tax compiled

8/16/2019 Tax Compiled

1/36

Justice Teresita Leonardo-De Castro Cases (2008-2015) Taxation

Page 1 of 36

SCOPE AND LIMITATIONS OF TAXATION

(Constitutional Limitations)

City of Manila, Hon. Alfredo S. Lim, as Mayor of the City of Manila, et al. vs. Hon. Angel Valera

Colet, as Presiding Judge, Regional Trial Court of Manila (Br. 43), et al.

G.R. No. 120051, December 10, 2014, J. Leonardo-De Castro

It is already well-settled that although the power to tax is inherent in the State, the same is not

true for the LGUs to whom the power must be delegated by Congress and must be exercised within the

guidelines and limitations that Congress may provide. In the case at bar, the sanggunian of the

municipality or city cannot enact an ordinance imposing business tax on the gross receipts of

transportation contractors, persons engaged in the transportation of passengers or freight by hire,

and common carriers by air, land, or water, when said sanggunian was already specifically prohibited

from doing so. Any exception to the express prohibition under Section 133(j) of the LGC should be just

as specific and unambiguous. Section 21(B) of the Manila Revenue Code, as amended, is null and void

for being beyond the power of the City of Manila and its public officials to enact, approve, and

implement under the LGC.

Facts:

Before the Court are 10 consolidated Petitions, the issue at the crux of which is the

constitutionality and/or validity of Section 21(B) of Ordinance No. 7794 of the City of Manila,

otherwise known as the Revenue Code of the City of Manila, as amended by Ordinance No. 7807.

The Manila Revenue Code was enacted on June 22, 1993 by the City Council of Manila and

approved on June 29, 1993 by then Manila Mayor Alfredo S. Lim (Lim). Section 21(B) of said Code

originally provided:

Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes Under

the NIRC. – On any of the following businesses and articles of commerce subject to the excise,value-added or percentage taxes under the National Internal Revenue Code, hereinafter

referred to as NIRC, as amended, a tax of three percent (3%) per annum on the gross sales or

receipts of the preceding calendar year is hereby imposed:

B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee,

transportation contractors, persons who transport passenger or freight for hire, and common

carriers by land, air or water, except owners of bancas and owners of animal-drawn two-

wheel vehicle.

Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila on

September 27, 1993 and approved by Mayor Lim on September 29, 1993, already amending several

provisions of the Manila Revenue Code. Section 21 of the Manila Revenue Code, as amended,imposed a lower tax rate on the businesses that fell under it, and paragraph (B) thereof read as

follows:

Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes Under

the NIRC – On any of the following businesses and articles of commerce subject to theexcise, value-added or percentage taxes under the National Internal Revenue Code

hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE

http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/december2014/120051.pdfhttp://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/december2014/120051.pdfhttp://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/december2014/120051.pdfhttp://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/december2014/120051.pdfhttp://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/december2014/120051.pdfhttp://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/december2014/120051.pdf


2/36


Page 2 of 36

PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is

hereby imposed:

B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee,

transportation contractors, persons who transport passenger or freight for hire, and common

carriers by land, air or water, except owners of bancas and owners of animal-drawn two-

wheel vehicle.

The City of Manila, through its City Treasurer, began imposing and collecting the business

tax under Section 21(B) of the Manila Revenue Code, as amended, beginning January 1994.

Thereafter, several corporations affected by the imposition of said tax, impugned the

constitutionality of Section 21(B) of Ordinance No. 7794 of the City of Manila.

Issue:

Whether or not Section 21(B) of the Manila Revenue Code, as amended, was in conformity

with the Constitution and the laws and, therefore, valid.

Ruling:

No. Section 21(B) of the Manila Revenue Code, as amended, is null and void for being

beyond the power of the City of Manila and its public officials to enact, approve, and implement

under the LGC.

It is already well-settled that although the power to tax is inherent in the State, the same is

not true for the LGUs to whom the power must be delegated by Congress and must be exercised

within the guidelines and limitations that Congress may provide. The Court expounded in Pelizloy

Realty Corporation v. The Province of Benguet that:

The power to tax “is an attribute of sovereignty,” and as such, inheres in the State.Such, however, is not true for provinces, cities, municipalities and barangays as they are not

the sovereign; rather, they are mere “territorial and political subdivisions of the Republic of

the Philippines”.

The rule governing the taxing power of provinces, cities, municipalities and barangays is

summarized in Icard v. City Council of Baguio:

It is settled that a municipal corporation unlike a sovereign state is clothed with no

inherent power of taxation. The charter or statute must plainly show an intent to confer

that power or the municipality, cannot assume it. And the power when granted is to be

construed in strictissimi juris. Any doubt or ambiguity arising out of the term used in

granting that power must be resolved against the municipality. Inferences, implications,deductions – all these – have no place in the interpretation of the taxing power of a

municipal corporation.

Therefore, the power of a province to tax is limited to the extent that such power is

delegated to it either by the Constitution or by statute. Section 5, Article X of the 1987 Constitution

is clear on this point:


3/36


Page 3 of 36

Section 5. Each local government unit shall have the power to create its own sources of

revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the

Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and

charges shall accrue exclusively to the local governments.

Per Section 5, Article X of the 1987 Constitution, “the power to tax is no longer vestedexclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees

and other charges.” Nevertheless, such authority is “subject to such guidelines and limitations as the

Congress may provide”.

In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic

Act No. 7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs

local taxation and fiscal matters.

Among the common limitations on the taxing power of LGUs is Section 133(j) of the LGC,

which states that “unless otherwise provided herein,” the taxing power of LGUs shall not extend to“taxes on the gross receipts of transportation contractors and persons engaged in the

transportation of passengers or freight by hire and common carriers by air, land or water, except asprovided in this Code.” Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from

imposing any tax on the gross receipts of transportation contractors, persons engaged in the

transportation of passengers or freight by hire, and common carriers by air, land, or water. Yet,

confusion arose from the phrase “unless otherwise provided herein,” found at the beginning of the

said provision. The City of Manila and its public officials insisted that said clause recognized the

power of the municipality or city, under Section 143(h) of the LGC, to impose tax “on any business

subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as

amended.” And it was pursuant to Section 143(h) of the LGC that the City of Manila and its public

officials enacted, approved, and implemented Section 21(B) of the Manila Revenue Code, as

amended.

The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h) of thesame Code, and Section 21(B) of the Manila Revenue Code, as amended, was manifestly in

contravention of the former. First , Section 133(j) of the LGC is a specific provision that explicitly

withholds from any LGU, i.e.,whether the province, city, municipality, or barangay, the power to tax

the gross receipts of transportation contractors, persons engaged in the transportation of

passengers or freight by hire, and common carriers by air, land, or water. In contrast, Section 143 of

the LGC defines the general power of the municipality (as well as the city, if read in relation to

Section 151 of the same Code) to tax businesses within its jurisdiction. While paragraphs (a) to (g)

thereof identify the particular businesses and fix the imposable tax rates for each, paragraph (h) is

apparently the “catch-all provision” allowing the municipality to impose tax “on any business, nototherwise specified in the preceding paragraphs, which the sanggunian concerned may deem

proper to tax[.]”

The succeeding proviso of Section 143(h) of the LGC, viz., “Provided, That on any business

subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as

amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the

preceding calendar year,” is not a specific grant of power to the municipality or city to impose

business tax on the gross sales or receipts of such a business. Rather, the proviso only fixes a

maximum rate of imposable business tax in case the business taxed under Section 143(h) of the

LGC happens to be subject to excise, value added, or percentage tax under the NIRC.


4/36


Page 4 of 36

In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance

imposing business tax on the gross receipts of transportation contractors, persons engaged in the

transportation of passengers or freight by hire, and common carriers by air, land, or water, when

said sanggunian was already specifically prohibited from doing so. Any exception to the express

prohibition under Section 133(j) of the LGC should be just as specific and unambiguous.

TAX CREDIT OR REFUND

SILKAIR (SINGAPORE) PTE. LTD., vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 184398, February 25, 2010, J. LEONARDO-DE CASTRO,

The tax burden for an indirect tax may be shifted to another. However, the tax liability remains

with the statutory taxpayer. As such, it is the statutory taxpayer who is the proper party to question, or

claim a refund or tax credit of an indirect tax.

Facts:

Silkair (Singapore) PTE. LTD., (Silkair, for brevity) a foreign corporation organized under

the laws of Singapore with a Philippine representative office in Cebu City, is an online international

carrier plying the Singapore-Cebu-Singapore and Singapore-Cebu-Davao-Singapore routes. On June

24, 2002, Silkair filed with the BIR an administrative claim for the refund of Three Million Nine

Hundred Eighty-Three Thousand Five Hundred Ninety Pesos and Forty-Nine Centavos

(P3,983,590.49) in excise taxes which it allegedly erroneously paid on its purchases of aviation jet

fuel from Petron Corporation (Petron) from June to December 2000. Thereafter, due to BIR’sinaction and to prevent the lapse of the two-year prescriptive period within which to judicially

claim a refund under Section 229 of the NIRC, Silkair filed a petition for review with the CTA.

Silkair based its claim on BIR Ruling No. 339-92 dated December 1, 1992, which declared

that its Singapore-Cebu-Singapore route is an international flight by an international carrier andthat the petroleum products it purchased should not be subject to excise taxes under Section 135 of

Republic Act No. 8424 or the 1997 National Internal Revenue Code (NIRC). The aforementioned

provision exempts from excise taxes the entities covered by tax treaties, conventions and other

international agreements; with due regard to the principle of reciprocity, which as it contended, can

be found under Article 4(2) of the Air Transport Agreement entered between the Republic of the

Philippines and the Republic of Singapore.

The CTA First Division found that notwithstanding Silkair’s qualification for tax exemption,

nevertheless it was still not entitled to the same for failure to present proof that it was authorized

to operate in the Philippines. With the CTA En Banc, it has been held that Silkair is not the proper

party to file the instant claim for refund.

Issue:

Whether or not petitioner is the proper party to claim for the refund/tax credit of excise

taxes paid on aviation fuel.

Ruling:


5/36


Page 5 of 36

It is Petron, not Silkair, which is the proper party to question, or seek a refund of, an indirect

tax.

Under Section 130(A)(2) of the NIRC provides that "[u]nless otherwise specifically allowed,

the return shall be filed and the excise tax paid by the manufacturer or producer before removal of

domestic products from place of production." When Petron removes its petroleum products from

its refinery in Limay, Bataan, it pays the excise tax due on the petroleum products thus removed.

Petron, as manufacturer or producer, is the person liable for the payment of the excise tax as shown

in the Excise Tax Returns filed with the BIR. Stated otherwise, Petron is the taxpayer that is

primarily, directly and legally liable for the payment of the excise taxes. However, since an excise

tax is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by

treating it as part of the cost of the goods and tacking it on the selling price.

In the case at bar, even if the burden of the tax was shifted or passed on to Silkair as the

purchaser and end-consumer, it does not transform the latter’s status into a statutory taxpayer as

the tax liability remains with Petron, the manufacturer or seller. The additional amount which

Silkair paid is not a tax but a part of the purchase price which it had to pay to obtain the goods.

Clearly, the proper party to question, or claim a refund or tax credit of an indirect tax is thestatutory taxpayer, which is Petron, as it is the company on which the tax is imposed by law and

which paid the same.

TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. vs. COMMISSIONER OF INTERNAL

REVENUE

G.R. No. 157594, March 9, 2010, J. Leonardo-De Castro

Under the old rule, whether a PEZA-registered enterprise was exempt or subject to VAT

depended on the type of fiscal incentives availed of by the said enterprise. If the PEZA-registered

enterprise is paying the 5% preferential tax in lieu of all other taxes, it cannot claim tax credit/refund

for the VAT paid on purchases. Conversely, if the taxpayer is availing of the income tax holiday, it can

claim VAT credit. However, upon the issuance by the BIR of RMC No. 74-99 on October 15, 1999, theCross Border Doctrine was clearly established. In effect, PEZA-registered enterprises are VAT-exempt

and no VAT can be passed on to them. Thus, any sale by a supplier from the Customs Territory to a

PEZA-registered enterprise as export sale should not be burdened by output VAT; hence, it is now

impossible to claim for a tax credit/refund.

Facts:

Toshiba Information Equipment (Phils.), Inc. (Toshiba, for brevity) is a domestic

corporation principally engaged in the business of manufacturing and exporting of electric

machinery, equipment systems, accessories, parts, components, materials and goods of all kinds,

including those relating to office automation and information technology and all types of computer

hardware and software, such as but not limited to HDD-CD-ROM and personal computer printedcircuit board. It is registered with the Philippine Economic Zone Authority (PEZA) as an Economic

Zone (ECOZONE) export enterprise in the Laguna Technopark, Inc. It is also registered as a VAT-

taxpayer. In its VAT returns for the first and second quarters of 1997, Toshiba declared input VAT

payments on its domestic purchases of taxable goods and services in the aggregate sum of

P3,875,139.65, with no zero-rated sales. Subsequently it submitted to the BIR its amended VAT

returns for the same period, indicating zero-rated sales totaling P7,494,677,000.00.


6/36


Page 6 of 36

On March 30, 1999, Toshiba filed two separate applications for tax credit/refund of its

unutilized input VAT payments for the first half of 1997 in the total amount of P3,685,446.73. The

next day, it likewise filed with the CTA a Petition for Review to toll the running of the two-year

prescriptive period under Section 230 of the Tax Code of 1977, as amended. The said claim was

however opposed by the Commissioner of Internal Revenue (CIR).

The CTA eventually decided in favor of Toshiba. However, the amount to be credited or

refunded to it was reduced to P1,385,292.02. Both parties filed Motions for Reconsideration which

were however both denied by the CTA. Unsatisfied, the CIR filed a Petition for Review with the

Court of Appeals. The appellate court ruled that Toshiba was not entitled to the refund of its alleged

unused input VAT payments because it was a tax-exempt entity under Section 24 of Republic Act

No. 7916.

Issue:

Whether Toshiba can claim for tax credit/refund of its unutilized input VAT payments.

Ruling:

The Petition is impressed with merit.

Upon the failure of the CIR to timely plead and prove before the CTA the defenses or

objections that Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916, and that its

export sales were VAT-exempt transactions under Section 103(q) of the Tax Code of 1977, as

amended, the CIR is deemed to have waived the same. It was only in its Motion for Reconsideration

of the CTA decision in favor of Toshiba that those were alleged. Surely, said defenses or objections

were already available to the CIR when the CIR filed his Answer to the Petition for Review of

Toshiba in CTA Case No. 5762.

More importantly, the arguments of the CIR that it was VAT-exempt and that its export saleswere VAT-exempt transactions are inconsistent with the explicit admissions of the CIR in the Joint

Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a registered VAT entity and that

it was subject to zero percent (0%) VAT on its export sales. The admission having been made in a

stipulation of facts at pre-trial by the parties, it must be treated as a judicial admission.

The said judicial admissions of the CIR are consistent with the ruling of this Court in a

previous case (Toshiba case) involving the same parties. It is now a settled rule that based on the

Cross Border Doctrine, PEZA-registered enterprises, such as Toshiba, are VAT-exempt and no VAT

can be passed on to them. The Court explained in the Toshiba case that – PEZA-registered enterprise, which would necessarily be located within ECOZONES,

are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as

amended, which imposes the five percent (5%) preferential tax rate on grossincome of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of

Section 8 of the same statute which establishes the fiction that ECOZONES are

foreign territory.

The Court, nevertheless, noted in the Toshiba case that the rule which considers any sale by

a supplier from the Customs Territory to a PEZA-registered enterprise as export sale, which should

not be burdened by output VAT, was only clearly established on October 15, 1999, upon the


7/36


Page 7 of 36

issuance by the BIR of RMC No. 74-99. It categorically declared that all sales of goods, properties,

and services made by a VAT-registered supplier from the Customs Territory to an ECOZONE

enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the latter’s type or class

of PEZA registration; and, thus, the nature of a PEZA-registered or an ECOZONE enterprise as a

VAT-exempt entity was affirmed. Prior to October 15, 1999, whether a PEZA-registered enterprise

was exempt or subject to VAT depended on the type of fiscal incentives availed of by the said

enterprise.

According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-

registered enterprise the option to choose between two sets of fiscal incentives: (a) The five

percent (5%) preferential tax rate on its gross income under Rep. Act No. 7916, as amended; and

(b) the income tax holiday provided under Executive Order No. 226, otherwise known as the

Omnibus Investment Code of 1987, as amended.

In the case at bar, Toshiba is claiming the refund of unutilized input VAT payments on its

local purchases of goods and services attributable to its export sales for the first and second

quarters of 1997. Such export sales took place before October 15, 1999, when the old rule on the

VAT treatment of PEZA-registered enterprises still applied. The BIR, as late as July 15, 2003, when itissued RMC No. 42-2003, accepted applications for credit/refund of input VAT on purchases prior

to RMC No. 74-99, filed by PEZA-registered enterprises which availed themselves of the income tax

holiday. It has been settled that if the PEZA-registered enterprise is paying the 5% preferential tax

in lieu of all other taxes, the said PEZA-registered taxpayer cannot claim TCC or refund for the VAT

paid on purchases. However, if the taxpayer is availing of the income tax holiday, it can claim VAT

credit provided: a) the taxpayer-claimant is VAT-registered; b) purchases are evidenced by VAT

invoices or receipts, whichever is applicable, with shifted VAT to the purchaser prior to the

implementation of RMC No. 74-99; and c) the supplier issues a sworn statement under penalties of

perjury that it shifted the VAT and declared the sales to the PEZA-registered purchaser as taxable

sales in its VAT returns. Therefore, under the old rule, Toshiba in availing of the income tax holiday

option, can be subject to VAT, both indirectly (as purchaser to whom the seller shifts the VAT

burden) and directly (as seller whose sales were subject to VAT, either at ten percent [10%] or zeropercent [0%]).

After what truly appears to be an exhaustive review of the evidence presented by Toshiba,

the CTA made the following findings: 1) the amended quarterly VAT returns of Toshiba for 1997

showed that it made no other sales, except zero-rated export sales, for the entire year, in the sum of

P3,875,139.65; 2) as not all of said amount was actually incurred by the company and duly

substantiated by invoices and official receipts, the CTA could not allow the credit/refund of the said

total input VAT and 3) ultimately, Toshiba was entitled to the credit/refund of unutilized input VAT

payments attributable to its zero-rated sales in the amounts of P1,158,016.82 and P227,265.26, for

the first and second quarters of 1997, respectively, or in the total amount of P1,385,282.08.

Since the aforementioned findings of fact of the CTA are borne by substantial evidence onrecord, unrefuted by the CIR, and untouched by the Court of Appeals, they are given utmost respect

by this Court. The Court will not lightly set aside the conclusions reached by the CTA which, by the

very nature of its functions, is dedicated exclusively to the resolution of tax problems and has

accordingly developed an expertise on the subject unless there has been an abuse or improvident

exercise of authority.

MERGER OR CONSOLIDATION OF CORPORATIONS


8/36


Page 8 of 36

COMMISSIONER OF INTERNAL REVENUE vs. BANK OF COMMERCE

G.R. No. 180529, November 13, 2013, J. Leonardo-De Castro

When the BIR had ruled that a purchase and sale agreement between two banks did not result

in their merger, and that the CIR had previously ruled that the same two banks are not merged, thebuyer bank is not liable for the deficiency DST of the seller bank.

Facts:

Bank of Commerce (BoC) and Traders Royal Bank (TRB) entered into a purchase and sale

agreement whereby it stipulated the TRB’s desire to sell and the BOC’s desire to purchase identified

recorded assets of TRB in consideration of BOC assuming identified recorded liabilities. Under the

Agreement, BOC and TRB shall continue to exist as separate corporations with distinct corporate

personalities.

A year later, BoC received copies of the Formal Assessment Notice addressed to TRB (NowBoC) demanding payment for deficiency Documentary Stamps Tax (DST) of TRB for the taxable

year 1999. TRB protested the Assessment, and BoC received the decision denying TRB’s protest.

BoC filed a petition for review with the CTA, 2nd Division, alleging that it cannot be made liable for

the TRB’s deficiency DST, pointing out that pursuant to the purchase and sale agreement, BoC and

TRB continued to exist as separate corporations with distinct corporate personalities. BOC

emphasized that there was no merger between it and TRB as it only acquired certain assets of TRB

in return for its assumption of some of TRB’s liabilities. While it did not make a categorical ruling on

the issue of merger between BOC and TRB, the CTA 1st Division did in Traders Royal Bank v.

Commissioner of Internal Revenue.

The Traders Royal Bank case, just like the case at bar, involved a deficiency DST assessmentagainst TRB on its SSD accounts, albeit for taxable years 1996 and 1997. When the CIR attempted to

implement a writ of execution against BOC, which was not a party to the case, by simply inserting

its name beside TRB’s in the motion for execution, BOC filed a Motion to Quash (By Way of Special

Appearance) with the CTA 1st Division, which the CTA 1st Division granted in a Resolution on June

18, 2007, primarily on the ground that there was no merger between BOC and TRB.

With the foregoing ruling, the CTA En Banc declared that BOC could not be held liable for

the deficiency DST assessed on TRB’s SSD accounts for taxable year 1999 in the interest of

substantial justice and to be consistent with the CTA 1st Division’s Resolution in the Traders Royal

Bank case.

The CTA En Banc also gave weight to BIR Ruling No. 10-200626 dated October 6, 2006

wherein the CIR expressly recognized the fact that the Purchase and Sale Agreement between BOC

and TRB did not result in their merger.

Issue:

May the deficiency DST of TRB be enforced and collected against BoC?


9/36


Page 9 of 36

Ruling:

The petition is denied.

The CTA 1st Division was spot on when it interpreted the Purchase and Sale Agreement tobe just that and not a merger. The Purchase and Sale Agreement, the document that is supposed to

have tied BOC and TRB together, was replete with provisions that clearly stated the intent of the

parties and the purpose of its execution.

Clearly, the CIR, in BIR Ruling No. 10-2006, ruled on the issue of merger without taking into

consideration TRB’s pending tax deficiencies. The ruling was based on the Purchase and Sale

Agreement, factual evidence on the status of both companies, and the Tax Code provision on

merger. The CIR’s knowledge then of TRB’s tax deficiencies would not be material as to affect the

CIR’s ruling. The resolution of the issue on merger depended on the agreement between TRB and

BOC, as detailed in the Purchase and Sale Agreement, and not contingent on TRB’s tax liabilities.

It is worthy to note that in the Joint Stipulation of Facts and Issues submitted by the parties,

it was explicitly stated that both BOC and TRB continued to exist as separate corporations with

distinct corporate personalities, despite the effectivity of the Purchase and Sale Agreement.

Considering the foregoing, this Court finds no reason to reverse the CTA En Banc’s Amended

Decision. In reconsidering its June 27, 2007 Decision, the CTA En Banc not only took into account

the CTA 1st Division’s ruling in Traders Royal Bank , which, save for the facts that BOC was not made

a party to the case, and the deficiency DST assessed were for taxable years 1996 and 1997, is almost

identical to the case herein; but more importantly, the CIR’s very own ruling on the issue of merger

between BOC.

DISSOLUTION OF A CORPORATION

PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. BUREAU OF INTERNAL REVENUE

G.R. No. 172892, June 13, 2013, J. Leonardo-De Castro

Bangko Sentral ng Pilipinas placed Rural Bank of Tuba (RBTI) under receivership with the

Philippine Deposit Insurance Corporation as the receiver. Accordingly, PDIC filed a petition for

assistance in the liquidation of RBTI which was approved by the trial court. As an incident of the

proceeding, BIR intervened as one of the creditors of RBTI. BIR contends that a tax clearance is

required before the approval of project of distribution of the assets of a bank. In denying their

contention, the Court held that Section 52(C) of the Tax Code of 1997 is not applicable to banks

ordered placed under liquidation by the Monetary Board, and a tax clearance is not a prerequisite tothe approval of the project of distribution of the assets of a bank under liquidation by the PDIC.

Facts:

In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko Sentral

ng Pilipinas (BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in

the Philippines, placed it under receivership in accordance with Section 30 of Republic Act No.


10/36


Page 10 of 36

7653, otherwise known as the “New Central Bank Act,” and designated the Philippine Deposit

Insurance Corporation (PDIC) as receiver. Subsequently, PDIC con ducted an evaluation of RBTI’sfinancial condition and determined that RBTI remained insolvent. Thus, the Monetary Board issued

Resolution No. 675 dated June 6, 1997 directing PDIC to proceed with the liquidation of RBTI.

Accordingly and pursuant to Section 30 of the New Central Bank Act, PDIC filed in the Regional Trial

Court (RTC) of La Trinidad, Benguet a petition for assistance in the liquidation of RBTI. The petition

was docketed as Special Proceeding Case No. 97SP0100 and raffled to Branch 8.5. In an Order

dated September 4, 1997, the trial court gave the petition due course and approved it. As an

incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as one of the creditors

of RBTI. The BIR prayed that the proceedings be suspended until PDIC has secured a tax clearance

required under Section 52(C) of Republic Act No. 8424, otherwise known as the “Tax Reform Act of

1997” or the “Tax Code of 1997,”. In an Order dated February 14, 2003, the trial court found meritin the BIR’s motion and granted it. In its Decision dated December 29, 2005, the appellate court

agreed with the trial court that banks under liquidation by PDIC are covered by Section 52(C) of the

Tax Code of 1997. Thus, the Court of Appeals affirmed the Orders of the Trial Court and dismissed

PDIC’s petition. PDIC sought reconsideration but it was denied. Hence, this petition.

Issue:

Whether a bank placed under liquidation has to secure a tax clearance from the BIR before

the project of distribution of the assets of the bank can be approved by the liquidation court.

Ruling:

The petition succeeds.

The Court has ruled in In Re: Petition for Assistance in the Liquidation of the Rural Bank of

Bokod (Benguet), Inc., Philippine Deposit Insurance Corporation v. Bureau of Internal Revenue that

Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under liquidation

by the Monetary Board, and a tax clearance is not a prerequisite to the approval of the project ofdistribution of the assets of a bank under liquidation by the PDIC. Three reasons have been given.

First, Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the relationship

between the SEC and the BIR with respect to corporations contemplating dissolution or

reorganization. On the other hand, banks under liquidation by the PDIC as ordered by the Monetary

Board constitute a special case governed by the special rules and procedures provided under

Section 30 of the New Central Bank Act, which does not require that a tax clearance be secured from

the BIR.19 As explained in In Re: Petition for Assistance in the Liquidation of the Rural Bank of

Bokod (Benguet), Inc.:

Section 52(C) of the Tax Code of 1997 and the BIRSEC Regulations No. 120 regulate

the relations only as between the SEC and the BIR, making a certificate of tax clearance a

prior requirement before the SEC could approve the dissolution of a corporation. x x x.

x x x x Section 30 of the New Central Bank Act lays down the proceedings for receivershipand liquidation of a bank. The said provision is silent as regards the securing of a tax

clearance from the BIR. The omission, nonetheless, cannot compel this Court to apply by

analogy the tax clearance requirement of the SEC, as stated in Section 52(C) of the Tax Code of

1997 and BIRSEC Regulations No. 1, since, again, the dissolution of a corporation by the SEC is

a totally different proceeding from the receivership and liquidation of a bank by the BSP. This

Court cannot simply replace any reference by Section 52(C) of the Tax Code of 1997 and the

provisions of the BIR-SEC Regulations No. 1 to the “SEC” with the “BSP.” To do so would be


11/36


Page 11 of 36

to read into the law and the regulations something that is simply not there, and would be

tantamount to judicial legislation.

Second, only a final tax return is required to satisfy the interest of the BIR in the liquidation

of a closed bank, which is the determination of the tax liabilities of a bank under liquidation by the

PDIC. In view of the timeline of the liquidation proceedings under Section 30 of the New Central

Bank Act, it is unreasonable for the liquidation court to require that a tax clearance be first secured

as a condition for the approval of project of distribution of a bank under liquidation. This point has

been elucidated thus:

[T]he alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax

clearance is to enable it to determine the tax liabilities of the closed bank. It raised the point

that since the PDIC, as receiver and liquidator, failed to file the final return of RBBI for the

year its operations were stopped, the BIR had no way of determining whether the bank still

had outstanding tax liabilities. To our mind, what the BIR should have requested from the

RTC, and what was within the discretion of the RTC to grant, is not an order for PDIC, as

liquidator of RBBI, to secure a tax clearance; but, rather, for it to submit the final return ofRBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction with

Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and liquidator ofRBBI, the duty to file such a return. x x x. x x x x

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in

bankruptcy, and assignees, who operate and preserve the assets of a corporation, regardless of the

circumstances or the law by which they came to hold their positions, to file the necessary returns

on behalf of the corporation under their care. The filing by PDIC of a final tax return, on behalf of

RBBI, should already address the supposed concern of the BIR and would already enable the latter

to determine if RBBI still had outstanding tax liabilities.

Third, it is not for the Court to fill in any gap, whether perceived or evident, in current

statutes and regulations as to the relations among the BIR, as tax collector of the National

Government; the BSP, as regulator of the banks; and the PDIC, as the receiver and liquidator ofbanks ordered closed by the BSP. It is up to the legislature to address the matter through

appropriate legislation, and to the executive to provide the regulations for its implementation.

VAT (Transitional Input Tax)

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, AND CHIEF ASSESSMENT DIVISION,

REVENUE REGION NO. 8

G.R. No. 158885

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL

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

G.R. No. 170680, October 2, 2009, J. Leonardo-De Castro

The BIR cannot issue a revenue regulation contrary to what the NIRC provides such when the

said regulation limits the coverage of the provision in the NIRC. Such revenue regulation shall not

produce any effect and cannot be source of any right.


12/36


Page 12 of 36

Facts:

Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development

and sale of real property. On 8 February 1995, FBDC acquired by way of sale from the national

government, a vast tract of land that formerly formed part of the Fort Bonifacio military

reservation, located in what is now the Fort Bonifacio Global City (Global City) in Taguig City. The

sale was consummated prior to the enactment of Rep. Act No. 7716 therefore no VAT was paid

thereon. FBDC then proceeded to develop the tract of land, and from October, 1966 onwards it has

been selling lots located in the Global City to interested buyers.

Following the effectivity of Rep. Act No. 7716, real estate transactions such as those

regularly engaged in by FBDC have since been made subject to VAT. As the vendor, FBDC from

thereon has become obliged to remit to the BIR output VAT payments it received from the sale of its

properties. FBDC likewise invoked its right to avail of the transitional input tax credit and

accordingly submitted an inventory list of real properties it owned.

Between July and October 1997, FBDC sent two (2) letters to the BIR requesting

appropriate action on whether its use of its presumptive input VAT on its land inventory, to theextent of P28,413,783.00 in partial payment of its output VAT for the fourth quarter of 1996, was in

order which was disallowed by the BIR.

The basis for the disallowance was Revenue Regulation 7-95 (RR 7-95) and Revenue

Memorandum Circular 3-96 (RMC 3-96). Section 4.105-1 of RR 7-95 provided the basis in main for

the CIR’s opinion, the section reading, thus:

Sec. 4.105-1. Transitional input tax on beginning inventories. – Taxpayers who

became VAT-registered persons upon effectivity of RA No. 7716 who have exceeded

the minimum turnover of P500,000.00 or who voluntarily register even if their

turnover does not exceed P500,000.00 shall be entitled to a presumptive input tax

on the inventory on hand as of December 31, 1995 on the following: (a) goodspurchased for resale in their present condition; (b) materials purchased for further

processing, but which have not yet undergone processing; (c) goods which have

been manufactured by the taxpayer; (d) goods in process and supplies, all of which

are for sale or for use in the course of the taxpayer’s trade or business as a VAT -

registered person.

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

shall be the improvements, such as buildings, roads, drainage systems, and other

similar structures, constructed on or after the effectivity of EO 273 (January 1,

1988).

The transitional input tax shall be 8% of the value of the inventory or actual VATpaid, whichever is higher, which amount may be allowed as tax credit against the

output tax of the VAT-registered person.

Consequently, FBDC received an Assessment Notice in the amount of P45,188,708.08,

representing deficiency VAT for the 4th quarter of 1996, including surcharge, interest and penalty.

FBDC filed a petition for review with the CTA which affirmed the assessment made by the BIR. The

CA also affirmed the decision of the CTA. In April 2009, the Supreme Court ruled in favor of FBDC


13/36


Page 13 of 36

and directed the BIR to refund FBDC the amount of P347,741,695.74 paid as output VAT for the

third quarter of 1997 in light of the persisting transitional input tax credit available to FBDC for the

said quarter, or to issue a tax credit corresponding to such amount.

Presently, the BIR moved for reconsideration claiming that Sec. 100 of the old NIRC did not

supply the treatment of real properties and transactions involving commercial goods.

Issue:

Whether or not real properties properly fall under the concept of goods for transitional

input tax considerations

Ruling:

The instant motion for reconsideration lacks merit.

The provisions of Section 105 of the NIRC, on the transitional input tax credit, remain intact

despite the enactment of RA 7716. Section 105 however was amended with the passage of the newNational Internal Revenue Code of 1997 (New NIRC), also officially known as Republic Act (RA)

8424. The provisions on the transitional input tax credit are now embodied in Section 111(A) of the

New NIRC, which reads:

Section 111. Transitional/Presumptive Input Tax Credits.

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax

or any person who elects to be a VAT-registered person shall, subject to the filing of

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

upon recommendation of the Commissioner , be allowed input tax on his beginning

inventory of goods, materials and supplies equivalent for 8% of the value of such

inventory or the actual value-added tax paid on such goods, materials and supplies,whichever is higher, which shall be creditable against the output tax. [Emphasis

ours.]

The Commissioner of Internal Revenue (CIR) disallowed Fort Bonifacio Development

Corporations (FBDC) presumptive input tax credit arising from the land inventory on the basis of

Revenue Regulation 7-95 (RR 7-95) and Revenue Memorandum Circular 3-96 (RMC 3-96).

In the April 2, 2009 Decision sought to be reconsidered, the Court struck down Section

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

meaning and coverage of the term goods in Section 105 of the Old NIRC sans statutory authority or

basis and justification to make such limitation. This it did when it restricted the application of

Section 105 in the case of real estate dealers only to improvements on the real property belongingto their beginning inventory.

A law must not be read in truncated parts; its provisions must be read in relation to the

whole law. It is the cardinal rule in statutory construction that a statutes clauses and phrases must

not be taken as detached and isolated expressions, but the whole and every part thereof must be

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

part of the statute must be interpreted with reference to the context, i.e., that every part of the


14/36


15/36


Page 15 of 36

On October 11, 1997, San Roque entered into a Power Purchase Agreement (PPA) with the

National Power Corporation (NPC) to develop the San Roque hydroelectric facilities located at San

Miguel, Pangasinan on a build-operate-transfer basis. During the co-operation period of 25 years,

commencing from the completion date of the power station, all the electricity generated by the

Project would be sold to and purchased exclusively by NPC.

San Roque alleged that in 2006, it incurred creditable input taxes from its purchase of capital

goods, importation of goods other than capital goods, and payment for the services of non-

residents. San Roque subsequently filed with the BIR separate claims for refund or tax credit of its

creditable input taxes for all four quarters of 2006. San Roque averred that it did not have any

output taxes to which it could have applied said creditable input taxes because: (a) the sale by San

Roque of electricity, generated through hydropower, a renewable source of energy, is subject to 0%

VAT under Section 108(B)(7) of the National Internal Revenue Code (NIRC) of 1997, as amended;

and (b) NPC is exempted from all taxes, direct and indirect, under Republic Act No. 6395, otherwise

known as the NPC Charter, so the sale by San Roque of electricity exclusively to NPC, under the PPA

dated October 11, 1997, is effectively zero-rated under Section 108(B)(3) of the NIRC of 1997, as

amended. When the Commissioner of Internal Revenue (CIR) failed to take action on its

administrative claims, San Roque filed two separate Petitions for Review before the CTA,particularly, C.T.A. Case No. 7744 (covering the first, third, and fourth quarters of 2006) and C.T.A.

Case No. 7802 (covering the second quarter of 2006).

Tax

Period

2006

VAT Return Administrative Claim Judicial Claim

First

Quarter

Filed: April 21, 2006

Amended: November 7,

2006

Filed: April 11, 2007

Amount: P2,857,174.95

Amended: March 10, 2008

Amount: P3,128,290.74

Filed: March 28, 2008

CTA Case No. 7744

Amount: P12,114,877.34

(for 1st, 3rd, and 4th

Quarters

of 2006)

SecondQuarter

Filed: July 15, 2006Amended: November 8,

2006

Amended: February 5,

2007

Filed: July 10, 2007Amount: P15,044,030.82

Amended: March 10, 2008

Amount: P15,548,630.55

Filed: June 27, 2008CTA Case No. 7802

Amount: P15,548,630.55

Third

Quarter

Filed: October 19, 2006

Amended: February 5,

2007

Filed: August 31, 2007

Amount: P4,122,741.54

Amended: September 21,

2007

Amount: P3,675,574.21


CTA Case No. 7744

Amount: P12,114,877.34

(for 1st, 3rd, and 4th

Quarters

of 2006)

Fourth

Quarter

Filed: January 22, 2007

Amended: May 12, 2007

Filed: August 31, 2007

Amount: P6,223,682.61

Amended: September 21,

2007

Amount: P5,311,012.39


CTA Case No. 7744

Amount: P12,114,877.34(for 1st, 3rd, and 4th

Quarters

of 2006)

The CTA Division dismissed the petition covering the first, third and fourth quarter[s] and

7802 covering [the] second quarter since the Court has no jurisdiction thereof. It rule:


16/36


Page 16 of 36

The Commissioner of Internal Revenue has one hundred twenty days or until

August 9, 2007, November 7, 2007 and December 29, 2007 within which to

make decision. After the lapse of the one hundred twenty[-]day period, [an

Roque should have elevated its claim with the Court within 30 days starting

from August 10, 2007 to September 8, 2007 for its first quarter claim, November

8, 2007 to December 7, 2007 for its second quarter claim, and December 30,

2007 toJanuary 28, 2008 for its third and fourth quarters claims pursuant to

Section 112(D) of the NIRC in relation to Section 11 of [Republic Act No.] 1125,

as amended by Section 9 of [Republic Act No.] 9282. Unfortunately, the Petitions

for Review on March 28, 2008 for the first, third and fourth quarters claims and

on June 27, 2008 for the second quarter claim, were filed beyond the 30-day

period set by law and therefore, the Court has no jurisdiction to entertain the

subject matter of the case considering that the 30-day appeal period provided

under Section 11 of [RepublicAct No.] 1125 is a jurisdictional requirement.

San Roque filed a Petition for Review before the CTA en banc, protesting against the

retroactive application of Commissioner of Internal Revenue v. Aichi Forging Company of Asia , Inc. In

Aichi, the Supreme Court strictly required compliance with the 120+30 day periods under Section112 of the NIRC of 1997, as amended. The CTA en banc upheld the application of Aichin and

explained that there was no retroactive application of the same. The 120+30 day periods had

already been provided in the NIRC of 1997, as amended, even before the promulgation of Aichi.

Aichi merely interpreted the provisions of Section 112 of the NIRC of 1997, as amended.

The CTA en banc applied the 120+30 day periods and found, same as the CTA First Division,

that while San Roque timely filed its administrative claims for refund or tax credit of creditable

input taxes for the four quarters of 2006, it filed its judicial claims beyond the 30-day prescriptive

period, reckoned from the lapse of the 120-day period for the CIR to act on the original

administrative claims. The CTA en banc stressed that the 30-day period within which to appeal with

the CTA is jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA

of its jurisdiction.

Issue:

Whether or not San Roque complied in the instant case with the prescriptive periods under

Section 112 of the NIRC of 1997, as amended.

Ruling:

San Roque filed its administrative claims for refund or tax credit of its creditable input taxes

for the four quarters of 2006 within the two-year prescriptive period under Section 112(A) of the

NIRC of 1997, as amended, however, it failed to comply with the 120+30 day periods for the filing of

its judicial claims:

Tax

Period

2006

Date of

Filing of

Administrative

Claim

End of 120-Day Period

for

CIR to Decide

End of 30-

day

Period to File

Appeal with

CTA

Date of Actual

Filing of

Judicial Claim

No. of

Days:

End of

120-day

Period to

Filing


17/36


Page 17 of 36

of Judicial

Claim

First

Quarter

April 11, 2007 August 9, 2007 September 8,

2007

March 28,

2008

232 days

Second

Quarter

July 10, 2007 November 7,

2007

December 7,

2007

June 27, 2008 233 days

ThirdQuarter

August 31,2007

December 29,2007

January 28,2008

March 28,2008

90 days

Fourth

Quarter

August 31,

2007

December 29,

2007

January 28,

2008

March 28,

2008

90 days

Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30-day mandatory

period under Section 112(C) of the NIRC of 1997, as amended, the CTA First Division did not

acquire jurisdiction over said cases and correctly dismissed the same.

The Court reiterated its decision in CIR vs. San Roque Power Corporation (2013):

Section 112(A) and (C) must be interpreted according to its clear, plain, andunequivocal language. The taxpayer can file his administrative claim for refund or credit

at anytime within the two-year prescriptive period. If he files his claim on the last day of

the two-year prescriptive period, his claim is still filed on time. The Commissioner will

have 120 days from such filing to decide the claim. If the Commissioner decides the

claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days

to file his judicial claim with the CTA. This is not only the plain meaning but also the

only logical interpretation of Section 112(A) and (C)

San Roque argues against the supposedly retroactive application of Aichi and the strict observance

of the 120+30 day periods. As the CTA en banc held, Aichi was not applied retroactively to San

Roque in the instant case. The 120+30 day periods have already been prescribed under Section

112(C) of the NIRC of 1997, as amended, when San Roque filed its administrative and judicialclaims for refund or tax credit of its creditable input taxes for the four quarters of 2006. The Court

highlights the pronouncement in San Roque (2013)that strict compliance with the 120+30 day

periods is necessary for the judicial claim to prosper, except for the period from the issuance of BIR

Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010when Aichi was promulgated,

which again reinstated the 120+30day periods as mandatory and jurisdictional.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS,

BUREAU OF INTERNAL REVENUE

G.R. No. 175707, November 19, 2014, J. Leonardo-De Castro

The Court has consolidated these 3 petitions as they involve the same parties, similar facts and

common questions of law. This is not the first time that Fort Bonifacio Development Corporation

(FBDC) has come to this Court about these issues against the very same respondents (CIR), and the

Court En Banc has resolved them in two separate, recent cases that are applicable here. It is of course

axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the

enabling statute if such rule or regulation is to be valid. In case of conflict between a statute and an

administrative order, the former must prevail. To be valid, an administrative rule or regulation must

conform, not contradict, the provisions of the enabling law. An implementing rule or regulation cannot


18/36


19/36


Page 19 of 36

based on FBDC’s position that it is entitled to a transitional input tax credit under Section 105 of the

old NIRC, which more than offsets the VAT payments.

G.R. No. 175707

FBDC’s VAT returns filed with the BIR show that for the second quarter of 1997, FBDCreceived the total amount of P5,014,755,287.40 from its sales and lease of lots, on which the output

VAT payable was P501,475,528.74. The VAT returns likewise show that FBDC made cash payments

totaling P486,355,846.78 and utilized its input tax credit of P15,119,681.96 on purchases of goods

and services.

On February 11, 1999, FBDC filed with the BIR a claim for refund of the amount of

P486,355,846.78 which it paid in cash as VAT for the second quarter of 1997.

On May 21, 1999, FBDC filed with the CTA a petition for review by way of appeal, docketed

as CTA Case No. 5885, from the alleged inaction by the CIR of FBDC’s claim for refund. On October13, 2000, the CTA issued its Decision in CTA Case No. 5885 denying FBDC’s claim for refund for lack

of merit.

Petitioner filed with the Court of Appeals a Petition for Review of the CTA Decision. The CA

issued its Decision dismissing the Petition for Review. Hence, this Petition for Review was filed.

FBDC submitted its Memorandum stating that the said case is intimately related to the cases

of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. No. 158885,

and Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue," G.R. No.

170680, which were already decided by this Court, and which involve the same parties and similar

facts and issues.

Except for the amounts of tax refund being claimed and the periods covered for each claim,

the facts in this case and in the other two consolidated cases below are the same. The partiesentered into similar Stipulations in the other two cases consolidated here.

G.R. No. 180035

The petition in G.R. No. 180035 "seeks to correct the unauthorized limitation of the term

‘real properties’ to ‘improvements thereon’ by Revenue Regulations 7-95 and the error of the CTAand CA in sustaining the Regulations." This theory of FBDC is the same for all three cases now

before us.

On March 14, 2013, FBDC filed a Motion for Consolidation of G.R. No. 180035 with G.R. No.

175707.

G.R. No. 181092

On October 8, 1998 FBDC filed with the BIR a claim for refund of the amounts of

P269,340,469.45, which it paid as VAT. As of the date of the Petition, no action had been taken by

the CIR on FBDC’s claim for refund.


20/36


Page 20 of 36

On March 14, 2013, FBDC filed a Motion for Consolidation of G.R. No. 181092 with G.R. No.

175707.

On January 23, 2014, FBDC filed a Motion to Resolve these consolidated cases, alleging that

the parties had already filed their memoranda; that the principal issue in these cases, whether

FBDC is entitled to the 8% transitional input tax granted in Section 105 (now Section 111[A]) of the

NIRC based on the value of its inventory of land, and as a consequence, to a refund of the amounts it

paid as VAT for the periods in question, had already been resolved by the Supreme Court En Banc in

its Decision dated April 2, 2009 in G.R. Nos. 158885 and 170680, as well as its Decision dated

September 4, 2012 in G.R. No. 173425. Petitioner further alleges that said decided cases involve the

same parties, facts, and issues as the cases now before this Court.

Issues:

1. Whether or not the transitional/presumptive input tax credit under Section 105 of the NIRCmay be claimed only on the "improvements" on real properties;

2. Whether or not there must have been previous payment of sales tax or value added tax by

petitioner on its land before it may claim the input tax credit granted by Section 105 of theNIRC;

3. Whether or not the Revenue Regulations No. 7-95 is a valid implementation of Section 105of the NIRC; and

4. Whether or not the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration ofvalidity of said Regulations by the CTA and the CA, was in violation of the fundamental

principle of separation of powers.

Ruling:

As previously stated, the issues here have already been passed upon and resolved by this

Court En Banc twice, in decisions that have reached finality, and we are bound by the doctrine of

stare decisis to apply those decisions to these consolidated cases, for they involve the same facts,issues, and even parties.

Thus, we find for the arguments raised by FBDC.

The errors assigned by FBDC to the CA and the arguments offered by CIR to support the

denial of FBDC’s claim for tax refund have already been dealt with thoroughly by the Court En Banc

in Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. Nos. 158885

and 170680; and Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue,

G.R. No. 173425.

The Court held that FBDC is entitled to the 8% transitional input tax on its beginning

inventory of land, which is granted in Section 105 (nowSection 111[A]) of the NIRC, and granted therefund of the amounts FBDC had paid as output VAT for the different tax periods in question.

•

Whether or not the transitional/presumptive input tax credit under Section 105 of the NIRC may be

claimed only on the "improvements" on real properties.

The Court held in the earlier consolidated decision, G.R. Nos. 158885 and 170680, as

follows: there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real


21/36


Page 21 of 36

properties, together with the improvements thereon, in the beginning inventory of goods, materials

and supplies, based on which inventory the transitional input tax credit is computed.

When it was drafted Section 105 could not have possibly contemplated concerns specific to

real properties, as real estate transactions were not originally subject to VAT. When transactions on

real properties were finally made subject to VAT beginning with Rep. Act No. 7716, no

corresponding amendment was adopted as regards Section 105 to provide for a differentiated

treatment in the application of the transitional input tax credit with respect to real properties or

real estate dealers.

It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real

estate transactions subject to VAT for the first time. Prior to the amendment, Section 100 had

imposed the VAT "on every sale, barter or exchange of goods", without specifying the kind of

properties that fall within or under the generic class "goods" subject to the tax.

Rep. Act No. 7716, which is also known as the Expanded Value-Added Tax (EVAT) law,

expanded the coverage of the VAT by amending Section 100 of the Old NIRC. First, it made every

sale, barter or exchange of "goods or properties" subject to VAT. Second, it generally defined "goodsor properties" as "all tangible and intangible objects which are capable of pecuniary estimation."

Third, it included a non-exclusive enumeration of various objects that fall under the class "goods or

properties" subject to VAT, including "real properties held primarily for sale to customers or held

for lease in the ordinary course of trade or business.

From these amendments to Section 100, is there any differentiated VAT treatment on real

properties or real estate dealers that would justify the suggested limitations on the application of the

transitional input tax on them? We see none.

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers

or held for lease in the ordinary course of trade or business" that are subject to the VAT, and not

when the real estate transactions are engaged in by persons who do not sell or lease properties inthe ordinary course of trade or business. It is clear that those regularly engaged in the real estate

business are accorded the same treatment as the merchants of other goods or properties available

in the market.

Under Section 105, the beginning inventory of "goods" forms part of the valuation of the

transitional input tax credit. Goods, as commonly understood in the business sense, refers to the

product which the VAT registered person offers for sale to the public. With respect to real estate

dealers, it is the real properties themselves which constitute their "goods". Such real properties are

the operating assets of the real estate dealer.

Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties"

such "real properties held primarily for sale to customers or held for lease in the ordinary course oftrade or business." Said definition was taken from the very statutory language of Section 100 of the

Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only

contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the

same revenue regulation itself has provided.


22/36


Page 22 of 36

•

Whether or not there must have been previous payment of sales tax or value-added tax by FBDC on

its land before it may claim the input tax credit granted by Section 105 (now Section 111[A]) of the

NIRC.

Section 105 states that the transitional input tax credits become available either to (1) a

person who becomes liable to VAT; or (2) any person who elects to be VAT-registered. The clear

language of the law entitles new trades or businesses to avail of the tax credit once they become

VAT-registered. The transitional input tax credit, whether under the Old NIRC or the New NIRC,

may be claimed by a newly-VAT registered person such as when a business as it commences

operations. Nothing in the Old NIRC (or even the New NIRC) speaks of such a possibility or qualifies

the previous payment of VAT or any other taxes on the goods, materials and supplies as a pre-

requisite for inclusion in the beginning inventory.

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered

persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of

goods, materials and supplies. During that period of transition from non-VAT to VAT status, the

transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. The VAT-

registered taxpayer is obliged to remit a significant portion of the income it derived from its sales asoutput VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's

income by affording the opportunity to offset the losses incurred through the remittance of the

output VAT at a stage when the person is yet unable to credit input VAT payments.

Under Section 105 of the Old NIRC, the rate of the transitional input tax credit is "8% of the

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

whichever is higher." If indeed the transitional input tax credit is premised on the previous

payment of VAT, then it does not make sense to afford the taxpayer the benefit of such credit based

on "8% of the value of such inventory" should the same prove higher than the actual VAT paid.

The Court En Banc in its Resolution in G.R. No. 173425 likewise discussed the question of

prior payment of taxes as a prerequisite before a taxpayer could avail of the transitional input taxcredit.

The Court found that FBDC is entitled to the 8% transitional input tax credit, and clearly

said that the fact that FBDC acquired the Global City property under a tax-free transaction makes no

difference as prior payment of taxes is not a prerequisite.

This position is solidly supported by law and jurisprudence, viz.:

First.Section 105 of the old National Internal Revenue Code (NIRC) clearly provides that for a

taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to

file a beginning inventory with the BIR. It was never mentioned in Section 105 that prior payment

of taxes is a requirement. x x x.

x x x x

Second. Since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to

require it now would be tantamount to judicial legislation which, to state the obvious, is not

allowed.


23/36


Page 23 of 36

Third. A transitional input tax credit is not a tax refund per se but a tax credit. Prior payment of

taxes is not required before a taxpayer could avail of transitional input tax credit. "Tax credit is not

synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus

returned by the taxing authority. Tax credit, is an amount subtracted directly from one's total tax

liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage

investment."

The Court has ruled that prior payment of taxes is not required for a taxpayer to avail of the

8% transitional input tax credit provided in Section 105 of the old NIRC and that petitioner is

entitled to it, despite the fact that petitioner acquired the Global City property under a tax-free

transaction.

•

Whether or not Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC.

In the Decision in G.R. Nos. 158885 and 170680, the Court struck down Section 4.105-1 of

Revenue Regulations No. 7-95 for being in conflict with the law. The decision reads in part as

follows:

There is no logic that coheres with either E.O. No. 273 or Rep. Act No. 7716 which supports

the restriction imposed on real estate brokers and their ability to claim the transitional input tax

credit based on the value of their real properties. The very idea of excluding the real properties

itself from the beginning inventory simply runs counter to what the transitional input tax credit

seeks to accomplish for persons engaged in the sale of goods, whether or not such "goods" take the

form of real properties or commodities.

Under Section 105, the beginning inventory of "goods" forms part of the valuation of the

transitional input tax credit. Goods, as commonly understood in the business sense, refers to the

product which the VAT registered person offers for sale to the public. With respect to real estate

dealers, it is the real properties themselves which constitute their "goods". Such real properties are

the operating assets of the real estate dealer.

Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties"

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

trade or business." Said definition was taken from the very statutory language of Section 100 of the

Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only

contravened the definition of "goods" as provided in the Old NIRC, but also the definition which the

same revenue regulation itself has provided.

It is of course axiomatic that a rule or regulation must bear upon, and be consistent with,

the provisions of the enabling statute if such rule or regulation is to be valid. In case of conflict

between a statute and an administrative order, the former must prevail.

The CIR has no power to limit the meaning of the term "goods" in Section 105 of the Old

NIRC absent statutory authority to make such limitation. A contrary conclusion would mean the CIR

could very well moot the law or arrogate legislative authority unto himself by retaining sole

discretion to provide the definition and scope of the term "goods."

To be valid, an administrative rule or regulation must conform, not contradict, the

provisions of the enabling law. An implementing rule or regulation cannot modify, expand, or


24/36


Page 24 of 36

subtract from the law it is intended to implement. Any rule that is not consistent with the statute

itself is null and void.

To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input

tax credit under Section 105 is a nullity.

As we see it then, the 8% transitional input tax credit should not be limited to the value of

the improvements on the real properties but should include the value of the real properties as well.

• Whether or not the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity

of said Regulations by the CTA and the CA, was in violation of the fundamental principle of

separation of powers.

As pointed out in Our previous Decision, to give Section 105 a restrictive construction that

transitional input tax credit applies only when taxes were previously paid on the properties in the

beginning inventory and there is a law imposing the tax which is presumed to have been paid, is to

impose conditions or requisites to the application of the transitional tax input credit which are not

found in the law. The courts must not read into the law what is not there. To do so will violate the

principle of separation of powers which prohibits this Court from engaging in judicial legislation.

It is now this Court ’s duty to apply the previous rulings to the present case. Once a case hasbeen decided one way, any other case involving exactly the same point at issue, as in the present

case, should be decided in the same manner.

SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.) vs.

COMMISSIONER OF INTERNAL REVENUE


For failure of Silicon to comply with the provisions of Section 112(C) of the NIRC, its judicial

claims for tax refund or credit should have been dismissed by the CTA for lack of jurisdiction. The Courtstresses that the 120/30-day prescriptive periods are mandatory and jurisdictional, and are not mere

technical requirements.

Facts:

Silicon Philippines, Inc. (SPI) Is registered with Bureau of Internal Revenue (BIR) as a VAT

taxpayer.

On May 6, 1999, SPI filed an Application for Tax Credit/Refund of Value-Added Tax Paid

covering the Third Quarter of 1998 in the sum of P25,531,312.83.

When respondent Commissioner of Internal Revenue (CIR) failed to act upon its aforesaidApplication for Tax Credit/Refund, SPI filed on September 29, 2000 a Petition for Review before the

CTA Division. The CTA Division rendered a Decision on November 24, 2003 only partially granting

the claim of SPI for tax credit/refund for failure of SPI to properly substantiate the zero-rated sales

to which it attributed said taxes.


25/36


Page 25 of 36

SPI sought recourse from the CTA en banc by filing a Petition for Review which was

dismissed for lack of merit. SPI then filed a Petition for Review before the SC arguing that the CTA

en banc errred in not granting the whole claim for refund.

Issue:

Whether or not SIP may claim the said tax credit/refund of input Value-Added Tax

Ruling:

No. Petition is dismissed.

SPI filed on May 6, 1999 its administrative claim for tax credit/refund of the input VAT

attributable to its zero-rated sales and on its purchases of capital goods for the Third Quarter of

1998. The two-year prescriptive period for filing an administrative claim, reckoned from the close

of the taxable quarter, prescribed on September 30, 2000. Therefore, the herein administrative

claim of SPI was timely filed.

Evidently, SPI belatedly filed its judicial claim. It filed its Petition for Review with the CTA

391 days after the lapse of the 120-day period without the CIR acting on its application for tax

credit/refund, way beyond the 30-day period under Section 112 of the 1997 Tax Code.

Because the 30-day period for filing its judicial claim had already prescribed by the time SPI

filed its Petition for Review with the CTA Division, the CTA Division never acquired jurisdiction

over the said Petition. The CTA Division had absolutely no jurisdiction to act upon, take cognizance

of, and render judgment upon the Petition for Review of SPI in CTA Case No. 6170, regardless of the

merit of the claim of SPI. The Court stresses that the 120/30-day prescriptive periods are

mandatory and jurisdictional, and are not mere technical requirements. The Court should not

establish the precedent that noncompliance with mandatory and jurisdictional conditions can be

excused if the claim is otherwise meritorious, particularly in claims for tax refunds or credit. Suchprecedent will render meaningless compliance with mandatory and jurisdictional requirements.

DOCUMENTARY STAMPS TAX

JAKA INVESTMENTS CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 147629, July 28, 2010, J. Leonardo-De Castro

JEC contented that it overpaid documentary stamp tax but the court ruled that it failed to

prove such contention. A documentary stamp tax is in the nature of an excise tax. It is not imposed

upon the business transacted but is an excise upon the privilege, opportunity or facility offered at

exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction

of the business separate and apart from the business itself. Documentary stamp taxes are levied on theexercise by persons of certain privileges conferred by law for the creation, revision, or termination of

specific legal relationships through the execution of specific instruments

Facts:

Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC), which

was then planning to undertake an initial public offering (IPO) and listing of its shares of stock with


26/36


Page 26 of 36

the Philippine Stock Exchange. JEC increased its authorized capital stock from One Hundred Eighty-

Five Million Pesos (P185,000,000.00) to Two Billion Pesos (P2,000,000,000.00). Petitioner JEC

proposed to subscribe to Five Hundred Eight Million Eight Hundred Six Thousand Two Hundred

Pesos (P508,806,200.00) out of the increase in the authorized capital stock of JEC through a tax-free

exchange under Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, as

amended, which was effected by the execution of a Subscription Agreement and Deed of

Assignment of Property in Payment of Subscription. Under this Agreement, as payment for its

subscription, petitioner will assign and transfer to JEC shares of stock. The intended IPO and listing

of shares of JEC did not materialize. However, JEC still decided to proceed with the increase in its

authorized capital stock and petitioner agreed to subscribe thereto, but under different terms of

payment. Thus, petitioner and JEC executed the Amended Subscription Agreement on September

5, 1994, wherein the above-enumerated RGHC, PGCI, and UCPB shares of stock were transferred to

JEC. In lieu of the FEBTC shares, however, the amount of Three Hundred Seventy Million Seven

Hundred Sixty-Six Thousand Pesos (P370,766,000.00) was paid for in cash by petitioner to JEC.

On October 14, 1994, petitioner paid One Million Three Thousand Eight Hundred Ninety-

Five Pesos and Sixty-Five Centavos (P1,003,895.65) for basic documentary stamp tax inclusive of

the 25% surcharge for late payment on the Amended Subscription Agreement

JEC subsequently sought a refund for the alleged excess documentary stamp tax andsurcharges it had paid on the Amended Subscription Agreement in the amount of Four Hundred

Ten Thousand Three Hundred Sixty-Seven Pesos (P410,367.00), the difference between the amount

of documentary stamp tax it had paid and the amount of documentary stamp tax certified to by the

RDO, through a letter-request to the BIR dated October 10, 1996.

Issue:

Whether JEC is entitled to refund of the documentary stamp tax

Ruling:

No. JEC is not entitled for refund.

DST is a tax on the document itself and therefore the rate of tax must be determined

on the basis of what is written or indicated on the instrument itself independent of any

adjustment which the parties may agree on in the future . The DST upon the taxable document

should be paid at the time the contract is executed or at the time the transaction isaccomplished. The overriding purpose of the law is the collection of taxes. So that when it paid in

cash the amount ofP370,766,000.00 in substitution for, or replacement of the 1,313,176 FEBTC

shares, its payment of P1,003,835.65 documentary stamps tax pursuant to Section 175 of NIRC is in

order. Thus, applying the settled rule in this jurisdiction that, a claim for refund is in the nature of a

claim for exemption, thus, should be construed in strictissimi juris against the taxpayer

(Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332) and since the

petitioner failed to adduce evidence that will show that it is exempt from DST under Section 199 or

other provision of the tax code, the court ruled the focal issue in the negative.

A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the

business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges

for the transaction of the business. It is an excise upon the facilities used in the transaction of thebusiness separate and apart from the business itself. Documentary stamp taxes are levied on the

exercise by persons of certain privileges conferred by law for the creation, revision, or termination

of specific legal relationships through the execution of specific instruments.

Thus, we have held that documentary stamp taxes are levied independently of the legal

status of the transactions giving rise thereto. The documentary stamp taxes must be paid upon


27/36


Page 27 of 36

the issuanceof the said instruments, without regard to whether the contracts which gave rise to

them are rescissible, void, voidable, or unenforceable.

COMMISSIONER OF INTERNAL REVENUE

vs. MANILA BANKERS' LIFE INSURANCE CORPORATION


Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers

evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident

thereto. It is in the nature of an excise tax because it is imposed upon the privilege, opportunity or

facility offered at exchanges for the transaction of the business. It is an excise upon the facilities used

in the transaction of the business distinct and separate from the business itself.

Facts:

Respondent is a duly organized domestic corporation primarily engaged in the life

insurance business. Two of the life insurance plans it offers are the “Money Plus Plan” and the

“Group Life Insurance”. The Money Plus Plan is a 20-year term ordinary life insurance plan with a"Guaranteed Continuity Clause" which allowed the policy holder to continue the policy after the 20-

year term subject to certain conditions. On the other hand, when a group insurance plan is availed

of, a group master policy is issued with the coverage and premium rate based on the number of the

members covered at that time.

On May 28, 1999, petitioner CIR issued a Letter of Authority authorizing a special team of

Revenue Officers to examine the books of accounts and other accounting records of respondent for

taxable year "1997 & unverified prior years”. Thereafter, based on the findings of the Revenue

Officers, the petitioner issued a Preliminary Assessment Notice against the respondent for its

deficiency internal revenue taxes for the year 1997. The respondent agreed to all the assessments

issued against it except to the amount of P2,351,680.90 representing deficiency documentary

stamp taxes on its policy premiums and penalties.

Subsequently, the petitioner issued against the respondent a Formal Letter of Demand with

the corresponding Assessment Notices attached, one of which was Assessment Notice No. ST-DST2-

97-0054-2000 pertaining to the documentary stamp taxes due on respondent’s policy premiums.

The tax deficiency was computed by including the increases in the life insurance coverage or the

sum assured by some of respondent’s life insurance plans.

The respondent then filed its Letter of Protest BIR contesting the assessment for deficiency

documentary stamp tax on its insurance policy premiums. However, the BIR failed to act on

respondent’s protest within the period required by law. Hence, the respondent filed a Petition for

Review with the CTA for the cancellation o

tax compiled

Documents