1. Apostolic Prefect of Mt. Province v. Treasurer of Baguio (71 Phil. 547)

FACTS: In 1937, an ordinance (Ordinance No. 137: Special Assessment List, City of Baguio) was passed in the City of Baguio. The said ordinance sought to assess properties of property owners within the defined city limits. The Apostolic Prefect of Mt. Province (APMP), on the other hand, is a religious corporation duly established under Philippine laws. Pursuant to the ordinance, it paid a total amount of P1,019.37  in protest. APMP later averred that it should be exempt from the said special contribution since as a religious institution, it has a constitutionally guaranteed right not to be taxed including its properties.

ISSUE: Whether or not APMP is exempt from taxes.

HELD: No. In the first place, the ordinance was in the nature of an assessment and not a taxation.

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Based on Justice Cooley’s words:

While the word ‘tax’ in its broad meaning, includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway. A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a tax.

In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for the benefits of the inhabitants of the city.

2. Philippine Airlines Inc. v. EDU (G.R. No. L- 41383, August 15, 1988)

FACTS: The Philippine Airlines (PAL) is engaged in the air transportation business under a legislative franchise, Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice (Opinion 307 of 1956), PAL was determined to have not been paying motor vehicle registration fees since 1956. The Land Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle registration fees. PAL protested.

ISSUE: Whether registration fees as to motor vehicles are taxes to which Philippine Airlines is exempt.

HELD: Taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, but to provide revenue with which the Government is to construct and maintain public highways for everyone’s use, they are veritable taxes, not merely fees. PAL is, thus, exempt from paying such fees, except for the period between 27 June 1968 to 9 April 1979, where its tax exemption in the franchise was repealed.

3. Silkair (Singapore) Pte, Ltd. vs. CIR (G.R. No. 173594, February 06, 2008)

FACTS: Silkair (Singapore Pte. Ltd. Purchased aviation jet fuel from Petron, to which the latter imposed a P3.67 per liter excise (specific) tax. Claiming exemption from payment of excise taxes pursuant to Section 135 of the Tax Code and Article 4 of the Philippines Singapore Air Agreement, Silkair filed a formal claim for refund with the Commissioner of Internal Revenue (CIR).

Silkair alleged that it was the one who actually paid the excise taxes due on the transactions while Petron merely remitted the payment to the BIR, thereby negating the tax exemption expressly granted to it.

ISSUE: Who is the proper party to claim a refund for the payment of excise taxes?

HELD: The Supreme Court held that “the proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.”

Excise tax, “whether classified as specific or ad valorem tax, is basically an indirect tax imposed on the consumption of a specified list of goods or products. The tax is directly levied on the manufacturer upon removal of the table goods from the place of production but in reality, the tax is passed on to the end consumer as part of the selling price of goods sold.”

In view thereof, while Petron actually passed on the burden of the tax to Silkair, the additional amount billed to the latter was essentially a part of the purchase price and not a tax in itself.

Hence, the SC ruled that “even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The fact that Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not make the latter the taxpayers and the former the withholding agent.”

Although it was ruled in the instant case that Petron is the proper party that can claim the refund of the excise taxes paid to BIR, the SC said that Silkair may nevertheless invoke its tax exemption to Petron before buying aviation jet fuel in the future.

4. Pascual v. Secretary of Public Works (110 Phil 331)

FACTS: In 1953, Republic Act No. 920 was passed. This law appropriated P85,000.00 “for the construction, reconstruction, repair, extension and improvement Pasig feeder road terminals”. Wenceslao Pascual, then governor of Rizal, assailed the validity of the law. He claimed that the appropriation was actually going to be used for private use for the terminals sought to be improved were part of the Antonio Subdivision. The said Subdivision is owned by Senator Jose Zulueta who was a member of the same Senate that passed and approved the same RA. Pascual claimed that Zulueta misrepresented in Congress the fact that he owns those terminals and that his property would be unlawfully enriched at the expense of the taxpayers if the said RA would be upheld. Pascual then  prayed that the Secretary of Public Works and Communications be restrained from releasing funds for such purpose. Zulueta, on the other hand, perhaps as an afterthought, donated the said property to the City of Pasig.

ISSUE: Whether or not the appropriation is valid.

HELD: No, the appropriation is void for being an appropriation for a private purpose. The subsequent donation of the property to the government to make the property public does not cure the constitutional defect. The fact that the law was passed when the said property was still a private property cannot be ignored. “In accordance with the rule that the taxing power must be exercised for public purposes only, money raised by taxation can be expanded only for public purposes and not for the advantage of private individuals.”  Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to Zulueta, the result is that said appropriation sought a private purpose, and, hence, was null and void.

5. Maceda v. Macaraig, Jr. (GR No. 88291 May 31, 1991)

FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of Internal

Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs including the NPC but granted the President and/or the Secretary of Finance by recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC. The actions of the respondents were thus questioned by the petitioner by this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or restraining order. To which public respondents argued, among others, that petitioner does not have the standing to challenge the questioned orders and resolution because he was not in any way affected by such grant of tax exemptions.

ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax exemptions?

HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must show that he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public. The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

6. Garcia v. the Executive Secretary (G.R. No. 101273, July 03, 1992)FACTS: Frank and James Robertson (brothers) were American citizens born in the Philippines. They stayed here in the Philippines until they were repatriated by the US in 1945. Thereafter they established their domicile in California. Soon after they were employed by the US Federal Government as workers in the US Navy. They were later assigned at the US Naval Base in Olongapo City in 1962. They hold American passports and are admitted as special temporary visitors under the Philippine Immigration Act of 1940. On the other hand, the Commissioner of Internal Revenue (CIR) contends that the American brothers are subject to taxation because their residence here in the Philippines is not by reason of their employment in connection with the construction, maintenance, operation or defense of the US Bases here as provided by the Military Bases Agreement. Further, the burden of proof of such exemption to taxation shall be upon the respondents.ISSUE: Whether or not the American brothers are exempt from taxation?HELD: Yes. The law and the facts of the case are so clear that there is no room left for doubt the validity of the brothers’ defense. In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement: he must be a national of the United States employed in connection with the construction, maintenance, operation or defense, of the bases, residing in the Philippines by reason of such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of PI-US Military Bases Agreement of 1947). Said circumstances are all present in the case at bar.

7. Lladoc v. CIR and CTA (14 SCRA 202, June 16, 1965)

FACTS: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of Victorias, Negros Occidental; the amount spent for the construction of a new Catholic Church in the locality, as intended. In 1958, MB Estate filed the donor’s gift tax return. In 1960, the Commissioner issued an assessment for donee’s gift tax against the parish. The priest lodged a protest to the assessment and requested the withdrawal thereof.

ISSUE: Whether the Catholic Parish is tax exempt.

HELD: The phrase “exempt from taxation” should not be interpreted to mean exemption from all kinds of taxes. The exemption is only from the payment of taxes assessed on such properties as property taxes as contra distinguished from excise taxes. A donee’s gift tax is not a property tax but an excise tax imposed on the transfer of property by way of gift inter vivos. It does not rest upon general ownership, but an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties. The imposition of such excise tax on

property used for religious purpose do not constitute an impairment of the Constitution. The tax exemption of the parish, thus, does not extend to excise taxes.

8. Lung Center of the Philippines v. QC (GR No. 144104, June 29, 2004)

FACTS: Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks exemption from real property taxes when the City Assessor issued Tax Declarations for the land and the hospital building. Petitioner predicted on its claim that it is a charitable institution. The request was denied, and a petition hereafter filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the City Assessor. Petitioner alleged that as a charitable institution, is exempted from real property taxes under Sec 28(3) Art VI of the Constitution. QC-LBAA dismissed the petition and the decision was likewise affirmed on appeal by the Central Board of Assessment Appeals of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.

ISSUE: 1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and 1987 Constitution and Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

RULING: 1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitution. Under PD 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President with the Ministry of Health and the Ministry of Human Settlements. The purpose for which it was created was to render medical services to the public in general including those who are poor and also the rich, and become a subject of charity. Under PD 1823, petitioner is entitled to receive donations, even if the gift or donation is in the form of subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon.The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only. This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung center must be able to prove that: it is a charitable institution and; its real properties are actually, directly and exclusively used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt from real property taxes while those leased to private entities are not exempt from such taxes.

9. City Assessor of Cebu v. Association of Benevola de Cebu (G.R 152904, June 28, 2007)

FACTS: Benevola de Cebu is a non-stock non-profit organization which in 1990, a medical arts building was constructed and in 1998 was issued with a certification classifying the building as commercial. City assessor of Cebu assessed the building with a market value of Php 28,060,520 and on assessed value of Php 9,821,180 at the assessment level of 35% and not 10% which is currently imposed on private respondent herein. Petitioner claimed that the building is used as commercial clinic/spaces for renting out to physicians and thus classified as commercial. Benevola de Cebu contended that the building is used actually, directly and exclusively part of hospital and should have an assessment level of 10%

ISSUE: Whether or not the new building is liable to pay the 35% assessment level?

HELD: We hold that the new building is an integral part of the hospital and should not be assessed as commercial. Being a tertiary hospital, it is mandated to fully departmentalized and be equipped with the service capabilities needed to support certified medical specialist and other licensed physicians. The fact that they are holding office is a separate building does not take away the essence and nature of their services vis-a-vis the overall operation of the hospital and to its patients. 

Under the Local Government Code, Sec. 26: All lands, buildings and other improvements thereon actually, directly and exclusively used for hospitals, cultural or scientific purposes and those owned and used by local water districts… shall be classified as special.

10. Bengzon v. Drilon (G.R. No. 103524 15 April 1992)

FACTS: Petitioners are retired justices of the Supreme Court and Court of Appeals who are currently receiving pensions under RA 910 as amended by RA 1797. President Marcos issued a decree repealing section 3-A of RA 1797 which authorized the adjustment of the pension of retired justices and officers and enlisted members of the AFP. PD 1638 was eventually issued by Marcos which provided for the automatic readjustment of the pension of officers and enlisted men was restored, while that of the retired justices was not. RA 1797 was restored through HB 16297 in 1990. When her advisers gave the wrong information that the questioned provisions in 1992 GAA were an attempt to overcome her earlier veto in 1990, President Aquino issued the veto now challenged in this petition.It turns out that PD 644 which repealed RA 1797 never became a valid law absent its publication, thus there was no law. It follows that RA 1797 was still in effect and HB 16297 was superfluous because it tried to restore benefits which were never taken away validly. The veto of HB 16297 did not also produce any effect.

ISSUE: Whether or not the veto of the President of certain provisions in the GAA of FY 1992 relating to the payment of the adjusted pensions of retired Justices is constitutional or valid.

HELD: The veto of these specific provisions in the GAA is tantamount to dictating to the Judiciary ot its funds should be utilized, which is clearly repugnant to fiscal autonomy. Pursuant to constitutional mandate, the Judiciary must enjoy freedom in the disposition of the funds allocated to it in the appropriations law.Any argument which seeks to remove special privileges given by law to former Justices on the ground that there should be no grant of distinct privileges or “preferential treatment” to retired Justices ignores these provisions of the Constitution and in effect asks that these Constitutional provisions on special protections for the Judiciary be repealed.The petition is granted and the questioned veto is illegal and the provisions of 1992 GAA are declared valid and subsisting. 

11. ACORD v. Zamora (G.R. No. 144256)

FACTS: Pres. Estrada, pursuant to Sec 22, Art VII mandating the Pres to submit to Congress a budget of expenditures within 30 days before the opening of every regular session, submitted the National Expenditures program for FY 2000. The President proposed an IRA of P121,778,000,000. This became RA 8760, “AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY-ONE, TWO THOUSAND, AND FOR OTHER PURPOSES” also known as General Appropriations Act (GAA) for the Year 2000. It provides under the heading “ALLOCATIONS TO LOCAL GOVERNMENT UNITS” that the IRA for local government units shall amount to P111,778,000,000”.In another part of the GAA, under the heading “UNPROGRAMMED FUND,” it is provided that an amount of P10,000,000,000 (P10 Billion), apart from the P111,778,000,000 mentioned above, shall be used to fund the IRA, which amount shall be released only when the original revenue targets submitted by the President to Congress can be realized based on a quarterly assessment to be conducted by certain committees which the GAA specifies, namely, the Development Budget Coordinating Committee, the Committee on Finance of the Senate, and the Committee on Appropriations of the House of Representatives.Thus, while the GAA appropriates P111,778,000,000 of IRA as Programmed Fund, it appropriates a separate amount of P10 Billion of IRA under the classification of Unprogrammed

Fund, the latter amount to be released only upon the occurrence of the condition stated in the GAA.On August 22, 2000, a number of NGOs and POs, along with 3 barangay officials filed with this Court the petition at bar, for Certiorari, Prohibition and Mandamus With Application for Temporary Restraining Order, against respondents then Executive Secretary Ronaldo Zamora, then Secretary of the Department of Budget and Management Benjamin Diokno, then National Treasurer Leonor Magtolis-Briones, and the Commission on Audit, challenging the constitutionality of provision XXXVII (ALLOCATIONS TO LOCAL GOVERNMENT UNITS) referred to by petitioners as Section 1, XXXVII (A), and LIV (UNPROGRAMMED FUND) Special Provisions 1 and 4 of the GAA (the GAA provisions)Petitioners contend that the said provisions violates the LGUs autonomy by unlawfully reducing the IRA allotted by 10B and by withholding its release by placing the same under “Unprogrammed funds”. Although the effectivity of the Year 2000 GAA has ceased, this Court shall nonetheless proceed to resolve the issues raised in the present case, it being impressed with public interest. Petitioners argue that the GAA violated the constitutional mandate of automatically releasing the IRAs when it made its release contingent on whether revenue collections could meet the revenue targets originally submitted by the President, rather than making the release automatic.

ISSUE: WON the subject GAA violates LGUs fiscal autonomy by not automatically releasing the whole amount of the allotted IRA.

HELD: Article X, Section 6 of the Constitution provides:SECTION 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.Petitioners argue that the GAA violated this constitutional mandate when it made the release of IRA contingent on whether revenue collections could meet the revenue targets originally submitted by the President, rather than making the release automatic. Respondents counterargue that the above constitutional provision is addressed not to the legislature but to the executive, hence, the same does not prevent the legislature from imposing conditions upon the release of the IRA.Respondents thus infer that the subject constitutional provision merely prevents the executive branch of the government from “unilaterally” withholding the IRA, but not the legislature from authorizing the executive branch to withhold the same. In the words of respondents, “This essentially means that the President or any member of the Executive Department cannot unilaterally, i.e., without the backing of statute, withhold the release of the IRA.”As the Constitution lays upon the executive the duty to automatically release the just share of local governments in the national taxes, so it enjoins the legislature not to pass laws that might prevent the executive from performing this duty. To hold that the executive branch may disregard constitutional provisions which define its duties, provided it has the backing of statute, is virtually to make the Constitution amendable by statute – a proposition which is patently absurd. If indeed the framers intended to allow the enactment of statutes making the release of IRA conditional instead of automatic, then Article X, Section 6 of the Constitution would have been worded differently.Since, under Article X, Section 6 of the Constitution, only the just share of local governments is qualified by the words “as determined by law,” and not the release thereof, the plain implication is that Congress is not authorized by the Constitution to hinder or impede the automatic release of the IRA.In another case, the Court held that the only possible exception to mandatory automatic release of the IRA is, as held in Batangas:…if the national internal revenue collections for the current fiscal year is less than 40 percent of the collections of the preceding third fiscal year, in which case what should be automatically released shall be a proportionate amount of the collections for the current fiscal year. The adjustment may even be made on a quarterly basis depending on the actual collections of

national internal revenue taxes for the quarter of the current fiscal year.This Court recognizes that the passage of the GAA provisions by Congress was motivated by the laudable intent to “lower the budget deficit in line with prudent fiscal management.” The pronouncement in Pimentel, however, must be echoed: “[T]he rule of law requires that even the best intentions must be carried out within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by legal methods.”WHEREFORE, the petition is GRANTED. XXXVII and LIV Special Provisions 1 and 4 of the Year 2000 GAA are hereby declared unconstitutional insofar as they set apart a portion of the IRA, in the amount of P10 Billion, as part of the UNPROGRAMMED FUND.

12. Reyes v. Almanzor (GR Nos. L-49839-46, April 26, 1991)

FACTS: JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased and occupied as dwelling sites by tenants. In 1971, RA 6359 was passed prohibiting an increase of monthly rentals of dwelling units or of land on which another dwelling is located for one year after effectivity for rentals not exceeding P300 but allowing an increase of rent thereafter by not more than 10%. The Act also suspended the operation of Article 1673 of the Civil Code (ejectment of lessess). PD 20 amended RA 6359 by absolutely prohibiting the increase and indefinitely suspending Article 1673. The Reyeses, thus, were precluded from raising the rentals and from ejecting the tenants. In 1973, the City Assessor of Manila reclassified and reassessed the value of the properties based on the schedule of market values duly reviewed by the Secretary of Finance. As it entailed an increase of the corresponding tax rates, the Reyeses filed a memorandum of disagreement with the Board of Tax Assessment Appeals and averring therein that the reassessments were excessive, unwarranted, unequitable, confiscatory and unconstitutional inasmuch as the taxes imposed exceeded the annual income derived from their properties; and that the income approach should have been used in determining land values instead of the comparative sales approach which the assessor adopted.

ISSUE: Whether the reassessment is unequitable.

HELD: Taxation is equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles or kinds of property of the same class are taxed at the same rate. The taxing power has the authority to make reasonable and natural classification for purposes of taxation. Laws should operate equally and uniformly, however, on all persons under similar circumstances or that all persons mus t be treated in the same manner, the conditiions not being different both in the privileges conferred and liabilities imposed. Finally, under theReal Property Tax Code (PD 464), property must be appraised at its cuurent and fair market value. The market value of the properties covered by PD 20, thus cannot be equated with the market value of properties not so covered. Shcu property covered by PD 20 has naturally a much lesser market value in view of the rental restrictions. Although taxes are the lifeblood of the government and should be collected without unnecessary hindrance, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. As teh Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20), they should not be penalized by the same government by the imposition of excessive taxes they cancan ill afford and would eventually result in the forfeiture of their properties, under the principle of social justice.

13.Juan Luna Subdivision v. Sarmiento (GR L-3538, 28 May 1952)

FACTS: Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila for amount to be applied to its land tax for the second semester of 1941. The records of the City Treasurer do not show what was done with the check (It appears that it was deposited with the Philippine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to refund the corporation’s deposit or apply it to such future taxes as might be found due, while the Philippine Trust Co (to which the check was presented) was unwilling to reverse its debit entry against Juan Luna Subd. Said amount is also subject of another disagreement between the corporation and the City Treasure, with the corporation claiming that the whole amount of the check for the taxes for the last semester of 1941 have been remitted by Commonwealth Act 703 (1945).

ISSUE: Whether the provision allowing the remission covers taxes paid before the enactment of Commonwealth Act 703, or taxes which were still unpaid.

HELD: The law is clear that it applies to “taxes and penalties due and payable,” i.e. taxes owed or owing. The remission of taxes due and payable to the exclusion og taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. Herein, they are not. The taxpayers who paid their taxes before liberation and those who had not were not on the same footing on the need of material relief. Taxpayers who had been in arrears in their obligation whould have to satisfy their liability with genuine currency, while the taxes paid during the occupation had been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with restored currency would be unduly enrich many of the payers at a greater expense to the people at large.

14. American Bible Society v. Manila (GR L-9637, 30 April 1957)

FACTS: In the course of its ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialets. The acting City Treasurer of Manila required the society to secure the corresponding Mayor’s permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected.

ISSUE: Whether the municipal ordinances violate the freedom of religious profession and worship.

HELD: A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society.

15. Domingo v. Garlitos (G.R. No. L-18994, June 29, 1963)

Facts: In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Government’s indebtedness to the Estate.

Issue: Whether a tax and a debt may be compensated.

Held: The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has been recognized and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.

16.Bishop of Nueva Segovia v. Provincial Board, Ilocos Norte (GR 27588, 31 December 1927)

Facts: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilocos Norte. On the south side is a part of the Church yard, the convent and an adjacent lost used for a vegetable garden in which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard and the Church. On the north side is an old cemetery with its two walls still standing, and a portion where formerly stood a tower. The provincial board assessed land tax on lots comprising the north and south side, which the church paid under protest. It filed suit to recover the amount.

Issue: Whether the lots are covered by the Church’s tax exemption.

Held: The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides over the church and who has to take care of himself in order to discharge his duties. The exemption includes not only the land actually occupied by the Church but also the adjacent ground destined to the ordinary incidental uses of man. A vegetable garden, thus, which belongs to a convent, where its use is limited to the necessity of the priest, comes under the exemption. Further, land used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, likewise comes within the exemption. It cannot be taxed according to its former use, i.e. a cemetery.

TAX REMEDIES

1. CIR v. Enron Subic Power (G.R. No. 166387, January 19, 2009)

FACTS: In 1997, Enron Subic Power Corporation received a pre-assessment notice from the Bureau of Internal Revenue (BIR). Enron allegedly had a tax deficiency of P2.8 million for the year 1996. Enron filed a protest. In 1999, Enron received a final assessment notice (FAN) from the BIR for the same amount of tax deficiency.Enron however assailed the FAN  because according to Enron the FAN is not compliant with Section 228 of the National Internal Revenue Code (NIRC) which provides that the legal and factual bases of the assessment must be contained in the FAN. The FAN issued to Enron only contained thecomputation of its alleged tax liability.The Commissioner of Internal Revenue (CIR) admitted that the FAN did not contain the legal and factual bases of the assessment however, the CIR insisted that the same has been substantially complied with already because during the pre-assessment stage, the representative of Enron has been advised of the said factual and legal bases of the assessment.

ISSUE: Whether or not there is a valid final assessment notice issued to Enron.

HELD: No. The wording of Section 228 of the NIRC provides:

“The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise the assessment shall be void.”

The word “shall” is mandatory. The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. It cannot be substituted by other notices or advisories issued or delivered to the taxpayer during the preliminary stage.

2. Allied Banking Corp. V. CIR (G.R. No. 175097 February 5, 2010

Facts:

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount ofP12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable year 2001.6 Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004.7

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which partly reads as follows:8

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.9

Proceedings before the CTA First DivisionOn September 29, 2004, petitioner filed a Petition for Review 10  with the CTA which was raffled to its First Division and docketed as CTA Case No. 7062.11

On December 7, 2004, respondent CIR filed his Answer. 12  On July 28, 2005, he filed a Motion to Dismiss13  on the ground that petitioner failed to file an administrative protest on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.14

On October 12, 2005, the First Division of the CTA rendered a Resolution 15  granting respondent’s Motion to Dismiss. It ruled:

Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to this Court. It is the decision of the Commissioner of Internal Revenue on the disputed assessment that can be appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out by respondent, a disputed assessment is one wherein the taxpayer or his duly authorized representative filed an administrative protest against the formal letter of demand and assessment notice within thirty (30) days from date [of] receipt thereof. In this case, petitioner failed to file an administrative protest on the formal letter of demand with the corresponding assessment notices. Hence, the assessments did not become disputed assessments as subject to the Court’s review under Republic Act No. 9282. (See also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is hereby DISMISSEDfor lack of jurisdiction.SO ORDERED.16

Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its Resolution dated February 1, 2006.17

Proceedings before the CTA En BancOn February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. 18  The case was docketed as CTA EB No. 167.Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition for Review19as well as petitioner’s Motion for Reconsideration.20

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in challenging the legality or validity of an assessment. According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not fall in any of the exceptions.

Issue: Whether the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under RA 9282.

Held:The petition is meritorious.

Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review by appeal decisions of the CIR in cases involving disputed assessmentsThe CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction.21  Section 7 of RA 9282 provides:Sec. 7. Jurisdiction. — The CTA shall exercise:(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; (Emphasis supplied)x x x xThe word “decisions” in the above quoted provision of RA 9282 has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments.22 Corollary thereto, Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for protesting an assessment. It states:

SECTION 228. Protesting of Assessment. – When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases:(a) When the finding for any deficiency tax is the result of mathematical error in thecomputation of the tax as appearing on the face of the return; or(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or(d) When the excise tax due on excisable articles has not been paid; or(e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.The case is an exception to the rule on exhaustion of administrative remediesHowever, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned.In the case of Vda. De Tan v. Veterans Backpay Commission, 23  the respondent contended that before filing a petition with the court, petitioner should have first exhausted all administrative remedies by appealing to the Office of the President. However, we ruled that respondent was estopped from invoking the rule on exhaustion of administrative remedies considering that in its Resolution, it said, “The opinions promulgated by the Secretary of Justice are advisory in nature, which may either be accepted or ignored by the office seeking the opinion, and any aggrieved party has the court for recourse”. The statement of the respondent in said case led the petitioner to conclude that only a final judicial ruling in her favor would be accepted by the Commission.Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review was premature because petitioner failed to exhaust all administrative remedies.The Formal Letter of Demand with Assessment Notices reads:Based on your letter-protest dated May 26, 2004, you alleged the following:1. That the said assessment has already prescribed in accordance with the provisions of Section 203 of the Tax Code.

2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has been deleted, the wording of Section 28(A)(7)(b) discloses that there are no other taxes imposable upon FCDUs aside from the 10% Final Income Tax.Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not prescribed for [sic] simply because no returns were filed, thus, the three year prescriptive period has not lapsed.With the implementation of the CTRP, the phrase “exempt from all taxes” was deleted. Please refer to Section 27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for deficiency gross receipts tax on onshore income from foreign currency transactions in accordance with the rates provided under Section 121 of the said Tax Code. Likewise, deficiency documentary stamp taxes was [sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits and related transactions pursuant to Sections 180 and 181 of NIRC, as amended.The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A) and 249(b), respectively, of the National Internal Revenue Code, as amended.It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal this final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.24  (Emphasis supplied)It appears from the foregoing demand letter that the CIR has already made a final decision on the matter and that the remedy of petitioner is to appeal the final decision within 30 days.In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,25 we considered the language used and the tenor of the letter sent to the taxpayer as the final decision of the CIR.In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues.26  Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices, respondent used the word “appeal” instead of “protest”, “reinvestigation”, or “reconsideration”. Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word “appeal” under prevailing tax laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms “protest”, “reinvestigation” and “reconsideration” refer to the administrative remedies a taxpayer may take before the CIR, while the term “appeal” refers to the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section 11 of RA 1125,27 likewise uses the term “appeal” when referring to the action a taxpayer must take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue from respondent. Besides, any doubt in the interpretation or use of the word “appeal” in the Formal Letter of Demand with Assessment Notices should be resolved in favor of petitioner, and not the respondent who caused the confusion.To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99.28 It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese Girl’s School v. Collector of Internal Revenue, 29  that the counting of the 30 days within which to institute an appeal in the CTA commences

from the date of receipt of the decision of the CIR on the disputed assessment, not from the date the assessment was issued.What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices which was not administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words used, specifically the words “final decision” and “appeal”, taken together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the same to the CTA.We note, however, that during the pendency of the instant case, petitioner availed of the provisions of Revenue Regulations No. 30-2002 and its implementing Revenue Memorandum Order by submitting an offer of compromise for the settlement of the GRT, DST and VAT for the period 1998-2003, as evidenced by a Certificate of Availment dated November 21, 2007.30 Accordingly, there is no reason to reinstate the Petition for Review in CTA Case No. 7062.WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the October 17, 2006 Resolution of the Court of Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in CTA Case No. 7062 is hereby DISMISSED based solely on the Bureau of Internal Revenue’s acceptance of petitioner’s offer of compromise for the settlement of the gross receipts tax, documentary stamp tax and value added tax, for the years 1998-2003.

3. CIR v. Reyes (G.R. No. 159694, January 27, 2006)

FACTS:

In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the NationalInternal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay  P14.9 million in taxes inclusive of surcharge and interest; the estate’s liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment.ISSUE: Whether or not the formal assessment notice is valid.HELD: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However, the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax investigation was conducted prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy.

4. LASCONA Land Co. Inc. v. CIR (G.R. no. 171251, March 5, 2012)

FACTS:In March 1998, the Commissioner of Internal Revenue (CIR) issued a formal

assessment notice (FAN) to Lascona Land Co., Inc. (LLCI) demanding the latter to pay P753k in taxes. LLCI filed a timely protest on April 20, 1998. From said date (since no supporting document was required to be submitted), the CIR has 180 days to decide on the

protest. However, the CIR promulgated its decision on March 3, 1999. LLCI received a copy of the decision on March 12, 1999. On April 12, 1999, LLCI appealed the decision to the Court of Tax Appeals (CTA). The CIR moved for the dismissal of the appeal on the ground that under a revenue regulation issued by the Bureau of Internal Revenue (RR No. 12-99), if the CIR or its representative failed to act on a protest within the 180-day period the taxpayer may appeal within 30 days from the lapse of the 180-day period to the CTA otherwise, the decision shall become final and executory; that LLCI failed to appeal within the said period hence the CTA has no jurisdiction over the case appealed by LLCI.ISSUE: Whether or not the CIR is correct.HELD: No. The revenue regulation is invalid. Under the law (Section 228 of the National Internal Revenue Code), a taxpayer has two remedies if the CIR failed to act on his protest within the 180-day period, to wit;1) the taxpayer adversely affected by the decision may appeal to the CTA within 30 days from receipt of the decision, or2) may appeal to the CTA within 30 days from the lapse of the one hundred eighty (180)-day period.Interpreting the above provision, the taxpayer has two options in case of inaction by the CIR. First is to appeal to the CTA within 30 days from the lapse of the 180 day period; or second, wait for the CIR to issue the decision and then appeal, if adverse, to the CTA within 30 days from the receipt of the decision by the taxpayer (because even if the CIR failed to decide on the case within the 180 day period, it can still decide on it and may even issue a favorable judgment to the taxpayer, hence it may be logical to wait and only appeal if the adverse decision is actually received).In the case at bar, LLCI chose to wait for the CIR to decide on the case and it did not appeal within 30 days from the lapse of the 180-day period. LLCI received the adverse decision of the CIR on March 12, 1999. It appealed on April 12, 1999 which is still within the 30-day period to appeal to the CTA.The revenue regulation in question is invalid because in effect, it limited the remedy provided for by the law. Section 228 of the NIRC prevails over the said revenue regulation. The said revenue regulation cannot validly take away the option of the taxpayer to continue waiting, even after the lapse of the 180 day period, for the CIR to decide on the case and just appeal, within 30 days from receipt, if the CIR’s ruling is adverse.It must however be noted that these two remedies are mutually exclusive.

5. CIR v. Metro Star Superama (G.R. No. 185371 December 8, 2010

FACTS:In January 2001, a revenue officer was authorized to examine the books of accounts of

Metro Star Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a formal assessment notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency taxes. Metro Star assailed the issuance of the formal assessment notice as it averred that due process was not observed when it was not issued a pre-assessment notice. Nevertheless, the Commissioner of Internal Revenue authorized the issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star.Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled in favor of Metro Star.ISSUE: Whether or not due process was observed in the issuance of the formal assessment notice against Metro Star.HELD: No. It is true that there is a presumption that the taxassessment was duly issued. However, this presumption is disregarded if the taxpayer denies ever having received a tax assessment from the Bureau of Internal Revenue. In such cases, it is incumbent upon the BIR to prove by competent evidence that such notice was indeed received by the addressee-taxpayer. The onus probandi was shifted to the BIR to prove by contrary evidence that the Metro Star received the assessment in the due course of mail. In the case at bar, the CIR merely alleged that Metro Star received the pre-assessment notice in January 2002. The CIR could have simply presented the registry  receipt or the certification from the postmaster that it mailed the pre-

assessment notice, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the pre-assessment notice. The Supreme Court emphasized that the sending of a pre-assessment notice is part of the due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities.Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. But even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.

6. CIR v. San Roque Power Corp. G.R. No. 187485, February 12, 2013

FACTS:San Roqueis a domestic corporation with a principal office at Barangay San Roque, San

Manuel, Pangasinan. It was incorporated to design, construct, erect, assemble, own, commission and operate power-generating plants and related facilities pursuant to and under contract with the Phil. Government.

San Roque is VAT Registered as a seller of services. It is also registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design, construction, erection, assembly, as well as to own, commission, and operate electric power-generating plants and related activities.

In 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with NPC. The PPA providesthat [San Roque] shall be responsible for the design, construction, installation, completion, testing and commissioning of the Power Station and shall operate and maintain the same, subject to NPC instructions. During the cooperation period of twenty-five (25) years commencing from the completion date of the Power Station, NPC will take and pay for all electricity available from the Power Station.

On the construction and development of the San Roque Multi- Purpose, [San Roque] allegedly incurred, excess input VAT which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for refund, representing unutilized input taxes as declared in its VAT returns for taxable year 2001.

On March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased its unutilized input VAT. Consequently, [San Roque] filed with the BIR a separate amended claims for refund.

[CIR’s] inaction on the subject claims led to the filing of the Petition for Review with the CTA-Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.

CTA Division’s Ruling:

The CTA Second Division initially denied San Roque’s claim on the following grounds: lack of recorded zero-rated or effectively zero-rated sales; failure to submit documents specifically identifying the purchased goods/services related to the claimed input VAT which were included in its Property, Plant and Equipment account; and failure to prove that the related construction costs were capitalized in its books of account and subjected to depreciation.

The CTA 2nd Division required San Roque to show that it complied with the following requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-year prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p. 157). It was also established that the instant claim of ₱560,200,823.14 is already net of the ₱11,509.09 output tax declared by [San Roque] in its amended VAT return for the first quarter of 2001. Moreover, the entire amount of ₱560,200,823.14 was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the corresponding quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims for refund (original and amended) and the Petition for Review fall within the two-year prescriptive period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases of capital goods and services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of the independent certified public accountant. The following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related purchases are in the nature of capital goods; and the purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the difference between San Roque’s claim and that appearing on its books; the official receipts covering the claimed input VAT on purchases of local services are not within the period of the claim; and the amount of VAT cannot be determined from the submitted official receipts and invoices. The CTA Second Division denied San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales because San Roque had no record of such sales for the four quarters of 2001.

The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos (₱483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for the taxable year 2001.

SO ORDERED.

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of merit.

The Court of Tax Appeals’ Ruling:En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and resolution.

The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not prematurely filed. The pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of the tax due. If the said period is about to expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for review with this Court within the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait indefinitely for a decision or ruling which may or may not be forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make matters more exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein petitioner) may take. At stake are claims for refund and unlike disputed assessments, no decision of respondent (herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:

I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)

7. Ungab v. Cusi (GR No. L-41919-24, May 30, 1980)

FACTS: In July 1974, Quirico Ungab filed his income tax return. He was subjected to a tax audit and the tax examiner was convinced that Ungab filed a fraudulent return. He was issued an assessment demanding payment of P104k in taxes. At the same time, the tax examiner recommended the filing of criminal cases of tax evasion against Ungab. Meanwhile, Ungab filed a protest with the Commissioner of Internal Revenue (CIR).Acting on the recommendation of the tax examiner, a state prosecutor filed 6 informations against Ungab for various violations of the National Internal Revenue Code. The informations were filed with Court of First Instance of Davao presided by Judge Vicente Cusi, Jr. Ungab filed a motion to quash the informations on the ground that his pending protest with the CIR has not yet been acted upon hence the assessment is not yet final and executory and therefore the trial court has no jurisdiction yet over the criminal cases.ISSUE: Whether or not Ungab is correct.HELD: No. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code (NIRC) which is within the cognizance of courts of first instance (regional trial courts). While there can be no civil action to enforce collection before the assessment procedures provided in the NIRC have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. In fact, there is not even a requirement that an assessment first be issued before a criminal case for violation of the NIRC be filed.