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Republic of the PhilippinesSupreme Court
Manila
SPECIAL SECOND DIVISION
NATIONAL POWER CORPORATION,
Petitioner,
- versus -
PROVINCE OF QUEZON andMUNICIPALITY OF PAGBILAO
,
Respondent.
G.R. No. 1715
Present:
CARPIO
MORALES, J.,
Acti
Chairperson,LEONARDO
DE CASTRO,
BRION,
ABAD, and
PEREZ,JJ.
Promulgated:
January2010
x ------------------------------------------------------------------------------------------x
R E S O L U T I O N
BRION,J.:
The petitioner National Power Corporation (Napocor) filed the
present motion for reconsideration[1] of the Courts Decision ofJuly 15,
2009, in which we denied Napocors claimed real property tax
exemptions. For the resolution of the motion, we deem it proper to provide
first a background of the case.
BACKGROUND FACTS
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The Province ofQuezon assessed Mirant Pagbilao Corporation
(Mirant) for unpaid real property taxes in the amount ofP1.5 Billion for the
machineries located in its power plant in Pagbilao, Quezon. Napocor, which
entered into a Build-Operate-Transfer (BOT) Agreement (entitledEnergyConversion Agreement) with Mirant, was furnished a copy of the tax
assessment.
Napocor (nota bene, not Mirant) protested the assessment before the
Local Board of Assessment Appeals (LBAA), claiming entitlement to the tax
exemptions provided under Section 234 of the Local Government Code
(LGC), which states:
Section 234. Exemptions from Real Property Tax. The following
are exempted from payment of the real property tax:
x x x x
(c) All machineries and equipment that are actually, directly,
and exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
x x x x
(e) Machinery and equipment used for pollution control andenvironmental protection.
x x x x
Assuming that it cannot claim the above tax exemptions, Napocor argued
that it is entitled to certain tax privileges, namely:
a. the lower assessment level of 10% under Section 218(d) of the
LGC for government-owned and controlled corporations engaged
in the generation and transmission of electric power, instead of the80% assessment level for commercial properties imposed in the
assessment letter; and
b. an allowance for depreciation of the subject machineries under
Section 225 of the LGC.
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In the Courts Decision of July 15, 2009, we ruled that Napocor is not
entitled to any of these claimed tax exemptions and privileges on the basis
primarily of the defective protest filed by the Napocor. We found that
Napocor did not file a valid protest against the realty tax assessment because
it did not possess the requisite legal standing. When a taxpayer fails toquestion the assessment before the LBAA, the assessment becomes final,
executory, and demandable, precluding the taxpayer from questioning the
correctness of the assessment or from invoking any defense that would
reopen the question of its liability on the merits.[2]
Under Section 226 of the LGC,[3]any owner or person having legal
interest in the property may appeal an assessment for real property taxes to
the LBAA. Since Section 250 adopts the same language in enumerating who
may pay the tax, we equated those who are liable to pay the tax to the same
entities who may protest the tax assessment. A person legally burdened with
the obligation to pay for the tax imposed on the property has the legal
interest in the property and the personality to protest the tax assessment.
To prove that it had legal interest in the taxed machineries, Napocor
relied on:.
1. the stipulation in the BOT Agreement that authorized the transfer
of ownership to Napocor after 25 years;
2. its authority to control and supervise the construction and
operation of the power plant; and3. its obligation to pay for all taxes that may be incurred, as provided
in the BOT Agreement.
Napocor posited that these indicated that Mirant only possessed naked title
to the machineries.
We denied the first argument by ruling that legal interest should be
one that is actual and material, direct and immediate, not simply
contingent or expectant.[4]
We disproved Napocors claim of control andsupervision under the second argument after reading the full terms of the
BOT Agreement, which, contrary to Napocors claims, granted Mirant
substantial power in the control and supervision of the power plants
construction and operation.[5]
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For the third argument, we relied on the Courts rulings inBaguio v.
Busuego[6] and Lim v. Manila.[7] In these cases, the Court essentially
declared that contractual assumption of tax liability alone is insufficient to
make one liable for taxes. The contractual assumption of tax liability must
be supplemented by an interest that the party assuming the liability had onthe property; the person from whom payment is sought must have also
acquired the beneficial use of the property taxed. In other words, he must
have the use and possession of the property an element that was missing in
Napocors case.
We further stated that the tax liability must be a liability that arises
from law, which the local government unit can rightfully and successfully
enforce, not the contractual liability that is enforceable only between the
parties to the contract. In the present case, the Province of Quezon is a third
party to the BOT Agreement and could thus not exact payment from
Napocor without violating the principle of relativity of contracts.[8] Corollarily, for reasons of fairness, the local government units cannot be
compelled to recognize the protest of a tax assessment from Napocor, an
entity against whom it cannot enforce the tax liability.
At any rate, even if the Court were to brush aside the issue of legal
interest to protest, Napocor could still not successfully claim exemption
under Section 234 (c) of the LGC because to be entitled to the exemption
under that provision, there must be actual, direct, and exclusive use ofmachineries. Napocor failed to satisfy these requirements.
THE MOTION FOR RECONSIDERATION
Although Napocor insists that it is entitled to the tax exemptions and
privileges claimed, the primary issue for the Court to resolve, however, is to
determinewhether Napocor has sufficient legal interest to protest the tax
assessmentbecause without the requisite interest, the tax assessment stands,
and no claim of exemption or privilege can prevail.
Section 226 of the LGC, as mentioned, limits the right to appeal the
local assessors action to the owner or the person having legal interest in the
property. Napocor posits that it is the beneficial owner of the subject
machineries, with Mirant retaining merely a naked title to secure certain
obligations. Thus, it argues that the BOT Agreement is a mere financing
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agreement and is similar to the arrangement authorized under Article 1503
of the Civil Code, which declares:
Art. 1503. When there is a contract of sale of specific goods, the
seller may, by the terms of the contract, reserve the right of possession or
ownership in the goods until certain conditions have been fulfilled. Theright of possession or ownership may be thus reserved notwithstanding the
delivery of the goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are
deliverable to the seller or his agent, or to the order of the seller or of hisagent, the seller thereby reserves the ownership in the goods. But, if
except for the form of the bill of lading, the ownership would have passed
to the buyer on shipment of the goods, the seller's property in the goods
shall be deemed to be only for the purpose of securing performance by
the buyer of his obligations under the contract.x x x x
Pursuant to this arrangement, Mirants ownership over the subject
machineries is merely a security interest, given only for the purpose of
ensuring the performance of Napocors obligations.
Napocor additionally contends that its contractual assumption liability
(through the BOT Agreement) for all taxes vests it with sufficient legal
interest because it is actually, directly, and materially affected by the
assessment.
While its motion for reconsideration was pending, Napocor filed
a Motion to Refer the Case to the Court En Banc considering that the issues
raised have far-reaching consequences in the power industry, the countrys
economy and the daily lives of the Filipino people, and since it involves the
application of real property tax provision of the LGC against Napocor, an
exempt government instrumentality.[9]
Also, the Philippine Independent Power Producers Association, Inc.(PIPPA) filed a Motion for Leave to Intervene and a Motion for
Reconsideration-in-Intervention. PIPPA is a non-stock corporation
comprising of privately-owned power generating companies which includes
TeaM Energy Corporation (TeaM Energy), successor of Mirant. PIPPA is
claiming interest in the case since any decision here will affect the other
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members of PIPPA, all of which have executed similar BOT agreements
with Napocor.
THE COURTS RULING
At the outset, we resolve to deny the referral of the case to the
Court en banc. We do not find the reasons raised by Napocor meritorious
enough to warrant the attention of the members of the Court en banc, as they
are merely reiterations of the arguments it raised in the petition for review
on certiorari that it earlier filed with the Court.[10]
Who may appeal a real
property tax assessment
Legal interest is defined as interest in property or a claim cognizable
at law, equivalent to that of a legal owner who has legal title to the property.[11] Given this definition, Napocor is clearly not vested with the requisite
interest to protest the tax assessment, as it is not an entity having the legal
title over the machineries. It has absolutely no solid claim of ownership or
even of use and possession of the machineries, as our July 15, 2009 Decision
explained.
A BOT agreement is not a mere financing arrangement. InNapocor
v. CBAA[12] a case strikingly similar to the one before us, we discussed the
nature of BOT agreements in the following manner:
The underlying concept behind a BOT agreement is defined and
described in the BOT law as follows:
Build-operate-and-transfer A contractual
arrangement whereby the project proponent undertakes the
construction, including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The project proponent operates the facility over a fixed term
during which it is allowed to charge facility users
appropriate tolls, fees, rentals, and charges not exceedingthose proposed in its bid or as negotiated and incorporated
in the contract to enable the project proponent to recover its
investment, and operating and maintenance expenses in theproject. The project proponent transfers the facility to
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the government agency or local government unit
concerned at the end of the fixed term which shall not
exceed fifty (50) years x x x x.
Under this concept, it is the project proponent who constructs the project
at its own cost and subsequently operates and manages it. The proponentsecures the return on its investments from those using the
projects facilities through appropriate tolls, fees, rentals, and charges not
exceeding those proposed in its bid or as negotiated. At the end of the
fixed term agreed upon, the project proponent transfers the
ownership of the facility to the government agency. Thus, the
government is able to put up projects and provide immediate services
without the burden of the heavy expenditures that a project start uprequires.
A reading of the provisions of the parties BOT Agreement shows
that it fully conforms to this concept. By its express terms, BPPC hascomplete ownership both legal and beneficial of the project,including the machineries and equipment used, subject only to the
transfer of these properties without cost to NAPOCOR after the lapse
of the period agreed upon. As agreed upon, BPPC provided the funds
for the construction of the power plant, including the machineries and
equipment needed for power generation; thereafter, it actually operatedand still operates the power plant, uses its machineries and equipment, and
receives payment for these activities and the electricity generated under a
defined compensation scheme. Notably, BPPC as owner-user isresponsible for any defect in the machineries and equipment.
x x x x
That some kind of financing arrangement is contemplated in
the sense that the private sector proponent shall initially shoulder theheavy cost of constructing the projects buildings and structures and of
purchasing the needed machineries and equipment is undeniable. The
arrangement, however, goes beyond the simple provision of funds, since
the private sector proponent not only constructs and buys the necessaryassets to put up the project, but operates and manages it as well during an
agreed period that would allow it to recover its basic costs and earn
profits. In other words, the private sector proponent goes into business foritself, assuming risks and incurring costs for its account. If it receives
support from the government at all during the agreed period, these are pre-
agreed items of assistance geared to ensure that the BOT agreementsobjectives both for the project proponent and for the government are
achieved. In this sense, a BOT arrangement is sui generisand isdifferent from the usual financing arrangements where funds are
advanced to a borrower who uses the funds to establish a project that it
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owns, subject only to a collateral security arrangement to guard against the
nonpayment of the loan. It is different, too, from an arrangement where a
government agency borrows funds to put a project from a private sector-lender who is thereafter commissioned to run the project for the
government agency. In the latter case, the government agency is the
owner of the project from the beginning, and the lender-operator is merelyits agent in running the project.
If the BOT Agreement under consideration departs at all from theconcept of a BOT project as defined by law, it is only in the way BPPCs
cost recovery is achieved; instead of selling to facility users or to the
general public at large, the generated electricity is purchased by
NAPOCOR which then resells it to power distribution companies. Thisdeviation, however, is dictated, more than anything else, by the structure
and usages of the power industry and does not change the BOT nature of
the transaction between the parties.
Consistent with the BOT concept and as implemented, BPPC theowner-manager-operator of the project is the actual user of its
machineries and equipment. BPPCs ownership and use of the
machineries and equipment are actual, direct, and immediate, while
NAPOCORs is contingent and, at this stage of the BOT Agreement,
not sufficient to support its claim for tax exemption. Thus, the CTAcommitted no reversible error in denying NAPOCORs claim for tax
exemption. [Emphasis supplied.]
Given the special nature of a BOT agreement as discussed in the citedcase, we find Article 1503 inapplicable to define the contract between
Napocor and Mirant, as it refers only to ordinary contracts of sale. We thus
declared in Tatad v. Garcia[13]that under BOT agreements, the private
corporations/investors are the owners of the facility or machinery
concerned. Apparently, even Napocor and Mirant recognize this principle;
Article 2.12 of their BOT Agreement provides that until the Transfer Date,
[Mirant] shall, directly or indirectly, own the Power Station and all the
fixtures, fitting, machinery and equipment on the Site x x x. [Mirant] shall
operate, manage, and maintain the Power Station for the purpose ofconverting fuel of Napocor into electricity.
Moreover, if Napocor truly believed that it was the owner of the
subject machineries, it should have complied with Sections 202 and 206 of
the LGC which obligates owners of real property to:
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a. file a sworn statement declaring the true value of the real property,
whether taxable or exempt;[14]and
b. file sufficient documentary evidence supporting its claim for taxexemption.[15]
While a real property owners failure to comply with Sections 202 and 206
does not necessarily negate its tax obligation nor invalidate its legitimate
claim for tax exemption, Napocors omission to do so in this case can be
construed as contradictory to its claim of ownership of the subject
machineries. That it assumed liability for the taxes that may be imposed on
the subject machineries similarly does not clothe it with legal title over the
same. We do not believe that the phrase person having legal interest in
the propertyin Section 226 of the LGC can include an entity that
assumes another persons tax liability by contract.
A review of the provisions of the LGC on real property taxation
shows that the phrase has been repeatedly adopted and used to define an
entity:
a. in whose name the real property shall be listed, valued, and
assessed;[16]
b. who may be summoned by the local assessor to gather informationon which to base the market value of the real property;[17]
c. who may protest the tax assessment before the LBAA[18] and may
appeal the latters decision to the CBAA;[19]
d. who may be liable for the idle land tax,[20] as well as who may be
exempt from the same;[21]
e. who shall be notified of any proposed ordinance imposing a
special levy,[22] as well as who may object the proposed ordinance;[23]
f. who may pay the real property tax;[24]
g. who is entitled to be notified of the warrant of levy and against
whom it may be enforced;[25]
h. who may stay the public auction upon payment of the delinquent
tax, penalties and surcharge;[26] and
i. who may redeem the property after it was sold at the public
auction for delinquent taxes.[27]
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For the Court to consider an entity assuming another persons tax liability by
contract as aperson having legal interest in the real property would extend
to it the privileges and responsibilities enumerated above. The framers of
the LGC certainly did not contemplate that the listing, valuation, andassessment of real property can be made in the name of such entity; nor did
they intend to make the warrant of levy enforceable against it. Insofar as the
provisions of the LGC are concerned, this entity is a party foreign to the
operation of real property tax laws and could not be clothed with any legal
interest over the property apart from its assumed liability for tax. The rights
and obligations arising from the BOT Agreement between Napocor and
Mirant were of no legal interest to the tax collector
the Province of Quezon which is charged with the performance of
independent duties under the LGC.[28]
Some authorities considera person whose pecuniary interests is or
may be adversely affected by the tax assessment as one who has legal
interest in the property (hence, possessed of the requisite standing to protest
it), citing Cooleys Law on Taxation.[29] The reference to this foreign
material, however, is misplaced. The tax laws of the United States deem it
sufficient that a persons pecuniary interestsare affected by the tax
assessment to consider him as a person aggrieved and who may thus avail of
the judicial or administrative remedies against it. As opposed to our LGC,
mere pecuniary interest is not sufficient; our law has required legalinterestin the property taxed before any administrative or judicial remedy
can be availed. The right to appeal a tax assessment is a purely statutory
right; whether a person challenging an assessment bears such a relation to
the real property being assessed as to entitle him the right to appeal is
determined by the applicable statute in this case, our own LGC, not US
federal or state tax laws.
In light of our ruling above, PIPPAs motion to intervene and motion
for reconsideration-in-intervention is already mooted. PIPPA as anorganization of independent power producers is not an interested party
insofar as this case is concerned. Even if TeaM Energy, as Mirants
successor, is included as one of its members, the motion to intervene and
motion for reconsideration-in-intervention can no longer be entertained, as it
amounts to a protest against the tax assessment that was filed without the
complying with Section 252 of the LGC, a matter that we shall discuss
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below. Most importantly, our Decision has not touched or affected at all the
contractual stipulations between Napocor and its BOT partners for the
formers assumption of the tax liabilities of the latter.
Payment under protest isrequired before an appeal to
the LBAA can be made
Apart from Napocors failure to prove that it has sufficient legal
interest, a further review of the records revealed another basis for
disregarding Napocors protest against the assessment.
The LBAA dismissed Napocors petition for exemption for its failure
to comply with Section 252 of the LGC [30] requiring payment of the assailedtax before any protest can be made. Although the CBAA ultimately
dismissed Napocors appeal for failure to meet the requirements for tax
exemption, it agreed with Napocors position that the protest contemplated
in Section 252 (a) is applicable only when the taxpayer is questioning the
reasonableness or excessiveness of an assessment. It presupposes that the
taxpayer is subject to the tax but is disputing the correctness of the amount
assessed. It does not apply where, as in this case, the legality of the
assessment is put in issue on account of the taxpayers claim that it is
exempt from tax. The CTA en banc agreed with the CBAAs discussion,relying mainly on the cases ofTy v. Trampe[31]and Olivarez v. Marquez.[32]
We disagree. The cases ofTy and Olivarezmust be placed in their
proper perspective.
The petitioner in Ty v. Trampe questioned before the trial court the
increased real estate taxes imposed by and being collected
in Pasig City effective from the year 1994, premised on the legal question of
whether or not Presidential Decree No. 921 (PD 921) was repealed by theLGC. PD 921 required that the schedule of values of real properties in the
Metropolitan Manila area shall be prepared jointly by the city assessors in
the districts created therein; while Section 212 of the LGC stated that the
schedule shall be prepared by the provincial, city or municipal assessors of
the municipalities within the Metropolitan Manila Area for the different
classes of real property situated in their respective local government units for
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enactment by ordinance of the Sanggunian concerned. The private
respondents assailed Tys act of filing a prohibition petition before the trial
court contending that Ty should have availed first the administrative
remedies provided in the LGC, particularly Sections 252 (on payment under
protest before the local treasurer) and 226 (on appeals to the LBAA).
The Court, through former Chief Justice Artemio Panganiban,
declared that Ty correctly filed a petition for prohibition before the trial
court against the assailed act of the city assessor and treasurer. The
administrative protest proceedings provided in Section 252 and 226 will not
apply. The protest contemplated under Section 252 is required where
there is a question as to the reasonableness or correctness of the amount
assessed. Hence, 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. Otherwise, the city or municipal treasurer will not act on his
protest. Ty however 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. These were not questions merely of amounts
of the increase in the tax but attacks on the very validity of any
increase. Moreover, Ty was raising a legal question that is properly
cognizable by the trial court; no issues of fact were involved. In
enumerating the power of the LBAA, Section 229 declares that the
proceedings of the Board shall be conducted solely for the purpose of
ascertaining the facts x x x. Appeals to the LBAA (under Section 226) aretherefore fruitful only where questions of fact are involved.
Olivarez v. Marquez, on the other hand, involved a petition
forcertiorari, mandamus, and prohibition questioning the assessment and
levy made by the City ofParaaque. Olivarez was seeking the annulment of
his realty tax delinquency assessment. Marquez assailed Olivarez failure to
first exhaust administrative remedies, particularly the requirement of
payment under protest. Olivarez replied that his petition was filed to
question the assessors authority to assess and collect realty taxes andtherefore, as held in Ty v. Trampe, the exhaustion of administrative remedies
was not required. The Court however did not agree with Olivarezs
argument. It found that there was nothing in his petition that supported his
claim regarding the assessors alleged lack of authority. What Olivarez
raised were the following grounds: (1) some of the taxes being collected
have already prescribed and may no longer be collected as provided in
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Section 194 of the Local Government Code of 1991; (2) some properties
have been doubly taxed/assessed; (3) some properties being taxed are no
longer existent; (4) some properties are exempt from taxation as they are
being used exclusively for educational purposes; and (5) some errors are
made in the assessment and collection of taxes due on petitionersproperties, and that respondents committed grave abuse of discretion in
making the improper, excessive and unlawful the collection of taxes against
the petitioner. The Olivarez petition filed before the trial court
primarily involved the correctness of the assessments, which is a question
of fact that is not allowed in a petition forcertiorari, prohibition,
and mandamus. Hence, we declared that the petition should have been
brought, at the very first instance, to the LBAA, not the trial court.
Like Olivarez, Napocor, by claiming exemption from realty taxation,
is simply raising a question of the correctness of the assessment. A claim
for tax exemption, whether full or partial, does not question the
authority of local assessor to assess real property tax. This may be
inferred from Section 206 which states that:
SEC. 206.Proof of Exemption of Real Property from Taxation. -
Every person by or for whom real property is declared, who shall claim
tax exemption for such property under this Title shall file with the
provincial, city or municipal assessor within thirty (30) days from the dateof the declaration of real property sufficient documentary evidence in
support of such claim including corporate charters, title of ownership,articles of incorporation, bylaws, contracts, affidavits, certifications andmortgage deeds, and similar documents. If the required evidence is not
submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall
be proven to be tax exempt, the same shall be dropped from the
assessment roll. [Emphasis provided]
By providing that real property not declared and proved as tax-exempt shall
be included in the assessment roll, the above-quoted provision implies that
the local assessor has the authority to assess the property for realty taxes,and any subsequent claim for exemption shall be allowed only when
sufficient proof has been adduced supporting the claim. Since Napocor was
simply questioning the correctness of the assessment, it should have first
complied with Section 252, particularly the requirement of payment under
protest. Napocors failure to prove that this requirement has been complied
with thus renders its administrative protest under Section 226 of the LGC
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without any effect. No protest shall be entertained unless the taxpayer first
pays the tax.
It was an ill-advised move for Napocor to directly file an appeal with
the LBAA under Section 226 without first paying the tax as required underSection 252. Sections 252 and 226 providesuccessive administrative
remedies to a taxpayer who questions the correctness of an
assessment. Section 226, in declaring that any owner or person having
legal interest in the property who is not satisfied with the action of the
provincial, city, or municipal assessor in the assessment of his propertymay
x x x appeal to the Board of Assessment Appeals x x x, should be read in
conjunction with Section 252 (d), which states that in the event that the
protest is denied x x x, the taxpayer may avail of the remedies as
provided for in Chapter 3, Title II, Book II of the LGC [Chapter 3 refers to
Assessment Appeals, which includes Sections 226 to 231]. The action
referred to in Section 226 (in relation to a protest of real property tax
assessment) thus refers to the local assessors act of denying the protest filed
pursuant to Section 252. Without the action of the local assessor, the
appellate authority of the LBAA cannot be invoked. Napocors action
before the LBAA was thus prematurely filed.
For the foregoing reasons, we DENY the petitioners motion for
reconsideration.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson
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TERESITA J. LEONARDO-DE CASTRO
Associate Justice
ROBERTO A. ABAD
Associate Justice
JOSE P. PEREZ
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached inconsultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, it is hereby certified that the conclusions
in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
[1]Rollo, pp. 498-517.[2]FELS Energy Inc. v. Province of Batangas, G.R. No. 168557, February 16, 2007, 516 SCRA 186.
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[3] SEC. 226.Local Board of Assessment Appeals. - Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under
oath in the form prescribed for the purpose, together with copies of the tax declarations and suchaffidavits or documents submitted in support of the appeal.
[4]
Citing Cario v. Ofilado, G.R. No. 102836, January 18, 1993, 217 SCRA 206.[5] Citing Articles 2.1, 3.1, 5.1, and 5.3 of the Energy Conversion Agreement.[6] 188 Phil. 218 (1980).[7] G.R. No. 90639, February 21, 1990, 182 SCRA 482.[8] CIVIL CODE, Article 1311.[9]Rollo, p. 535.[10] Supreme Court Circular No. 2-98.[11]Blacks Law Dictionary (5th ed.), pp. 805-806.[12] G.R. No. 171470, January 30, 2009, 57 SCRA 418, 434-437.[13] 313 Phil. 296, 323, 326 (1995).[14] SEC. 202.Declaration of Real Property by the Owner or Administrator. - It shall be the duty of all
persons, natural or juridical, owning or administering real property, including the improvements
therein, within a city or municipality, or their duly authorized representative, to prepare, or cause to
be prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the
true value of their property, whether previously declared or undeclared, taxable or exempt, whichshall be the current and fair market value of the property, as determined by the declarant. Such
declaration shall contain a description of the property sufficient in detail to enable the assessor or hisdeputy to identify the same for assessment purposes. The sworn declaration of real property herein
referred to shall be filed with the assessor concerned once every three (3) years during the period from
January first (1st) to June thirtieth (30th) commencing with the calendar year 1992. [emphasis provided][15] SEC. 206.Proof of Exemption of Real Property from Taxation. - Every person by or for whom real
property is declared, who shall claim tax exemption for such propertyunder this Title shall
file with the provincial, city or municipal assessor within thirty (30) days from the date of the
declaration of real property sufficient documentary evidence in support of such claim including
corporate charters, title of ownership, articles of incorporation, bylaws, contracts, affidavits,certifications and mortgage deeds, and similar documents. If the required evidence is not submitted
within the period herein prescribed, the property shall be listed as taxable in the assessment roll.
However, if the property shall be proven to be tax exempt, the same shall be dropped from theassessment roll.
[16] SEC. 205.Listing of Real Property in the Assessment Rolls. - (a) In every province and city, including
the municipalities within the Metropolitan Manila Area, there shall be prepared and maintained by the
provincial, city or municipal assessor an assessment roll wherein shall be listed all real property,
whether taxable or exempt, located within the territorial jurisdiction of the local government unitconcerned. Real property shall be listed, valued and assessed in the name of the owner or
administrator, or anyone having legal interest in the property. x x x x.[17] SEC. 213.Authority of Assessor to Take Evidence. - For the purpose of obtaining information on which
to base the market value of any real property, the assessor of the province, city or municipality or his
deputy may summon the owners of the properties to be affected or persons having legal interest
therein and witnesses, administer oaths, and take deposition concerning the property, its ownership,
amount, nature, and value.[18]
Supra note 3.[19] SEC. 229.Action by the Local Board of Assessment Appeals. x x x x
(c) The secretary of the Board shall furnish the owner of the property or the person having legal interesttherein and the provincial or city assessor with a copy of the decision of the Board. In case the
provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the
owner of the property or the person having legal interest therein of such fact using the form
prescribed for the purpose. Theowner of the property or the person having legal interest
therein or the assessor who is not satisfied with the decision of the Board, may, within thirty (30)
days after receipt of the decision of said Board, appeal to the Central Board of Assessment appeals,
as herein provided. The decision of the Central Board shall be final and executory.
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[20] SEC. 237.Idle Lands, Coverage. - For purposes of real property taxation, idle lands shall include the
following:
(a) "Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland
fishery, and other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by
the owner of the property or person having legal interest therein." Agricultural lands planted topermanent or perennial crops with at least fifty (50) trees to a hectare shall not be considered idle
lands. Lands actually used for grazing purposes shall likewise not be considered idle lands.(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000)
square meters in area one-half (1/2) of which remain unutilized or unimproved by the owner of the
property or person having legal interest therein. Regardless of land area, this Section shall
likewise apply to residential lots in subdivisions duly approved by proper authorities, the ownership
of which has been transferred to individual owners, who shall be liable for the additional tax:
Provided, however, That individual lots of such subdivisions, the ownership of which has not beentransferred to the buyer shall be considered as part of the subdivision, and shall be subject to the
additional tax payable by subdivision owner or operator.[21] SEC. 238.Idle Lands Exempt from Tax. - A province or city or a municipality within the Metropolitan
Manila Area may exempt idle lands from the additional levy by reason of force majeure, civil
disturbance, natural calamity or any cause or circumstance which physically or legally prevents
the owner of the property or person having legal interest therein from improving, utilizing or
cultivating the same.[22] SEC. 242.Publication of Proposed Ordinance Imposing a Special Levy. - Before the enactment of an
ordinance imposing a special levy, thesanggunian concerned shall conduct a public hearing thereon;
notify in writing theowners of the real property to be affected or the persons having legal interest
therein as to the date and place thereof and afford the latter the opportunity to express their positions or
objections relative to the proposed ordinance.[23] SEC. 244. Taxpayers' Remedies Against Special Levy. - Any owner of real property affected by a
special levy or any person having a legal interest therein may, upon receipt of the written notice of
assessment of the special levy, avail of the remedies provided for in Chapter 3, Title Two, Book II of
this Code.[24] SEC. 250.Payment of Real Property Taxes in Installments. - The owner of the real property or the
person having legal interest therein may pay the basic real property tax and the additional tax forSpecial Education Fund (SEF) due thereon without interest in four (4) equal installments; the first
installment to be due and payable on or before March Thirty-first (31st); the second installment, on or
before June Thirty (30); the third installment, on or before September Thirty (30); and the lastinstallment on or before December Thirty-first (31st), except the special levy the payment of which
shall be governed by ordinance of thesanggunian concerned. The date for the payment of any other tax
imposed under this Title without interest shall be prescribed by thesanggunian concerned. Payments of
real property taxes shall first be applied to prior years delinquencies, interests, and penalties, if any, and
only after said delinquencies are settled may tax payments be credited for the current period.[25] SEC. 258.Levy on Real Property. - After the expiration of the time required to pay the basic real
property tax or any other tax levied under this Title, real property subject to such tax may be levied
upon through the issuance of a warrant on or before, or simultaneously with, the institution of the civil
action for the collection of the delinquent tax. The provincial or city treasurer, or a treasurer of a
municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant of levy
shall prepare a duly authenticated certificate showing the name of the delinquent owner of the
property or person having legal interest therein, the description of the property, the amount of the
tax due and the interest thereon. The warrant shall operate with the force of a legal execution throughoutthe province, city or a municipality within the Metropolitan Manila Area. The warrant shall be mailed to
or served upon the delinquent owner of the real property or person having legal interest therein, orin case he is out of the country or cannot be located, to the administrator or occupant of the property. At
the same time, written notice of the levy with the attached warrant shall be mailed to or served upon the
assessor and the Registrar of Deeds of the province, city or a municipality within the Metropolitan
Manila Area where the property is located, who shall annotate the levy on the tax declaration and
certificate of title of the property, respectively. The levying officer shall submit a report on the levy to
thesanggunian concerned within ten (10) days after receipt of the warrant by the owner of the property
or person having legal interest therein.
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[26] SEC. 260.Advertisement and Sale. - Within thirty (30) days after service of the warrant of levy, the
local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion
thereof as may be necessary to satisfy the tax delinquency and expenses of sale. The advertisement shall
be effected by posting a notice at the main entrance of the provincial, city or municipal building, and in
a publicly accessible and conspicuous place in thebarangay where the real property is located, and bypublication once a week for two (2) weeks in a newspaper of general circulation in the province, city or
municipality where the property is located. The advertisement shall specify the amount of the delinquenttax, the interest due thereon and expenses of sale, the date and place of sale, the name of the owner of
the real property or person having legal interest therein, and a description of the property to be sold. At
any time before the date fixed for the sale, the owner of the real property or person having legal
interest therein may stay the proceedings by paying the delinquent tax, the interest due thereon and the
expenses of sale. The sale shall be held either at the main entrance of the provincial, city or municipal
building, or on the property to be sold, or at any other place as specified in the notice of the sale. Withinthirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to
thesanggunian concerned, and which shall form part of his records. The local treasurer shall likewise
prepare and deliver to the purchaser a certificate of sale which shall contain the name of the purchaser, a
description of the property sold, the amount of the delinquent tax, the interest due thereon, the expenses
of sale and a brief description of the proceedings: Provided, however, That proceeds of the sale in
excess of the delinquent tax, the interest due thereon, and the expenses of sale shall be remitted to the
owner of the real property or person having legal interest therein. The local treasurer may, by ordinance
duly approved, advance an amount sufficient to defray the costs of collection thru the remedies providedfor in this Title, including the expenses of advertisement and sale.
[27] SEC. 254.Notice of Delinquency in the Payment of the Real Property Tax. x x x x(b) Such notice shall specify the date upon which the tax became delinquent and shall state that personal
property may be distrained to effect payment. It shall likewise state that at any time before the distraint
of personal property, payment of the tax with surcharges, interests and penalties may be made in
accordance with the next following Section, and unless the tax, surcharges and penalties are paid before
the expiration of the year for which the tax is due except when the notice of assessment or special levy
is contested administratively or judicially pursuant to the provisions of Chapter 3, Title II, Book II of
this Code, the delinquent real property will be sold at public auction, and the title to the property will
be vested in the purchaser, subject, however, to the right of the delinquent owner of the property or
any person having legal interest therein to redeem the property within one (1) year from the date of
sale.
SEC. 261.Redemption of Property Sold. - Within one (1) year from the date of sale, the owner of thedelinquent real property or person having legal interest therein, or his representative, shall have the
right to redeem the property upon payment to the local treasurer of the amount of the delinquent tax,
including the interest due thereon, and the expenses of sale from the date of delinquency to the date of
sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of
sale to the date of redemption. Such payment shall invalidate the certificate of sale issued to thepurchaser and the owner of the delinquent real property or person having legal interest therein shall be
entitled to a certificate of redemption which shall be issued by the local treasurer or his deputy. From
the date of sale until the expiration of the period of redemption, the delinquent real property shall
remain in the possession of the owner or person having legal interest therein who shall be entitled to the
income and other fruits thereof. The local treasurer or his deputy, upon receipt from the purchaser of the
certificate of sale, shall forthwith return to the latter the entire amount paid by him plus interest of not
more than two percent (2%) per month. Thereafter, the property shall be free from the lien of such
delinquent tax, interest due thereon and expenses of sale.[28]Hamilton Mfg. Co. v. City of Lowell, 274 Mass. 477, 175 N.E. 73.[29] Cooley on Taxation (4th ed.), Volume 3, 1207, p. 2420.[30] SEC. 252.Payment Under Protest. - (a) No protest shall be entertained unless the taxpayer first pays the
tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in writing
must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the
protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.
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(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax
liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book IIof this Code.
[31]
321 Phil. 81, 101-102 (1995).[32] G.R. No. 155591, September 22, 2004, 438 SCRA 679, 686, 687.
FIRST DIVISION
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TAMBUNTING PAWNSHOP,
INC.,
Petitioner,
- versus -
COMMISSIONER OF
INTERNAL REVENUE,
Respondent.
G.R. No. 179085
Present:
PUNO, C.J., Chairperson,CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR.,JJ.
Promulgated:
January 21, 2010
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Petitioner protested the assessment.[2] As the protest merited no
response, it filed a Petition for Review[3]with the Court of Tax Appeals
(CTA) pursuant to Section 228 of the National Internal Revenue Code,[4]
raising the following arguments:
A. Pawnshops are not subject to Value Added Tax
pursuant to Section 108 of the National Internal
Revenue Code.[5]
B. Petitioner properly withheld and remitted to the
respondent the correct amount of expanded
withholding tax for taxable year 1999.[6]
C. Petitioner has already paid the assessed amount
of P 14,398.38 [sic], representing deficiencywithholding tax on compensation, thus, assessment
on withholding on compensation must be cancelled.[7]
D. Petitioners pawn tickets are not subject to
documentary stamp tax pursuant to existing laws
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andjurisprudence.[8] (emphasis and underscoring in
the original)
The First Division of the CTA ruled that petitioner is liable for
VAT and documentary stamp tax but not for withholding tax on
compensation and expanded withholding tax.[9] Thus it disposed:
WHEREFORE, premises considered, the Petition for Review
is PARTIALLY GRANTED. Respondents assessments for deficiency
Expanded Withholding Tax and Withholding Tax on Compensation
for the taxable year 1999, in the amounts of Twenty One Thousand
Seven Hundred Twenty Three and 75/100 Pesos (P21,723.75) andSixty
Seven Thousand Two Hundred One and 55/100 Pesos (P67,201.55),
respectively, are hereby CANCELLED and SET ASIDE. However,
the assessments for deficiency Value-Added Tax and DocumentaryStamp Tax are hereby AFFIRMED.
Accordingly, petitioner is ORDERED TO PAY the respondent
the amount of Three Million Fifty Five Thousand Five Hundred Sixty
Four and 34/100 Pesos(P3,055,564.34) and Four Hundred Six
Thousand Ninety Two and 500/100 Pesos (P406,092.50) representing
deficiency Value-Added Tax and Documentary Stamp Tax,
respectively, for the taxable year 1999, plus 20% delinquency interest
from February 18, 2003 up to the time such amount is fully paid
pursuant to Section 249 (c) of the 1997 NIRC.
SO ORDERED.[10] (emphasis in the original; underscoring
supplied)
Petitioners Motion for Partial Reconsideration[11] having been
denied,[12] it filed a Petition for Review[13]before the CTA En Banc which
dismissed[14] it as it did petitioners Motion for Reconsideration.[15]
Hence, the present Petition for Review on Certiorari.[16]
To petitioner, a pawnshop is not enumerated as one of those
engaged in sale or exchange of services[17]in Section 108 of the
National Internal Revenue Code.[18] Citing Commissioner of Internal
Revenue v. Michel J. Lhuillier Pawnshops, Inc.,[19]it contends that the
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nature of the business of pawnshops does not fall under service as
defined under the Legal Thesaurus of William C. Burton, viz:
accommodate, administer to, advance, afford, aid, assist, attend, be of
use, care for, come to the aid of, commodere, comply, confer a benefit,contribute to, cooperate, deservire, discharge ones duty, do a service, do
ones bidding, fill an office, forward, furnish aid, furnish assistance,
give help, lend, aid, minister to, promote, render help, servire, submit,
succor, supply aid, take care of, tend, wait on, work for.[20]
The petition is in part meritorious.
On the issue of whether pawnshops are liable to pay VAT, the
Court, in First Planters Pawnshop, Inc. v. Commissioner of InternalRevenue,[21]held:
In fine, prior to the [passage of the] EVAT Law [in 1994],
pawnshops were treated as lending investors subject to lending
investor's tax. Subsequently, with the Court's ruling inLhuillier,
pawnshops were then treated as VAT-able enterprises under the
general classification of "sale or exchange of services" under Section
108 (A) of the Tax Code of 1997, as amended. R.A. No. 9238 [which
was passed in 2004] finally classified pawnshops as Other Non-bank
Financial Intermediaries.
The Court finds that pawnshops should have been treated as
non-bank financial intermediaries from the very beginning, subject to
the appropriate taxes provided by law, thus
Under the National Internal Revenue Code of
1977, pawnshops should have been levied the 5% percentage tax on
gross receipts imposed on bank and non-bank financial
intermediaries under Section 119 (now Section 121 of the Tax Code of
1997);
With the imposition of the VAT under R.A. No. 7716 orthe EVAT Law, pawnshops should have been subjected to the 10%
VAT imposed on banks and non-bank financial intermediaries and
financial institutions under Section 102 of the Tax Code of 1977 (now
Section 108 of the Tax Code of 1997);
This was restated by R.A. No. 8241, 24 which amended
R.A. No. 7716, although the levy, collection and assessment of the
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10% VAT on services rendered by banks, non-bank financial
intermediaries, finance companies, and other financial intermediaries
not performing quasi-banking functions, were made effective January
1, 1998;
R.A. No. 8424 or the Tax Reform Act of 1997 26likewise imposed a 10% VAT under Section 108 but the levy,
collection and assessment thereof were again deferred until December
31, 1999;
The levy, collection and assessment of the 10% VAT
was further deferred by R.A. No. 8761 until December 31, 2000, and
by R.A. No. 9010, until December 31, 2002;
With no further deferments given by law, the levy,
collection and assessment of the 10% VAT on banks, non-bank
financial intermediaries, finance companies, and other financialintermediaries not performing quasi-banking functions were finally
made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238 in 2004,
the services of banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing quasi-
banking functions were specifically exempted from VAT, 28 and the
0% to 5% percentage tax on gross receipts on other non-bank
financial intermediaries was reimposed under Section 122 of the Tax
Code of 1997.
At the time of the disputed assessment, that is, for the year
2000, pawnshops were not subject to 10% VAT under the general
provision on "sale or exchange of services" as defined under Section
108 (A) of the Tax Code of 1997, which states: "'sale or exchange of
services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration . . . ." Instead, due to the specific nature of its business,
pawnshops were then subject to 10% VAT under the category of non-
bank financial intermediaries[.]
Coming now to the issue at hand Since petitioner is a non-
bank financial intermediary, it is subject to 10% VAT for the tax
years 1996 to 2002; however, with the levy, assessment and collection
of VAT from non-bank financial intermediaries being
specifically deferred by law, then petitioner is not liable for VAT
during these tax years. But with the full implementation of the VAT
system on non-bank financial intermediaries starting January 1, 2003,
petitioner is liable for 10% VAT for said tax year. Andbeginning
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2004 up to the present, by virtue of R.A. No. 9238, petitioner is no
longer liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5%, as the case may be. (emphasis and
underscoring supplied)
In light of the foregoing ruling, since the imposition of VAT on
pawnshops, which are non-bank financial intermediaries, was deferred
for the tax years 1996 to 2002, petitioner is not liable for VAT for the
tax year 1999.
In dodging liability for documentary stamp tax on its pawn
tickets, petitioner argues that such tickets are neither securities nor
printed evidence of indebtedness.[22] The argument fails.
Section 195 of the National Internal Revenue Code provides:
Section 195. On every mortgage or pledge of lands, estate or
property, real or personal, heritable or movable, whatsoever, where
the same shall be made as a security for the payment of any definite
and certain sum of money lent at the time or previously due and
owing or forborne to be paid, being payable, and on any conveyance
of land, estate, or property whatsoever, in trust or to be sold, or
otherwise converted into money which shall be and intended only as
security, either by express stipulation or otherwise, there shall be
collected a documentary stamp tax x x x. (underscoring supplied)
Construing this provision vis a vis pawn tickets, the Court held inMichel
J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue:
x x x A D[ocumentary] S[tamp] T[ax] is an excise tax on
the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto. x x x
x x x x
Pledge is among the privileges, the exercise of which is subject
to DST. A pledge may be defined as an accessory, real and unilateral
contract by virtue of which the debtor or a third person delivers to the
creditor or to a third person movable property as security for the
performance of the principal obligation, upon the fulfillment of which
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the thing pledged, with all its accessions and accessories, shall be
returned to the debtor or to the third person. This is essentially the
business of pawnshops which are defined under Section 3 of
Presidential Decree No. 114, or the Pawnshop Regulation Act, as
persons or entities engaged in lending money on personal property
delivered as security for loans.
x x x x
Section 3 of the Pawnshop Regulation Act defines a pawn
ticket as follows:
Pawn ticket is the pawnbrokers receipt for a
pawn. It is neither a security nor a printed evidence of
indebtedness.
True, the law does not consider said ticket as an evidence of
security or indebtedness. However, for purposes of taxation, the samepawn ticket is proof of an exercise of a taxable privilege of concluding
a contract of pledge. There is therefore no basis in petitioners
assertion that a DST is literally a tax on a document and that no tax
may be imposed on a pawn ticket.[23] (emphasis and underscoring
supplied)
With respect to petitioners argument against liability for
surcharges and interest that it was in good faith in not payingdocumentary stamp taxes, it having relied on the rulings of respondent
CIR and the CTA that pawn tickets are not subject to documentary
stamp taxes[24] the Court finds the same meritorious.It is settled that good faith and honest belief that one is not subject
to tax on the basis of previous interpretations of government agencies
tasked to implement the tax law are sufficient justification to delete the
imposition of surcharges and interest.[25]
WHEREFORE, the petition is IN PART GRANTED. The May24, 2007 Decision of the Court of Tax Appeals is AFFIRMED with
theMODIFICATION that the assessment deficiency value-added taxes
for the taxable year 1999 and for surcharges and delinquency interest
on deficient Value-Added Tax and Documentary Income Tax are SET
ASIDE.
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SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice
LUCAS P. BERSAM
Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
CERTIFICATION
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Pursuant to Section 13, Article VIII of the Constitution, I certify
that the conclusions in the above decision had been reached in
consultation before the case was assigned to the writer of the opinion ofthe Courts Division.
REYNATO S. PUNO
Chief Justice
SECOND DIVISION
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COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,
- versus -
JULIETA ARIETE,
Respondent.
G.R. No. 164152
Present:
CARPIO,J., Chairperson,BRION,
DEL CASTILLO,
ABAD, and
PEREZ,JJ.
Promulgated:
January 21, 2010
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D E C I S I O N
CARPIO, J.:
The Case
The Commissioner of Internal Revenue (petitioner) filed this Petition
for Review[1] to reverse the Court of Appeals (CA) Decision[2] dated 14 June
2004 in CA-G.R. SP No. 70693. In the assailed decision, the CA affirmed
the Court of Tax Appeals (CTA) Decision[3]
and Resolution dated 15January 2002 and 3 May 2002, respectively. The CTA cancelled the
assessments issued against Julieta Ariete (respondent) for deficiency income
taxes ofP191,463.04 for the years 1993, 1994, 1995, and 1996.
The Facts
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On 21 May 1997, George P. Mercado filed an Affidavit with the
Special Investigation Division, Revenue Region No. 19, Davao City. The
affidavit attested that respondent earned substantial income in 1994, 1995,
and 1996 without paying income tax.[4]
The Chief of the Special Investigation Division (SID Chief) issued
Mission Order No. 118-97 dated 23 May 1997, directing a Revenue Officer
to conduct preliminary verification of the denunciation made and submit a
progress report. The SID Chief also sent a request to access the BIR records
of Revenue District No. 112, Tagum, Davao del Norte (RDO), inquiring if
the income tax returns of respondent for the years 1993 to 1996 are available
for examination. The RDO replied that respondent had no records of incometax returns for the years 1993 to 1996.[5]
On 15 October 1997, the Revenue Officer submitted a report stating
that respondent admitted her non-filing of income tax returns.[6]
On 2 December 1997, respondent filed her income tax returns for the
years 1993, 1994, 1995, and 1996 under Revenue Memorandum Order
(RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97,
otherwise known as the Voluntary Assessment Program (VAP).[7]
On 28 July 1998, the Regional Director issued a Letter of Authority to
investigate respondent for tax purposes covering the years 1993 to 1996.
On 14 October 1998, the Revenue Officer submitted a Memorandum
to the SID Chief recommending that respondent be assessed with deficiency
income taxes for the years 1993 to 1996. On 22 January 1999, fourassessment notices were issued against respondent. The total deficiency
income taxes, inclusive of interests and surcharges amounted
to P191,463.04:
1993 P 6,462.18[8]
1994 47,187.39[9]
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1995 24,729.64[10]
1996 113,083.83[11]
P 191,463.04
On 22 February 1999, respondent filed an Assessment Protest withPrayer for Reinvestigation. On 30 March 1999, the assessment protest was
denied.
On 16 April 1999, respondent offered a compromise settlement but the
same was denied.
Respondent filed a petition for review with the CTA assailing the
Bureau of Internal Revenues (BIR) decision denying with finality the
request for reinvestigation and disapproving her availment of the VAP.
Respondent also contested the issuance of the four assessment notices.
On 15 January 2002, the CTA rendered a decision cancelling the
deficiency assessments. Petitioner filed a motion for reconsideration but the
CTA denied the same in a Resolution dated 3 May 2002.
Petitioner appealed the CTAs decision to the CA. In a decision dated
14 June 2004, the CA affirmed the CTAs decision.
Aggrieved by the CAs decision affirming the cancellation of the tax
deficiency assessments, petitioner elevated the case before this Court.
Ruling of the Court of Tax Appeals
The CTA stated that when respondent filed her income tax returns on 2
December 1997, she was not yet under investigation by the Special
Investigation Division. The Letter of Authority to investigate respondent for
tax purposes was issued only on 28 July 1998. Further, respondents case
was not duly recorded in the Official Registry Book of the BIR before she
availed of the VAP.
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The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the
requirements before a person may be excluded from the coverage of the
VAP are:
a.The person(s) must be under investigation by the Tax FraudDivision and/or the regional Special Investigation Division;
b. The investigation must be as a result of a verified information filed by
an informer under Section 281 of the NIRC, as amended; and
c. The investigation must be duly registered in the Official Registry Book
of the Bureau before the date of availment under the VAP.[12]
The CTA ruled that the conjunctive word and is used; therefore, allof the above requisites must be present before a person may be excluded
from the coverage of the VAP. The CTA explained that the word and is a
conjunction connecting words or phrases expressing the idea that the latter is
to be added or taken along with the first.[13]
The CTA also stated that the rationale behind the VAP is to give
taxpayers a final opportunity to come up with a clean slate before they will
be dealt with strictly for not paying their correct taxes. The CTA noted that
under the RMOs, among the benefits that can be availed by the taxpayer-
applicant are:
1) A bona fide rectification of filing errors and assessment of tax
liabilities under the VAP shall relieve the taxpayer-applicant from
any criminal or civil liability incident to the misdeclaration ofincomes, purchases, deductions, etc., and non-filing of a return.
2) The taxpayer who shall avail of the VAP shall be liable only for thepayment of the basic tax due.[14]
The CTA ruled that even if respondent violated the National Internal
Revenue Code (Tax Code), she was given the chance to rectify her fault and
be absolved of criminal and civil liabilities incident to her non-filing of
income tax by virtue of the VAP. The CTA held that respondent is not
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disqualified to avail of the VAP. Hence, respondent has no more liabilities
after paying the corresponding taxes due.[15]
The CTA found the four assessments issued against respondent to be
erroneous and ordered that the same be cancelled.[16]
Ruling of the Court of Appeals
The CA explained that the persons who may avail of the VAP are
those who are liable to pay any of the above-cited internal revenue taxes forthe above specified period who due to inadvertence or otherwise, has
underdeclared his internal revenue tax liabilities or has not filed the required
tax returns. The CA rationalized that the BIR used a broad language to
define the persons qualified to avail of the VAP because the BIR intended to
reach as many taxpayers as possible subject only to the exclusion of those
cases specially enumerated.
The CA ruled that in applying the rules of statutory construction, theexceptions enumerated in paragraph 3[17] of RMO No. 59-97, as well as those
added in RMO No. 63-97, should be strictly construed and all doubts should
be resolved in favor of the general provision stated under paragraph
2[18] rather than the said exceptions.