORATIONS
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COMMISSIONER OF INTERNAL REVENUE vs. BANK OF COMMERCE
G.R. No. 180529, November 13, 2013, J. Leonardo-De Castro
When the BIR had ruled that a purchase and sale agreement between two banks did not result
in their merger, and that the CIR had previously ruled that the same two banks are not merged, thebuyer bank is not liable for the deficiency DST of the seller bank.
Facts:
Bank of Commerce (BoC) and Traders Royal Bank (TRB) entered into a purchase and sale
agreement whereby it stipulated the TRB’s desire to sell and the BOC’s desire to purchase identified
recorded assets of TRB in consideration of BOC assuming identified recorded liabilities. Under the
Agreement, BOC and TRB shall continue to exist as separate corporations with distinct corporate
personalities.
A year later, BoC received copies of the Formal Assessment Notice addressed to TRB (NowBoC) demanding payment for deficiency Documentary Stamps Tax (DST) of TRB for the taxable
year 1999. TRB protested the Assessment, and BoC received the decision denying TRB’s protest.
BoC filed a petition for review with the CTA, 2nd Division, alleging that it cannot be made liable for
the TRB’s deficiency DST, pointing out that pursuant to the purchase and sale agreement, BoC and
TRB continued to exist as separate corporations with distinct corporate personalities. BOC
emphasized that there was no merger between it and TRB as it only acquired certain assets of TRB
in return for its assumption of some of TRB’s liabilities. While it did not make a categorical ruling on
the issue of merger between BOC and TRB, the CTA 1st Division did in Traders Royal Bank v.
Commissioner of Internal Revenue.
The Traders Royal Bank case, just like the case at bar, involved a deficiency DST assessmentagainst TRB on its SSD accounts, albeit for taxable years 1996 and 1997. When the CIR attempted to
implement a writ of execution against BOC, which was not a party to the case, by simply inserting
its name beside TRB’s in the motion for execution, BOC filed a Motion to Quash (By Way of Special
Appearance) with the CTA 1st Division, which the CTA 1st Division granted in a Resolution on June
18, 2007, primarily on the ground that there was no merger between BOC and TRB.
With the foregoing ruling, the CTA En Banc declared that BOC could not be held liable for
the deficiency DST assessed on TRB’s SSD accounts for taxable year 1999 in the interest of
substantial justice and to be consistent with the CTA 1st Division’s Resolution in the Traders Royal
Bank case.
The CTA En Banc also gave weight to BIR Ruling No. 10-200626 dated October 6, 2006
wherein the CIR expressly recognized the fact that the Purchase and Sale Agreement between BOC
and TRB did not result in their merger.
Issue:
May the deficiency DST of TRB be enforced and collected against BoC?
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Ruling:
The petition is denied.
The CTA 1st Division was spot on when it interpreted the Purchase and Sale Agreement tobe just that and not a merger. The Purchase and Sale Agreement, the document that is supposed to
have tied BOC and TRB together, was replete with provisions that clearly stated the intent of the
parties and the purpose of its execution.
Clearly, the CIR, in BIR Ruling No. 10-2006, ruled on the issue of merger without taking into
consideration TRB’s pending tax deficiencies. The ruling was based on the Purchase and Sale
Agreement, factual evidence on the status of both companies, and the Tax Code provision on
merger. The CIR’s knowledge then of TRB’s tax deficiencies would not be material as to affect the
CIR’s ruling. The resolution of the issue on merger depended on the agreement between TRB and
BOC, as detailed in the Purchase and Sale Agreement, and not contingent on TRB’s tax liabilities.
It is worthy to note that in the Joint Stipulation of Facts and Issues submitted by the parties,
it was explicitly stated that both BOC and TRB continued to exist as separate corporations with
distinct corporate personalities, despite the effectivity of the Purchase and Sale Agreement.
Considering the foregoing, this Court finds no reason to reverse the CTA En Banc’s Amended
Decision. In reconsidering its June 27, 2007 Decision, the CTA En Banc not only took into account
the CTA 1st Division’s ruling in Traders Royal Bank , which, save for the facts that BOC was not made
a party to the case, and the deficiency DST assessed were for taxable years 1996 and 1997, is almost
identical to the case herein; but more importantly, the CIR’s very own ruling on the issue of merger
between BOC.
DISSOLUTION OF A CORPORATION
PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. BUREAU OF INTERNAL REVENUE
G.R. No. 172892, June 13, 2013, J. Leonardo-De Castro
Bangko Sentral ng Pilipinas placed Rural Bank of Tuba (RBTI) under receivership with the
Philippine Deposit Insurance Corporation as the receiver. Accordingly, PDIC filed a petition for
assistance in the liquidation of RBTI which was approved by the trial court. As an incident of the
proceeding, BIR intervened as one of the creditors of RBTI. BIR contends that a tax clearance is
required before the approval of project of distribution of the assets of a bank. In denying their
contention, the Court held that Section 52(C) of the Tax Code of 1997 is not applicable to banks
ordered placed under liquidation by the Monetary Board, and a tax clearance is not a prerequisite tothe approval of the project of distribution of the assets of a bank under liquidation by the PDIC.
Facts:
In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko Sentral
ng Pilipinas (BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in
the Philippines, placed it under receivership in accordance with Section 30 of Republic Act No.
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7653, otherwise known as the “New Central Bank Act,” and designated the Philippine Deposit
Insurance Corporation (PDIC) as receiver. Subsequently, PDIC con ducted an evaluation of RBTI’sfinancial condition and determined that RBTI remained insolvent. Thus, the Monetary Board issued
Resolution No. 675 dated June 6, 1997 directing PDIC to proceed with the liquidation of RBTI.
Accordingly and pursuant to Section 30 of the New Central Bank Act, PDIC filed in the Regional Trial
Court (RTC) of La Trinidad, Benguet a petition for assistance in the liquidation of RBTI. The petition
was docketed as Special Proceeding Case No. 97SP0100 and raffled to Branch 8.5. In an Order
dated September 4, 1997, the trial court gave the petition due course and approved it. As an
incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as one of the creditors
of RBTI. The BIR prayed that the proceedings be suspended until PDIC has secured a tax clearance
required under Section 52(C) of Republic Act No. 8424, otherwise known as the “Tax Reform Act of
1997” or the “Tax Code of 1997,”. In an Order dated February 14, 2003, the trial court found meritin the BIR’s motion and granted it. In its Decision dated December 29, 2005, the appellate court
agreed with the trial court that banks under liquidation by PDIC are covered by Section 52(C) of the
Tax Code of 1997. Thus, the Court of Appeals affirmed the Orders of the Trial Court and dismissed
PDIC’s petition. PDIC sought reconsideration but it was denied. Hence, this petition.
Issue:
Whether a bank placed under liquidation has to secure a tax clearance from the BIR before
the project of distribution of the assets of the bank can be approved by the liquidation court.
Ruling:
The petition succeeds.
The Court has ruled in In Re: Petition for Assistance in the Liquidation of the Rural Bank of
Bokod (Benguet), Inc., Philippine Deposit Insurance Corporation v. Bureau of Internal Revenue that
Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under liquidation
by the Monetary Board, and a tax clearance is not a prerequisite to the approval of the project ofdistribution of the assets of a bank under liquidation by the PDIC. Three reasons have been given.
First, Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the relationship
between the SEC and the BIR with respect to corporations contemplating dissolution or
reorganization. On the other hand, banks under liquidation by the PDIC as ordered by the Monetary
Board constitute a special case governed by the special rules and procedures provided under
Section 30 of the New Central Bank Act, which does not require that a tax clearance be secured from
the BIR.19 As explained in In Re: Petition for Assistance in the Liquidation of the Rural Bank of
Bokod (Benguet), Inc.:
Section 52(C) of the Tax Code of 1997 and the BIRSEC Regulations No. 120 regulate
the relations only as between the SEC and the BIR, making a certificate of tax clearance a
prior requirement before the SEC could approve the dissolution of a corporation. x x x.
x x x x Section 30 of the New Central Bank Act lays down the proceedings for receivershipand liquidation of a bank. The said provision is silent as regards the securing of a tax
clearance from the BIR. The omission, nonetheless, cannot compel this Court to apply by
analogy the tax clearance requirement of the SEC, as stated in Section 52(C) of the Tax Code of
1997 and BIRSEC Regulations No. 1, since, again, the dissolution of a corporation by the SEC is
a totally different proceeding from the receivership and liquidation of a bank by the BSP. This
Court cannot simply replace any reference by Section 52(C) of the Tax Code of 1997 and the
provisions of the BIR-SEC Regulations No. 1 to the “SEC” with the “BSP.” To do so would be
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to read into the law and the regulations something that is simply not there, and would be
tantamount to judicial legislation.
Second, only a final tax return is required to satisfy the interest of the BIR in the liquidation
of a closed bank, which is the determination of the tax liabilities of a bank under liquidation by the
PDIC. In view of the timeline of the liquidation proceedings under Section 30 of the New Central
Bank Act, it is unreasonable for the liquidation court to require that a tax clearance be first secured
as a condition for the approval of project of distribution of a bank under liquidation. This point has
been elucidated thus:
[T]he alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax
clearance is to enable it to determine the tax liabilities of the closed bank. It raised the point
that since the PDIC, as receiver and liquidator, failed to file the final return of RBBI for the
year its operations were stopped, the BIR had no way of determining whether the bank still
had outstanding tax liabilities. To our mind, what the BIR should have requested from the
RTC, and what was within the discretion of the RTC to grant, is not an order for PDIC, as
liquidator of RBBI, to secure a tax clearance; but, rather, for it to submit the final return ofRBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction with
Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and liquidator ofRBBI, the duty to file such a return. x x x. x x x x
Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in
bankruptcy, and assignees, who operate and preserve the assets of a corporation, regardless of the
circumstances or the law by which they came to hold their positions, to file the necessary returns
on behalf of the corporation under their care. The filing by PDIC of a final tax return, on behalf of
RBBI, should already address the supposed concern of the BIR and would already enable the latter
to determine if RBBI still had outstanding tax liabilities.
Third, it is not for the Court to fill in any gap, whether perceived or evident, in current
statutes and regulations as to the relations among the BIR, as tax collector of the National
Government; the BSP, as regulator of the banks; and the PDIC, as the receiver and liquidator ofbanks ordered closed by the BSP. It is up to the legislature to address the matter through
appropriate legislation, and to the executive to provide the regulations for its implementation.
VAT (Transitional Input Tax)
FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, AND CHIEF ASSESSMENT DIVISION,
REVENUE REGION NO. 8
G.R. No. 158885
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, J. Leonardo-De Castro
The BIR cannot issue a revenue regulation contrary to what the NIRC provides such when the
said regulation limits the coverage of the provision in the NIRC. Such revenue regulation shall not
produce any effect and cannot be source of any right.
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Facts:
Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development
and sale of real property. On 8 February 1995, 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. The
sale was consummated prior to the enactment of Rep. Act No. 7716 therefore 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.
Following the effectivity of Rep. Act No. 7716, real estate transactions such as those
regularly engaged in by FBDC have since been made subject to VAT. As the vendor, FBDC from
thereon has become obliged to remit to the BIR output VAT payments it received from the sale of its
properties. FBDC likewise invoked its right to avail of the transitional input tax credit and
accordingly submitted an inventory list of real properties it owned.
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 theextent of P28,413,783.00 in partial payment of its output VAT for the fourth quarter of 1996, was in
order which was disallowed by the BIR.
The basis for the disallowance was Revenue Regulation 7-95 (RR 7-95) and Revenue
Memorandum Circular 3-96 (RMC 3-96). Section 4.105-1 of RR 7-95 provided the basis in main for
the CIR’s opinion, the section reading, thus:
Sec. 4.105-1. Transitional input tax on beginning inventories. – Taxpayers who
became VAT-registered persons upon effectivity of RA No. 7716 who have exceeded
the minimum turnover of P500,000.00 or who voluntarily register even if their
turnover does not exceed P500,000.00 shall be entitled to a presumptive input tax
on the inventory on hand as of December 31, 1995 on the following: (a) goodspurchased for resale in their present condition; (b) materials purchased for further
processing, but which have not yet undergone processing; (c) goods which have
been manufactured by the taxpayer; (d) goods in process and supplies, all of which
are for sale or for use in the course of the taxpayer’s trade or business as a VAT -
registered person.
However, in the case of real estate dealers, the basis of the presumptive input tax
shall be the improvements, such as buildings, roads, drainage systems, and other
similar structures, constructed on or after the effectivity of EO 273 (January 1,
1988).
The transitional input tax shall be 8% of the value of the inventory or actual VATpaid, whichever is higher, which amount may be allowed as tax credit against the
output tax of the VAT-registered person.
Consequently, 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.
FBDC filed a petition for review with the CTA which affirmed the assessment made by the BIR. The
CA also affirmed the decision of the CTA. In April 2009, the Supreme Court ruled in favor of FBDC
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and directed the BIR to refund FBDC the amount of P347,741,695.74 paid as output VAT for the
third quarter of 1997 in light of the persisting transitional input tax credit available to FBDC for the
said quarter, or to issue a tax credit corresponding to such amount.
Presently, the BIR moved for reconsideration claiming that Sec. 100 of the old NIRC did not
supply the treatment of real properties and transactions involving commercial goods.
Issue:
Whether or not real properties properly fall under the concept of goods for transitional
input tax considerations
Ruling:
The instant motion for reconsideration lacks merit.
The provisions of Section 105 of the NIRC, on the transitional input tax credit, remain intact
despite the enactment of RA 7716. Section 105 however was amended with the passage of the newNational Internal Revenue Code of 1997 (New NIRC), also officially known as Republic Act (RA)
8424. The provisions on the transitional input tax credit are now embodied in Section 111(A) of the
New NIRC, which reads:
Section 111. Transitional/Presumptive Input Tax Credits.
(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax
or any person who elects to be a VAT-registered person shall, subject to the filing of
an inventory according to rules and regulations prescribed by the Secretary of finance,
upon recommendation of the Commissioner , be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent for 8% of the value of such
inventory or the actual value-added tax paid on such goods, materials and supplies,whichever is higher, which shall be creditable against the output tax. [Emphasis
ours.]
The Commissioner of Internal Revenue (CIR) disallowed Fort Bonifacio Development
Corporations (FBDC) presumptive input tax credit arising from the land inventory on the basis of
Revenue Regulation 7-95 (RR 7-95) and Revenue Memorandum Circular 3-96 (RMC 3-96).
In the April 2, 2009 Decision sought to be reconsidered, the Court struck down Section
4.105-1 of RR 7-95 for being in conflict with the law. It held that the CIR had no power to limit the
meaning and coverage of the term goods in Section 105 of the Old NIRC sans statutory authority or
basis and justification to make such limitation. This it did when it restricted the application of
Section 105 in the case of real estate dealers only to improvements on the real property belongingto their beginning inventory.
A law must not be read in truncated parts; its provisions must be read in relation to the
whole law. It is the cardinal rule in statutory construction that a statutes clauses and phrases must
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 in order to produce a harmonious whole. Every
part of the statute must be interpreted with reference to the context, i.e., that every part of the
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On October 11, 1997, San Roque entered into a Power Purchase Agreement (PPA) with the
National Power Corporation (NPC) to develop the San Roque hydroelectric facilities located at San
Miguel, Pangasinan on a build-operate-transfer basis. During the co-operation period of 25 years,
commencing from the completion date of the power station, all the electricity generated by the
Project would be sold to and purchased exclusively by NPC.
San Roque alleged that in 2006, it incurred creditable input taxes from its purchase of capital
goods, importation of goods other than capital goods, and payment for the services of non-
residents. San Roque subsequently filed with the BIR separate claims for refund or tax credit of its
creditable input taxes for all four quarters of 2006. San Roque averred that it did not have any
output taxes to which it could have applied said creditable input taxes because: (a) the sale by San
Roque of electricity, generated through hydropower, a renewable source of energy, is subject to 0%
VAT under Section 108(B)(7) of the National Internal Revenue Code (NIRC) of 1997, as amended;
and (b) NPC is exempted from all taxes, direct and indirect, under Republic Act No. 6395, otherwise
known as the NPC Charter, so the sale by San Roque of electricity exclusively to NPC, under the PPA
dated October 11, 1997, is effectively zero-rated under Section 108(B)(3) of the NIRC of 1997, as
amended. When the Commissioner of Internal Revenue (CIR) failed to take action on its
administrative claims, San Roque filed two separate Petitions for Review before the CTA,particularly, C.T.A. Case No. 7744 (covering the first, third, and fourth quarters of 2006) and C.T.A.
Case No. 7802 (covering the second quarter of 2006).
Tax
Period
2006
VAT Return Administrative Claim Judicial Claim
First
Quarter
Filed: April 21, 2006
Amended: November 7,
2006
Filed: April 11, 2007
Amount: P2,857,174.95
Amended: March 10, 2008
Amount: P3,128,290.74
Filed: March 28, 2008
CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)
SecondQuarter
Filed: July 15, 2006Amended: November 8,
2006
Amended: February 5,
2007
Filed: July 10, 2007Amount: P15,044,030.82
Amended: March 10, 2008
Amount: P15,548,630.55
Filed: June 27, 2008CTA Case No. 7802
Amount: P15,548,630.55
Third
Quarter
Filed: October 19, 2006
Amended: February 5,
2007
Filed: August 31, 2007
Amount: P4,122,741.54
Amended: September 21,
2007
Amount: P3,675,574.21
Filed: March 28, 2008
CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)
Fourth
Quarter
Filed: January 22, 2007
Amended: May 12, 2007
Filed: August 31, 2007
Amount: P6,223,682.61
Amended: September 21,
2007
Amount: P5,311,012.39
Filed: March 28, 2008
CTA Case No. 7744
Amount: P12,114,877.34(for 1st, 3rd, and 4th
Quarters
of 2006)
The CTA Division dismissed the petition covering the first, third and fourth quarter[s] and
7802 covering [the] second quarter since the Court has no jurisdiction thereof. It rule:
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The Commissioner of Internal Revenue has one hundred twenty days or until
August 9, 2007, November 7, 2007 and December 29, 2007 within which to
make decision. After the lapse of the one hundred twenty[-]day period, [an
Roque should have elevated its claim with the Court within 30 days starting
from August 10, 2007 to September 8, 2007 for its first quarter claim, November
8, 2007 to December 7, 2007 for its second quarter claim, and December 30,
2007 toJanuary 28, 2008 for its third and fourth quarters claims pursuant to
Section 112(D) of the NIRC in relation to Section 11 of [Republic Act No.] 1125,
as amended by Section 9 of [Republic Act No.] 9282. Unfortunately, the Petitions
for Review on March 28, 2008 for the first, third and fourth quarters claims and
on June 27, 2008 for the second quarter claim, were filed beyond the 30-day
period set by law and therefore, the Court has no jurisdiction to entertain the
subject matter of the case considering that the 30-day appeal period provided
under Section 11 of [RepublicAct No.] 1125 is a jurisdictional requirement.
San Roque filed a Petition for Review before the CTA en banc, protesting against the
retroactive application of Commissioner of Internal Revenue v. Aichi Forging Company of Asia , Inc. In
Aichi, the Supreme Court strictly required compliance with the 120+30 day periods under Section112 of the NIRC of 1997, as amended. The CTA en banc upheld the application of Aichin and
explained that there was no retroactive application of the same. The 120+30 day periods had
already been provided in the NIRC of 1997, as amended, even before the promulgation of Aichi.
Aichi merely interpreted the provisions of Section 112 of the NIRC of 1997, as amended.
The CTA en banc applied the 120+30 day periods and found, same as the CTA First Division,
that while San Roque timely filed its administrative claims for refund or tax credit of creditable
input taxes for the four quarters of 2006, it filed its judicial claims beyond the 30-day prescriptive
period, reckoned from the lapse of the 120-day period for the CIR to act on the original
administrative claims. The CTA en banc stressed that the 30-day period within which to appeal with
the CTA is jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA
of its jurisdiction.
Issue:
Whether or not San Roque complied in the instant case with the prescriptive periods under
Section 112 of the NIRC of 1997, as amended.
Ruling:
San Roque filed its administrative claims for refund or tax credit of its creditable input taxes
for the four quarters of 2006 within the two-year prescriptive period under Section 112(A) of the
NIRC of 1997, as amended, however, it failed to comply with the 120+30 day periods for the filing of
its judicial claims:
Tax
Period
2006
Date of
Filing of
Administrative
Claim
End of 120-Day Period
for
CIR to Decide
End of 30-
day
Period to File
Appeal with
CTA
Date of Actual
Filing of
Judicial Claim
No. of
Days:
End of
120-day
Period to
Filing
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of Judicial
Claim
First
Quarter
April 11, 2007 August 9, 2007 September 8,
2007
March 28,
2008
232 days
Second
Quarter
July 10, 2007 November 7,
2007
December 7,
2007
June 27, 2008 233 days
ThirdQuarter
August 31,2007
December 29,2007
January 28,2008
March 28,2008
90 days
Fourth
Quarter
August 31,
2007
December 29,
2007
January 28,
2008
March 28,
2008
90 days
Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30-day mandatory
period under Section 112(C) of the NIRC of 1997, as amended, the CTA First Division did not
acquire jurisdiction over said cases and correctly dismissed the same.
The Court reiterated its decision in CIR vs. San Roque Power Corporation (2013):
Section 112(A) and (C) must be interpreted according to its clear, plain, andunequivocal language. The taxpayer can file his administrative claim for refund or credit
at anytime within the two-year prescriptive period. If he files his claim on the last day of
the two-year prescriptive period, his claim is still filed on time. The Commissioner will
have 120 days from such filing to decide the claim. If the Commissioner decides the
claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days
to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C)
San Roque argues against the supposedly retroactive application of Aichi and the strict observance
of the 120+30 day periods. As the CTA en banc held, Aichi was not applied retroactively to San
Roque in the instant case. The 120+30 day periods have already been prescribed under Section
112(C) of the NIRC of 1997, as amended, when San Roque filed its administrative and judicialclaims for refund or tax credit of its creditable input taxes for the four quarters of 2006. The Court
highlights the pronouncement in San Roque (2013)that strict compliance with the 120+30 day
periods is necessary for the judicial claim to prosper, except for the period from the issuance of BIR
Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010when Aichi was promulgated,
which again reinstated the 120+30day periods as mandatory and jurisdictional.
FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS,
BUREAU OF INTERNAL REVENUE
G.R. No. 175707, November 19, 2014, J. Leonardo-De Castro
The Court has consolidated these 3 petitions as they involve the same parties, similar facts and
common questions of law. This is not the first time that Fort Bonifacio Development Corporation
(FBDC) has come to this Court about these issues against the very same respondents (CIR), and the
Court En Banc has resolved them in two separate, recent cases that are applicable here. 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. To be valid, an administrative rule or regulation must
conform, not contradict, the provisions of the enabling law. An implementing rule or regulation cannot
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based on FBDC’s position that it is entitled to a transitional input tax credit under Section 105 of the
old NIRC, which more than offsets the VAT payments.
G.R. No. 175707
FBDC’s VAT returns filed with the BIR show that for the second quarter of 1997, FBDCreceived the total amount of P5,014,755,287.40 from its sales and lease of lots, on which the output
VAT payable was P501,475,528.74. The VAT returns likewise show that FBDC made cash payments
totaling P486,355,846.78 and utilized its input tax credit of P15,119,681.96 on purchases of goods
and services.
On February 11, 1999, FBDC filed with the BIR a claim for refund of the amount of
P486,355,846.78 which it paid in cash as VAT for the second quarter of 1997.
On May 21, 1999, FBDC filed with the CTA a petition for review by way of appeal, docketed
as CTA Case No. 5885, from the alleged inaction by the CIR of FBDC’s claim for refund. On October13, 2000, the CTA issued its Decision in CTA Case No. 5885 denying FBDC’s claim for refund for lack
of merit.
Petitioner filed with the Court of Appeals a Petition for Review of the CTA Decision. The CA
issued its Decision dismissing the Petition for Review. Hence, this Petition for Review was filed.
FBDC submitted its Memorandum stating that the said case is intimately related to the cases
of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. No. 158885,
and Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue," G.R. No.
170680, which were already decided by this Court, and which involve the same parties and similar
facts and issues.
Except for the amounts of tax refund being claimed and the periods covered for each claim,
the facts in this case and in the other two consolidated cases below are the same. The partiesentered into similar Stipulations in the other two cases consolidated here.
G.R. No. 180035
The petition in G.R. No. 180035 "seeks to correct the unauthorized limitation of the term
‘real properties’ to ‘improvements thereon’ by Revenue Regulations 7-95 and the error of the CTAand CA in sustaining the Regulations." This theory of FBDC is the same for all three cases now
before us.
On March 14, 2013, FBDC filed a Motion for Consolidation of G.R. No. 180035 with G.R. No.
175707.
G.R. No. 181092
On October 8, 1998 FBDC filed with the BIR a claim for refund of the amounts of
P269,340,469.45, which it paid as VAT. As of the date of the Petition, no action had been taken by
the CIR on FBDC’s claim for refund.
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On March 14, 2013, FBDC filed a Motion for Consolidation of G.R. No. 181092 with G.R. No.
175707.
On January 23, 2014, FBDC filed a Motion to Resolve these consolidated cases, alleging that
the parties had already filed their memoranda; that the principal issue in these cases, whether
FBDC is entitled to the 8% transitional input tax granted in Section 105 (now Section 111[A]) of the
NIRC based on the value of its inventory of land, and as a consequence, to a refund of the amounts it
paid as VAT for the periods in question, had already been resolved by the Supreme Court En Banc in
its Decision dated April 2, 2009 in G.R. Nos. 158885 and 170680, as well as its Decision dated
September 4, 2012 in G.R. No. 173425. Petitioner further alleges that said decided cases involve the
same parties, facts, and issues as the cases now before this Court.
Issues:
1. Whether or not the transitional/presumptive input tax credit under Section 105 of the NIRCmay be claimed only on the "improvements" on real properties;
2. Whether or not there must have been previous payment of sales tax or value added tax by
petitioner on its land before it may claim the input tax credit granted by Section 105 of theNIRC;
3. Whether or not the Revenue Regulations No. 7-95 is a valid implementation of Section 105of the NIRC; and
4. Whether or not the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration ofvalidity of said Regulations by the CTA and the CA, was in violation of the fundamental
principle of separation of powers.
Ruling:
As previously stated, the issues here have already been passed upon and resolved by this
Court En Banc twice, in decisions that have reached finality, and we are bound by the doctrine of
stare decisis to apply those decisions to these consolidated cases, for they involve the same facts,issues, and even parties.
Thus, we find for the arguments raised by FBDC.
The errors assigned by FBDC to the CA and the arguments offered by CIR to support the
denial of FBDC’s claim for tax refund have already been dealt with thoroughly by the Court En Banc
in Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. Nos. 158885
and 170680; and Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue,
G.R. No. 173425.
The Court held that FBDC is entitled to the 8% transitional input tax on its beginning
inventory of land, which is granted in Section 105 (nowSection 111[A]) of the NIRC, and granted therefund of the amounts FBDC had paid as output VAT for the different tax periods in question.
•
Whether or not the transitional/presumptive input tax credit under Section 105 of the NIRC may be
claimed only on the "improvements" on real properties.
The Court held in the earlier consolidated decision, G.R. Nos. 158885 and 170680, as
follows: there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real
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properties, together with the improvements thereon, in the beginning inventory of goods, materials
and supplies, based on which inventory the transitional input tax credit is computed.
When it was drafted Section 105 could not have possibly contemplated concerns specific to
real properties, as real estate transactions were not originally subject to VAT. When transactions on
real properties were finally made subject to VAT beginning with Rep. Act No. 7716, no
corresponding amendment was adopted as regards Section 105 to provide for a differentiated
treatment in the application of the transitional input tax credit with respect to real properties or
real estate dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real
estate transactions subject to VAT for the first time. Prior to the amendment, Section 100 had
imposed the VAT "on every sale, barter or exchange of goods", without specifying the kind of
properties that fall within or under the generic class "goods" subject to the tax.
Rep. Act No. 7716, which is also known as the Expanded Value-Added Tax (EVAT) law,
expanded the coverage of the VAT by amending Section 100 of the Old NIRC. First, it made every
sale, barter or exchange of "goods or properties" subject to VAT. Second, it generally defined "goodsor properties" as "all tangible and intangible objects which are capable of pecuniary estimation."
Third, it included a non-exclusive enumeration of various objects that fall under the class "goods or
properties" subject to VAT, including "real properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business.
From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the application of the
transitional input tax on them? We see none.
Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers
or held for lease in the ordinary course of trade or business" that are subject to the VAT, and not
when the real estate transactions are engaged in by persons who do not sell or lease properties inthe ordinary course of trade or business. 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.
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, refers 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.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties"
such "real properties held primarily for sale to customers or held for lease in the ordinary course oftrade or business." Said definition was taken from the very statutory language of Section 100 of the
Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only
contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the
same revenue regulation itself has provided.
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•
Whether or not there must have been previous payment of sales tax or value-added tax by FBDC on
its land before it may claim the input tax credit granted by Section 105 (now Section 111[A]) of the
NIRC.
Section 105 states that the transitional input tax credits become available either to (1) a
person who becomes liable to VAT; or (2) any person who elects to be VAT-registered. The clear
language of the law entitles new trades or businesses to avail of the tax credit once they become
VAT-registered. The transitional input tax credit, whether under the Old NIRC or the New NIRC,
may be claimed by a newly-VAT registered person such as when a business as it commences
operations. Nothing in the Old NIRC (or even the New NIRC) speaks of such a possibility or qualifies
the previous payment of VAT or any other taxes on the goods, materials and supplies as a pre-
requisite for inclusion in the beginning 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. The VAT-
registered taxpayer is obliged to remit a significant portion of the income it derived from its sales asoutput 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.
Under Section 105 of the Old NIRC, the rate of the transitional input tax credit is "8% of the
value of such inventory or the actual value-added tax paid on such goods, materials and supplies,
whichever is higher." If indeed the transitional input tax credit is premised on the previous
payment of VAT, then it does not make sense to afford the taxpayer the benefit of such credit based
on "8% of the value of such inventory" should the same prove higher than the actual VAT paid.
The Court En Banc in its Resolution in G.R. No. 173425 likewise discussed the question of
prior payment of taxes as a prerequisite before a taxpayer could avail of the transitional input taxcredit.
The Court found that FBDC is entitled to the 8% transitional input tax credit, and clearly
said that the fact that FBDC acquired the Global City property under a tax-free transaction makes no
difference as prior payment of taxes is not a prerequisite.
This position is solidly supported by law and jurisprudence, viz.:
First.Section 105 of the old National Internal Revenue Code (NIRC) clearly provides that for a
taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to
file a beginning inventory with the BIR. It was never mentioned in Section 105 that prior payment
of taxes is a requirement. x x x.
x x x x
Second. Since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to
require it now would be tantamount to judicial legislation which, to state the obvious, is not
allowed.
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Third. A transitional input tax credit is not a tax refund per se but a tax credit. Prior payment of
taxes is not required before a taxpayer could avail of transitional input tax credit. "Tax credit is not
synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus
returned by the taxing authority. Tax credit, is an amount subtracted directly from one's total tax
liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment."
The Court has ruled that prior payment of taxes is not required for a taxpayer to avail of the
8% transitional input tax credit provided in Section 105 of the old NIRC and that petitioner is
entitled to it, despite the fact that petitioner acquired the Global City property under a tax-free
transaction.
•
Whether or not Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC.
In the Decision in G.R. Nos. 158885 and 170680, the Court struck down Section 4.105-1 of
Revenue Regulations No. 7-95 for being in conflict with the law. The decision reads in part as
follows:
There is no logic that coheres with either E.O. No. 273 or Rep. Act No. 7716 which supports
the restriction imposed on real estate brokers and their ability to claim the transitional input tax
credit based on the value of their real properties. The very idea of excluding the real properties
itself from the beginning inventory simply runs counter to what the transitional input tax credit
seeks to accomplish for persons engaged in the sale of goods, whether or not such "goods" take the
form of real properties or commodities.
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, refers 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.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties"
such "real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business." Said definition was taken from the very statutory language of Section 100 of the
Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only
contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the
same revenue regulation itself has provided.
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.
The CIR has no power to limit the meaning of the term "goods" in Section 105 of the Old
NIRC absent statutory authority to make 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."
To be valid, an administrative rule or regulation must conform, not contradict, the
provisions of the enabling law. An implementing rule or regulation cannot modify, expand, or
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subtract from the law it is intended to implement. Any rule that is not consistent with the statute
itself is null and void.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input
tax credit under Section 105 is a nullity.
As we see it then, the 8% transitional input tax credit should not be limited to the value of
the improvements on the real properties but should include the value of the real properties as well.
• Whether or not the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity
of said Regulations by the CTA and the CA, was in violation of the fundamental principle of
separation of powers.
As pointed out in Our previous Decision, to give Section 105 a restrictive construction that
transitional input tax credit applies only when taxes were previously paid on the properties in the
beginning inventory and there is a law imposing the tax which is presumed to have been paid, is to
impose conditions or requisites to the application of the transitional tax input credit which are not
found in the law. The courts must not read into the law what is not there. To do so will violate the
principle of separation of powers which prohibits this Court from engaging in judicial legislation.
It is now this Court ’s duty to apply the previous rulings to the present case. Once a case hasbeen decided one way, any other case involving exactly the same point at issue, as in the present
case, should be decided in the same manner.
SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.) vs.
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 173241, March 25, 2015, J. Leonardo-De Castro
For failure of Silicon to comply with the provisions of Section 112(C) of the NIRC, its judicial
claims for tax refund or credit should have been dismissed by the CTA for lack of jurisdiction. The Courtstresses that the 120/30-day prescriptive periods are mandatory and jurisdictional, and are not mere
technical requirements.
Facts:
Silicon Philippines, Inc. (SPI) Is registered with Bureau of Internal Revenue (BIR) as a VAT
taxpayer.
On May 6, 1999, SPI filed an Application for Tax Credit/Refund of Value-Added Tax Paid
covering the Third Quarter of 1998 in the sum of P25,531,312.83.
When respondent Commissioner of Internal Revenue (CIR) failed to act upon its aforesaidApplication for Tax Credit/Refund, SPI filed on September 29, 2000 a Petition for Review before the
CTA Division. The CTA Division rendered a Decision on November 24, 2003 only partially granting
the claim of SPI for tax credit/refund for failure of SPI to properly substantiate the zero-rated sales
to which it attributed said taxes.
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SPI sought recourse from the CTA en banc by filing a Petition for Review which was
dismissed for lack of merit. SPI then filed a Petition for Review before the SC arguing that the CTA
en banc errred in not granting the whole claim for refund.
Issue:
Whether or not SIP may claim the said tax credit/refund of input Value-Added Tax
Ruling:
No. Petition is dismissed.
SPI filed on May 6, 1999 its administrative claim for tax credit/refund of the input VAT
attributable to its zero-rated sales and on its purchases of capital goods for the Third Quarter of
1998. The two-year prescriptive period for filing an administrative claim, reckoned from the close
of the taxable quarter, prescribed on September 30, 2000. Therefore, the herein administrative
claim of SPI was timely filed.
Evidently, SPI belatedly filed its judicial claim. It filed its Petition for Review with the CTA
391 days after the lapse of the 120-day period without the CIR acting on its application for tax
credit/refund, way beyond the 30-day period under Section 112 of the 1997 Tax Code.
Because the 30-day period for filing its judicial claim had already prescribed by the time SPI
filed its Petition for Review with the CTA Division, the CTA Division never acquired jurisdiction
over the said Petition. The CTA Division had absolutely no jurisdiction to act upon, take cognizance
of, and render judgment upon the Petition for Review of SPI in CTA Case No. 6170, regardless of the
merit of the claim of SPI. The Court stresses that the 120/30-day prescriptive periods are
mandatory and jurisdictional, and are not mere technical requirements. The Court should not
establish the precedent that noncompliance with mandatory and jurisdictional conditions can be
excused if the claim is otherwise meritorious, particularly in claims for tax refunds or credit. Suchprecedent will render meaningless compliance with mandatory and jurisdictional requirements.
DOCUMENTARY STAMPS TAX
JAKA INVESTMENTS CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 147629, July 28, 2010, J. Leonardo-De Castro
JEC contented that it overpaid documentary stamp tax but the court ruled that it failed to
prove such contention. A documentary stamp tax is in the nature of an excise tax. It is not imposed
upon the business transacted but is an excise upon the privilege, opportunity or facility offered at
exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction
of the business separate and apart from the business itself. Documentary stamp taxes are levied on theexercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments
Facts:
Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC), which
was then planning to undertake an initial public offering (IPO) and listing of its shares of stock with
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the Philippine Stock Exchange. JEC increased its authorized capital stock from One Hundred Eighty-
Five Million Pesos (P185,000,000.00) to Two Billion Pesos (P2,000,000,000.00). Petitioner JEC
proposed to subscribe to Five Hundred Eight Million Eight Hundred Six Thousand Two Hundred
Pesos (P508,806,200.00) out of the increase in the authorized capital stock of JEC through a tax-free
exchange under Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, as
amended, which was effected by the execution of a Subscription Agreement and Deed of
Assignment of Property in Payment of Subscription. Under this Agreement, as payment for its
subscription, petitioner will assign and transfer to JEC shares of stock. The intended IPO and listing
of shares of JEC did not materialize. However, JEC still decided to proceed with the increase in its
authorized capital stock and petitioner agreed to subscribe thereto, but under different terms of
payment. Thus, petitioner and JEC executed the Amended Subscription Agreement on September
5, 1994, wherein the above-enumerated RGHC, PGCI, and UCPB shares of stock were transferred to
JEC. In lieu of the FEBTC shares, however, the amount of Three Hundred Seventy Million Seven
Hundred Sixty-Six Thousand Pesos (P370,766,000.00) was paid for in cash by petitioner to JEC.
On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred Ninety-
Five Pesos and Sixty-Five Centavos (P1,003,895.65) for basic documentary stamp tax inclusive of
the 25% surcharge for late payment on the Amended Subscription Agreement
JEC subsequently sought a refund for the alleged excess documentary stamp tax andsurcharges it had paid on the Amended Subscription Agreement in the amount of Four Hundred
Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00), the difference between the amount
of documentary stamp tax it had paid and the amount of documentary stamp tax certified to by the
RDO, through a letter-request to the BIR dated October 10, 1996.
Issue:
Whether JEC is entitled to refund of the documentary stamp tax
Ruling:
No. JEC is not entitled for refund.
DST is a tax on the document itself and therefore the rate of tax must be determined
on the basis of what is written or indicated on the instrument itself independent of any
adjustment which the parties may agree on in the future . The DST upon the taxable document
should be paid at the time the contract is executed or at the time the transaction isaccomplished. The overriding purpose of the law is the collection of taxes. So that when it paid in
cash the amount ofP370,766,000.00 in substitution for, or replacement of the 1,313,176 FEBTC
shares, its payment of P1,003,835.65 documentary stamps tax pursuant to Section 175 of NIRC is in
order. Thus, applying the settled rule in this jurisdiction that, a claim for refund is in the nature of a
claim for exemption, thus, should be construed in strictissimi juris against the taxpayer
(Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332) and since the
petitioner failed to adduce evidence that will show that it is exempt from DST under Section 199 or
other provision of the tax code, the court ruled the focal issue in the negative.
A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the
business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges
for the transaction of the business. It is an excise upon the facilities used in the transaction of thebusiness separate and apart from the business itself. Documentary stamp taxes are levied on the
exercise by persons of certain privileges conferred by law for the creation, revision, or termination
of specific legal relationships through the execution of specific instruments.
Thus, we have held that documentary stamp taxes are levied independently of the legal
status of the transactions giving rise thereto. The documentary stamp taxes must be paid upon
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the issuanceof the said instruments, without regard to whether the contracts which gave rise to
them are rescissible, void, voidable, or unenforceable.
COMMISSIONER OF INTERNAL REVENUE
vs. MANILA BANKERS' LIFE INSURANCE CORPORATION
G.R. No. 169103, March 16, 2011, J. Leonardo-De Castro
Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto. It is in the nature of an excise tax because it is imposed upon the privilege, opportunity or
facility offered at exchanges for the transaction of the business. It is an excise upon the facilities used
in the transaction of the business distinct and separate from the business itself.
Facts:
Respondent is a duly organized domestic corporation primarily engaged in the life
insurance business. Two of the life insurance plans it offers are the “Money Plus Plan” and the
“Group Life Insurance”. The Money Plus Plan is a 20-year term ordinary life insurance plan with a"Guaranteed Continuity Clause" which allowed the policy holder to continue the policy after the 20-
year term subject to certain conditions. On the other hand, when a group insurance plan is availed
of, a group master policy is issued with the coverage and premium rate based on the number of the
members covered at that time.
On May 28, 1999, petitioner CIR issued a Letter of Authority authorizing a special team of
Revenue Officers to examine the books of accounts and other accounting records of respondent for
taxable year "1997 & unverified prior years”. Thereafter, based on the findings of the Revenue
Officers, the petitioner issued a Preliminary Assessment Notice against the respondent for its
deficiency internal revenue taxes for the year 1997. The respondent agreed to all the assessments
issued against it except to the amount of P2,351,680.90 representing deficiency documentary
stamp taxes on its policy premiums and penalties.
Subsequently, the petitioner issued against the respondent a Formal Letter of Demand with
the corresponding Assessment Notices attached, one of which was Assessment Notice No. ST-DST2-
97-0054-2000 pertaining to the documentary stamp taxes due on respondent’s policy premiums.
The tax deficiency was computed by including the increases in the life insurance coverage or the
sum assured by some of respondent’s life insurance plans.
The respondent then filed its Letter of Protest BIR contesting the assessment for deficiency
documentary stamp tax on its insurance policy premiums. However, the BIR failed to act on
respondent’s protest within the period required by law. Hence, the respondent filed a Petition for
Review with the CTA for the cancellation o
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