TAX CASES – FIRST BATCH stamp tax (DST) on loans and lease contracts.

stamp tax (DST) on loans and lease contracts. The BIR demanded the payment of P17,303,001.12,
inclusive of surcharge, interest and penalty for taxable years 2001, 2002 and 2003.7

DLSU protested the assessment. The Commissioner failed to act on the protest; thus, DLSU filed on
1. Commissioner of Internal Revenue v. De La Salle August 3, 2005 a petition for review with the CTA Division.8
University,
G.R. No. 196596, November 09, 2016 DLSU, a non-stock, non-profit educational institution, principally anchored its petition on Article XIV,
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE UNIVERSITY, Section 4 (3) of the Constitution, which reads:
INC., Respondent. chanRoblesvirtualLawlibrary
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly,
G.R. No. 198841
and exclusively for educational purposes shall be exempt from taxes and duties. xxx.
DE LA SALLE UNIVERSITY INC., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE,Respondent. On January 5, 2010, the CTA Division partially granted DLSU's petition for review. The dispositive
portion of the decision reads:
G.R. No. 198941 chanRoblesvirtualLawlibrary
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DE LA SALLE UNIVERSITY, WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST assessment on the loan
INC., Respondent. transactions of [DLSU] in the amount of P1,1681,774.00 is hereby CANCELLED. However, [DLSU]
is ORDERED TO PAY deficiency income tax, VAT and DST on its lease contracts, plus 25% surcharge
BRION, J.: for the fiscal years 2001, 2002 and 2003 in the total amount of P18,421,363.53...xxx.

In addition, [DLSU] is hereby held liable to pay 20% delinquency interest on the total amount due
Before the Court are consolidated petitions for review on certiorari:1
computed from September 30, 2004 until full payment thereof pursuant to Section 249(C)(3) of the
[National Internal Revenue Code]. Further, the compromise penalties imposed by [the Commissioner]
1. G.R. No. 196596 filed by the Commissioner of Internal Revenue (Commissioner) to assail the were excluded, there. being no compromise agreement between the parties.
December 10, 2010 decision and March 29, 2011 resolution of the Court of Tax Appeals (CTA)
in En Banc Case No. 622;2 SO ORDERED.9ChanRoblesVirtualawlibrary
Both the Commissioner and DLSU moved for the reconsideration of the January 5, 2010 decision. 10 On
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail the June 8, 2011
April 6, 2010, the CTA Division denied the Commissioner's motion for reconsideration while it held in
decision and October 4, 2011 resolution in CTA En Banc Case No. 671;3 and
abeyance the resolution on DLSU's motion for reconsideration. 11
3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 decision and October 4, On May 13, 2010, the Commissioner appealed to the CTA En Banc (CTA En Banc Case No. 622)
2011 resolution in CTA En Banc Case No. 671.4 arguing that DLSU's use of its revenues and assets for non-educational or commercial purposes
removed these items from the exemption coverage under the Constitution. 12
G.R. Nos. 196596, 198841 and 198941 all originated from CTA Special First Division (CTA
Division) Case No. 7303. G.R. No. 196596 stemmed from CTA En Banc Case No. 622 filed by the On May 18, 2010, DLSU formally offered to the CTA Division supplemental pieces of documentary
Commissioner to challenge CTA Case No. 7303. G.R. No. 198841 and 198941 both stemmed evidence to prove that its rental income was used actually, directly and exclusively for educational
from CTA En Banc Case No. 671 filed by DLSU to also challenge CTA Case No. purposes.13The Commissioner did not promptly object to the formal offer of supplemental evidence
7303.chanroblesvirtuallawlibrary despite notice.14

The Factual Antecedents On July 29, 2010, the CTA Division, in view of the supplemental evidence submitted, reduced the
amount of DLSU's tax deficiencies. The dispositive portion of the amended decision reads:
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. chanRoblesvirtualLawlibrary
2794 authorizing its revenue officers to examine the latter's books of accounts and other accounting WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is hereby PARTIALLY GRANTED. [DLSU]
records for all internal revenue taxes for the period Fiscal Year Ending 2003 and Unverified Prior is hereby ORDERED TO PAY for deficiency income tax, VAT and DST plus 25% surcharge for the
Years.5 fiscal years 2001, 2002 and 2003 in the total adjusted amount of P5,506,456.71...xxx.

On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.6 In addition, [DLSU] is hereby held liable to pay 20% per annum deficiency interest on the...basic
deficiency taxes...until full payment thereof pursuant to Section 249(B) of the [National Internal Revenue
Subsequently on August 18, 2004, the BIR through a Formal Letter of Demand assessed DLSU the Code]...xxx.
following deficiency taxes: (1) income tax on rental earnings from restaurants/canteens and bookstores
operating within the campus; (2) value-added tax (VAT) on business income; and (3) documentary Further, [DLSU] is hereby held liable to pay 20% per annum delinquency interest on the deficiency
taxes, surcharge and deficiency interest which have accrued...from September 30, 2004 until fully No. 196596).
paid.15ChanRoblesVirtualawlibrary
Consequently, the Commissioner supplemented its petition with the CTA En Banc and argued that the
CTA Division erred in admitting DLSU's additional evidence.16
CTA En Banc Case No. 671
Dissatisfied with the partial reduction of its tax liabilities, DLSU filed a separate petition for review with
the CTA En Banc (CTA En Banc Case No. 671) on the following grounds: (1) the entire assessment The CTA En Banc partially granted DLSU's petition for review and further reduced its tax liabilities
should have been cancelled because it was based on an invalid LOA; (2) assuming the LOA was valid, to P2,554,825.47 inclusive of surcharge.28
the CTA Division should still have cancelled the entire assessment because DLSU submitted evidence
similar to those submitted by Ateneo De Manila University (Ateneo) in a separate case where the CTA On the validity of the Letter of Authority
cancelled Ateneo's tax assessment;17 and (3) the CTA Division erred in finding that a portion of DLSU's
rental income was not proved to have been used actually, directly and exclusively for educational The issue of the LOA's validity was raised during trial; 29 hence, the issue was deemed properly
purposes.18chanroblesvirtuallawlibrary submitted for decision and reviewable on appeal.

Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable period and that
The CTA En Banc Rulings
the practice of issuing a LOA covering audit of unverified prior years is prohibited.30 The prohibition is
consistent with Revenue Memorandum Order (RMO) No. 43-90, which provides that if the audit includes
CTA En Banc Case No. 622
more than one taxable period, the other periods or years shall be specifically indicated in the LOA.31
The CTA En Banc dismissed the Commissioner's petition for review and sustained the findings of the
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years.
CTA Division.19
Hence, the assessments for deficiency income tax, VAT and DST for taxable years 2001 and
2002 are void, but the assessment for taxable year 2003 is valid.32
Tax on rental income

Relying on the findings of the court-commissioned Independent Certified Public Accountant

(Independent CPA), the CTA En Banc found that DLSU was able to prove that a portion of the assessed
rental income was used actually, directly and exclusively for educational purposes; hence, exempt from On the applicability of the Ateneo case
tax.20 The CTA En Banc was satisfied with DLSU's supporting evidence confirming that part of its rental
income had indeed been used to pay the loan it obtained to build the university's Physical Education The CTA En Banc held that the Ateneo case is not a valid precedent because it involved different
- Sports Complex.21 parties, factual settings, bases of assessments, sets of evidence, and defenses.33

Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the part of its income that was not On the CTA Division's appreciation of the evidence
shown by supporting documents to have been actually, directly and exclusively used for educational
purposes, must be subjected to income tax and VAT.22 The CTA En Banc affirmed the CTA Division's appreciation of DLSU's evidence. It held that while DLSU
successfully proved that a portion of its rental income was transmitted and used to pay the loan
DST on loan and mortgage transactions obtained to fund the construction of the Sports Complex, the rental income from other sources were not
shown to have been actually, directly and exclusively used for educational purposes. 34
Contrary to the Commissioner's contention, DLSU proved its remittance of the DST due on its loan and
mortgage documents.23 The CTA En Banc found that DLSU's DST payments had been remitted to the Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No. 198841) and the Commissioner (G.R.
BIR, evidenced by the stamp on the documents made by a DST imprinting machine, which is allowed No. 198941) came to this Court for relief.chanroblesvirtuallawlibrary
under Section 200 (D) of the National Internal Revenue Code (Tax Code)24 and Section 2 of Revenue
Regulations (RR) No. 15-2001.25cralawred The Consolidated Petitions

Admissibility of DLSU's supplemental evidence G.R. No. 196596

The CTA En Banc held that the supplemental pieces of documentary evidence were admissible even if The Commissioner submits the following arguments:
DLSU formally offered them only when it moved for reconsideration of the CTA Division's original
decision. Notably, the law creating the CTA provides that proceedings before it shall not be governed First, DLSU's rental income is taxable regardless of how such income is derived, used or disposed
strictly by the technical rules of evidence.26 of.35 DLSU's operations of canteens and bookstores within its campus even though exclusively serving
the university community do not negate income tax liability. 36
The Commissioner moved but failed to obtain a reconsideration of the CTA En Banc's December 10,
2010 decision.27 Thus, she came to this court for relief through a petition for review on certiorari (G.R. The Commissioner contends that Article XIV, Section 4 (3) of the Constitution must be harmonized with
Section 30 (H) of the Tax Code, which states among others, that the income of whatever kind and same as those she raised in her: (1) petition docketed as G.R. No. 196596 and (2) comment on DLSU's
character of [a non-stock and non-profit educational institution] from any of [its] properties, real or petition docketed as G.R. No. 198841.51chanroblesvirtuallawlibrary
personal, or from any of (its] activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed by this Code.37 Counter-arguments

The Commissioner argues that the CTA En Banc misread and misapplied the case of Commissioner DLSU's Comment on G.R. No. 196596
of Internal Revenue v. YMCA38 to support its conclusion that revenues however generated are
covered by the constitutional exemption, provided that, the revenues will be used for educational First, DLSU questions the defective verification attached to the petition.52
purposes or will be held in reserve for such purposes.39
Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all assets and
On the contrary, the Commissioner posits that a tax-exempt organization like DLSU is exempt only from revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for
property tax but not from income tax on the rentals earned from property. 40 Thus, DLSU's income from educational purposes are exempt from taxes and duties. 53
the leases of its real properties is not exempt from taxation even if the income would be used for
educational purposes.41 On this point, DLSU explains that: (1) the tax exemption of nonstock, non-profit educational institutions
is novel to the 1987 Constitution and that Section 30 (H) of the 1997 Tax Code cannot amend
Second, the Commissioner insists that DLSU did not prove the fact of DST payment 42 and that it is not the 1987 Constitution;54 (2) Section 30 of the 1997 Tax Code is almost an exact replica of Section 26
qualified to use the On-Line Electronic DST Imprinting Machine, which is available only to certain of the 1977 Tax Code - with the addition of non-stock, non-profit educational institutions to the list of
classes of taxpayers under RR No. 9-2000.43 tax-exempt entities; and (3) that the 1977 Tax Code was promulgated when the 1973 Constitution was
still in place.
Finally, the Commissioner objects to the admission of DLSU's supplemental offer of evidence. The
belated submission of supplemental evidence reopened the case for trial, and worse, DLSU offered the DLSU elaborates that the tax exemption granted to a private educational institution under the 1973
supplemental evidence only after it received the unfavorable CTA Division's original decision. 44 In any Constitution was only for real property tax. Back then, the special tax treatment on income of private
case, DLSU's submission of supplemental documentary evidence was unnecessary since its rental educational institutions only emanates from statute, i.e., the 1977 Tax Code. Only under the 1987
income was taxable regardless of its disposition.45 Constitution that exemption from tax of all the assets and revenues of non-stock, non-profit educational
institutions used actually, directly and exclusively for educational purposes, was expressly and
G.R. No. 198841 categorically enshrined.55

DLSU argues as that: DLSU thus invokes the doctrine of constitutional supremacy, which renders any subsequent law that is
contrary to the Constitution void and without any force and effect.56 Section 30 (H) of the 1997 Tax
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication of unverified prior Code insofar as it subjects to tax the income of whatever kind and character of a nonstock and non-
years. A LOA issued contrary to RMO No. 43-90 is void, thus, an assessment issued based on such profit educational institution from any of its properties, real or personal, or from any of its activities
defective LOA must also be void.46 conducted for profit regardless of the disposition made of such income, should be declared without force
and effect in view of the constitutionally granted tax exemption on "all revenues and assets of non-
DLSU points out that the LOA issued to it covered the Fiscal Year Ending 2003 and Unverified Prior stock, non-profit educational institutions used actually, directly, and exclusively for educational
Years. On the basis of this defective LOA, the Commissioner assessed DLSU for deficiency income tax, purposes."57
VAT and DST for taxable years 2001, 2002 and 2003.47 DLSU objects to the CTA En Banc's conclusion
that the LOA is valid for taxable year 2003. According to DLSU, when RMO No. 43-90 provides that: DLSU further submits that it complies with the requirements enunciated in the YMCA case, that for an
chanRoblesvirtualLawlibrary exemption to be granted under Article XIV, Section 4 (3) of the Constitution, the taxpayer must prove
The practice of issuing [LOAs] covering audit of 'unverified prior years' is hereby that: (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it
prohibited.ChanRoblesVirtualawlibrary seeks to be exempted from taxation is used actually, directly and exclusively for educational
it refers to the LOA which has the format "Base Year + Unverified Prior Years." Since the LOA issued to purposes.58 Unlike YMCA, which is not an educational institution, DLSU is undisputedly a non-stock,
DLSU follows this format, then any assessment arising from it must be entirely voided.48 non-profit educational institution. It had also submitted evidence to prove that it actually, directly and
exclusively used its income for educational purposes. 59
Second, DLSU invokes the principle of uniformity in taxation, which mandates that for similarly situated
parties, the same set of evidence should be appreciated and weighed in the same manner. 49 The DLSU also cites the deliberations of the 1986 Constitutional Commission where they recognized that
CTA En Banc erred when it did not similarly appreciate DLSU's evidence as it did to the pieces of the tax exemption was granted "to incentivize private educational institutions to share with the State the
evidence submitted by Ateneo, also a non-stock, non-profit educational institution.50 responsibility of educating the youth."60

G.R. No. 198941 Third, DLSU highlights that both the CTA En Banc and Division found that the bank that handled
DLSU's loan and mortgage transactions had remitted to the BIR the DST through an imprinting
The issues and arguments raised by the Commissioner in G.R. No. 198941 petition are exactly the machine, a method allowed under RR No. 15-2001.61 In any case, DLSU argues that it cannot be held
liable for DST owmg to the exemption granted under the Constitution. 62
 would justify a different conclusion.
Finally, DLSU underscores that the Commissioner, despite notice, did not oppose the formal offer of
supplemental evidence. Because of the Commissioner's failure to timely object, she became bound by The parties failed to convince the Court that the CTA overlooked or failed to consider relevant
the results of the submission of such supplemental evidence.63 facts. We thus sustain the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income was used actually, directly and
The CIR's Comment on G.R. No. 198841 exclusively for educational purposes; and

The Commissioner submits that DLSU is estopped from questioning the LOA's validity because it failed b. DLSU proved the payment of the DST through its bank's on-line imprinting machine.
to raise this issue in both the administrative and judicial proceedings.64 That it was asked on cross-
examination during the trial does not make it an issue that the CTA could resolve. 65 The Commissioner
I. The revenues and assets of non-stock, non-profit educational institutions proved to have been
also maintains that DLSU's rental income is not tax-exempt because an educational institution is only
used actually, directly, and exclusively for educational purposes are exempt from duties and
exempt from property tax but not from tax on the income earned from the property. 66
taxes.
DLSU's Comment on G.R. No. 198941
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads:
chanRoblesvirtualLawlibrary
DLSU puts forward the same counter-arguments discussed above.67
(3) All revenues and assets of non-stock, non-profit educational institutions used actually,
In addition, DLSU prays that the Court award attorney's fees in its favor because it was constrained to directly, and exclusively for educational purposes shall be exempt from taxes and
unnecessarily retain the services of counsel in this separate petition. 68chanroblesvirtuallawlibrary duties. Upon the dissolution or cessation of the corporate existence of such institutions, their
assets shall be disposed of in the manner provided by law. Proprietary educational
Issues institutions, including those cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law including restrictions on dividends
Although the parties raised a number of issues, the Court shall decide only the pivotal issues, which we and provisions for reinvestment [underscoring and emphasis supplied]
summarize as follows:
Before fully discussing the merits of the case, we observe that:
I. Whether DLSU's income and revenues proved to have been used actually, directly and
First, the constitutional provision refers to two kinds of educational institutions: (1) non-stock, non-profit
exclusively for educational purposes are exempt from duties and taxes;chanrobleslaw
educational institutions and (2) proprietary educational institutions. 69
II. Whether the entire assessment should be voided because of the defective LOA;chanrobleslaw Second, DLSU falls under the first category. Even the Commissioner admits the status of DLSU as a
non-stock, non-profit educational institution.70
III. Whether the CTA correctly admitted DLSU's supplemental pieces of evidence; and
Third, while DLSU's claim for tax exemption arises from and is based on the Constitution, the
IV. Whether the CTA's appreciation of the sufficiency ofDLSU's evidence may be disturbed by the Constitution, in the same provision, also imposes certain conditions to avail of the exemption. We
Court discuss below the import of the constitutional text vis-a-vis the Commissioner's counter-arguments.

Fourth, there is a marked distinction between the treatment of nonstock, non-profit educational
Our Ruling institutions and proprietary educational institutions. The tax exemption granted to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive use of their revenues and
As we explain in full below, we rule that: assets for educational purposes. While tax exemptions may also be granted to proprietary educational
institutions, these exemptions may be subject to limitations imposed by Congress.

I. The income, revenues and assets of non-stock, non-profit educational institutions proved to As we explain below, the marked distinction between a non-stock, non-profit and a proprietary
have been used actually, directly and exclusively for educational purposes are exempt from educational institution is crucial in determining the nature and extent of the tax exemption granted to
duties and taxes. non-stock, non-profit educational institutions.

II. The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid. The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30 (H) of the Tax
Code. The relevant text reads:
III. The CTA correctly admitted DLSU's formal offer of supplemental evidence; and chanRoblesvirtualLawlibrary
The following organizations shall not be taxed under this Title [Tax on Income] in respect to income
IV. The CTA's appreciation of evidence is conclusive unless the CTA is shown to have manifestly received by them as such:
overlooked certain relevant facts not disputed by the parties and which, if properly considered,
xxxx institution; and (2) the income it seeks to be exempted from taxation is used actually, directly and
(H) A non-stock and non-profit educational institution exclusively for educational purposes.77
xxxx
We now adopt YMCA as precedent and hold that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any of 1. The last paragraph of Section 30 of the Tax Code is without force and effect with respect to non-
their activities conducted for profit regardless of the disposition made of such income shall be stock, non-profit educational institutions, provided, that the non-stock, non-profit educational
subject to tax imposed under this Code. [underscoring and emphasis institutions prove that its assets and revenues are used actually, directly and exclusively for
supplied]ChanRoblesVirtualawlibrary educational purposes.
The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted to non-stock,
non-profit educational institutions such that the revenues and income they derived from their assets, or 2. The tax-exemption constitutionally-granted to non-stock, non profit educational institutions, is
from any of their activities conducted for profit, are taxable even if these revenues and income are used not subject to limitations imposed by law.
for educational purposes.
The tax exemption granted by the Constitution to non-stock, non-profit educational institutions
Did the 1997 Tax Code qualifY the tax exemption constitutionally-granted to non-stock, non-profit is conditioned only on the actual, direct and exclusive use of their assets, revenues and
educational institutions? income78for educational purposes.
We answer in the negative. We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to charitable institutions,
churches, parsonages or convents, mosques, and non-profit cemeteries), which exempts from
While the present petition appears to be a case of firstimpression, 71
the Court in the YMCA case had in tax only the assets, i.e., "all lands, buildings, and improvements, actually, directly, and exclusively
fact already analyzed and explained the meaning of Article XIV, Section 4 (3) of the Constitution. The used for religious, charitable, or educational purposes...," Article XIV, Section 4 (3) categorically states
Court in that case made doctrinal pronouncements that are relevant to the present case. that "[a]ll revenues and assets... used actually, directly, and exclusively for educational purposes shall
be exempt from taxes and duties."
The issue in YMCA was whether the income derived from rentals of real property owned by the YMCA,
established as a "welfare, educational and charitable non-profit corporation," was subject to income tax The addition and express use of the word revenues in Article XIV, Section 4 (3) of the Constitution is not
under the Tax Code and the Constitution.72 without significance.
The Court denied YMCA's claim for exemption on the ground that as a charitable institution falling We find that the text demonstrates the policy of the 1987 Constitution, discernible from the records of
under Article VI, Section 28 (3) of the Constitution,73 the YMCA is not tax-exempt per se; "what is the 1986 Constitutional Commission79 to provide broader tax privilege to non-stock, non-profit
exempted is not the institution itself...those exempted from real estate taxes are lands, buildings and educational institutions as recognition of their role in assisting the State provide a public good. The tax
improvements actually, directly and exclusively used for religious, charitable or educational purposes." 74 exemption was seen as beneficial to students who may otherwise be charged unreasonable tuition fees
if not for the tax exemption extended to all revenues and assets of non-stock, non-profit educational
The Court held that the exemption claimed by the YMCA is expressly disallowed by the last institutions.80
paragraph of then Section 27 (now Section 30) of the Tax Code, which mandates that the income of
exempt organizations from any of their properties, real or personal, are subject to the same tax imposed Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require
by the Tax Code, regardless of how that income is used. The Court ruled that the last paragraph of that the revenues and income must have also been sourced from educational activities or activities
Section 27 unequivocally subjects to tax the rent income of the YMCA from its property.75 related to the purposes of an educational institution. The phrase all revenues is unqualified by any
reference to the source of revenues. Thus, so long as the revenues and income are used actually,
In short, the YMCA is exempt only from property tax but not from income tax. directly and exclusively for educational purposes, then said revenues and income shall be exempt from
taxes and duties.81
As a last ditch effort to avoid paying the taxes on its rental income, the YMCA invoked the tax privilege
granted under Article XIV, Section 4 (3) of the Constitution. We find it helpful to discuss at this point the taxation of revenues versus the taxation of assets.
The Court denied YMCA's claim that it falls under Article XIV, Section 4 (3) of the Constitution holding Revenues consist of the amounts earned by a person or entity from the conduct of business
that the term educational institution, when used in laws granting tax exemptions, refers to the school operations.82 It may refer to the sale of goods, rendition of services, or the return of an investment.
system (synonymous with formal education); it includes a college or an educational establishment; it Revenue is a component of the tax base in income tax,83 VAT,84 and local business tax (LBT).85
refers to the hierarchically structured and chronologically graded learnings organized and provided by
the formal school system.76 Assets, on the other hand, are the tangible and intangible properties owned by a person or entity. 86 It
may refer to real estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of
The Court then significantly laid down the requisites for availing the tax exemption under Article XIV, goods, or any property from which the person or entity may derive income or use to generate the same.
Section 4 (3), namely: (1) the taxpayer falls under the classification non-stock, non-profit educational In Philippine taxation, the fair market value of real property is a component of the tax base in real
property tax (RPT).87 Also, the landed cost of imported goods is a component of the tax base in VAT on We spell out below the difference in treatment if only to highlight the privileged status of non-stock, non-
importation88 and tariff duties.89 profit educational institutions compared with their proprietary counterparts.

Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30
directly, and exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT. (Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered
On the other hand, when it also shows that it uses its assets in the form of real property for educational by Section 27 (Rates of Income Tax on Domestic Corporations).
purposes, it shall be exempted from RPT.
To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational
To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax institutions shall not be taxed on income received by them as such.
from which the entity shall be exempted from shall depend on whether the item is an item of revenue or
asset. Section 27 (B), on the other hand, states that [p]roprietary educational institutions...which are nonprofit
shall pay a tax of ten percent (10%) on their taxable income...Provided, that if the gross income from
To illustrate, if a university leases a portion of its school building to a bookstore or cafeteria, the leased unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived
portion is not actually, directly and exclusively used for educational purposes, even if the bookstore or by such educational institutions...[the regular corporate income tax of 30%] shall be imposed on the
canteen caters only to university students, faculty and staff. entire taxable income...92

The leased portion of the building may be subject to real property tax, as held in Abra Valley College, By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of
Inc. v. Aquino.90 We ruled in that case that the test of exemption from taxation is the use of the property 10% corporate income tax. The reduced rate is applicable only if: (1) the proprietary educational
for purposes mentioned in the Constitution. We also held that the exemption extends to facilities which institution is non profit and (2) its gross income from unrelated trade, business or activity does not
are incidental to and reasonably necessary for the accomplishment of the main purposes. exceed 50% of its total gross income.

In concrete terms, the lease of a portion of a school building for commercial purposes, removes such Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to non-stock,
asset from the property tax exemption granted under the Constitution.91 There is no exemption non-profit educational institutions.
because the asset is not used actually, directly and exclusively for educational purposes. The
commercial use of the property is also not incidental to and reasonably necessary for the Thus, we declare the last paragraph of Section 30 of the Tax Code without force and effect for being
accomplishment of the main purpose of a university, which is to educate its students. contrary to the Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit
educational institutions used actually, directly and exclusively for educational purpose. We make this
However, if the university actually, directly and exclusively uses for educational declaration in the exercise of and consistent with our duty93 to uphold the primacy of the Constitution.94
purposes the revenues earned from the lease of its school building, such revenues shall be exempt
from taxes and duties. The tax exemption no longer hinges on the use of the asset from which the Finally, we stress that our holding here pertains only to non-stock, non-profit educational institutions and
revenues were earned, but on the actual, direct and exclusive use of the revenues for educational does not cover the other exempt organizations under Section 30 of the Tax Code.
purposes.
For all these reasons, we hold that the income and revenues of DLSU proven to have been used
Parenthetically, income and revenues of non-stock, non-profit educational institution not used actually, actually, directly and exclusively for educational purposes are exempt from duties and taxes.
directly and exclusively for educational purposes are not exempt from duties and taxes. To avail of the
exemption, the taxpayer must factually prove that it used actually, directly and exclusively for II. The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid.
educational purposes the revenues or income sought to be exempted.
DLSU objects to the CTA En Banc's conclusion that the LOA is valid for taxable year 2003 and insists
The crucial point of inquiry then is on the use of the assets or on the use of the revenues. These are that the entire LOA should be voided for being contrary to RMO No. 43-90, which provides that if tax
two things that must be viewed and treated separately. But so long as the assets or revenues are used audit includes more than one taxable period, the other periods or years shall be specifically indicated in
actually, directly and exclusively for educational purposes, they are exempt from duties and taxes. the LOA.

The tax exemption granted by the Constitution to non-stock, non-profit educational institutions, A LOA is the authority given to the appropriate revenue officer to examine the books of account and
unlike the exemption that may be availed of by proprietary educational institutions, is not other accounting records of the taxpayer in order to determine the taxpayer's correct internal revenue
subject to limitations imposed by law. liabilities95 and for the purpose of collecting the correct amount oftax, 96 in accordance with Section 5 of
the Tax Code, which gives the CIR the power to obtain information, to summon/examine, and take
That the Constitution treats non-stock, non-profit educational institutions differently from proprietary testimony of persons. The LOA commences the audit process 97 and informs the taxpayer that it is under
educational institutions cannot be doubted. As discussed, the privilege granted to the former is audit for possible deficiency tax assessment.
conditioned only on the actual, direct and exclusive use of their revenues and assets for educational
purposes. In clear contrast, the tax privilege granted to the latter may be subject to limitations imposed Given the purposes of a LOA, is there basis to completely nullify the LOA issued to DLSU, and
by law. consequently, disregard the BIR and the CTA's findings of tax deficiency for taxable year 2003?
We answer in the negative. We uphold the CTA Division's admission of the supplemental evidence on distinct but mutually
reinforcing grounds, to wit: (1) the Commissioner failed to timely object to the formal offer of
The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads: supplemental evidence; and (2) the CTA is not governed strictly by the technical rules of evidence.
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First, the failure to object to the offered evidence renders it admissible, and the court cannot, on its own,
3. A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable disregard such evidence.104
year. The practice of issuing [LOAs] covering audit of unverified prior years is hereby
prohibited. If the audit of a taxpayer shall include more than one taxable period, the The Court has held that if a party desires the court to reject the evidence offered, it must so state in the
other periods or years shall be specifically indicated in the [LOA]. 98 form of a timely objection and it cannot raise the objection to the evidence for the first time on appeal.105

Because of a party's failure to timely object, the evidence offered becomes part of the evidence in the
What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior case. As a consequence, all the parties are considered bound by any outcome arising from the offer of
years. RMO 43-90 does not say that a LOA which contains unverified prior years is void. It merely evidence properly presented.106
prescribes that if the audit includes more than one taxable period, the other periods or years must be
specified. The provision read as a whole requires that if a taxpayer is audited for more than one taxable As disclosed by DLSU, the Commissioner did not oppose the supplemental formal offer of evidence
year, the BIR must specify each taxable year or taxable period on separate LOAs. despite notice.107 The Commissioner objected to the admission of the supplemental evidence only when
the case was on appeal to the CTA En Banc. By the time the Commissioner raised her objection, it was
Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform too late; the formal offer, admission and evaluation of the supplemental evidence were all fait
the taxpayer of the extent of the audit and the scope of the revenue officer's authority. Without this rule, accompli.
a revenue officer can unduly burden the taxpayer by demanding random accounting records from
random unverified years, which may include documents from as far back as ten years in cases We clarify that while the Commissioner's failure to promptly object had no bearing on the materiality or
of fraud audit.99 sufficiency of the supplemental evidence admitted, she was bound by the outcome of the CTA Division's
assessment of the evidence.108
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years.
The LOA does not strictly comply with RMO 43-90 because it includes unverified prior years. This does Second, the CTA is not governed strictly by the technical rules of evidence. The CTA Division's
not mean, however, that the entire LOA is void. admission of the formal offer of supplemental evidence, without prompt objection from the
Commissioner, was thus justified.
As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is
specified in the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Notably, this Court had in the past admitted and considered evidence attached to the taxpayers' motion
Corollarily, the assessments for taxable years 2001 and 2002 are void for having been unspecified on for reconsideration.
separate LOAs as required under RMO No. 43-90.
In the case of BPI-Family Savings Bank v. Court of Appeals,109 the tax refund claimant attached to its
Lastly, the Commissioner's claim that DLSU failed to raise the issue of the LOA's validity at the CTA motion for reconsideration with the CTA its Final Adjustment Return. The Commissioner, as in the
Division, and thus, should not have been entertained on appeal, is not accurate. present case, did not oppose the taxpayer's motion for reconsideration and the admission of the Final
Adjustment Return.110 We thus admitted and gave weight to the Final Adjustment Return although it was
On the contrary, the CTA En Banc found that the issue of the LOA's validity came up during the only submitted upon motion for reconsideration.
trial.100 DLSU then raised the issue in its memorandum and motion for partial reconsideration with the
CTA Division. DLSU raised it again on appeal to the CTA En Banc. Thus, the CTA En Banc could, as it We held that while it is true that strict procedural rules generally frown upon the submission of
did, pass upon the validity of the LOA.101 Besides, the Commissioner had the opportunity to argue for documents after the trial, the law creating the CTA specifically provides that proceedings before it shall
the validity of the LOA at the CTA En Banc but she chose not to file her comment and memorandum not be governed strictly by the technical rules of evidence 111 and that the paramount consideration
despite notice.102 remains the ascertainment of truth. We ruled that procedural rules should not bar courts from
considering undisputed facts to arrive at a just determination of a controversy.112
III. The CTA correctly admitted the supplemental evidence formally offered by DLSU.
We applied the same reasoning in the subsequent cases of Filinvest Development Corporation v.
The Commissioner objects to the CTA Division's admission of DLSU's supplemental pieces of Commissioner of Internal Revenue113 and Commissioner of Internal Revenue v. PERF Realty
documentary evidence. Corporation,114 where the taxpayers also submitted the supplemental supporting document only upon
filing their motions for reconsideration.
To recall, DLSU formally offered its supplemental evidence upon filing its motion for reconsideration with
the CTA Division.103 The CTA Division admitted the supplemental evidence, which proved that a portion Although the cited cases involved claims for tax refunds, we also dispense with the strict application of
of DLSU's rental income was used actually, directly and exclusively for educational purposes. the technical rules of evidence in the present tax assessmentcase. If anything, the liberal application of
Consequently, the CTA Division reduced DLSU's tax liabilities. the rules assumes greater force and significance in the case of a taxpayer who claims a constitutionally
granted tax exemption. While the taxpayers in the cited cases claimed refund of excess tax payments
based on the Tax Code,115 DLSU is claiming tax exemption based on the Constitution. If liberality is CPA who reviewed, audited and examined the voluminous documents submitted by DLSU.
afforded to taxpayers who paid more than they should have under a statute, then with more reason that
we should allow a taxpayer to prove its exemption from tax based on the Constitution. Under the CTA Revised Rules, an Independent CPA's functions include: (a) examination and
verification of receipts, invoices, vouchers and other long accounts; (b) reproduction of, and comparison
Hence, we sustain the CTA's admission of DLSU's supplemental offer of evidence not only because the of such reproduction with, and certification that the same are faithful copies of original documents, and
Commissioner failed to promptly object, but more so because the strict application of the technical tules pre-marking of documentary exhibits consisting of voluminous documents; (c) preparation of schedules
of evidence may defeat the intent of the Constitution. or summaries containing a chronological listing of the numbers, dates and amounts covered by receipts
or invoices or other relevant documents and the amount(s) of taxes paid; (d) making findings as to
IV. The CTA's appreciation of evidence is generally binding on the Court unless compelling compliance with substantiation requirements under pertinent tax laws, regulations and
reasons justify otherwise. jurisprudence; (e) submission of a formal report with certification of authenticity and veracity of findings
and conclusions in the performance of the audit; (f) testifying on such formal report; and (g) performing
It is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the such other functions as the CTA may direct.122
very nature of its function of being dedicated exclusively to the resolution of tax problems, has
developed an expertise on the subject, unless there has been an abuse or improvident exercise of Based on the Independent CPA's report and on its own appreciation of the evidence, the CTA held that
authority.116 We thus accord the findings of fact by the CTA with the highest respect. These findings of only the portion of the rental income pertaining to the substantiated disbursements (i.e., proved by
facts can only be disturbed on appeal if they are not supported by substantial evidence or there is a receipts, vouchers, etc.) from the CF-CPA Account was considered as used actually, directly and
showing of gross error or abuse on the part of the CTA. In the absence of any clear and convincing exclusively for educational purposes. Consequently, the unaccounted and unsubstantiated
proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every disbursements must be subjected to income tax and VAT.123
respect.117
The CTA then further reduced DLSU's tax liabilities by cancelling the assessments for taxable years
We sustain the factual findings of the CTA. 2001 and 2002 due to the defective LOA.124

The parties failed to raise credible basis for us to disturb the CTA's findings that DLSU had used The Court finds that the above fact-finding process undertaken by the CTA shows that it based its ruling
actually, directly and exclusively for educational purposes a portion of its assessed income and that it on the evidence on record, which we reiterate, were examined and verified by the Independent CPA.
had remitted the DST payments though an online imprinting machine. Thus, we see no persuasive reason to deviate from these factual findings.

a. DLSU used actually, directly, and exclusively for educational purposes a portion of its However, while we generally respect the factual findings of the CTA, it does not mean that we are
assessed income. bound by its conclusions. In the present case, we do not agree with the method used by the CTA to
arrive at DLSU's unsubstantiated rental income (i.e., income not proved to have been actually, directly
and exclusively used for educational purposes).
To see how the CTA arrived at its factual findings, we review the process undertaken, from which it
deduced that DLSU successfully proved that it used actually, directly and exclusively for educational To recall, the CTA found that DLSU earned a rental income of P10,610,379.00 in taxable year
purposes a portion of its rental income. 2003.125 DLSU earned this income from leasing a portion of its premises to: 1) MTO-Sports Complex,
2) La Casita, 3) Alarey, Inc., 4) Zaide Food Corp., 5) Capri International, and 6) MTO Bookstore.126
The CTA reduced DLSU's deficiency income tax and VAT liabilities in view of the submission of the
supplemental evidence, which consisted of statement of receipts, statement of disbursement and fund To prove that its rental income was used for educational purposes, DLSU identified the transactions
balance and statement of fund changes.118 where the rental income was expended, viz.: 1) P4,007,724.00127 used to pay the loan obtained by
DLSU to build the Sports Complex; and 2) P6,602,655.00 transferred to the CF-CPA Account.128
These documents showed that DLSU borrowed P93.86 Million, 119 which was used to build the
university's Sports Complex. Based on these pieces of evidence, the CTA found that DLSU's rental DLSU also submitted documents to the Independent CPA to prove that the P6,602,655.00 transferred to
income from its concessionaires were indeed transmitted and used for the payment of this loan. The the CF-CPA Account was used actually, directly and exclusively for educational purposes. According to
CTA held that the degree of preponderance of evidence was sufficiently met to prove actual, direct and the Independent CPA' findings, DLSU was able to substantiate disbursements from the CF-CPA
exclusive use for educational purposes. Account amounting to P6,259,078.30.
The CTA also found that DLSU's rental income from other concessionaires, which were allegedly Contradicting the findings of the Independent CPA, the CTA concluded that out of
deposited to a fund (CF-CPA Account),120 intended for the university's capital projects, was not proved the P10,610,379.00 rental income, P4,841,066.65 was unsubstantiated, and thus, subject to income tax
to have been used actually, directly and exclusively for educational purposes. The CTA observed and VAT.129
that "[DLSU]...failed to fully account for and substantiate all the disbursements from the [fund]." Thus,
the CTA "cannot ascertain whether rental income from the [other] concessionaires was indeed used for The CTA then concluded that the ratio of substantiated disbursements to the total disbursements from
educational purposes."121 the CF-CPA Account for taxable year 2003 is only 26.68%.130The CTA held as follows:
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To stress, the CTA's factual findings were based on and supported by the report of the Independent
However, as regards petitioner's rental income from Alarey, Inc., Zaide Food Corp., Capri International We answer in the negative.
and MTO Bookstore, which were transmitted to the CF-CPA Account, petitioner again failed to fully
account for and substantiate all the disbursements from the CF-CPA Account; thus failing to prove that The records show that DLSU never claimed that the total CF-CPA disbursements of P23.46 million had
the rental income derived therein were actually, directly and exclusively used for educational purposes. been for educational purposes and should thus be tax-exempt; DLSU only claimed P10.61 million for
Likewise, the findings of the Court-Commissioned Independent CPA show that the disbursements from taxexemption and should thus be required to prove that this amount had been used as claimed.
the CF-CPA Account for fiscal year 2003 amounts to P-6,259,078.30 only. Hence, this portion of the
rental income, being the substantiated disbursements of the CF-CPA Account, was considered by the Of this amount, P4.01 had been proven to have been used for educational purposes, as confirmed by
Special First Division as used actually, directly and exclusively for educational purposes. Since for fiscal the Independent CPA. The amount in issue is therefore the balance of P6.60 million which was
year 2003, the total disbursements per voucher is P6,259,078.3 (Exhibit "LL-25-C"), and the total transferred to the CF-CPA which in turn made disbursements of P23.46 million for various general
disbursements per subsidiary ledger amounts to P23,463,543.02 (Exhibit "LL-29-C"), the ratio of purposes, among them the P6.60 million transferred by DLSU.
substantiated disbursements for fiscal year 2003 is 26.68% (P6,259,078.30/P23,463,543.02). Thus, the
substantiated portion of CF-CPA Disbursements for fiscal year 2003, arrived at by multiplying the ratio Significantly, the Independent CPA confirmed that the CF-CPA made disbursements for educational
of 26.68% with the total rent income added to and used in the CF-CPA Account in the amount of purposes in year 2003 in the amount P6.26 million. Based on these given figures, the CTA concluded
P6,602,655.00 ts P1,761,588.35.131 (emphasis supplied)ChanRoblesVirtualawlibrary that the expenses for educational purposes that had been coursed through the CF-CPA should be
prorated so that only the portion that P6.26 million bears to the total CF-CPA disbursements should be
For better understanding, we summarize the CTA's computation as follows:
credited to DLSU for tax exemption.

1. The CTA subtracted the rent income used in the construction of the Sports Complex This approach, in our view, is flawed given the constitutional requirement that revenues actually and
(P4,007,724.00) from the rental income (P10,610,379.00) earned from the abovementioned directly used for educational purposes should be tax-exempt. As already mentioned above, DLSU is not
concessionaries. The difference (P6,602,655.00) was the portion claimed to have been claiming that the whole P23.46 million CF-CPA disbursement had been used for educational purposes;
deposited to the CF-CPA Account. it only claims that P6.60 million transferred to CF-CPA had been used for educational purposes. This
was what DLSU needed to prove to have actually and directly used for educational purposes.
2. The CTA then subtracted the supposed substantiated portion of CF-CPA disbursements
(P1,761,308.37) from the P6,602,655.00 to arrive at the supposed unsubstantiated portion of That this fund had been first deposited into a separate fund (the CF-CPA established to fund capital
the rental income (P4,841,066.65).132 projects) lends peculiarity to the facts of this case, but does not detract from the fact that the deposited
funds were DLSU revenue funds that had been confirmed and proven to have been actually and directly
3. The substantiated portion of CF-CPA disbursements (P1,761,308.37)133 was derived by used for educational purposes via the CF-CPA. That the CF-CPA might have had other sources of
multiplying the rental income claimed to have been added to the CF-CPA Account funding is irrelevant because the assessment in the present case pertains only to the rental income
(P6,602,655.00) by 26.68% or the ratio of substantiated disbursements to total which DLSU indisputably earned as revenue in 2003. That the proven CF-CPA funds used for
disbursements (P23,463,543.02). educational purposes should not be prorated as part of its total CF-CPA disbursements for purposes of
crediting to DLSU is also logical because no claim whatsoever had been made that the totality of the
4. The 26.68% ratio134 was the result of dividing the substantiated disbursements from the CF- CF-CPA disbursements had been for educational purposes. No prorating is necessary; to state the
CPA Account as found by the Independent CPA (P6,259,078.30) by the total disbursements obvious, exemption is based on actual and direct use and this DLSU has indisputably proven.
(P23,463,543.02) from the same account.
Based on these considerations, DLSU should therefore be liable only for the difference between what it
claimed and what it has proven. In more concrete terms, DLSU only had to prove that its rental income
We find that this system of calculation is incorrect and does not truly give effect to the constitutional for taxable year 2003 (P10,610,379.00) was used for educational purposes. Hence, while the total
grant of tax exemption to non-stock, nonprofit educational institutions. The CTA's reasoning is flawed disbursements from the CF-CPA Account amounted to P23,463,543.02, DLSU only had to substantiate
because it required DLSU to substantiate an amount that is greater than the rental income deposited in its P10.6 million rental income, part of which was the P6,602,655.00 transferred to the CF-CPA account.
the CF-CPA Account in 2003. Of this latter amount, P6.259 million was substantiated to have been used for educational purposes.
To reiterate, to be exempt from tax, DLSU has the burden of proving that the proceeds of its rental To summarize, we thus revise the tax base for deficiency income tax and VAT for taxable year 2003 as
income (which amounted to a total of P10.61 million)135 were used for educational purposes. This follows:
amount was divided into two parts: (a) the P4.01 million, which was used to pay the loan obtained for chanRoblesvirtualLawlibrary
the construction of the Sports Complex; and (b) the P6.60 million,136 which was transferred to the CF-
CPA account. CTA Decision138 Revised

For year 2003, the total disbursement from the CF-CPA account amounted to P23.46 million.137 These Rental income 10,610,379.00 10,610,379.00
figures, read in light of the constitutional exemption, raises the question: does DLSU claim that the
whole total CF-CPA disbursement of P23.46 million is tax-exempt so that it is required to prove Less: Rent income used in construction of the
that all these disbursements had been made for educational purposes? 4,007,724.00 4,007,724.00
Sports Complex
 portion of its income and revenues had indeed been used for educational purposes.

The CTA significantly found that some documents that could have fully supported DLSU's claim were
Rental income deposited to the CF-CPA not produced in court. Indeed, the Independent CPA testified that some disbursements had not been
6,602,655.00 6,602.655.00
Account proven to have been used actually, directly and exclusively for educational purposes. 144

The final nail on the question of evidence is DLSU's own admission that the original of these
documents had not in fact been produced before the CTA although it claimed that there was no bad
Less: Substantiated portion of CF-CPA faith on its part.145 To our mind, this admission is a good indicator of how the Ateneo and the DLSU
1,761,588.35 6,259,078.30
disbursements cases varied, resulting in DLSU's failure to substantiate a portion of its claimed exemption.

Further, DLSU's invocation of Section 5, Rule 130 of the Revised Rules on Evidence, that the contents
of the missing supporting documents were proven by its recital in some other authentic documents on
Tax base for deficiency income tax and VAT 4,841,066.65 343,576.70 record,146 can no longer be entertained at this late stage of the proceeding. The CTA did not rule on this
particular claim. The CTA also made no finding on DLSU's assertion of lack of bad faith. Besides, it is
On DLSU's argument that the CTA should have appreciated its evidence in the same way as it did with not our duty to go over these documents to test the truthfulness of their contents, this Court not being a
the evidence submitted by Ateneo in another separate case, the CTA explained that the issue in the trier of facts.
Ateneo case was not the same as the issue in the present case.
Second, DLSU misunderstands the concept of uniformity oftaxation. Equality and uniformity of taxation
The issue in the Ateneo case was whether or not Ateneo could be held liable to pay income taxes and means that all taxable articles or kinds of property of the same class shall be taxed at the same
VAT under certain BIR and Department of Finance issuances139that required the educational institution rate.147 A tax is uniform when it operates with the same force and effect in every place where the
to own and operate the canteens, or other commercial enterprises within its campus, as condition for tax subject of it is found.148 The concept requires that all subjects of taxation similarly situated should
exemption. The CTA held that the Constitution does not require the educational institution to own or be treated alike and placed in equal footing.149
operate these commercial establishments to avail of the exemption. 140
In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA treated them alike because
Given the lack of complete identity of the issues involved, the CTA held that it had to evaluate the their income proved to have been used actually, directly and exclusively for educational purposes were
separate sets of evidence differently. The CTA likewise stressed that DLSU and Ateneo gave distinct exempted from taxes. The CTA equally applied the requirements in the YMCA case to test if they
defenses and that its wisdom "cannot be equated on its decision on two different cases with two indeed used their revenues for educational purposes.
different issues."141
DLSU can only assert that the CTA violated the rule on uniformity if it can show that,
DLSU disagrees with the CTA and argues that the entire assessment must be cancelled because it despite proving that it used actually, directly and exclusively for educational purposes its income and
submitted similar, if not stronger sets of evidence, as Ateneo. We reject DLSU's argument for being non revenues, the CTA still affirmed the imposition of taxes. That the DLSU secured a different result
sequitur. Its reliance on the concept of uniformity of taxation is also incorrect. happened because it failed to fully prove that it used actually, directly and exclusively for educational
purposes its revenues and income.
First, even granting that Ateneo and DLSU submitted similar evidence, the sufficiency and
materiality of the evidence supporting their respective claims for tax exemption would necessarily differ On this point, we remind DLSU that the rule on uniformity of taxation does not mean that subjects of
because their attendant issues and facts differ. taxation similarly situated are treated in literally the same way in all and every occasion. The fact that
the Ateneo and DLSU are both non-stock, non-profit educational institutions, does not mean that the
To state the obvious, the amount of income received by DLSU and by Ateneo during the taxable years CTA or this Court would similarly decide every case for (or against) both universities. Success in tax
they were assessed varied. The amount of tax assessment also varied. The amount of income proven litigation, like in any other litigation, depends to a large extent on the sufficiency of evidence. DLSU's
to have been used for educational purposes also varied because the amount substantiated evidence was wanting, thus, the CTA was correct in not fully cancelling its tax liabilities.
varied.142 Thus, the amount of tax assessment cancelled by the CTA varied.
b. DLSU proved its payment of the DST
On the one hand, the BIR assessed DLSU a total tax deficiency of P17,303,001.12 for taxable years
2001, 2002 and 2003. On the other hand, the BIR assessed Ateneo a total deficiency tax The CTA affirmed DLSU's claim that the DST due on its mortgage and loan transactions were paid and
of P8,864,042.35 for the same period. Notably, DLSU was assessed deficiency DST, while Ateneo was remitted through its bank's On-Line Electronic DST Imprinting Machine. The Commissioner argues that
not.143 DLSU is not allowed to use this method of payment because an educational institution is excluded from
the class of taxpayers who can use the On-Line Electronic DST Imprinting Machine.
Thus, although both Ateneo and DLSU claimed that they used their rental income actually, directly and
exclusively for educational purposes by submitting similar evidence, e.g., the testimony of their We sustain the findings of the CTA. The Commissioner's argument lacks basis in both the Tax Code
employees on the use of university revenues, the report of the Independent CPA, their income and the relevant revenue regulations.
summaries, financial statements, vouchers, etc., the fact remains that DLSU failed to prove that a
DST on documents, loan agreements, and papers shall be levied, collected and paid for by the person
making, signing, issuing, accepting, or transferring the same.150The Tax Code provides that whenever
one party to the document enjoys exemption from DST, the other party not exempt from DST shall be
directly liable for the tax. Thus, it is clear that DST shall be payable by any party to the document, such
that the payment and compliance by one shall mean the full settlement of the DST due on the
document.

In the present case, DLSU entered into mortgage and loan agreements with banks. These agreements
are subject to DST.151 For the purpose of showing that the DST on the loan agreement has been paid,
DLSU presented its agreements bearing the imprint showing that DST on the document has been paid
by the bank, its counterparty. The imprint should be sufficient proof that DST has been paid. Thus,
DLSU cannot be further assessed for deficiency DST on the said documents.

Finally, it is true that educational institutions are not included in the class of taxpayers who can pay and
remit DST through the On-Line Electronic DST Imprinting Machine under RR No. 9-2000. As correctly
held by the CTA, this is irrelevant because it was not DLSU who used the On-Line Electronic DST
Imprinting Machine but the bank that handled its mortgage and loan transactions. RR No. 9-2000
expressly includes banks in the class of taxpayers that can use the On-Line Electronic DST Imprinting
Machine.

Thus, the Court sustains the finding of the CTA that DLSU proved the payment of the assessed DST
deficiency, except for the unpaid balance of P13,265.48.152

WHEREFORE, premises considered, we DENY the petition of the Commissioner of Internal Revenue in
G.R. No. 196596 and AFFIRM the December 10, 2010 decision and March 29, 2011 resolution of the
Court of Tax Appeals En Banc in CTA En Banc Case No. 622, except for the total amount of deficiency
tax liabilities of De La Salle University, Inc., which had been reduced.

We also DENY both the petition of De La Salle University, Inc. in G.R. No. 198841 and the petition of
the Commissioner of Internal Revenue in G.R. No. 198941 and thus AFFIRM the June 8, 2011 decision
and October 4, 2011 resolution of the Court of Tax Appeals En Banc in CTA En Banc Case No. 671,
with the MODIFICATIONthat the base for the deficiency income tax and VAT for taxable year 2003
is P343,576.70.

SO ORDERED.cralawla
 The dispositive portion of the Decision reads:
2. Commissioner of Internal Revenue v. St. Paul College of
Makati WHEREFORE, in view of all the foregoing, the Court hereby declares BIR RMO No. 20-2013 as
UNCONSTITUTIONAL for being violative of Article XIV, Section 4, paragraph 3. Consequently, all
G.R. No. 215383 Revenue Memorandum Orders subsequently issued to implement BIR RMO No. 20-2013 are declared
HON. KIM S. JACINTO-HENARES, in her official capacity as COMMISSIONER OF THE BUREAU null and void.
OF INTERNAL REVENUE, Petitioner
vs The writ of preliminary injunction issued on 03 February 2014 is hereby made permanent.
ST. PAUL COLLEGE OF MAKATI, Respondent SO ORDERED.11
RESOLUTION
CARPIO, J.: On 18 September 2014, the CIR issued RMO No. 34-2014,12 which clarified certain provisions of RMO
The Case No. 20-2013, as amended by RMO No. 28-2013.13
This petition for review1 assails the Decision dated 25 July 20142 and Joint Resolution dated 29 October In a Joint Resolution dated 29 October 2014, the RTC denied the CIR's motion for reconsideration, to
20143 of the Regional Trial Court, Branch 143, Makati City (RTC), in Civil Case No. 13-1405, declaring wit:
Revenue Memorandum Order (RMO) No. 20-2013 unconstitutional.
WHEREFORE, viewed in the light of the foregoing premises, the Motion for Reconsideration filed by the
The Facts respondent is hereby DENIED for lack of merit.
On 22 July 2013, petitioner Kim S. Jacinto-Henares, acting in her capacity as then Commissioner of Meanwhile, this Court clarifies that the phrase "Revenue Memorandum Order" referred to in the second
Internal Revenue (CIR), issued RMO No. 20-2013, "Prescribing the Policies and Guidelines in the sentence of its decision dated July 25, 2014 refers to "issuance/s" of the respondent which tends to
Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations implement RMO 20-2013 for if it is otherwise, said decision would be useless and would be rendered
under Section 30 of the National Internal Revenue Code of 1997, as Amended." nugatory.
On 29 November 2013, respondent St. Paul College of Makati (SPCM), a non-stock, non-profit SO ORDERED.14
educational institution organized and existing under Philippine laws, filed a Civil Action to Declare
Unconstitutional [Bureau of Internal Revenue] RMO No. 20-2013 with Prayer for Issuance of Temporary Hence, this present petition.
Restraining Order and Writ of Preliminary Injunction4 before the RTC. SPCM alleged that "RMO No. 20-
2013 imposes as a prerequisite to the enjoyment by non-stock, non-profit educational institutions of the The Issues
privilege of tax exemption under Sec. 4(3) of Article XIV of the Constitution both a registration and
The CIR raises the following issues for resolution:
approval requirement, i.e., that they submit an application for tax exemption to the BIR subject to
approval by CIR in the form of a Tax[]Exemption Ruling (TER) which is valid for a period of [three] years WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO [NO.] 20-2013 IMPOSES A
and subject to renewal."5 According to SPCM, RMO No. 20-2013 adds a prerequisite to the requirement PREREQUISITE BEFORE A NONSTOCK, NON-PROFIT EDUCATIONAL INSTITUTION MAY AVAIL
under Department of Finance Order No. 137-87,6 and makes failure to file an annual information return OF THE TAX EXEMPTION UNDER SECTION 4(3), ARTICLE XIV OF THE CONSTITUTION.
a ground for a non-stock, nonprofit educational institution to "automatically lose its income tax-exempt
status."7 WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO NO. 20-2013 ADDS TO THE
REQUIREMENT UNDER DEPARTMENT OF FINANCE ORDER NO. 137-87.15
In a Resolution dated 27 December 2013,8 the RTC issued a temporary restraining order against the
implementation of RMO No. 20- 2013. It found that failure of SPCM to comply with RMO No. 20-2013 The Ruline of the Court
would necessarily result to losing its tax-exempt status and cause irreparable injury.
We deny the petition on the ground of mootness.
In a Resolution dated 22 January 2014,9 the RTC granted the writ of preliminary injunction after finding
that RMO No. 20-2013 appears to divest non-stock, non-profit educational institutions of their tax We take judicial notice that on 25 July 2016, the present CIR Caesar R. Dulay issued RMO No. 44-
exemption privilege. Thereafter, the RTC denied the CIR's motion for reconsideration. On 29 April 2014, 2016, which provides that:
SPCM filed a Motion for Judgment on the Pleadings under Rule 34 of the Rules of Court.
SUBJECT: Amending Revenue Memorandum Order No. 20- 2013, as amended (Prescribing the
The Ruling of the RTC Policies and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit
Corporations and Associations under Section 30 of the National Internal Revenue Code of 1997, as
In a Decision dated 25 July 2014, the RTC ruled in favor of SPCM and declared RMO No. 20-2013 Amended)
unconstitutional.1âwphi1It held that "by imposing the x x x [prerequisites alleged by SPCM,] and if not
complied with by nonstock, non-profit educational institutions, [RMO No. 20-2013 serves] as diminution In line with the Bureau's commitment to put in proper context the nature and tax status of non-profit,
of the constitutional privilege, which even Congress cannot diminish by legislation, and thus more so by non-stock educational institutions, this Order is being issued to exclude non-stock, non-profit
the [CIR] who merely exercise[s] quasi-legislative function."10 educational institutions from the coverage of Revenue Memorandum Order No. 20-2013, as amended.
SECTION 1. Nature of Tax Exemption. --- The tax exemption of non-stock, non-profit educational f. Original copy of the Certificate of utilization of annual revenues and assets by the Treasurer or his
institutions is directly conferred by paragraph 3, Section 4, Article XIV of the 1987 Constitution, the equivalent of the non-stock and nonprofit educational institution.
pertinent portion of which reads:
SECTION 4. Request for Additional Documents. --- In the course of review of the application for tax
"All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exemption, the Bureau may require additional information or documents as the circumstances may
exclusively (or educational purposes shall be exempt from taxes and duties." warrant.

This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as amended, which SECTION 5. Validity of the Tax Exemption Ruling. --- Tax Exemption Rulings or Certificates of Tax
provides as follows: Exemption of non-stock, nonprofit educational institutions shall remain valid and effective, unless
recalled for valid grounds. They are not required to renew or revalidate the Tax exemption rulings
"Sec. 30. Exempt from Tax on Corporations. - The following organizations shall not be taxed under this previously issued to them.
Title in respect to income received by them as such:
The Tax Exemption Ruling shall be subject to revocation if there are material changes in the character,
xxx xxx xxx purpose or method of operation of the corporation which are inconsistent with the basis for its income
tax exemption.
(H) A non-stock and non-profit educational institution; x x x."
SECTION 6. Transitory Provisions. --- To update the records of the Bureau and for purposes of a better
It is clear and unmistakable from the aforequoted constitutional provision that non-stock, non-profit
system of monitoring, non-stock, nonprofit educational institutions with Tax Exemption Rulings or
educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of its
Certificates of Exemption issued prior to June 30, 2012 are required to apply for new Tax Exemption
purpose as an educational institution and used actually, directly and exclusively for educational
Rulings.
purposes. This constitutional exemption gives the non-stock, non-profit educational institutions a distinct
character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the SECTION 7. Repealing Clause. --- Any revenue issuance which is inconsistent with this Order is
doctrinal rule that there are only two requisites: (1) The school must be non-stock and non-profit; and (2) deemed revoked, repealed, or modified accordingly.
The income is actually, directly and exclusively used for educational purposes. There are no other
conditions and limitations. SECTION 8. Effectivity. --- This Order shall take effect immediately. (Emphases supplied)

In this light, the constitutional conferral of tax exemption upon non-stock and non-profit educational A moot and academic case is one that ceases to present a justiciable controversy by virtue of
institutions should not be implemented or interpreted in such a manner that will defeat or diminish the supervening events, so that an adjudication of the case or a declaration on the issue would be of no
intent and language of the Constitution. practical value or use.16 Courts generally decline jurisdiction over such case or dismiss it on the ground
of mootness.17
SECTION 2. Application for Tax Exemption. --- Non-stock, nonprofit educational institutions shall file
their respective Applications for Tax Exemption with the Office of the Assistant Commissioner, Legal With the issuance of RMO No. 44-2016, a supervening event has transpired that rendered this petition
Service, Attention: Law Division. moot and academic, and subject to denial.1âwphi1 The CIR, in her petition, assails the RTC Decision
finding RMO No. 20-2013 unconstitutional because it violated the non-stock, non-
SECTION 3. Documentary Requirements. --- The non-stock, nonprofit educational institution shall profit educational institutions' tax exemption privilege under the Constitution. However, subsequently,
submit the following documents: RMO No. 44-2016 clarified that non-stock, nonprofit educational institutions are excluded from the
coverage of RMO No. 20-2013. Consequently, the RTC Decision no longer stands, and there is no
a. Original copy of the application letter for issuance of Tax Exemption Ruling;
longer any practical value in resolving the issues raised in this petition.
b. Certified true copy of the Certificate of Good Standing issued by the Securities and Exchange
WHEREFORE, we DENY the petition on the ground of mootness. We SET ASIDE the Decision dated
Commission;
25 July 2014 and Joint Resolution dated 29 October 2014 of the Regional Trial Court, Branch 143,
c. Original copy of the Certification under Oath of the Treasurer as to the amount of the income, Makati City, declaring Revenue Memorandum Order No. 20-2013 unconstitutional. The writ of
compensation, salaries or any emoluments paid to its trustees, officers and other executive officers; preliminary injunction is superseded by this Resolution.

d. Certified true copy of the Financial Statements of the corporation for the last three (3) years; SO ORDERED.

e. Certified true copy of government recognition/permit/accreditation to operate as an educational

institution issued by the Commission on Higher Education (CHED), Department of Education (DepEd),
or Technical Education and Skills Development Authority (TESDA); Provided, that if the government
recognition/permit/accreditation to operate as an educational institution was issued five (5) years prior to
the application for tax exemption, an original copy of a current Certificate of Operation/Good Standing,
or other equivalent document issued by the appropriate government agency (i.e., CHED, DepEd, or
TESDA) shall be submitted as proof that the non-stock and non-profit education is currently operating
as such; and
 3. Commissioner of Internal Revenue v. St. Luke’s Medical Add: Non-Operating & Other Income -
Center
Total Gross Income 980,461,847.00
February 13, 2017

G.R. No. 203514 Less: Deductions 481,266,883 .00

COMMISSIONER OF INTERNAL REVENUE, Petitioner Net Income Subject to Tax 499, 194,964.00
vs.
ST. LUKE’S MEDICAL CENTER, INC., Respondent
XTaxRate 10%
DECISION

DEL CASTILLO, J.: Tax Due 49,919,496.40

The doctrine of stare decisis dictates that "absent any powerful countervailing considerations, like cases
ought to be decided alike."1 Less: Tax Credits -

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the May 9, 2012 Deficiency Income Tax 49,919,496.40
Decision3 and the September 17, 2012 Resolution4 of the Court of Tax Appeals (CTA) in CTA EB Case
No. 716.
Add: Increments
Factual Antecedents

On December 14, 2007, respondent St. Luke’s Medical Center, Inc. (SLMC) received from the Large 25% Surcharge 12,479,874.10
Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau of Internal
Revenue (BIR) Audit Results/Assessment Notice Nos. QA-07-0000965 and QA-07-000097,6 assessing 20% Interest Per Annum (4115/06-4/15/08) 19,995,151.71
respondent SLMC deficiency income tax under Section 27(B) 7 of the 1997 National Internal Revenue
Code (NIRC), as amended, for taxable year 2005 in the amount of ₱78,617,434.54 and for taxable year
2006 in the amount of ₱57,119,867.33. Compromise Penalty for Late Payment 25,000.00

On January 14, 2008, SLMC filed with petitioner Commissioner of Internal Revenue (CIR) an
Total increments 32,500,025.81
administrative protest8assailing the assessments. SLMC claimed that as a non-stock, non-profit
charitable and social welfare organization under Section 30(E) and (G)9 of the 1997 NIRC, as amended,
it is exempt from paying income tax. Total Amount Due ?82,419,522.21

On April 25, 2008, SLMC received petitioner CIR's Final Decision on the Disputed Assessment10 dated For Taxable Year 2006:
April 9, 2008 increasing the deficiency income for the taxable year 2005 tax to ₱82,419,522.21 and for
the taxable year 2006 to ₱60,259,885.94, computed as follows: ASSESSMENT NO. QA-07-000097
For Taxable Year 2005:
PARTICULARS [AMOUNT]
ASSESSMENT NO. QA-07-000096
Sales/Revenues/Receipts/Fees ?3,8 l 5,922,240.00
PARTICULARS AMOUNT
Less: Cost of Sales/Services 2,760,518,437.00
Sales/Revenues/Receipts/Fees ?3,623,511,616.00
Gross Income From Operation 1,055,403,803.00
Less: Cost of Sales/Services 2,643,049, 769.00
Add: Non-Operating & Other Income -
Gross Income From Operation 980,461,847.00
Total Gross Income 1,055,403,803.00 Ruling of the Court of Tax Appeals En Banc

On May 9, 2012, the CTA En Banc affirmed the cancellation and setting aside of the Audit
Less: Deductions 640,147,719.00 Results/Assessment Notices issued against SLMC. It sustained the findings of the CTA Division that
SLMC complies with all the requisites under Section 30(E) and (G) of the 1997 NIRC and thus, entitled
to the tax exemption provided therein.17
Net Income Subject to Tax 415,256,084.00
On September 17, 2012, the CTA En Banc denied CIR's Motion for Reconsideration.
XTaxRate 10%
Issue

Tax.Due 41,525,608.40 Hence, CIR filed the instant Petition under Rule 45 of the Rules of Court contending that the CTA erred
in exempting SLMC from the payment of income tax.

Less: Tax Credits - Meanwhile, on September 26, 2012, the Court rendered a Decision in G.R. Nos. 195909 and 195960,
entitled Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc., 18 finding SLMC not
entitled to the tax exemption under Section 30(E) and (G) of the NIRC of 1997 as it does not operate
Deficiency Income Tax 41,525,608.40
exclusively for charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. Thus, the Court disposed of the case in this manner:
Add: Increments -
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909is PARTLY
GRANTED. The Decision of the Court of Tax Appeals En Banc dated 19 November 2010 and its
25% Surcharge 10,381,402.10 Resolution dated 1 March 2011 in CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc.
is ORDERED TO PAY the deficiency income tax in 1998 based on the 10% preferential income tax rate
20% Interest Per Annum (4/15/07-4/15/08) 8,327,875.44 under Section 27(B) of the National Internal Revenue Code. However, it is not liable for surcharges and
interest on such deficiency income tax under Sections 248 and 249 of the National Internal Revenue
Code. All other parts of the Decision and Resolution of the Court of Tax Appeals are AFFIRMED.
Compromise Penalty for Late Payment 25,000.00
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section I,
Total increments 18,734,277.54 Rule 45 of the Rules of Court.

SO ORDERED.19
Total Amount Due ?60,259,885.9411
Considering the foregoing, SLMC then filed a Manifestation and Motion 20 informing the Court that on
April 30, 2013, it paid the BIR the amount of basic taxes due for taxable years 1998, 2000-2002, and
Aggrieved, SLMC elevated the matter to the CTA via a Petition for Review,12 docketed as CTA Case
2004-2007, as evidenced by the payment confirmation21 from the BIR, and that it did not pay any
No. 7789.
surcharge, interest, and compromise penalty in accordance with the above-mentioned Decision of the
Ruling of the Court of Tax Appeals Division Court. In view of the payment it made, SLMC moved for the dismissal of the instant case on the ground
of mootness.
On August 26, 2010, the CTA Division rendered a Decision 13 finding SLMC not liable for deficiency
income tax under Section 27(B) of the 1997 NIRC, as amended, since it is exempt from paying income CIR opposed the motion claiming that the payment confirmation submitted by SLMC is not a competent
tax under Section 30(E) and (G) of the same Code. Thus: proof of payment as it is a mere photocopy and does not even indicate the quarter/sand/or year/s said
payment covers.22
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, Audit
Results/Assessment Notice Nos. QA-07-000096 and QA-07-000097, assessing petitioner for alleged In reply,23 SLMC submitted a copy of the Certification24 issued by the Large Taxpayers Service of the
deficiency income taxes for the taxable years 2005 and 2006, respectively, are hereby CANCELLED BIR dated May 27, 2013, certifying that, "[a]s far as the basic deficiency income tax for taxable years
and SET ASIDE. 2000, 2001, 2002, 2004, 2005, 2006, 2007 are concen1ed, this Office considers the cases closed due
to the payment made on April 30, 2013." SLMC likewise submitted a letter 25 from the BIR dated
SO ORDERED.14 November 26, 2013 with attached Certification of Payment26and application for abatement,27 which it
earlier submitted to the Court in a related case, G.R. No. 200688, entitled Commissioner of Internal
CIR moved for reconsideration but the CTA Division denied the same in its December 28, 2010 Revenue v. St. Luke's Medical Center, Inc.28
Resolution.15
Thereafter, the parties submitted their respective memorandum.
This prompted CIR to file a Petition for Review16 before the CTA En Banc.
CIR 's Arguments
CIR argues that under the doctrine of stare decisis SLMC is subject to 10% income tax under Section The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it was not charitable. Tue Court
27(B) of the 1997 NIRC.29 It likewise asserts that SLMC is liable to pay compromise penalty pursuant to defined 'charity' in Lung Center of the Philippines v. Quezon City as 'a gift, to be applied consistently
Section 248(A)30 of the 1997 NIRC for failing to file its quarterly income tax returns. 31 with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and
hearts under the influence of education or religion, by assisting them to establish themselves in life or
As to the alleged payment of the basic tax, CIR contends that this does not render the instant case moot [by] otherwise lessening the burden of government.' A nonprofit club for the benefit of its members fails
as the payment confirmation submitted by SLMC is not a competent proof of payment of its tax this test. An organization may be considered as non-profit if it does not distribute any part of its income
liabilities.32 to stockholders or members. However, despite its being a tax exempt institution, any income such
institution earns from activities conducted for profit is taxable, as expressly provided in the last
SLMC's Arguments
paragraph of Section 30.
SLMC, on the other hand, begs the indulgence of the Court to revisit its ruling in G.R. Nos. 195909 and
To be a charitable institution, however, an organization must meet the substantive test of charity in Lung
195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.) 33 positing that earning a
Center. The issue in Lung Center concerns exemption from real property tax and not income tax.
profit by a charitable, benevolent hospital or educational institution does not result in the withdrawal of
However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite
its tax exempt privilege.34 SLMC further claims that the income it derives from operating a hospital is not
number of persons which lessens the burden of government. In other words, charitable institutions
income from "activities conducted for profit."35 Also, it maintains that in accordance with the ruling of the
provide for free goods and services to the public which would otherwise fall on the shoulders of
Court in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical
government. Thus, as a matter of efficiency, the government forgoes taxes which should have been
Center, Inc.),36 it is not liable for compromise penalties.37
spent to address public needs, because certain private entities already assume a part of the burden.
In any case, SLMC insists that the instant case should be dismissed in view of its payment of the basic This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the government
taxes due for taxable years 1998, 2000-2002, and 2004-2007 to the BIR on April 30, 2013.38 is compensated by its relief from doing public works which would have been funded by appropriations
from the Treasury.
Our Ruling
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a
SLMC is liable for income tax under tax exemption are specified by the law granting it. The power of Congress to tax implies the power to
Section 27(B) of the 1997 NIRC insofar exempt from tax. Congress can create tax exemptions, subject to the constitutional provision that '[n]o
as its revenues from paying patients are law granting any tax exemption shall be passed without the concurrence of a majority of all the
concerned Members of Congress.' The requirements for a tax exemption are strictly construed against the taxpayer
because an exemption restricts the collection of taxes necessary for the existence of the government.
The issue of whether SLMC is liable for income tax under Section 27(B) of the 1997 NIRC insofar as its
revenues from paying patients are concerned has been settled in G.R. Nos. 195909 and The Court in Lung Center declared that the Lung Center of the Philippines is a charitable institution for
195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.),39 where the Court ruled the purpose of exemption from real property taxes. This ruling uses the same premise as Hospital de
that: San Juan and Jesus Sacred Heart College which says that receiving income from paying patients does
not destroy the charitable nature of a hospital.
x x x We hold that Section 27(B) of the NIRC does not remove the income tax exemption of proprietary
non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) As a general principle, a charitable institution does not lose its character as such and its exemption from
on the other hand, can be construed together without the removal of such tax exemption. The effect of taxes simply because it derives income from paying patients, whether outpatient, or confined in the
the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely, hospital, or receives subsidies from the government, so long as the money received is devoted or used
proprietary non-profit educational institutions and proprietary non-profit hospitals, among the institutions altogether to the charitable object which it is intended to achieve; and no money inures to the private
covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% benefit of the persons managing or operating the institution.
corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(l).
For real property taxes, the incidental generation of income is permissible because the test of
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non- exemption is the use of the property. The Constitution provides that '[c]haritable institutions, churches
profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands,
are that they must be proprietary and non-profit. 'Proprietary' means private, following the definition of a buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
'proprietary educational institution' as 'any private school maintained and administered by private educational purposes shall be exempt from taxation.' The test of exemption is not strictly a requirement
individuals or groups' with a government permit. 'Non-profit' means no net income or asset accrues to or on the intrinsic nature or character of the institution. The test requires that the institution use property in
benefits any member or specific person, with all the net income or asset devoted to the institution's a certain way, i.e., for a charitable purpose. Thus, the Court held that the Lung Center of the Philippines
purposes and all its activities conducted not for profit. did not lose its charitable character when it used a portion of its lot for commercial purposes. The effect
of failing to meet the use requirement is simply to remove from the tax exemption that portion of the
'Non-profit' does not necessarily mean 'charitable.' In Collector of Internal Revenue v. Club Filipino, Inc. property not devoted to charity.
de Cebu, this Court considered as non-profit a sports club organized for recreation and entertainment of
its stockholders and members. The club was primarily funded by membership fees and dues. If it had The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress
profits, they were used for overhead expenses and improving its golf course. The club was non-profit decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of
because of its purpose and there was no evidence that it was engaged in a profit-making enterprise. the NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the
NIRC defines the corporation or association that is exempt from income tax. On the other hand, Section likewise qualifies the requirement in Section 30(G) that the civic organization must be 'operated
28(3), Article VI of the Constitution does not define a charitable institution, but requires that the exclusively' for the promotion of social welfare.
institution 'actually, directly and exclusively' use the property for a charitable purpose.
Thus, even if the charitable institution must be 'organized and operated exclusively' for charitable
Section 30(E) of the NIRC provides that a charitable institution must be: purposes, it is nevertheless allowed to engage in 'activities conducted for profit' without losing its tax
exempt status for its not-for-profit activities. The only consequence is that the 'income of whatever kind
(1) A non-stock corporation or association; and character' of a charitable institution 'from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax.' Prior to the introduction of Section 27(B), the
(2) Organized exclusively for charitable purposes;
tax rate on such income from for-profit activities was the ordinary corporate rate under Section 27(A).
(3) Operated exclusively for charitable purposes; and With the introduction of Section 27(B), the tax rate is now 10%.

(4) No part of its net income or asset shall belong to or inure to the benefit of any member, organizer, In 1998, St. Luke's had total revenues of ₱l,730,367,965 from services to paying patients. It cannot be
officer or any specific person. disputed that a hospital which receives approximately ₱l.73 billion from paying patients is not an
institution 'operated exclusively' for charitable purposes. Clearly, revenues from paying patients are
Thus, both the organization and operations of the charitable institution must be devoted 'exclusively' for income received from 'activities conducted for profit.' Indeed, St. Luke's admits that it derived profits
charitable purposes. The organization of the institution refers to its corporate form, as shown by its from its paying patients. St. Luke's declared ₱l,730,367,965 as 'Revenues from Services to Patients' in
articles of incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC contrast to its 'Free Services' expenditure of ₱218,187,498. In its Comment in G.R. No. 195909, St.
specifically requires that the corporation or association be non-stock, which is defined by the Luke's showed the following 'calculation' to support its claim that 65.20% of its 'income after expenses
Corporation Code as 'one where no part of its income is distributable as dividends to its members, was allocated to free or charitable services' in 1998.
trustees, or officers' and that any profit 'obtain[ed] as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation x x xx
was organized.' However, under Lung Center, any profit by a charitable institution must not only be
In Lung Center, this Court declared:
plowed back 'whenever necessary or proper,' but must be 'devoted or used altogether to the charitable
object which it is intended to achieve.' '[e]xclusive' is defined as possessed and enjoyed to the exclusion of others; debarred from participation
or enjoyment; and 'exclusively' is defined, 'in a manner to exclude; as enjoying a privilege exclusively.' .
The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the
. . The words 'dominant use' or 'principal use' cannot be substituted for the words 'used exclusively'
NIRC requires that these operations be exclusive to charity. There is also a specific requirement that 'no
without doing violence to the Constitution and thelaw. Solely is synonymous with exclusively.
part of [the] net income or asset shall belong to or inure to the benefit of any member, organizer, officer
or any specific person.' The use of lands, buildings and improvements of the institution is but a part of The Court cannot expand the meaning of the words 'operated exclusively' without violating the NIRC.
its operations. Services to paying patients are activities conducted for profit. They cannot be considered any other way.
There is a 'purpose to make profit over and above the cost' of services. The ₱l.73 billion total revenues
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution.
from paying patients is not even incidental to St. Luke's charity expenditure of ₱2l8,187,498 for non-
However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the
paying patients.
organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable institution is not ipso
facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of its operating income in 1998.
requires that a charitable institution use the property 'actually, directly and exclusively' for charitable However, if a part of the remaining 34.80% of the operating income is reinvested in property, equipment
purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable or facilities used for services to paying and non-paying patients, then it cannot be said that the income is
institution must be 'organized and operated exclusively' for charitable purposes. Likewise, to be exempt 'devoted or used altogether to the charitable object which it is intended to achieve.' The income is
from income taxes, Section 30(G) of the NIRC requires that the institution be 'operated exclusively' for plowed back to the corporation not entirely for charitable purposes, but for profit as well. In any case,
social welfare. the last paragraph of Section 30 of the NIRC expressly qualifies that income from activities for profit is
taxable 'regardless of the disposition made of such income.'
However, the last paragraph of Section 30 of the NIRC qualifies the words 'organized and operated
exclusively' by providing that: Jesus Sacred Heart College declared that there is no official legislative record explaining the phrase
'any activity conducted for profit.' However, it quoted a deposition of Senator Mariano Jesus Cuenco,
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character
who was a member of the Committee of Conference for the Senate, which introduced the phrase 'or
of the foregoing organizations from any of their properties, real or personal, or from any of their activities
from any activity conducted for profit.'
conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed
under this Code. P. Cuando ha hablado de la Universidad de Santo Tomas que tiene un hospital, no cree V d que es una
actividad esencial dicho hospital para el funcionamiento def colegio de medicina
In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts
'any' activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax de dicha universidad?
exempt. This paragraph qualifies the requirements in Section 30(E) that the '[n]on-stock corporation or
association [must be] organized and operated exclusively for . . . charitable . . . purposes . . . . ' It x x x x x x xxx
R. Si el hospital se limita a recibir enformos pobres, mi contestacion seria afirmativa; pero considerando To be clear, for an institution to be completely exempt from income tax, Section 30(E) and (G) of the
que el hospital tiene cuartos de pago, y a los mismos generalmente van enfermos de buena posicion 1997 NIRC requires said institution to operate exclusively for charitable or social welfare purpose. But in
social economica, lo que se paga por estos enfermos debe estar sujeto a 'income tax', y es una de las case an exempt institution under Section 30(E) or (G) of the said Code earns income from its for-profit
razones que hemos tenido para insertar las palabras o frase 'or from any activity conducted for profit.' activities, it will not lose its tax exemption. However, its income from for-profit activities will be subject to
income tax at the preferential 10% rate pursuant to Section 27(B) thereof.
The question was whether having a hospital is essential to an educational institution like the College of
Medicine of the University of Santo Tomas.1awp++i1 Senator Cuenco answered that if the hospital has SLMC is not liable for Compromise
paid rooms generally occupied by people of good economic standing, then it should be subject to Penalty.
income tax. He said that this was one of the reasons Congress inserted the phrase 'or any activity
conducted for profit.' As to whether SLMC is liable for compromise penalty under Section 248(A) of the 1997 NIRC for its
alleged failure to file its quarterly income tax returns, this has also been resolved in G.R Nos. 195909
The question in Jesus Sacred Heart College involves an educational institution. However, it is and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.),42 where the
applicable to charitable institutions because Senator Cuenco's response shows an intent to focus on the imposition of surcharges and interest under Sections 24843 and 24944 of the 1997 NIRC were deleted on
activities of charitable institutions. Activities for profit should not escape the reach of taxation. Being a the basis of good faith and honest belief on the part of SLMC that it is not subject to tax. Thus, following
non-stock and non-profit corporation does not, by this reason alone, completely exempt an institution the ruling of the Court in the said case, SLMC is not liable to pay compromise penalty under Section
from tax. An institution cannot use its corporate form to prevent its profitable activities from being taxed. 248(A) of the 1997 NIRC.

The Court finds that St. Luke's is a corporation that is not 'operated exclusively' for charitable or social The Petition is rendered moot by the
welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based not payment made by SLMC on April 30,
only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain text 2013.
of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be 'operated
exclusively' for charitable or social welfare purposes to be completely exempt from income tax. An However, in view of the payment of the basic taxes made by SLMC on April 30, 2013, the instant
institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit Petition has become moot.1avvphi1
activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely
While the Court agrees with the CIR that the payment confirmation from the BIR presented by SLMC is
subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate
not a competent proof of payment as it does not indicate the specific taxable period the said payment
pursuant to Section 27(B).
covers, the Court finds that the Certification issued by the Large Taxpayers Service of the BIR dated
A tax exemption is effectively a social subsidy granted by the State because an exempt institution is May 27, 2013, and the letter from the BIR dated November 26, 2013 with attached Certification of
spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for Payment and application for abatement are sufficient to prove payment especially since CIR never
charitable institutions should therefore be lin1ited to institutions beneficial to the public and those which questioned the authenticity of these documents. In fact, in a related case, G.R. No. 200688,
improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to the entitled Commissioner of Internal Revenue v. St. Luke's Medical Center, lnc., 45 the Court dismissed the
detriment of the government and other taxpayers. petition based on a letter issued by CIR confirming SLMC's payment of taxes, which is the same letter
submitted by SLMC in the instant case.
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax
exempt from all its income. However, it remains a proprietary non-profit hospital under Section 27(B) of In fine, the Court resolves to dismiss the instant Petition as the same has been rendered moot by the
the NIRC as long as it does not distribute any of its profits to its members and such profits are payment made by SLMC of the basic taxes for the taxable years 2005 and 2006, in the amounts of
reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary non-profit hospital, is entitled ₱49,919,496.40 and ₱4 l,525,608.40, respectively.46
to the preferential tax rate of 10% on its net income from its for-profit activities.
WHEREFORE, the Petition is hereby DISMISSED.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
Footnotes
However, St. Luke's has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined
that St. Luke's is 'a corporation for purely charitable and social welfare purposes' and thus exempt from 3Id. at 39-51; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding Justice
income tax. In Michael J Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that 'good Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Caesar A. Casanova, Olga
faith and honest belief that one is not subject to tax on the basis of previous interpretation of Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-
government agencies tasked to implement the tax law, are sufficient justification to delete the imposition Manalastas; Associate Justice Erlinda P. Uy on leave.
of surcharges and interest.'40
4Id. at 52-55; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding Justice
A careful review of the pleadings reveals that there is no countervailing consideration for the Court to Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Caesar A, Casanova, Olga
revisit its aforequoted ruling in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, and Amelia R. Cotangco-
Luke's Medical Center, Inc.). Thus, under the doctrine of stare decisis, which states that "[o]nce a case Manalastas: Associate Justice Erlinda P. Uy took no part.
has been decided in one way, any other case involving exactly the same point at issue x x x should be
decided in the same manner,"41 the Court finds that SLMC is subject to 10% income tax insofar as its 7 SEC. 27. Rates of Income Tax on Domestic Corporations. -
revenues from paying patients are concerned.
x x xx (4) Failure to pay the full or pmt of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and required to be filed, on or before the date prescribed for its payment.
hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income except
those covered by Subsection (D) hereof: Provided, Thatt if the gross income from unrelated trade, xxxx
business or other activity exceeds fifty percent (50%) of the total gross income derived by such
43
educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall Section 248. Civil Penalties. -
be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade,
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five
business or other activity means any trade, business or other activity,' the conduct of which is not
percent (25%) of the amount due, in the following cases:
substantially related to the exercise or performance by such educational institution or hospital of its
primary purpose or function. A 'proprietary educational institution' is any private school maintained and (1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code
administered by private individuals or groups with an issued permit to operate from the Department of or rules and regulations on the date prescribed; or
Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED). or the
Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance (2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer
with existing laws and regulations. (Emphasis supplied) other than those with whom the return is required to be filed; or
8 CTA rollo (Division), pp. 36-46. (3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
9
assessment; or
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under
this Title in respect to income received by them as such: (4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
x x xx required to be filed, on or before the date prescribed for its payment.
(E) Nonstock corporation or association organized and operated exclusively for (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be
part of its net income or asset shall belong to or inure to the benefit of an)' member, organizer, fifty percent (50%) of the tax or of the deficiency tax, in case, any payment has been made on the basis
officer or any specific person; of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration
of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the
x x xx
Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance,
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to
social welfare; report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return,
and a claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer
x x xx liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions,
as mentioned herein.
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
44
character of the foregoing organizations from any of their properties, real or personal, or from any Section 249. Interest. -
of their activities conducted for profit regardless of the disposition made of such income, shall
be subject to tax imposed under this Code. (Emphasis supplied) (A) In General. -There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations,
30 Section 248. Civil Penalties. - from the date prescribed for payment until the amount is fully paid.

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five (B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be
percent (25%) of the amount due, in the following cases: subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and
collected from the date prescribed for its payment until the full payment thereof.
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code
or rules and regulations on the date prescribed; or (C) Delinquency Interest. - In case of failure to pay:

(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer (l) The amount of the tax due on any return to be filed, or
other than those with whom the return is required to be filed; or
(2) The amount of the tax due for which no return is required, or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or (3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and
demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at
the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part Lazatin posits that Republic Act No. (RA) 94007 treats the Clark Special Economic Zone and Clark
of the tax. Freeport Zone (together hereinafter referred to as Clark FEZ) as a separate customs territory and allows
tax and duty-free importations of raw materials, capital and equipment into the zone. Thus, the
(D) Interest on Extended Payment. -If any person required to pay the tax is qualified and elects to pay imposition of VAT and excise tax, even on the importation of petroleum products into FEZs (like Clark
the tax on installment under the provisions of this Code, but fails to pay the tax or any installment FEZ), directly contravenes the law.
hereof, or any part of such amount or installment on or before the date prescribed for its payment, or
where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to intervene in the
tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove proceedings as a co-petitioner and accordingly entered its appearance and moved for leave of court to
prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand file its petition-in-intervention.8
until it is paid.
EPEC claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is implemented. EPEC
insists that RR 2-2012's mechanism of requiring even locators to pay the tax first and to subsequently
claim a credit or to refund the taxes paid effectively removes the locators' tax-exempt status.

4. Secretary of Finance v. Lazatin, G.R. No. 210588, The RTC initially issued a temporary restraining order to stay the implementation of RR 2-2012. It
eventually issued a writ of preliminary injunction in its order dated April 4, 2012.
November 29, 2016
The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a petition
for certiorari9before the Court of Appeals (CA) assailing the RTC's order. The CA granted the
petition10 and denied the respondents' subsequent motion for reconsideration.11
G.R. No. 210588, November 29, 2016
The respondents stood their ground by filing a petition for review on certiorari before this Court (G.R.
SECRETARY OF FINANCE CESAR B. PURISIMA AND COMMISSIONER OF INTERNAL REVENUE
No. 208387) to reinstate the RTC's injunction against the implementation of RR 2-2012, and by moving
KIM S. JACINTO-HENARES, Petitioners, v. REPRESENTATIVE CARMELO F. LAZATIN AND
for the issuance of a temporary restraining order and/or writ of preliminary injunction. We denied the
ECOZONE PLASTIC ENTERPRISES CORPORATION, Respondents.
motion but nevertheless required the petitioners to comment on the petition.
DECISION
The proceedings before the RTC in the meanwhile continued. On April 18, 2012, petitioner Lazatin
BRION, J.: amended his original petition, converting it to a petition for declaratory relief. 12 The RTC admitted the
amended petition and allowed EPEC to intervene.
This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch 58, Angeles City,
through a petition for review on certiorari1 under Rule 45 of the Rules of Court on a pure question of law. In its decision dated November 8, 2013, the RTC ruled in favor of Lazatin and EPEC.
The petition seeks the reversal of the November 8, 2013 decision2 of the RTC in SCA Case No. 12-410.
First, on the procedural aspect, the RTC held that the original petition's amendment is allowed by the
In the assailed decision, the RTC declared Revenue Regulation (RR) No. 2-2012 unconstitutional and
rules and that amendments are largely preferred; it allowed the amendment in the exercise of its sound
without force and effect.
judicial discretion to avoid multiplicity of suits and to give the parties an opportunity to thresh out the
The Facts issues and finally reach a conclusion.13

In response to reports of smuggling of petroleum and petroleum products and to ensure the correct Second, the RTC held that Lazatin and EPEC had legal standing to question the validity of RR 2-2012.
taxes are paid and collected, petitioner Secretary of Finance Cesar V. Purisima - pursuant to his Lazatin's allegation that RR 2-2012 effectively amends and modifies RA 9400 gave him standing as a
authority to interpret tax laws3 and upon the recommendation of petitioner Commissioner of Internal legislator: the amendment of a tax law is a power that belongs exclusively to Congress. Lazatin's
Revenue (CIR) Kim S. Jacinto-Henares signed RR 2-2012 on February 17, 2012. allegation, according to the RTC, sufficiently shows how his rights, privileges, and prerogatives as a
member of Congress were impaired by the issuance of RR 2-2012.
The RR requires the payment of value-added tax (VAT) and excise tax on the importation of all
petroleum and petroleum products coming directly from abroad and brought into the The RTC also ruled that the case warrants a relaxation on the rules on legal standing because the
Philippines, including Freeport and economic zones (FEZs).4 It then allows the credit or refund of any issues touched upon are of transcendental importance. The trial court considered the encompassing
VAT or excise tax paid if the taxpayer proves that the petroleum previously brought in has been sold to effect that RR 2-2012 may have in the numerous freeport and economic zones in the Philippines, as
a duly registered FEZ locator and used pursuant to the registered activity of such locator.5 well as its potential impact on hundreds of investors operating within the zones.

In other words, an FEZ locator must first pay the required taxes upon entry into the FEZ of a petroleum The RTC then held that even if Lazatin does not have legal standing, EPEC's intervention cured this
product, and must thereafter prove the use of the petroleum product for the locator's registered activity defect: EPEC, as a locator within the Clark FEZ, would be adversely affected by the implementation of
in order to secure a credit for the taxes paid. RR 2-2012.

On March 7, 2012, Carmelo F. Lazatin, in his capacity as Pampanga First District Representative, filed Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400 because it imposes
a petition for prohibition and injunction6 against the petitioners to annul and set aside RR 2-2012. taxes that, by law, are not due in the first place. 14 Since RA 9400 clearly grants tax and duty-free
incentives to Clark FEZ locators, a revocation of these incentives by an RR directly contravenes the These locators enjoy what petitioners call a qualified tax exemption. They must first pay the
express intent of the Legislature.15 In effect, the petitioners encroached upon the prerogative to enact, corresponding taxes on its imported petroleum. Then, they must submit the documents required under
amend, or repeal laws, which the Constitution exclusively granted to Congress. RR 2-2012. If they have sufficiently shown that the imported products have not been removed from the
FEZ, their earlier payment shall be subject to a refund.
The Petition
The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax exemption privilege. The
The petitioners anchor their present petition on two arguments: 1) respondents have no legal standing, regulation simply requires proof that a locator has complied with the conditions for tax exemption. If the
and 2) RR 2-2012 is valid and constitutional. locator cannot show that the goods were retained and/or consumed within the FEZ, such failure creates
the presumption that the goods have been introduced into the customs territory without the appropriate
The petitioners submit that the Lazatin and EPEC do not have legal standing to assail the validity of RR
permits.26 On the other hand, if they have duly proven the disposition of the goods within the FEZ, their
2-2012.
"advance payment" is subject to a refund. Thus, to the petitioners, to the extent that a refund is
First, the petitioners claim that Lazatin does not have the requisite legal standing as he failed to exactly allowable, there is in reality a tax exemption.27
show how the implementation of RR 2- 2012 would impair the exercise his official functions.
Counter-arguments
Respondent Lazatin merely generally alleged that his constitutional prerogatives to pass or amend laws
were gravely impaired or were about to be impaired by the issuance of RR 2-2012. He did not specify Respondents Lazatin and EPEC, maintaining that they have standing to question its validity, insist that
the power that he, as a legislator, would be encroached upon. RR 2-2012 is unconstitutional.
While the Clark FEZ is within the district that respondent Lazatin represents, the petitioners emphasize Respondents have standing as
that Lazatin failed to show that he is authorized to file a case on behalf of the locators in the FEZ, the lawmaker and FEZ locator.
local government unit, or his constituents in general. 16 To the petitioners, if RR 2- 2012 ever caused
injury to the locators or to any of Lazatin's constituents, only these injured parties possess the The respondents argue that a member of Congress has standing to protect the prerogatives, powers,
personality to question the petitioners' actions; respondent Lazatin cannot claim this right on their and privileges vested by the Constitution in his office. 28 As a member of Congress, his standing to
behalf.17 question executive issuances that infringe on the right of Congress to enact, amend, or repeal laws has
already been recognized.29 He suffers substantial injury whenever the executive oversteps and intrudes
The petitioners claim, too, that the RTC should not have brushed aside the rules on standing on account into his power as a lawmaker.30
of transcendental importance. To them, this case does not involve public funds, only a speculative loss
of profits upon the implementation of RR 2-2012; nor is Lazatin a party with more direct and specific On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs. Thus, being a
interest to raise the issues in his petition.18 Citing Senate v. Ermita,19 the petitioners argue that the rules Clark FEZ locator, EPEC is among the many businesses that would have been directly affected by its
on standing cannot be relaxed. implementation.31

Second, petitioners also argue that EPEC does not have legal standing to intervene. That EPEC will RR 2-2012 illegally imposes taxes
ultimately bear the VAT and excise tax as an end-user, is misguided.20 The burden of payment of VAT on Clark FEZs.
and excise tax may be shifted to the buyer21 and this burden, from the point of view of the transferee is
no longer a tax but merely a component of the cost of goods purchased. The statutory liability for the tax The respondents underscore that RA 9400 provides FEZ locators certain incentives, such as tax- and
remains with the seller. Thus, EPEC cannot say that when the burden is passed on to it, RR 2-2012 duty-free importations of raw materials and capital equipment. These provisions of the law must be
effectively imposes tax on it as a Clark FEZ locator. interpreted in a way that will give full effect to law's policy and objective, which is to maximize the
benefits derived from the FEZs in promoting economic and social development. 32
The petitioners point out that RR 2-2012 imposes an "advance tax" only upon importers of petroleum
products. If EPEC is indeed a locator, then it enjoys tax and duty exemptions granted by RA 9400 so They admit that the law subjects to taxes and duties the goods that were brought into the FEZ and
long as it does not bring the petroleum or petroleum products to the Philippine customs territory.22 subsequently introduced to the Philippine customs territory. However, contrary to petitioners' position
that locators' tax and duty exemptions are qualified, their incentives apply automatically.
The petitioners legally argue that RR 2-2012 is valid and constitutional.
According to the respondents, petitioners' interpretation of the law contravenes the policy laid down by
First, petitioner submit that RR 2-2012's issuance and implementation are within their powers to RA 9400, because it makes the incentives subject to a suspensive condition. They claim that the
undertake.23 RR 2-2012 is an administrative issuance that enjoys the presumption of validity in the condition — the removal of the goods from the FEZ and their subsequent introduction to the customs
manner that statutes enjoy this presumption; thus, it cannot be nullified without clear and convincing territory — is resolutory; locators enjoy the granted incentives upon bringing the goods into the FEZ. It is
evidence to the contrary.24 only when the goods are shown to have been brought into the customs territory will the proper taxes
and duties have to be paid.33 RR 2-2012 reverses this process by requiring the locators to pay
Second, petitioners contend that while RA 9400 does grant tax and customs duty incentives to Clark "advance" taxes and duties first and to subsequently prove that they are entitled to a refund,
FEZ locators, there are conditions before these benefits may be availed of. The locators cannot invoke thereafter.34 RR 2-2012 indeed allows a refund, but a refund of taxes that were not due in the first
outright exemption from VAT and excise tax on its importations without first satisfying the conditions set place.35
by RA 9400, that is, the importation must not be removed from the FEZ and introduced into the
Philippine customs territory.25
The respondents add that even the refund mechanism under RR 2-2012 is problematic. They claim that repeal laws.45 According to Lazatin, a member of Congress has standing to challenge the validity of an
RR 2-2012 only allows a refund when the petroleum products brought into the FEZ are executive issuance if it tends to impair his prerogatives as a legislator. 46
subsequently soldto FEZ locators or to entities that similarly enjoy exemption from direct and indirect
taxes. The issuance does not envision a situation where the petroleum products are directly brought into We agree with Lazatin.
the FEZ and are consumed by the same entity/locator.36 Further, the refund process takes a
In Biraogo v. The Philippine Truth Commission,47 we ruled that legislators have the legal standing to
considerable length of time to secure, thus requiring cash outlay on the part of locators; 37 even when
ensure that the prerogatives, powers, and privileges vested by the Constitution in their office remain
the claim for refund is granted, the refund will not be in cash, but in the form of a Tax Credit Certificate
inviolate. To this end, members of Congress are allowed to question the validity of any official action
(TCC).38
that infringes on their prerogatives as legislators.48
As the challenged regulation directly contravenes incentives legitimately granted by a legislative act, the
Thus, members of Congress possess the legal standing to question acts that amount to a usurpation of
respondents argue that in issuing RR 2-2012, the petitioners not only encroached upon congressional
the legislative power of Congress.49 Legislative power is exclusively vested in the Legislature. When the
prerogatives and arrogated powers unto themselves; they also effectively violated, brushed aside, and
implementing rules and regulations issued by the Executive contradict or add to what Congress has
rendered nugatory the rigorous process required in enacting or amending laws. 39
provided by legislation, the issuance of these rules amounts to an undue exercise of legislative power
Issues and an encroachment of Congress' prerogatives.

We shall decide the following issues: To the same extent that the Legislature cannot surrender or abdicate its legislative power without
violating the Constitution,50 so also is a constitutional violation committed when rules and regulations
I. Whether respondents Lazatin and EPEC have legal standing to bring the action of declaratory implementing legislative enactments are contrary to existing statutes. No law can be amended by a
relief; and mere administrative rule issued for its implementation; administrative or executive acts are invalid if they
contravene the laws or to the Constitution.51
II. Whether RR 2-2012 is valid and constitutional.
Thus, the allegation that RR. 2-2012 — an executive issuance purporting to implement the provisions of
The Court's Ruling the Tax Code — directly contravenes RA 9400 clothes a member of Congress with legal standing to
question the issuance to prevent undue encroachment of legislative power by the executive.
We do not find the petition meritorious.
EPEC has legal standing as a
I. Respondents have legal Clark FEZ locator.
standing to file petition
for declaratory relief. EPEC intervened in the proceedings before the RTC based on the allegation that, as a Clark FEZ
locator, it will be directly affected by the implementation of RR 2-2012.52
The party seeking declaratory relief must have a legal interest in the controversy for the action to
prosper.40 This interest must be material not merely incidental. It must be an interest that which will be We agree with EPEC.
affected by the challenged decree, law or regulation. It must be a present substantial interest, as
It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and applies to all
opposed to a mere expectancy or a future, contingent, subordinate, or consequential interest. 41
petroleum and petroleum products that are imported directly from abroad to the Philippines, including
Moreover, in case the petition for declaratory relief specifically involves a question of constitutionality, FEZs.53
the courts will not assume jurisdiction over the case unless the person challenging the validity of the act
As an enterprise located in the Clark FEZ, its importations of petroleum and petroleum products will be
possesses the requisite legal standing to pose the challenge.42
directly affected by RR 2-2012. Thus, its interest in the subject matter — a personal and substantial one
Locus standi is a personal and substantial interest in a case such that the party has sustained or will — gives it legal standing to question the issuance's validity.
sustain direct injury as a result of the challenged governmental act. The question is whether the
challenging party alleges such personal stake in the outcome of the controversy so as to assure the In sum, the respondents' respective interests in this case are sufficiently substantial to be directly
affected by the implementation of RR 2-2012. The RTC therefore did not err when it gave due course to
existence of concrete adverseness that would sharpen the presentation of issues and illuminate the
Lazatin's petition for declaratory relief as well as PEC's petition-in-intervention.
court in ruling on the constitutional question posed.43
In light of this ruling, we see no need to rule on the claimed transcendental importance of the issues
We rule that the respondents satisfy these standards.
raised.
Lazatin has legal standing as
a legislator. II. RR 2-2012 is invalid and
unconstitutional.
Lazatin filed the petition for declaratory relief before the RTC in his capacity as a member of
Congress.44He alleged that RR 2-2012 was issued directly contravening RA 9400, a legislative On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional because: a) it illegally
enactment. Thus, the regulation encroached upon the Congress' exclusive power to enact, amend, or imposes taxes upon FEZ enterprises, which, by law, enjoy tax-exempt status, and b) it effectively
amends the law (i.e., RA 7227, as amended by RA 9400) and thereby encroaches upon the legislative Second, the importer, as the payor of the taxes, may subsequently seek a refund of the amount
authority reserved exclusively by the Constitution for Congress. previously paid by filing a corresponding claim with the Bureau of Customs (BOC).

FEZ enterprises enjoy tax- and Third, the claim shall only be granted upon showing that the necessary condition has been fulfilled.
duty-free incentives on its
importations. At first glance, this imposition — a mere tax administration measure according to the petitioners —
appears to be consistent with the taxation of similar imported articles under the Tax Code, specifically
In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and Development Act under its Sections 10764 and 14865 (in relation with Sections 12966 and 13167) .
of 1992" to enhance the benefits to be derived from the Subic and Clark military reservations. 54 RA
7227 established the Subic Special economic zone and granted such special territory various tax and However, RR 2-2012 explicitly covers even petroleum and petroleum products imported and/or brought
duty incentives. into the various FEZs in the Philippines. Hence, when an FEZ enterprise brings petroleum and
petroleum products into the FEZ, under RR 2-2012, it shall be considered an importer liable for the
To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the legislature enacted RA taxes due on these products.
9400 to amend RA 7227.55 Subsequently, the Department of Finance issued Department Order No. 3-
200856 to implement RA 9400 (Implementing Rules). The crux of the controversy can be found in this feature of the challenged regulation.

Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs territory separate and The petitioners assert that RR 2-2012 simply implements the provisions of the Tax Code on collection of
distinct from the Philippines customs territory. Thus, as opposed to importations into internal revenue taxes, more specifically VAT and excise tax, on the importation of petroleum and
and establishments in the Philippines customs territory,57 which are fully subject to Philippine customs petroleum products. To them, FEZ enterprises enjoy a qualified tax exemption such that they have to
and tax laws, importations into and establishments located within the Clark FEZ (FEZ pay the tax due on the importation first, and thereafter claim a refund, which shall be allowed only upon
Enterprises)58 enjoy special incentives, including tax and duty-free importation.59 More specifically, Clark showing that the goods were not introduced to the Philippine customs territory.
FEZ enterprises shall be entitled to the freeport status of the zone and a 5% preferential income tax
On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ enterprises, which
rate on its gross income, in lieu of national and local taxes. 60
in the first place are not liable for taxes. They emphasize that the tax incentives under RA 9400
RA 9400 and its Implementing Rules grant the following: apply automatically upon the importation of the goods. The proper taxes on the importation shall only be
due if the enterprises can later show that the goods were subsequently introduced to the Philippine
First, the law provides that importations of raw materials and capital equipment into the FEZs shall customs territory.
betax- and duty-free. It is the specific transaction (i.e., importation) that is exempt from taxes and duties.
Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT and excise tax,
Second, the law also grants FEZ enterprises tax- and duty-free importation and a preferential rate in the as we discussed above, it follows and we accordingly rule that the taxes imposed by Section 3 of RR 2-
payment of income tax, in lieu of all national and local taxes. These incentives exempt 2012 directly contravene these exemptions. First, the regulation erroneously considers petroleum and
the establishmentitself from taxation. petroleum products brought into a FEZ as taxable importations. Second, it unreasonably burdens FEZ
enterprises by making them pay the corresponding taxes — an obligation from which the law specifically
Thus, the Legislature intended FEZs to enjoy tax incentives in general — whether with respect to exempts them — even if there is a subsequent opportunity to refund the payments made.
thetransactions that take place within its special jurisdiction, or the persons/establishments within the
jurisdiction. From this perspective, the tax incentives enjoyed by FEZ enterprises must be understood Petroleum and petroleum products brought
to necessarily include the tax exemption of importations of selected articles into the FEZ. into the FEZ and which remain therein are

We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted within the context not taxable importations.
and in a manner that promotes the legislative intent of RA 7227 61 and, by extension, RA 9400. Thus, we
recognized that FEZ enterprises are exempt from both direct and indirect internal revenue taxes.62 In RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and petroleum products
particular, they are considered VAT-exempt entities.63 into FEZs. Strictly speaking, however, articles brought into these FEZs are not taxable importations
under the law based on the following considerations:
In line with this comprehensive interpretation, we rule that the tax exemption enjoyed by FEZ
enterprises covers internal revenue taxes imposed on goods brought into the FEZ, including the Clark First, importation refers to bringing goods from abroad into the Philippine customs jurisdiction. It begins
FEZ, such as VAT and excise tax. from the time the goods enter the Philippine jurisdiction and is deemed terminated when the applicable
taxes and duties have been paid or the goods have left the jurisdiction of the BOC.68
RR 2-2012 illegally imposes VAT and excise
tax on goods brought into the FEZs. Second, under the Tax Code, imported goods are subject to VAT and excise tax. These taxes shall be
paid prior to the release of the goods from customs custody.69 Also, for VAT
Section 3 of RR 2-2012 provides the following: purposes,70 an importer refers to any person who brings goods into the Philippines.

First, whenever petroleum and petroleum products are imported and/or brought directly to the Third, the Philippine VAT system adheres to the cross border doctrine.71 Under this rule, no VAT shall
Philippines, the importer of these goods is required to pay the corresponding VAT and excise tax due be imposed to form part of the cost of the goods destined for consumption outside the Philippine
on the importation. customs territory.72 Thus, we have already ruled before that an FEZ enterprise cannot
be directlycharged for the VAT on its sales, nor can VAT be passed on to them indirectly as added cost Second, the essence of a tax exemption is the immunity or freedom from a charge or burden to which
to their purchases.73 others are subjected.83 It is a waiver of the government's right to collect84 the amounts that would have
been collectible under our tax laws. Thus, when the law speaks of a tax exemption, it should be
Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain special areas understood as freedom from the imposition and payment of a particular tax.
as separate customs territories.74 In this regard, we have already held that such jurisdictions, such as
the Clark FEZ, are, by legal fiction, foreign territories.75 Based on this premise, we rule that the refund mechanism provided by RR 2-2012 does not amount to a
tax exemption. Even if the possibility of a subsequent refund exists, the fact remains that FEZ
Fifth, the Implementing Rules provides that goods initially introduced into the FEZs and subsequently enterprises must still spend money and other resources to pay for something they should be immune to
brought out therefrom and introduced into the Philippine customs territory shall be considered in the first place. This completely contradicts the essence of their tax exemption.
asimportations and thereby subject to the VAT.76 One such instance is the sale by any FEZ enterprise
to a customer located in the customs territory, which the VAT regulations refer to as a technical In the same vein, we cannot agree with the view that FEZ enterprises have the duty to prove their
importation.77 entitlement to tax exemption first before fully enjoying the same; we find it illogical to determine whether
a person is exempted from tax without first determining if he is subject to the tax being imposed. We
We find it clear from all these that when goods (e.g., petroleum and petroleum products) are brought have reminded the tax authorities to determine first if a person is liable for a particular tax, applying the
into an FEZ, the goods remain to be in foreign territory and are not therefore goods introduced into rule of strict interpretation of tax laws, before asking him to prove his exemption therefrom. 85 Indeed, as
Philippine customs territory subject to Philippine customs and tax laws. 78 entities exempted on taxes on importations, FEZ enterprises are clearly beyond the coverage of any law
imposing those very charges. There is no justifiable reason to require them to prove that they are
Stated differently, goods brought into and traded within an FEZ are generally beyond the reach of
exempted from it.
national internal revenue taxes and customs duties enforced in the Philippine customs territory. This is
consistent with the incentive granted to FEZs exempting the importation itself from taxes and duties. More importantly, we have also recognized that the exemption from local and national taxes granted
under RA 7227, as amended by RA 9400, are ipso facto accorded to FEZs. In case of doubt, conflicts
Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As long as the goods
with respect to such tax exemption privilege shall be resolved in favor of these special territories. 86
remain (e.g., sale and/or consumption of the article within the FEZ) in the FEZ or re-exported to another
foreign jurisdiction, they shall continue to be tax-free.79 However, once the goods are introduced into the RR 2-2012 is unconstitutional.
Philippine customs territory, it ceases to enjoy the tax privileges accorded to FEZs. It shall then be
considered as an importation subject to all applicable national internal revenue taxes and customs According to the respondents, the power to enact, amend, or repeal laws belong exclusively to
duties. Congress.87 In passing RR 2-2012, petitioners illegally amended the law — a power solely vested on
the Legislature.
The tax exemption granted to FEZ
enterprises is an immunity from tax liability We agree with the respondents.
and from the payment of the tax.
The power of the petitioners to interpret tax laws is not absolute. The rule is that regulations may not
The respondents claim that when RR 2-2012 was issued, petroleum and petroleum products brought enlarge, alter, restrict, or otherwise go beyond the provisions of the law they administer; administrators
into the FEZ by FEZ enterprises suddenly became subject to VAT and excise tax, in direct and implementors cannot engraft additional requirements not contemplated by the legislature. 88
contravention of RA 9400 (with respect to Clark FEZ enterprises). Such imposition is not authorized
under any law, including the Tax Code.80 It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code provision it wishes to
implement. While it purportedly establishes mere administration measures for the collection of VAT and
On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax exemption privileges excise tax on the importation of petroleum and petroleum products, not once did it mention the pertinent
of FEZ enterprises. As their tax exemption is merely qualified, they cannot invoke outright exemption. chapters of the Tax Code on VAT and excise tax.
Thus, FEZ enterprises are required to pay internal revenue taxes first on their imported petroleum under
RR 2-2012. They may then refund their previous payment upon showing that the condition under RA While we recognize petitioners' essential rationale in issuing RR 2-2012, the procedures proposed by
9400 has been satisfied — that is, the goods have not been introduced to the Philippines customs the issuance cannot be implemented at the expense of entities that have been clearly granted statutory
territory.81 To the petitioners, to the extent that a refund is allowable, there is still in reality a tax tax immunity.
exemption.82
Tax exemptions are granted for specific public interests that the Legislature considers sufficient to offset
We disagree with this contention. the monetary loss in the grant of exemptions.89 To limit the tax-free importation privilege of FEZ
enterprises by requiring them to pay subject to a refund clearly runs counter to the Legislature's intent to
First, FEZ enterprises bringing goods into the FEZ should not be considered as importers subject to tax create a free port where the "free flow of goods or capital within, into, and out of the zones" is ensured. 90
in the same manner that the very act of bringing goods into these special territories does not make
themtaxable importations. We emphasize that the exemption from taxes and duties under RA 9400 are Finally, the State's inherent power to tax is vested exclusively in the Legislature. 91 We have since ruled
granted not only to importations into the FEZ, but also specifically to each FEZ enterprise. As that the power to tax includes the power to grant tax exemptions.92 Thus, the imposition of taxes, as well
discussed, the tax exemption enjoyed by FEZ enterprises necessarily includes the tax exemption of as the grant and withdrawal of tax exemptions, shall only be valid pursuant to a legislative enactment.
the importations of selected articles into the FEZ.
As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly accorded by the importer for the product sold. In any event, the possessor of petroleum or petroleum products must be
legislative to FEZ enterprises, the *petitioners have arrogated upon themselves a power reserved able to present sufficient evidence that the excise taxes due thereon have been paid, otherwise the
exclusively to Congress, in violation of the doctrine of separation of powers. excise taxes due on said goods shall be collected from said possessor/user.

In these lights, we hereby rule and declare that RR 2-2012 is null and void. In case of sale/introduction of petroleum and petroleum products, or part of the volume thereof, by a
Freeport/Economic zone registered enterprise, or part/volume thereof, into the customs territory or to a
WHEREFORE, we hereby DISMISS the petition for lack of merit, and accordingly AFFIRM decision of Freeport/Economic zone registered enterprise not enjoying tax privileges, or any sale to an entity not
the Regional Trial Court dated November 8, 2013 2001 in SCA Case No. 12-410. enjoying 0% VAT rate, the seller shall be liable for 12% VAT. In this instance, no refund for VAT shall be
allowed the importer or an assessment for VAT shall be issued to the said importer, if the refund has
SO ORDERED.
already been granted, and another assessment for VAT shall be made against the seller.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Perez,
For each and every importation of petroleum and petroleum products, the importer thereof shall secure
Mendoza, Reyes, Perlas-Bernabe, Leonen, and Caguioa, JJ., concur.
the prescribed ATRIG from the SIR's Excise Tax Regulatory Division (ETRD), and pay the Value-Added
Jardeleza,* J., no part.
and excise taxes, as computed, before the release thereof from the BOC's custody. In case of
Endnotes: subsequent sale/introduction to customs territory by a Freeport/Economic zone-registered enterprise of
petroleum and petroleum products, the importer shall secure the necessary Withdrawal Certificate.

For excise tax purposes, all importers of petroleum and petroleum products shall secure a Permit to
* No part due to prior action as Solicitor General.. Operate with the BIR's ETRD. Such permit shall prescribe the appropriate terms and conditions which
shall include, among others, the issuance of a Withdrawal Certificate and the submission of liquidation
3 Section 4 of the 1997 National Internal Revenue Code (Tax Code) provides, "The power to interpret reports, for the Permitee's strict compliance.
the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
7
Commissioner, subject to review by the Secretary of Finance." Also known as "An Act Amending Republic Act No. 7227, As Amended, Otherwise Known As The
Bases Conversion And Development Act Of 1992, And For Other Purposes," dated March 20, 2007.
4 SECTION 3. TAX TREATMENT OF ALL PETROLEUM AND PETROLEUM PRODUCTS IMPORTED
55
AND ITS SUBSEQUENT EXPORTATION OR SALES TO FREEPORT AND ECONOMIC ZONE Hereinafter, we will refer to RA 7227, as amended, when discussing benefits accorded to FEZs, in
LOCATORS OR OTHER PERSONS/ENTITIES; REFUND OF TAXES PAID; AUTHORITY TO general. On the other hand, we will refer to RA 9400 when discussing benefits specifically in relation to
RELEASE IMPORTED GOODS (ATRIG) AND OTHER ADMINISTRATIVE REQUIREMENTS. - The the Clark FEZ.
Value-Added and Excise taxes which are due on all petroleum and petroleum products that are 56
imported and/or brought directly from abroad to the Philippines, including Freeport and Economic Entitled "Rules and Regulations to Implement Republic Act No. 9400" (Implementing Rules) issued by
zones, shall be paid by the importer thereof to the Bureau of Customs (BOC). the Department of Finance, dated February 13, 2008, and signed by then Secretary of Finance
Margarito B. Teves.
The subsequent exportation or sale/delivery of these petroleum or petroleum products to registered 57
enterprises enjoying tax privileges within the Freeport and Economic zones, as well as the sale of said Section 2(oo) of the Implementing Rules defines customs territory as "the national territory of the
goods to persons engaged in international shipping or international air transport operations, shall be Philippines outside of the boundaries of the Ecozones or Freeport Zones, duly identified or proclaimed
subject to 0% VAT. With respect to the VAT paid on petroleum or petroleum products by the importer on in accordance with RA 7227, where the customs and tax laws of the Philippines are in full force or
account of aforesaid 0% VAT transactions/entities and the Excise taxes paid on account of sales to effect, and outside of those areas specifically declared by other laws and/or presidential proclamations
international carriers of Philippine or Foreign Registry for use or consumption outside the Philippines or to have the status of special economic zones and/or freeports."
exempt entities or agencies covered by tax treaties, conventions and international agreements for their 58The parties in this case have liberally used the term "locator" to denote an entity located within the
use or consumption (covered by Certification in such entity's favor), as well as entities which are by law
FEZ. However. we shall hereinafter use "FEZ enterprise" as explicitly defined and used by the
exempt from indirect taxes, the importer may file a claim for credit or refund with the BOC, which shall
Implementing Rules.
process the claim for refund, subject to the favorable endorsement of the BIR, in accordance with
existing rules and procedures: Provided, that no claim for refund shall be granted unless it is properly 64 SEC. 107. Value-Added Tax on Importation of Goods. - (A) In General. - There shall be levied,
shown to the satisfaction of the BIR that said petroleum or petroleum products have been sold to a duly assessed and collected on every importation of goods a value-added tax equivalent to ten percent
registered locator and have been utilized in the registered activity/operation of the locator, or that such (10%) [47] based on the total value used by the Bureau of Customs in determining tariff and customs
have been sold and have been used for international shipping or air transport operations, or that the duties plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer
entities to which the said goods were sold are statutorily zero-rated for VAT, and/or exempt from Excise prior to the release of such goods from customs custody: Provided, That where the customs duties are
taxes. determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on
the landed cost plus excise taxes, if any xxx
In the event that the said Freeport/Economic zone registered enterprise shall subsequently
sell/introduce the petroleum or petroleum products, or part of the volume thereof, into the customs (B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation of goods into the
territory (except sales of fuel for use in international operations) or another Freeport/Economic zone Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold,
registered enterprise not enjoying tax privileges, no refund for excise taxes shall be granted to the transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers,
transferees or recipients shall be considered the importers thereof, who shall be liable for any internal (j) Liquefied petroleum gas, per liter, Zero (P0.00): Provided, That liquefied petroleum gas used for
revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods motive power shall be taxed at the equivalent rate as the excise tax on diesel fuel oil;
superior to all charges or liens on the goods, irrespective of the possessor thereof.
(k) Asphalts, per kilogram, Fifty-six centavos (P0.56); and
65SEC. 148. Manufactured Oils and Other Fuels. - There shall be collected on refined and
manufactured mineral oils and motor fuels, the following excise taxes which shall attach to the goods (l) Bunker fuel oil, and on similar fuel oils having more or less the same generating power, per liter of
hereunder enumerated as soon as they are in existence as such: (a) Lubricating oils and greases, volume capacity, zero (P0.00).
including but not limited to, basestock for lube oils and greases, high vacuum distillates, aromatic 66 SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced
extracts, and other similar preparations, and additives for lubricating oils and greases, whether such
in the Philippines for domestic sales or consumption or for any other disposition and to things imported.
additives are petroleum based or not, per liter and kilogram respectively, of volume capacity or weight,
The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV.
Four pesos and fifty centavos (P4.50): Provided, however, That the excise taxes paid on the purchased
feedstock (bunker) used in the manufacture of excisable articles and forming part thereof shall be For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any
credited against the excise tax due therefrom: Provided, further, That lubricating oils and greases other physical unit of measurement shall be referred to as 'specific tax' and an excise tax herein
produced from basestocks and additives on which the excise tax has already been paid shall no longer imposed and based on selling price or other specified value of the good shall be referred to as 'ad
be subject to excise tax: Provided, finally, That locally produced or imported oils previously taxed as valorem tax.'
such but are subsequently reprocessed, re-refined or recycled shall likewise be subject to the tax
imposed under this Section. 67
(A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or importer to the
Custom Officers, conformably with the regulations of the Department of Finance and before the release
(b) Processed gas, per liter of volume capacity, Five centavos (P0.05); of such articles from the customs house, or by the person who is found in possession of articles which
are exempt from excise taxes other than those legally entitled to exemption.
(c) Waxes and petrolatum, per kilogram, Three pesos and fifty centavos (P3.50);
In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, Five centavos
exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-
(P0.05): Provided. That unless otherwise provided by special laws, if the denatured alcohol is mixed
exempt persons or entitles, the purchasers or recipients shall be considered the importers thereof, and
with gasoline, the excise tax on which has already been paid, only the alcohol content shall be subject
shall be liable for the duty and internal revenue tax due on such importation.
to the tax herein prescribed. For purposes of this Subsection, the removal of denatured alcohol of not
less than one hundred eighty degrees (180o) proof (ninety percent (90%) absolute alcohol) shall be 69Section 4.107-1 (b), RR 16-2005, otherwise known as the Consolidated VAT Regulations of 2004,
deemed to have been removed for motive power, unless shown otherwise; promulgated to Title IV of the Tax Code, as well as other provisions pertaining to VAT.
(e) Naphtha, regular gasoline and other similar products of distillation, per liter of volume capacity, Four 76 Section 7 of the Implementing Rules of RA 9400 provides: "Tax Treatment of Goods Introduced Into
pesos and thirty five centavos (P4.35): Provided, however, That naphtha, when used as a raw material and Brought Out of the Ecozones and Freeport Zones—A. A. Raw materials, capital goods, and
in the production of petrochemical products or as replacement fuel for natural-gas-fired-combined cycle consumer items of domestic origin which are brought out of the Ecozone or Freeport Zone introduced
power plant, in lieu of locally-extracted natural gas during the non-availability thereof, subject to the into the customs territory shall be considered as importations into the customs territory and the buyer of
rules and regulations to be promulgated by the Secretary of Energy, in consultation with the Secretary the goods shall be treated as importer thereof, hence subject to the VAT on importation. In all instances,
of Finance, per liter of volume capacity, Zero (P0.00): Provided, further, That the by-product including raw materials, capital goods, equipment and consumer items and foreign articles introduced into the
fuel oil, diesel fuel, kerosene, pyrolysis gasoline, liquefied petroleum gases and similar oils having more customs territory, unless authorized under applicable laws, rules and regulations shall be subject to
or less the same generating power, which are produced in the processing of naphtha into petrochemical taxes and duties under the National Internal Revenue Code of 1997, as amended, and by the Tariff and
products shall be subject to the applicable excise tax specified in this Section, except when such by- Customs Code of the Philippines, as amended."
products are transferred to any of the local oil refineries through sale, barter or exchange, for the
purpose of further processing or blending into finished products which are subject to excise tax under
this Section;

(f) Leaded premium gasoline, per liter of volume capacity, Five pesos and thirty-five centavos (P5.35);
unleaded premium gasoline, per liter of volume capacity, Four pesos and thirty-five centavos (P4.35);

(g) Aviation turbo jet fuel, per liter of volume capacity, Three pesos and sixty-seven centavos (P3.67);

(h) Kerosene, per liter of volume capacity, Zero (P0.00): Provided, That kerosene, when used as
aviation fuel, shall be subject to the same tax on aviation turbo jet fuel under the preceding paragraph
(g), such tax to be assessed on the user thereof;

(i) Diesel fuel oil, and on similar fuel oils having more or less the same generating power, per liter of
volume capacity, One peso and zero (P0.00);
 Article VIII (B) (1)

B. FOR ONSHORE PORTION.

5. Mitsubishi Corporation Manila Branch v. Commissioner
of Internal Revenue, 1.) [The] CORPORATION (NPC) shall, subject to the provisions under the Contract [Document] on
Taxes, pay any and all forms of taxes which are directly imposable under the Contract including VAT,
June 5, 2017 that may be imposed by the Philippine Government, or any of its agencies and political
subdivisions. 13(Emphases supplied)
G.R. No. 175772
Petitioner completed the project on December 2, 1995, but it was only accepted by NPC on January 31,
MITSUBISHI CORPORATION - MANILA BRANCH, Petitioner 1998 through a Certificate of Completion and Final Acceptance. 14
vs
COMMISSIONER OF INTERNAL REVENUE, Respondent On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year that ended on March 31, 1998
with the Bureau of Internal Revenue (BIR). Petitioner included in its income tax due 15 the amount of
DECISION ₱44,288,712.00, representing income from the OECF-funded portion of the Project. 16 On the same
day, petitioner also filed its Monthly Remittance Return of Income Taxes Withheld and remitted
PERLAS-BERNABE, J.: ₱8,324,100.00 as BPRT for branch profits remitted to its head office in Japan out of its income for the
Assailed in this petition for review on certiorari 1 are the Decision 2 3 . dated May 24, 2006 and the fiscal year that ended on March 31, 1998 .17
Resolution dated December 4, 2006 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 5, On June 30, 2000, petitioner filed with the respondent Commissioner on Internal Revenue (CIR) an
reversing the CTA Division's ruling 4 in CTA Case No. 6139 which granted the claim for refund of administrative claim for refund of Fifty Two Million Six Hundred Twelve Thousand, Eight Hundred
erroneously paid income tax and branch profit remittance tax (BPRT; collectively, subject taxes) filed by Twelve Pesos (P52,612,812.00), representing the erroneously paid amounts of P44,288,712.00 as
petitioner Mitsubishi Corporation - Manila Branch (petitioner) for the fiscal year that ended on March 31, income tax and ₱8,324,100.00 as BPRT corresponding to the OECF-funded portion of the Project. 18 To
1998. suspend the running of the two-year period to file a judicial claim for refund, petitioner filed on July 13,
The Facts 2000 a petition for review 19 before the CTA pursuant to Section 229 of the National Internal Revenue
Code (NIRC), which was docketed as C.T.A. Case No. 6139. 20 Petitioner anchored its claim for refund
On June 11, 1987, the governments of Japan and the Philippines executed an Exchange of on BIR Ruling No. DA-407-98 dated September 7, 1998, 21 which interpreted paragraph 5 (2) of the
Notes, 5 whereby the former agreed to extend a loan amounting to Forty Billion Four Hundred Million Exchange of Notes, to wit:
Japanese Yen (¥40,400,000,000) to the latter through the then Overseas Economic Cooperation Fund
(OECF, now Japan Bank for International Cooperation) for the implementation of the Calaca II Coal- In reply, please be informed that the aforequoted provisions of Notes-NAIA and Notes-Calaca are not
Fired Thermal Power Plant Project (Project). 6 In Paragraph 5 (2) of the Exchange of Notes, the grants of direct tax exemption privilege to Japanese firms, Mitsubishi in this case, and Japanese
Philippine Government, by itself or through its executing agency, undertook to assume all taxes nationals operating as suppliers, contractors or consultants involved in either of the two projects
imposed by the Philippines on Japanese contractors engaged in the Project: because the said provisions state that it is the Government of the Republic of the Philippines that is
obligated to pay whatever fiscal levies or taxes they may be liable to. Thus, there is no tax exemption to
(2) The Government of the Republic of the Philippines will, itself or through its executing agencies or speak of because the said taxes shall be assumed by the Philippine Government; hence, the said
instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on provision is not violative of the Constitutional prohibition against the grants of tax exemption without the
Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection concurrence of the majority of the members of Congress. (Citation omitted)
with any income that may accrue from the supply of products of Japan and services of Japanese
nationals to be provided under the Loan. 7 (Emphases, underscoring, and italics supplied) In view thereof, x x x, this office is of the opinion and hereby holds that Mitsubishi has no liability for
income tax and other taxes and fiscal levies, including VAT, on the 75% of the NAIA II Project and on
Consequently, the OECF and the Philippine Government entered into Loan Agreement No. PH- the 100% of the foreign currency portion of the Calaca II Project since the said taxes were assumed by
P76 8 dated September 25, 1987 for Forty Billion Four Hundred Million Japanese Yen the Philippine Government.22 (Emphases and underscoring supplied)
(¥40,400,000,000). Due to the need for additional funding for the Project, they also executed Loan
Agreement No. PH-P141 9 dated December 20, 1994 for Five Billion Five Hundred Thirteen Million In a Decision 23 dated December 17, 2003, the CTA Division granted the petition and ordered the CIR to
Japanese Yen (¥5,513,000,000). 10 refund to petitioner the amounts it erroneously paid as income tax and BPRT. 24 It held that based on
the Exchange of Notes, the Philippine Government, through the NPC as its executing agency, bound
Meanwhile, on June 21, 1991, the National Power Corporation (NPC), as the executing government itself to assume or shoulder petitioner's tax obligations. Therefore, petitioner's payments of income tax
agency, entered into a contract with Mitsubishi Corporation (i.e., petitioner's head office in Japan) for the and BPR T to the CIR, when such payments should have been made by the NPC, undoubtedly
engineering, supply, construction, installation, testing, and commissioning of a steam generator, constitute erroneous payments under Section 229 of the NIRC. 25
auxiliaries, and associated civil works for the Project (Contract). 11 The Contract's foreign currency
portion was funded by the OECF loans. 12 In line with the Exchange of Notes, Article VIII (B) (1) of the The CTA Division acknowledged that based on Revenue Memorandum Circular (RMC) No. 42-99 dated
Contract indicated NPC' s undertaking to pay any and all forms of taxes that are directly imposable June 2, 1999, amending RMC No. 32-99, the proper remedy for a Japanese contractor who previously
paid the taxes directly to the BIR is to recover or obtain a refund from the government executing agency
under the Contract:
- the NPC in this case. It held, however, that RMC No. 42-99 does not apply to petitioner as it filed its
ITR on July 15, 1998 or almost a year before the issuance of the same. It added that RMC No. 42-99 to have been collected without authority, or of any sum alleged to have been excessively or in any
cannot be given retroactive effect as it would be unfair • • 26 to petitioner. manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
28
The CIR moved for reconsideration27 but was denied in a Resolution dated April 23, 2004; thus, the under protest or duress."
CIR elevated the matter to the CTA En Banc. 29
x x x x (Emphases and underscoring supplied)
The CTA En Bane's Ruling
In this case, it is fairly apparent that the subject taxes in the amount of ₱52,612,812.00 was erroneously
In a Decision 30 dated May 24, 2006, the CTA En Banc reversed the CTA Division's rulings and collected from petitioner, considering that the obligation to pay the same had already been assumed by
declared that petitioner is not entitled to a refund of the taxes it paid to the CIR. It held the Philippine Government by virtue of its Exchange of Notes with the Japanese Government. Case law
that, first, petitioner failed to establish that its tax payments were "erroneous" under the law to justify the explains that an exchange of notes is considered as an executive agreement, which is binding on the
refund, adding that the CIR has no power to grant a refund under Section 229 of the NIRC absent any State even without Senate concurrence. In Abaya v. Ebdane:37
tax exemption. It further observed that by its clear terms, the Exchange of Notes granted no tax
exemption to petitioner.31 Second, the Exchange of Notes cannot be read as a treaty validly granting tax An "exchange of notes" is a record of a routine agreement that has many similarities with the private law
exemption considering the lack of Senate concurrence as required under Article VII, Section 21 of the contract. The agreement consists of the exchange of two documents, each of the parties being in the
Constitution.32 Third, RMC No. 42-99, which was already in effect when petitioner filed its administrative possession of the one signed by the representative of the other. Under the usual procedure, the
claim for refund on June 30, 2000, specifies petitioner's proper remedy - that is, to recover the subject accepting State repeats the text of the offering State to record its assent. The signatories of the letters
taxes from NPC, and not from the CIR.33 may be government Ministers, diplomats or departmental heads. The technique of exchange of notes is
frequently resorted to, either because of its speedy procedure, or, sometimes, to avoid the process of
Petitioner sought reconsideration, 34 but the CTA En Banc denied the motion in a Resolution 35 dated legislative approval.
December 4, 2006; hence, this petition.
It is stated that "treaties, agreements, conventions, charters, protocols, declarations, memoranda of
The Issues Before the Court understanding, modus vivendi and exchange of notes" all refer to "international instruments binding at
international law."
The issues before the Court are two-fold: (a) whether petitioner is entitled to a refund; and (b) if in the
affirmative, from which government entity should the refund be claimed. xxxx
The Court's Ruling Significantly, an exchange of notes is considered a form of an executive agreement, which becomes
binding through executive action without the need of a vote by the Senate or Congress. 38
The petition is meritorious.
Paragraph 5 (2) of the Exchange of Notes provides for a tax assumption provision whereby:
I.
(2) The Government of the Republic of the Philippines will, itself or through its executing agencies or
Sections 204 (C) of the NIRC grants the CIR the authority to credit or refund taxes which are
instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on
erroneously collected by the government: 36
Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection
SEC.204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The with any income that may accrue from the supply of products of Japan and services of Japanese
Commissioner may – nationals to be provided under the Loan. (Emphases and underscoring supplied)

x x xx To "assume" means "[t]o take on, become bound as another is bound, or put oneself in place of another
as to an obligation or liability."39 This means that the obligation or liability remains, although the same is
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund merely passed on to a different person. In this light, the concept of an assumption is therefore different
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in from an exemption, the latter being the "[f]reedom from a duty, liability or other requirement" or "[a]
his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their privilege given to a judgment debtor by law, allowing the debtor to retain [a] certain property without
value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the liability."40 Thus, contrary to the CTA En Bane's opinion, the constitutional provisions on tax exemptions
taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the would not apply.
payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund. As explicitly worded, the Philippine Government, through its executing agencies (i.e., NPC in this case)
particularly assumed "all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese
x x xx (Emphases and underscoring supplied) firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any
income that may accrue from the supply of products of Japan and services of Japanese nationals to be
The authority of the CIR to refund erroneously collected taxes 1s likewise reflected in Section 229 of the provided under the [OECF] Loan." The Philippine Government's assumption of "all fiscal levies and
NIRC, which reads: SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or taxes," which includes the subject taxes, is clearly a form of concession given to Japanese suppliers,
proceeding shall be maintained in any court for the recovery of any national internal revenue tax contractors or consultants in consideration of the OECF Loan, which proceeds were used for the
hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed implementation of the Project. As part of this, NPC entered into the June 21, 1991 Contract with
Mitsubishi Corporation (i.e., petitioner's head office in Japan) for the engineering, supply, construction, As above-stated, the NIRC vests upon the CIR, being the head of the BIR, the authority to credit or
installation, testing, and commissioning of a steam generator, auxiliaries, and associated civil works for refund taxes which are erroneously collected by the government. This specific statutory mandate cannot
the Project,41which foreign currency portion was funded by the OECF loans. 42 Thus, in line with the tax be overridden by averse interpretations made through mere administrative issuances, such as RMC No.
assumption provision under the Exchange of Notes, Article VIII (B) (1) of the Contract states that NPC 42-99, which - as argued by the CIR - shifts to the executing agencies (particularly, NPC in this case)
shall pay any and all forms of taxes that are directly imposable under the Contract: the power to refund the subject taxes:49

Article VIII (B) (1) B) INCOME TAX

B. FOR ONSHORE PORTION. 1. Japanese firms or nationals operating as suppliers, contractors or consultants on and/or in
connection with any income that accrue from the supply of products and/or services to be provided
1.) [The] CORPORATION (NPC) shall, subject to the provisions under the Contract [Document] on under the Project Loan, shall file the prescribed income tax returns. Since the executing government
Taxes, pay any and all forms of taxes which are directly imposable under the Contract including VAT, agencies are mandated to assume the payment thereof under the Exchange of Notes, the said
that may be imposed by the Philippine Government, or any of its agencies and political Japanese firms or nationals need not pay taxes thereunder.
subdivisions.43(Emphases supplied)
2. The concerned Revenue District Officer shall, in turn, collect the said income taxes from the
This notwithstanding, petitioner included in its income tax due the amount of ₱44,288,712.00, concerned executing government agencies.1âwphi1
representing income from the OECF-funded portion of the Project, and further remitted ₱8,324,100.00
as BPRT for branch profits remitted to its head office in Japan out of its income for the fiscal year that 3. In cases where income taxes were previously paid directly by the Japanese contractors or nationals,
ended on March 31, 1998.45 These taxes clearly fall within the ambit of the tax assumption provision the corresponding cash refund shall be recovered from the government executing agencies upon the
under the Exchange of Notes, which was further fleshed out in the Contract. Hence, it is the Philippine presentation of proof of payment by the Japanese contractors or nationals." (Emphasis and
Government, through the NPC, which should shoulder the payment of the same. underscoring supplied)

It bears stressing that the CIR had already acknowledged, through its administrative issuances, that 3. In cases where income taxes were previously paid directly by the Japanese contractors or nationals,
Japanese contractors involved in the Project are not liable for the subject taxes. In RMC No. 42-99, the the corresponding cash refund shall be recovered from the government executing agencies upon the
CIR interpreted the effect of the tax assumption clause in the Exchange of Notes on petitioner's tax presentation of proof of payment by the Japanese contractors or nationals. 50 (Emphasis and
liability, to wit: underscoring supplied)

The foregoing provisions of the Exchange of Notes mean that the Japanese contractors or nationals A revenue memorandum circular is an administrative ruling issued by the CIR to interpret tax laws. It is
engaged in EOCF-funded projects in the Philippines shall not be required to shoulder all fiscal levies or widely accepted that an interpretation by the executive officers, whose duty is to enforce the law, is
taxes associated with the project. x x xx entitled to great respect from the courts. However, such interpretation is not conclusive and will be
disregarded if judicially found to be incorrect. 51 Verily, courts will not tolerate administrative issuances
x x xx that override, instead of remaining consistent and in harmony with, the law they seek to implement, 52 as
in this case. Thus, Item B (3) of RMC No. 42-99, an administrative issuance directing petitioner to claim
x x x Since the executing government agencies are mandated to assume the payment of [income taxes]
the refund from NPC, cannot prevail over Sections 204 and 229 of the NIRC, which provide that claims
under the Exchange of Notes, the said Japanese firms or nationals need not pay taxes due
for refund of erroneously collected taxes must be filed with the CIR.
thereunder.46 (Emphases and underscoring supplied)
All told, petitioner correctly filed its claim for tax refund under Sections 204 and 229 of the NIRC to
The CIR subsequently affirmed petitioner's non-liability for taxes and entitlement to tax refunds by
recover the erroneously paid taxes amounting to ₱44,288,712.00 as income tax and ₱8,324,100.00 as
issuing Revenue Memorandum Order (RMO) No. 24-200547 addressed to specified BIR offices. The
BPRT from the BIR. To reiterate, petitioner's entitlement to the refund is based on the tax assumption
RMO provides:
provision in the Exchange of Notes. Given that this is a case of tax assumption and not an exemption,
Pursuant to the provisions of [RMC] No. 32-99 as amended by RMC No. 42-99, Japanese contractors the BIR is, therefore, not without recourse; it can properly collect the subject taxes from the NPC 53 as
and nationals engaged in OECF funded projects in the Philippines shall not be required to shoulder the the proper party that assumed petitioner's tax liability.
fiscal levies or taxes associated with the project. Thus, the concerned Japanese contractors are entitled
WHEREFORE, the petition is GRANTED. The Decision dated May 24, 2006 and the Resolution dated
to claim for the refund of all taxes paid and shouldered by them relative to the conduct of the Project.
December 4, 2006 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 5 are hereby
You are, therefore, directed to expedite/ prioritize the processing of the claims for refund of Japanese REVERSED and SET ASIDE. The Decision dated December 17, 2003 of the CTA in C.T.A. Case No.
contractors and nationals so [as] not to delay and jeopardize the release of the funds for OECF funded 6139 is REINSTATED.
projects.48 (Emphases and underscoring supplied)
SO ORDERED.
Therefore, considering that petitioner paid the subject taxes in the aggregate amount of
₱52,612,812.00, which it was not required to pay, the BIR erroneously collected such amount.
Accordingly, petitioner is entitled to its refund.
 6. Commissioner of Internal Revenue v. Philippine In a second letter dated 16 July 2008, the BIR reiterated that the FDDA had become final and executory
Aluminum Wheels, for the failure of the respondent to appeal the FDDA with the CTA within the prescribed period of thirty
(30) days. The BIR demanded the full payment of the tax assessment and contended that the
G.R. No. 216161, August 09, 2017 respondent's availment of the tax amnesty under RA 9480 had no effect on the assessment due to the
finality of the FDDA prior to respondent's tax amnesty availment. On 1 August 2008, respondent filed a
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE ALUMINUM WHEELS, Petition for Review with the CTA assailing the letter of the BIR dated 16 July 2008.
INC., Respondent.
The Decision of the CTA First Division
DECISION

CARPIO, J.: On 12 November 2012, the CTA granted respondent's Petition for Review and set aside the
The Case assessment in view of respondent's availment of a tax amnesty under RA 9480. The CTA First Division
held that RA 9480 covers all national internal revenue taxes for the taxable year 2005 and prior years,
Before the Court is a petition for review on certiorari1 assailing the 19 May 2014 Decision2 and the 5 with or without assessments duly issued, that have remained unpaid as of 31 December 2005. 11 The
CTA First Division ruled that respondent complied with all the requirements of RA 9480 including the
January 2015 Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 994.
payment of the amnesty tax and submission of all relevant documents. Having complied with all the
The CTA En Banc affirmed the Decision of the CTA First Division ordering the cancellation and requirements of RA 9480, respondent is fully entitled to the immunities and privileges granted under RA
withdrawal of the deficiency tax assessments issued by the Commissioner of Internal Revenue (CIR) 9480.12
against Philippine Aluminum Wheels, Inc. (respondent).
The dispositive portion of the Decision states:chanRoblesvirtualLawlibrary
The Facts
WHEREFORE, premises considered, the instant Petition for Review is GRANTED. The subject
assessment in the present case against petitioner is hereby SET ASIDE solely in view of petitioner's
Respondent is a corporation organized and existing under Philippine laws which engages in the availment of the Tax Amnesty Program under R.A. No. 9480; and accordingly, petitioner is hereby
manufacture, production, sale, and distribution of automotive parts and accessories. On 16 December DECLARED ENTITLED to the immunities and privileges provided by the Tax Amnesty Law being a
2003, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) against qualified tax amnesty applicant and for having complied with all the documentary requirements set by
respondent covering deficiency taxes for the taxable year 2001.4 On 28 March 2004, the BIR issued a law.
Final Assessment Notice (FAN) against respondent in the amount of P32,100,613.42. 5 On 23 June
2004, respondent requested for reconsideration of the FAN issued by the BIR. On 8 November 2006, SO ORDERED.13
the BIR issued a Final Decision on Disputed Assessment (FDDA) and demanded full payment of the
deficiency tax assessment from respondent.6 On 12 April 2007, the FDDA was served through The CIR filed a Motion for Reconsideration14 on 3 December 2012 which the CTA First Division denied
on 1 March 2013.15
registered mail.

On 19 July 2007, respondent filed with the BIR an application for the abatement of its tax liabilities The Decision of the CTA En Banc
under Revenue Regulations No. 13-2001 for the taxable year 2001.7 In a letter dated 12 September
On 19 May 2014, the CTA En Banc held that a qualified tax amnesty applicant who has completed the
2007,8 the BIR denied respondent's application for tax abatement on the ground that the FDDA was
already issued by the BIR and that the FDDA had become final and executory due to the failure of the requirements of RA 9480 shall be deemed to have fully complied with the Tax Amnesty Program. Upon
respondent to appeal the FDDA with the CTA. The BIR contended that the FDDA had been sent compliance with the requirements of the law, the taxpayer shall, as mandated by law, be immune from
through registered mail on 12 April 2007 and that the FDDA had become final, executory, and the payment of taxes as well as appurtenant civil, criminal, or administrative penalties under the
National Internal Revenue Code. The CTA En Banc ruled that the finality of a tax assessment did not
demandable because of the failure of the respondent to appeal the FDDA with the CTA within thirty (30)
days from receipt of the FDDA. disqualify respondent from availing of a tax amnesty under RA 9480.

In a letter dated 19 September 2007,9 respondent informed the BIR that it already paid its tax deficiency The dispositive portion of the Decision states:chanRoblesvirtualLawlibrary
on withholding tax amounting to P736,726.89 through the Electronic Filing and Payment System of the WHEREFORE, premises considered, the Petition for Review filed by the Commissioner of Internal
BIR and that it was also in the process of availing of the Tax Amnesty Program under Republic Act No. Revenue is DENIED, for lack of merit. The Decision of the First Division of this Court promulgated on
9480 (RA 9480) as implemented by Revenue Memorandum Circular No. 55-2007 to settle its deficiency November 12, 2012 in CTA Case No. 781[7], captioned Philippine Aluminum Wheels, Inc. v.
tax assessment for the taxable year 2001. On 21 September 2007, respondent complied with the Commissioner of Internal Revenue, and the Resolution of the said Division dated March 1, 2013, are
requirements of RA 9480 which include: the filing of a Notice of Availment, Tax Amnesty Return and AFFIRMED in toto.
Payment Form, and remitting the tax payment. In a letter dated 29 January 2008, the BIR denied
respondent's request and ordered respondent to pay the deficiency tax assessment amounting to SO ORDERED.16
P29,108,767.63.10
The CIR filed a Motion for Reconsideration on 11 June 2014 which was denied on 5 January 2015. 17
a. Notice of Availment in such forms as may be prescribed by the BIR;
The Issue
b. Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in such forms, as may
be prescribed by the BIR;
Whether respondent is entitled to the benefits of the Tax Amnesty Program under RA 9480.

The Decision of this Court c. Tax Amnesty Return in such forms as may be prescribed by the BIR.

2. x x x.
This Court denies the petition in view of the respondent's availment of the Tax Amnesty Program under
RA 9480. 3. x x x.

A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty Return
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an shall be submitted to the RDO, which shall be received only after complete payment. The completion
absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax of these requirements shall be deemed full compliance with the provisions of RA 9480.
evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax
exemption, is never favored nor presumed in law. The grant of a tax amnesty, similar to a tax x x x x (Emphasis supplied)
exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. 18
In Philippine Banking Corporation v. Commissioner of Internal Revenue,20 this Court held that the
On 24 May 2007, RA 9480, or "An Act Enhancing Revenue Administration and Collection by Granting taxpayer's completion of the requirements under RA 9480, as implemented by DO 29-07, will extinguish
an. Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable the taxpayer's tax liability, additions and all appurtenant civil, criminal, or administrative penalties under
Year 2005 and Prior Years," became law. the National Internal Revenue Code, to wit:chanRoblesvirtualLawlibrary

Considering that the completion of these requirements shall be deemed full compliance with the tax
The pertinent provisions of RA 9480 are:chanRoblesvirtualLawlibrary
amnesty program, the law mandates that the taxpayer shall thereafter be immune from the payment of
Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall cover all taxes, and additions thereto, as well as the appurtenant civil, criminal or administrative penalties under
national internal revenue taxes for the taxable year 2005 and prior years, with or without the NIRC of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for
assessments duly issued therefor, that have remained unpaid as of December 31, 2005: Provided, taxable year 2005 and prior years.21
however, that the amnesty hereby authorized and granted shall not cover persons or cases enumerated
Similarly, in Metropolitan Bank and Trust Company (Metrobank) v. Commissioner of Internal
under Section 8 hereof.
Revenue,22this Court sustained the validity of Metrobank's tax amnesty upon full compliance with the
requirements of RA 9480. This Court ruled: "Therefore, by virtue of the availment by Metrobank of the
xxxx
Tax Amnesty Program under Republic Act No. 9480, it is already immune from the payment of taxes,
including DST on the UNISA for 1999, as well as the addition thereto."23
Section 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section
5 hereof, and have fully complied with all its conditions shall be entitled to the following immunities and
On 19 September 2007, respondent availed of the Tax Amnesty Program under RA 9480, as
privileges:chanRoblesvirtualLawlibrary
implemented by DO 29-07. Respondent submitted its Notice of Availment, Tax Amnesty Return,
(a) The taxpayer shall be immune from the' payment of taxes, as well as additions thereto, and the Statement of Assets, Liabilities and Net Worth, and comparative financial statements for 2005 and
appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 2006. Respondent paid the amnesty tax to the Development Bank of the Philippines, evidenced by its
1997, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year Tax Payment Deposit Slip dated 21 September 2007. Respondent's completion of the requirements of
2005 and prior years. the Tax Amnesty Program under RA 9480 is sufficient to extinguish its tax liability under the FDDA of
the BIR.
x x x x (Emphasis supplied)
In Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue,24 this Court ruled that the
The Department of Finance issued DOF Department Order No. 29-07 (DO 29-07).19 Section 6 of DO tax liability of Asia International Auctioneers, Inc. was fully settled when it was able to avail of the Tax
29-07 provides for the method for availing a tax amnesty under RA 9480, to Amnesty Program under RA 9480 in February 2008 while its Petition for Review was pending before
wit:chanRoblesvirtualLawlibrary this Court. This Court declared the pending case involving the tax liability of Asia International
Auctioneers, Inc. moot since the company's compliance with the Tax Amnesty Program under RA 9480
Section 6. Method of Availment of Tax Amnesty. extinguished the company's outstanding deficiency taxes.

1. Forms/Documents to be filed. To avail of the general tax amnesty, concerned taxpayers shall file the The CIR contends that respondent is disqualified to avail of the tax amnesty under RA 9480. The CIR
following documents/requirements: asserts that the finality of its assessment, particularly its FDDA is equivalent to a final and executory
judgment by the courts, falling within the exceptions to the Tax Amnesty Program under Section 8 of RA legislature." To give effect to the exception under RMC No. 19-2008 of delinquent accounts or accounts
9480, which states:chanRoblesvirtualLawlibrary receivable by the BIR, as interpreted by the BIR, would unlawfully create a new exception for availing of
the Tax Amnesty Program under RA 9480.
Section 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following
persons or cases existing as of the effectivity of this Act: WHEREFORE, we DENY the petition. We AFFIRM the 19 May 2014 Decision and the 5 January 2015
Resolution of the Court of Tax Appeals En Banc in CTA EB No. 994.
(a) Withholding agents with respect to their withholding tax liabilities;
SO ORDERED.
(b) Those with pending cases falling under the jurisdiction of the Presidential Commission on Good
Government; Peralta, Mendoza, Leonen, and Martires, JJ., concur.

(c) Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-
Graft and Corrupt Practices Act;

(d) Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;

(e) Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of
Title X of the National Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal
exactions and transactions, and malversation of public funds and property under Chapters III and IV of
Title VII of the Revised Penal Code; and

(f) Tax cases subject of final and executory judgment by the courts. (Emphasis supplied)

The CIR is wrong. Section 8(f) is clear: only persons with "tax cases subject of final and executory
judgment by the courts" are disqualified to avail of the Tax Amnesty Program under RA 9480. There
must be a judgment promulgated by a court and the judgment must have become final and executory.
Obviously, there is none in this case. The FDDA issued by the BIR is not a tax case "subject to a
final and executory judgment by the courts" as contemplated by Section 8(f) of RA 9480. The
determination of the tax liability of respondent has not reached finality and is still not subject to an
executory judgment by the courts as it is the issue pending before this Court. In fact, in Metrobank, this
Court held that the FDDA issued by the BIR was not a final and executory judgment and did not
prevent Metrobank from availing of the immunities and privileges granted under RA 9480, to
wit:chanRoblesvirtualLawlibrary

x x x. As argued by Metrobank, the very fact that the instant case is still subject of the present
proceedings is proof enough that it has not reached a final and executory stage as to be barred from the
tax amnesty under Republic Act No. 9480.

The assertion of the CIR that deficiency DST is not covered by the Tax Amnesty Program under
Republic Act No. 9480 is downright specious.25

The CIR alleges that respondent is disqualified to avail of the Tax Amnesty Program under Revenue
Memorandum Circular No. 19-2008 (RMC No. 19-2008) dated 22 February 2008 issued by the BIR
which includes "delinquent accounts or accounts receivable considered as assets by the BIR or the
Government, including self-assessed tax" as disqualifications to avail of the Tax Amnesty Program
under RA 9480. The exception of delinquent accounts or accounts receivable by the BIR under RMC
No. 19-2008 cannot amend RA 9480. As a rule, executive issuances including implementing rules and
regulations cannot amend a statute passed by Congress.

In National Tobacco Administration v. Commission on Audit,26 this Court held that in case there is a
discrepancy between the law and a regulation issued to implement the law, the law prevails because
the rule or regulation cannot go beyond the terms and provisions of the law, to wit: "[t]he Circular cannot
extend the law or expand its coverage as the power to amend or repeal a statute is vested with the
 Ruling of the CTA Second Division
7. Commissioner of Internal Revenue v. Covanta Energy
Philippine Holdings, In a Decision dated July 27, 2010, the CTA Second Division partially granted the petitions of CEPHI with
respect to the deficiency VAT and MCIT assessments for 2001. Since tax amnesty does not extend to
withholding agents with respect to their withholding tax liabilities, 11 the CTA Second Division ruled, after
computation, that CEPHI is liable to pay the amount of P131,791.02 for the deficiency EWT
G.R. No. 203160, January 24, 2018 assessment, plus additional deficiency and delinquency interest. The dispositive portion of this decision
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. COVANTA ENERGY PHILIPPINE states:12
HOLDINGS, INC., Respondent. WHEREFORE, the instant Petitions for Review are hereby PARTIALLY GRANTED. Accordingly, the
DECISION deficiency [VAT] and deficiency [MCIT] assessments for taxable year 2001 issued against petitioner are
CANCELLED and WITHDRAWN.
REYES, JR., J.:
However, petitioner is ORDERED TO PAY respondent the amount of ONE HUNDRED THIRTY-ONE
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, seeking to reverse and THOUSAND SEVEN HUNDRED NINETY-ONE PESOS AND 02/100 (P131,791.02), representing
set aside the Decision2 dated March 30, 2012 and Resolution3 dated August 16, 2012 of the Court of deficiency [EWT], including the twenty-five percent (25%) surcharge imposed thereon.
Tax Appeals (CTA) en banc in CTA EB Case No. 713.
Likewise, petitioner is ORDERED TO PAY:
The CTA en banc denied the appeal of the Commissioner of Internal Revenue (CIR) and affirmed the
cancellation and withdrawal of the deficiency tax assessments on respondent Covanta Energy (a) deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency EWT of
Philippine Holdings, Inc. (CEPHI). The CIR avers, however, that CEPHI failed to comply with the P29,415.00 computed from November 16, 2005 until full payment thereof pursuant to Section 249(B) of
requirements of the tax amnesty law, or Republic Act (R.A.) No. 9480. 4 the NIRC of 1997; and

Factual Antecedents (b) delinquency interest at the rate of 20% per annum of P131,791.02 which is the total amount still due
and on the 20% deficiency interest which have accrued as afore-stated in paragraph (a) computed from
On December 6, 2004, the CIR issued Formal Letters of Demand and Assessment Notices against January 10, 2005 until full payment thereof, pursuant to Section 249(C) of the NIRC of 1997.
CEPHI for deficiency value-added tax (VAT) and expanded withholding tax (EWT). The deficiency
assessments were respectively in the amounts of P465,593.21 and P288,903.78, or an aggregate
amount of P754,496.99, representing CEPHI's VAT and EWT liabilities for the taxable year 2001.5 SO ORDERED.13

CEPHI protested the assessments by filing two (2) separate Letters of Protest on January 19, 2005.
However, the CIR issued another Formal Letter of Demand and Assessment Notice dated January 11,
The CIR moved for the reconsideration of this decision, which the CTA Second Division denied in its
2005, assessing CEPHI for deficiency minimum corporate income tax (MCIT) in the amount of
P467,801.99, likewise for the taxable year 2001. This assessment lead to CEPHI filing a Letter of Resolution14 dated December 13, 2010:
Protest on the MCIT assessment on February 16, 2015. 6 WHEREFORE, premises considered, respondent's "Motion for Reconsideration" is hereby DENIED for
lack of merit.
The protests remained unacted upon. Thus, CEPHI filed separate petitions before the CTA, seeking the
cancellation and withdrawal of the deficiency assessments. The petitions were filed on October 10, SO ORDERED.15
2005, for the deficiency VAT and EWT, which was docketed as CTA Case No. 7338; and on November
9, 2005, for the deficiency MCIT, which was docketed as CTA Case No. 7365. 7

On December 6, 2005, the CIR filed an Answer for CTA Case No. 7338, while the Answer for CTA Case Unsatisfied with the ruling of the CTA Second Division, the CIR elevated the matter to the CTA en
No. 7365 was filed on January 10, 2006. The cases were eventually consolidated upon the CIR's bancthrough a Petition for Review dated January 4, 2011, pursuant to R.A. No. 1125,16 as amended by
motion.8 R.A. No. 928217 and R.A. No. 9503.18 The sole issue raised in the CIR's appeal was whether the CTA
Second Division erred in upholding the validity of the tax amnesty availed by CEPHI. The CIR was of
After the parties' respective submission of their fonnal offer of evidence, CEPHI filed a Supplemental the position that CEPHI is not entitled to the immunities and privileges under R.A. No. 9480 because its
Petition on October 7, 2008, informing the CTA that it availed of the tax amnesty under R.A. No. 9480. documentary submissions failed to comply with the requirements under the tax amnesty law. 19
CEPHI afterwards submitted a Supplemental Formal Offer of Evidence, together with the documents
relevant to its tax amnesty.9 Ruling of the CTA En Banc

The CTA then required the parties to submit their respective memoranda within 30 days. The case was
submitted for decision upon the parties' compliance.10
Finding the CIR's petition for review unmeritorious, the CTA en banc denied the appeal in the assailed
Decision20 dated March 30, 2012: CEPHI is entitled to the immunities
and privileges of the tax amnesty
WHEREFORE, the Petition for Review filed by [CIR] is hereby DENIED for lack of merit. The Decision program upon full compliance with
dated July 27, 2010 and Resolution dated December 13, 2010 are hereby AFFIRMED. Deficiency [VAT] the requirements of R.A. No. 9480.
and Deficiency [MCIT] in taxable year 2001 remain CANCELLED and WITHDRAWN. Respondent,
however, is ORDERED TO PAY the amount of ONE HUNDRED THIRTY-ONE THOUSAND SEVEN R.A. No. 9480 governs the tax amnesty program for national internal revenue taxes for the taxable year
HUNDRED NINETY-ONE PESOS AND 02/100 (P131,791.02), representing deficiency [EWT], including 2005 and prior years.27 Subject to certain exceptions,28 a taxpayer may avail of this program by
the twenty-five (25%) surcharge imposed thereon. Likewise, respondent is ORDERED TO PAY: complying with the documentary submissions to the Bureau of Internal Revenue (BIR) and thereafter,
paying the applicable amnesty tax.29
(a) deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency EWT
of P29,415.00 computed from November 16, 2005 until full payment thereof pursuant to The implementing rules and regulations of R.A. No. 9480, as embodied in Department of Finance (DOF)
Section 249(B) of the NIRC of 1997; and Department Order No. 29-07,30 laid down the procedure for availing of the tax amnesty:

(b) delinquency interest at the rate of 20% per annum of P131,791.02 which is the total amount
still due and on the 20% deficiency interest which have accrued as afore-stated in paragraph
(a) computed from January 10, 2005 until full payment thereof, pursuant to Section 249(c) of SEC. 6. Method of Availment of Tax Amnesty. –
the NIRC of 1997.
1. Forms/Documents to be filed. – To avail of the general tax amnesty, concerned taxpayers
shall file the following documents/requirements:
SO ORDERED.21
a. Notice of Availment in such forms as may be prescribed by the BIR.

b. [SALN] as of December 31, 2005 in such forms, as may be prescribed by the BIR.
The CTA en banc upheld the ruling that, without any evidence that CEPHI's net worth was
underdeclared by at least 30%, there is a presumption of compliance with the requirements of the tax c. Tax Amnesty Return in such form as may be prescribed by the BIR.
amnesty law. For this reason, CEPHI may immediately enjoy the privileges of the tax amnesty
program.22 The CIR disagreed with this decision, and on April 23, 2012, it moved for the reconsideration
of the CTA en banc's decision.
2. Place of Filing of Amnesty Tax Return. – The Tax Amnesty Return, together with the other
The CIR's motion for reconsideration was denied in the assailed CTA en banc Resolution23 dated documents stated in Sec. 6 (1) hereof, shall be filed as follows:
August 16, 2012: a. Residents shall file with the Revenue District Officer (RDO)/Large Taxpayer District
WHEREFORE, premises considered, the Motion for Reconsideration is hereby DENIED for lack of Office of the BIR which has jurisdiction over the legal residence or principal place of
merit. business of the taxpayer, as the case may be.

b. Non-residents shall file with the office of the Commissioner of the BIR, or with the
SO ORDERED.24 RDO.

c. At the option of the taxpayer, the RDO may assist the taxpayer in accomplishing the
forms and computing the taxable base and the amnesty tax payable, but may not look
Prompted by the denial of their petition for review and motion for reconsideration, the CIR elevated the into, question or examine the veracity of the entries contained in the Tax Amnesty
matter to this Court, by again assailing the validity of CEPHI's tax amnesty. The CIR reiterated its Return, [SALN], or such other documents submitted by the taxpayer.
argument that CEPHI's failure to provide complete information in its Statement of Assets, Liabilities and
Net worth (SALN), particularly the columns requiring the Reference and Basis of Valuation, is sufficient
basis to disqualify CEPHI from the tax amnesty program.25 The CIR also alleged that there is no period
of limitation in challenging CEPHI's compliance with the requirements of the tax amnesty program. 26 3. Payment of Amnesty Tax and Full Compliance. – Upon filing of the Tax Amnesty Return in
accordance with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty tax to the authorized
Ruling of this Court agent bank or in the absence thereof, the Collection Agents or duly authorized Treasurer of the
city or municipality in which such person has his legal residence or principal place of business.

The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed by the
The Court dismisses the petition. BIR for the use of-or to be accomplished by – the bank, the collection agent or the Treasurer,
 showing the acceptance by the amnesty tax payment. In case of the authorized agent bank, c. Assets denominated in foreign currency shall be converted into the corresponding
the branch manager or the assistant branch manager shall sign the acceptance of payment Philippine currency equivalent, at the rate of exchange prevailing as of December 31,
form. 2005; and

The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty d. Cash on hand and in bank in peso as of December 31, 2005, as well as Cash on
Return shall be submitted to the RDO, which shall be received only after complete Hand and in Bank in foreign currency, converted to peso as of December 31, 2005.
payment. The completion of these requirements shall be deemed full compliance with
the provisions of RA 9480.
2. All existing liabilities which are legitimate and enforceable, secured and unsecured, whether or
4. Time for Filing and Payment of Amnesty Tax. – The filing of the Tax Amnesty Return,
not incurred in trade or business, disclosing or indicating clearly the name and address of the
together with the SALN, and the payment of the amnesty tax shall be made within six (6)
creditor and the amount of the corresponding liability.
months from the effectivity of these Rules.31 (Emphasis and underscoring Ours)
3. The total networth of the taxpayer, which shall be difference between the total assets and total
liabilities.
Upon the taxpayer's full compliance with these requirements, the taxpayer is immediately entitled to the
enjoyment of the immunities and privileges of the tax amnesty program. 32 But when: (a) the taxpayer
fails to file a SALN and the Tax Amnesty Return; or (b) the net worth of the taxpayer in the SALN as of It is evident from CEPHI's original and amended SALN that the information statutorily mandated in R.A.
December 31, 2005 is proven to be understated to the extent of 30% or more, the taxpayer shall cease No. 9480 were all reflected in its submission to the BIR. While the columns for Reference and Basis for
to enjoy these immunities and privileges.33 Valuation were indeed left blank, CEPHI attached schedules to its SALN (Schedules 1 to 7), both
original and amended, which provide the required information under R.A. No. 9480 and its
The underdeclaration of a taxpayer's net worth, as referred in the second instance above, is proven implementing rules and regulations.38 A review of the SALN form likewise reveals that the
through: (a) proceedings initiated by parties other than the BIR or its agents, within one (1) year from information required in the Reference and Basis for Valuation columns are actually the specific
the filing of the SALN and the Tax Amnesty Return; or (b) findings or admissions in congressional description of the taxpayer's declared assets. As such, these were deemed filled when CEPHI referred
hearings or proceedings in administrative agencies, and in courts. Otherwise, the taxpayer's SALN is to the attached schedules in its SALN. On this basis, the CIR cannot disregard or simply set aside the
presumed true and correct.34 The tax amnesty law thus places the burden of overturning this SALN submitted by CEPHI.
presumption to the parties who claim that there was an underdeclaration of the taxpayer's net worth.
More importantly, CEPHI's SALN is presumed true and correct, pursuant to Section 4 of R.A. No.
In this case, it is undisputed that CEPHI submitted all the documentary requirements for the tax 9480.39This presumption may be overturned if the CIR is able to establish that CEPHI understated its
amnesty program.35 The CIR argued, however, that CEPHI cannot enjoy the privileges attendant to the net worth by the required threshold of at least 30%.
tax amnesty program because its SALN failed to comply with the requirements of R.A. No. 9480. The
CIR specifically points to CEPHI's supposed omission of the information relating to However, aside from the bare allegations of the CIR, there is no evidence on record to prove that the
the Reference and Basis for Valuation columns in CEPHI's original and amended SALNs.36 amount of CEPHI's net worth was understated. Parties other than the BIR or its agents did not initiate
proceedings within one year from the filing of the SALN or Tax Amnesty Return, in order to challenge
The required information that should be reflected in the taxpayer's SALN is enumerated in Section 3 of the net worth of CEPHI. Neither was the CIR able to establish that there were findings or admissions in
R.A. No. 9480.37 The essential contents of the SALN are also itemized under the implementing rules a congressional, administrative, or court proceeding that CEPHI indeed understated its net worth by
and regulations as follows: 30%.
SEC. 8. Contents of the SALN. – The SALN shall contain a true and complete declaration of assets,
As the Court previously held in CS Garment, Inc. v. CIR,40 taxpayers are eligible to the immunities of the
liabilities and networth of the taxpayer as of December 31, 2005, as follows:
tax amnesty program as soon as they fulfill the suspensive conditions imposed under R.A. No. 9480:
1. Assets within or without the Philippines, whether real or personal, tangible or intangible,
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two types of
whether or not used in trade or business:
conditions one suspensive, the other resolutory. Borrowing from the concepts under our Civil Code, a
a. Real properties shall be accompanied by a description of their classification, exact condition may be classified as suspensive when the fulfillment of the condition results in the acquisition
location, and valued at acquisition cost, if acquired by purchase or the zonal valuation of rights. On the other hand, a condition may be considered resolutory when the fulfillment of the
or fair market value, whichever is higher, if acquired through inheritance or donation; condition results in the extinguishment of rights. In the context of tax amnesty, the rights referred to are
those arising out of the privileges and immunities granted under the applicable tax amnesty law.
b. Personal properties other than money, shall be accompanied by a specific description
of the kind and number of assets (i.e. automobiles, shares of stock, etc.) or other xxxx
investments, indicating the acquisition cost less depreciation or amortization, in
proper cases, if acquired by purchase, or the fair market price or value at the time of This clarification, however, does not mean that the amnesty taxpayers would go scot-free in
receipt, if acquired through inheritance or donations; case they substantially understate the amounts of their net worth in their SALN. The 2007 Tax
Amnesty Law imposes a resolutory condition insofar as the enjoyment of immunities and privileges liabilities and networth as of December 31, 2005, as follows:
under the law is concerned. Pursuant to Section 4 of the law, third parties may initiate proceedings
contesting the declared amount of net worth of the amnesty taxpayer within one year following the date 1. Assets within or without the Philippines, whether real or personal, tangible or intangible, whether or
of the filing of the tax amnesty return and the SALN. Section 6 then states that "All these immunities and not used in trade or business: Provided, That property other than money shall be valued at the cost at
privileges shall not apply x x x where the amount of networth as of December 31, 2005 is proven to be which the property was acquired: Provided, further, That foreign currency assets and/or securities shall
understated to the extent of thirty percent (30%) or more, in accordance with the provisions of Section 3 be valued at the rate of exchange prevailing as of the date of the SALN;
hereof." Accordingly, Section 10 provides that amnesty taxpayers who willfully understate their net
worth shall be (a) liable for perjury under the Revised Penal Code; and (b) subject to immediate tax 2. All existing liabilities which are legitimate and enforceable, secured or unsecured, whether or not
fraud investigation in order to collect all taxes due and to criminally prosecute those found to have incurred in trade or business; and
willfully evaded lawful taxes due.41 (Emphasis Ours)
3. The networth of the taxpayer, which shall be the difference between the total assets and total
liabilities

Considering that CEPHI completed the requirements and paid the corresponding amnesty tax, it is
considered to have totally complied with the tax amnesty program. As a matter of course, CEPHI is
entitled to the immediate enjoyment of the immunities and privileges of the tax amnesty
program.42Nonetheless, the Court emphasizes that the immunities and privileges granted to taxpayers
under R.A. No. 9480 is not absolute. It is subject to a resolutory condition insofar as the taxpayers'
enjoyment of the immunities and privileges of the law is concerned. These immunities cease upon
proof that they underdeclared their net worth by 30%.

Unfortunately for the CIR, however, there is no such proof in CEPHI's case. The Court, thus, finds it
necessary to deny the present petition. While tax amnesty is in the nature of a tax exemption, which is
strictly construed against the taxpayer,43 the Court cannot disregard the plain text of R.A. No. 9480.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Decision dated
March 30, 2012 and Resolution dated August 16, 2012 of the CTA en banc in CTA EB Case No. 713
are AFFIRMED.

SO ORDERED.

Carpio, (Chairperson,) Peralta, Perlas-Bernabe, and Caguioa, JJ., concur.

Endnotes:
4AN ACT ENHANCING REVENUE ADMINISTRATION AND COLLECTION BY GRANTING AN
AMNESTY ON ALL UNPAID INTERNAL REVENUE TAXES IMPOSED BY THE NATIONAL
GOVERNMENT FOR TAXABLE YEAR 2005 AND PRIOR YEARS. Approved on May 24, 2007.
16 AN ACT CREATING THE COURT OF TAX APPEALS. Approved on June 16, 1954.
17AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA), ELEVATING
ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND
ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE CERTAIN SECTIONS OR
REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE
COURT OF TAX APPEALS, AND FOR OTHER PURPOSES. Approved on March 30, 2004.
18AN ACT ENLARGING THE ORGANIZATIONAL STRUCTURE OF THE COURT OF TAX APPEALS,
AMENDING FOR THE PURPOSE CERTAIN SECTIONS OF THE LAW CREATING THE COURT OF
TAX APPEALS, AND FOR OTHER PURPOSES. Approved on June 12, 2008.
37SEC. 3. What to Declare in the SALN — The SALN shall contain a declaration of the assets,
 1, 2007, [Cosmos] filed a claim for refund of P1,094,786.82 with the Office of the City Treasurer raising
8. City of Manila v. Cosmos Bottling Corporation the same grounds as discussed in their protest.

On March 8, 2007, [Cosmos] filed its complaint with the RTC of Manila praying for the refund or
G.R. No. 196681, June 27, 2018 issuance of a tax credit certificate in the amount of P1,094,786.82. The RTC in its decision ruled in favor
of [Cosmos] but denied the claim for refund. The dispositive portion of the assailed Decision reads:
CITY OF MANILA AND OFFICE OF THE CITY TREASURER OF MANILA, Petitioners, v. COSMOS
BOTTLING CORPORATION, Respondent. WHEREFORE, premises considered, judgment is hereby rendered enjoining the respondent Treasurer
of the City of Manila to refrain henceforth from imposing tax under Section 21 of the Revenue Code of
DECISION Manila if it had already imposed tax on .manufacturers under Section 14 of the same Code. As to the
prayer in the petition for refund, the same is denied.
MARTIRES, J.:
[Cosmos'] motion for partial reconsideration was also denied, hence, [the] Petition for Review [before
The filing of a motion for reconsideration or new trial to question the decision of a division of the Court of the CTA].4
Tax Appeals (CTA) is mandatory. An appeal brought directly to the CTA En Banc is dismissible for lack
of jurisdiction. The petition for review was raffled to the CTA Division and docketed as CTA A.C. No. 60.

In local taxation, an assessment for deficiency taxes made by the local government unit may be The Ruling of the CTA Division
protested before the local treasurer without necessity of payment under protest. But if payment is made
simultaneous with or following a protest against an assessment, the taxpayer may subsequently The CTA Division essentially ruled that the collection by the City Treasurer of Manila of local business
maintain an action in court, whether as an appeal from assessment or a claim for refund, so long as it is tax under both Section 21 and Section 14 of the Revenue Code of Manila constituted double
initiated within thirty (30) days from either decision or inaction of the local treasurer on the protest. taxation.5 It also ruled that the City Treasurer cannot validly assess local business tax based on the
increased rates under Tax Ordinance Nos. 7988 and 8011 after the same have been declared null and
THE CASE void.6 Finally, the court held that Cosmos Bottling Corporation's (Cosmos) local business tax liability for
the calendar year 2007 shall be computed based on the gross sales or receipts for the year 2006. 7
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the 16 February
20111 and 20 April 20112 Resolutions of the CTA En Banc. The 16 February 2011 Resolution dismissed The dispositive portion of the decision of the CTA Division reads:
the petition for review of the petitioners for failure to file a motion for reconsideration or new trial before
the CTA Third Division (CTA Division); while the 20 April 2011 Resolution denied the motion for WHEREFORE, finding merit in the instant Petition for Review, the same is hereby granted. The assailed
reconsideration of the first assailed resolution. The CTA Division's 9 November 2010 Decision 3 ruled in Decision dated April 14, 2009 of the Regional Trial Court of Manila, Branch 49 in Civil Case No. 07-
favor of respondent Cosmos Bottling Corporation (Cosmos) by partially granting its appeal from the 116881 is hereby PARTIALLY REVERSED. Accordingly, respondent is ENJOINED from imposing the
decision of the Regional Trial Court, Branch 49, Manila (RTC), in Civil Case No. 01-116881 business tax under Section 21 of the Revenue Code of Manila if it had already imposed tax on
entitled Cosmos Bottling Corporation v. City of Manila and Liberty Toledo (City Treasurer of Manila). manufacturers under Section 14 of the same Code. Respondent, furthermore, is ORDERED to
REFUND or to issue a TAX CREDIT CERTIFICATE to petitioner the amount of P1,094,786.82,
THE FACTS representing excess business taxes collected for the first quarter of year 2007.8

Antecedents Instead of filing a motion for reconsideration or new trial, the petitioners directly filed with the CTA En
Banc a petition for review9 praying that the decision of the CTA Division be reversed or set aside.
The CTA Division, narrates the antecedents as follows:
The Ruling of the CTA En Banc
For the first quarter of 2007, the City of Manila assessed [Cosmos] local business taxes and regulatory
fees in the total amount of P1,226,781.05, as contained in the Statement of Account dated January 15, In its Resolution of 16 February 2011, the CTA En Banc ruled that the direct resort to it without a prior
2007. [Cosmos] protested the assessment through a letter dated January 18, 2007, arguing that Tax motion for reconsideration or new trial before the CTA Division violated Section 18 of Republic Act
Ordinance Nos. 7988 and 8011, amending the Revenue Code of Manila (RCM), have been declared (R.A.) No. 1125,10 as amended by R.A. No. 9282 and R.A. No. 9503, and Section 1, Rule 8 of the
null and void. [Cosmos] also argued that the collection of local business tax under Section 21 of the Revised Rules of the CTA (CTA Rules).11
RCM in addition to Section 14 of the same code constitutes double taxation.
The petitioners sought reconsideration, but their motion was denied by the CTA En Banc. Hence, the
[Cosmos] also tendered payment of only P131,994.23 which they posit is the correct computation of appeal before this Court.
their local business tax for the first quarter of 2007. This payment was refused by the City Treasurer.
[Cosmos] also received a letter from the City Treasurer denying their protest, stating as follows: The Present Petition for Review

In view thereof, this Office, much to our regret, has to deny your protest and that any action taken The petitioners assigned the following errors allegedly committed by the CTA En Banc:
thereon will be sub-judice. Rest assured, however, that once we receive a final ruling on the matter, we
1. The Honorable CTA En Banc erred in not reconsidering its Order dismissing the case on
will act in accordance therewith. [Cosmos] was thus constrained to pay the assessment of
procedural grounds.
P1,226,78,1.05 as evidenced by Official Receipt No. BAJ-005340 dated February 13, 2007. On March
 2. The 3rd Division of the CTA committed reversible error when it ruled in favor of respondent shall be maintained, except as herein provided, until and unless an appeal has been previously filed
Cosmos despite its failure to appeal the assessment within 30 days from receipt of the denial with the CTA and disposed of this Act.
by the City Treasurer.
A party adversely affected by a resolution of a Division of the CTA on motion for reconsideration or new
3. The 3rd Division of the CTA committed grave error when it failed to consider that the trial, may file a petition for review with the CTA en banc. (underlining supplied)
assessment subject of this case has already become final and executory and no longer
appealable. as requiring a prior motion for reconsideration or new trial before the same division of the CTA that
rendered the assailed decision before filing a petition for review with the CTA En Banc. Failure to file
4. The 3rd Division of the CTA gravely erred in granting Cosmos' claim despite erroneously filing such motion for reconsideration or new trial is cause for dismissal of the appeal before the CTA En
the instant case under the provision of Section 196 of the LGC. 12 Banc.

On the first ground, the petitioners essentially invoke excusable mistake on the part of their handling Corollarily, Section 1, Rule 8 of the CTA Rules provides:
lawyer in asking the Court to resolve the case on the merits. They argue that the Court had on many
occasions set aside the rules of procedure in order to afford substantial justice. Section 1. Review of cases in the Court en banc. — In cases falling under the exclusive appellate
jurisdiction of the Court en banc, the petition for review of a decision or resolution of the Court in
On the second, third, and fourth grounds, the petitioners claim that Cosmos' remedy was one of protest Division must be preceded by the filing of a timely motion for reconsideration or new trial with the
against assessment as demonstrated by its letter dated 18 January 2007. Being so, Cosmos' adopted Division. (emphasis supplied)
remedy should be governed by Section 195 of the Local Government Code (LGC). Pursuant to such
provision, Cosmos had only thirty (30) days from receipt of denial of the protest within which to file an Clear it is from the cited rule that the filing of a motion for reconsideration or new trial is mandatory – not
appeal before a court of competent jurisdiction. However, Cosmos failed to comply with the period of merely directory – as indicated by the word "must."
appeal, conveniently shifting its theory from tax protest to tax refund under Section 196 of the LGC
Thus, in Asiatrust Development Bank, Inc. v. Commissioner of Internal Revenue (Asiatrust),14 we
when it later on filed a "claim for refund/tax credit of illegally/erroneously paid taxes" on 1 March 2007.
declared that a timely motion for reconsideration or new trial must first be filed with the CTA Division
The petitioners, thus, argue that Cosmos had already lost its right to appeal and is already precluded
that issued the assailed decision or resolution in order for the CTA En Banc to take cognizance of an
from questioning the denial of its protest.
appeal via a petition for review. Failure to do so is a ground for the dismissal of the appeal as the word
In its comment,13 Cosmos counters that the rules should not be lightly disregarded by harping on "must" indicates that the filing of a prior motion is mandatory, and not merely
substantial justice and the policy of liberal construction. It also insists that it is not Section 195 of the directory.15 In Commissioner of Customs v. Marina Sales, Inc. (Marina Sales),16 which was cited in
LGC that is applicable to it but Section 196 of the same code. Asiatrust, we held:

ISSUES The rules are clear. Before the CTA En Banc could take cognizance of the petition for review
concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that
Whether the CTA En Banc correctly dismissed the petition for review before it for failure of the it sought prior reconsideration or moved for a new trial with the concerned CTA division. Procedural
petitioners to file a motion for reconsideration or new trial with the CTA Division. rules are not to be trifled with or be excused simply because their noncompliance may have resulted in
prejudicing a party's substantive rights. Rules are meant to be followed. They may be relaxed only for
Whether a taxpayer who had initially protested and paid the assessment may shift its remedy to one of very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to his
refund. careless non-observance of the prescribed rules.17 (citations omitted)
OUR RULING
The rules are to be relaxed only in the interest of justice and to benefit the deserving.18
We rule for Cosmos.

I. We cannot lend to the petitioners the benefit of liberal application of the rules.. As in Marina Sales, the
rules may be relaxed when to do so would afford a litigant substantial justice. After a cursory
examination of the records of the case, we find that the petitioners, as determined by the CTA Division,
The filing of a motion for reconsideration or new trial before the CTA Division is an erroneously assessed and collected from Cosmos local business taxes for the first quarter of 2007;
indispensable requirement for filing an appeal before the CTA En Banc. thus, a refund is warranted.

The ruling of the CTA Division is anchored on the following findings:

The CTA En Banc was correct in interpreting Section 18 of R.A. No. 1125, as amended by R.A. 9282 (1) the assessment against Cosmos was based on Ordinance Nos. 7988 and 8011 (Revenue
and R.A. No. 9503, which states – Code of Manila);
Section 18. Appeal to the Court of Tax Appeals En Banc. – No civil proceeding involving matter arising
under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code
 conducting business within the City of Manila contribute to city revenues; '(3) by the same taxing
authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial
jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same
(2) the assessment against Cosmos included taxes imposed under Section 21, in addition to kind or character — a local business tax imposed on gross sales or receipts of the business.
Section 14, of the Revenue Code of Manila; and The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax
Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the
power of municipalities and cities to impose a local business tax, and to which any local business tax
imposed by petitioner City of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled
(3) the local taxes collected from Cosmos for the first quarter of 2007 was based on its gross spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said
receipts in 2005. municipality or city may no longer subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code. Section 143(h) may be imposed only on businesses that are
subject to excise tax, VAT, or percentage tax under the NIRC, and that are "not otherwise specified in
We cannot help but sustain the ruling of the CTA Division that the City of Manila cannot validly assess preceding paragraphs." In the same way, businesses such as respondent's, already subject to a
local business taxes under Ordinance Nos. 7988 and 8011 because they are void and of no legal effect; local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of
the collection of local business taxes under Section 21 in addition to Section 14 of the Revenue Code of the LGC], can no longer be made liable for local business tax under Section 21 of the same Tax
Manila constitutes double taxation; and the 2007 local business tax assessed against Cosmos should Ordinance [which is based on Section 143(h) of the LGC].23 (emphases supplied)
be computed based on the latter's gross receipts in 2006.
In reality, Cosmos, being a manufacturer of beverages,24 is similarly situated with Coca-Cola Bottlers,
Inc. in the cited cases, with the difference only in the taxable periods of assessment. Thus, given that
1. Ordinance Nos. 7988 and 8011 have been declared null and void, hence, invalid bases for
Cosmos is already paying taxes under Section 14 (just like Coca-Cola), it is not totally misplaced to
the imposition of business taxes.
consider the additional imposition of a tax under Section 21 as constituting double taxation, therefore
excessive, warranting its refund to Cosmos as the CTA Division has correctly ordered.
At .the time the CTA Division rendered the assailed decision, the cases of Coca-Cola Bottlers
Philippines, Inc. v. City of Manila (2006),19 The City of Manila v. Coca-Cola Bottlers, Inc. Computation of Business Tax Under Section 14
(2009)20 and City of Manila v. Coca-Cola Bottlers, Inc. (2010)21 had already settled the matter
We consider next the proper basis for the computation of the business tax under Section 14 that is
concerning the validity of Ordinance Nos. 7988 and 8011. The said cases clarified that Ordinance Nos.
imposable against Cosmos.
7988 and 8011, which amended Ordinance No. 7794, were null and void for failure to comply with the
required publication for three (3) consecutive days and thus cannot be the basis for the collection of
business taxes. 3. The computation of local business tax is based on gross sales or receipts of the preceding
calendar year.
It is not disputed that Cosmos was assessed with the tax on manufacturers under Section 14 and the
tax on other businesses under Section 21 of Ordinance No. 7988, as amended by Ordinance No. 8011.
Consistent with the settled jurisprudence above, the taxes assessed in this case, insofar as they are It is undisputed that Section 14 of the Revenue Code of Manila is derived from Section 143(a) of the
based on such void ordinances, must perforce be nullified. Thus, what remains enforceable is the old LGC which provides:
Ordinance No. 7794. Accordingly, the business tax assessable against Cosmos should be based on the
Section 143. Tax on Business. – The municipality may impose taxes on the following businesses:
rates provided by this Ordinance.

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and

2. The collection of taxes under both Sections 14 and 21 of the Revenue Code of Manila
compounders x x x in accordance with the following schedule: With gross sales or receipts for
constitutes double taxation.
the preceding calendar year in the amount of:

While the City of Manila could impose against Cosmos a manufacturer's tax under Section 14 of
x x x x (emphasis supplied)
Ordinance No. 7794, or the Revenue Code of Manila, it cannot at the same time impose the tax under
Section 21 of the same code; otherwise, an obnoxious double taxation would set in. The petitioners Consistent with the above provision, an assessment for business tax under Section 14 of Ordinance No.
erroneously argue that double taxation is wanting for the reason that the tax imposed under Section 21 7794 for the taxable year 2007 should be computed based on the taxpayer's gross sales or receipts of
is imposed on a different object and of a different nature as that in Section 14. The argument is not the preceding calendar year 2006. In this case, however, the petitioners based the computation of
novel. In The City of Manila v. Coca-Cola Bottlers, Inc. (2009),22 the Court explained – manufacturer's tax on Cosmos' gross sales for the calendar year 2005. The CTA Division was therefore
correct in adjusting the computation of the business tax on the basis of Cosmos' gross sales in 2006
[T]here is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21
which amount, incidentally, was lower than Cosmos' gross sales in 2005. The business tax paid
of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter — the
corresponding to the difference is consequently refundable to Cosmos.
privilege of doing business in the City of Manila; (2) for the same purpose — to make persons
II. local treasurer that constitutes the administrative remedy; while in Section 196, it is the written claim for
refund or credit with the same office. As to form, the law does not particularly provide any for a protest
or refund claim to be considered valid. It suffices that the written protest or refund is addressed to the
A taxpayer who had protested and paid an assessment may later on institute an action for
local treasurer expressing in substance its desired relief. The title or denomination used in describing
refund.
the letter would not ordinarily put control over the content of the letter.

The petitioners submit that the assessment against Cosmos became final and executory when the latter Obviously, the application of Section 195 is triggered by an assessment made by the local treasurer or
effectively abandoned its protest and instead sued in court for the refund of the assessed taxes and his duly authorized representative for nonpayment of the correct taxes, fees or charges. Should the
charges. taxpayer find the assessment to be erroneous or excessive, he may contest it by filing a written protest
before the local treasurer within the reglementary period of sixty (60) days from receipt of the notice;
We cannot agree mainly for two reasons. otherwise, the assessment shall become conclusive. The local treasurer has sixty (60) days to decide
said protest. In case of denial of the protest or inaction by the local treasurer, the taxpayer
First, even a cursory glance at the complaint filed by Cosmos would readily reveal that the action is not may appeal27 with the court of competent jurisdiction; otherwise, the assessment becomes conclusive
just for the refund of its paid taxes but also one assailing the assessment in question. Cosmos and unappealable.
captioned its petition before the RTC as "For: The Revision of Statement of Account (Preliminary
Assessment) and For Refund or Credit of Local Business Tax Erroneously/Illegally Collected."25 The On the other hand, Section 196 may be invoked by a taxpayer who claims to have erroneously paid a
allegations in said complaint26 likewise confirm that Cosmos did not agree with the assessment tax, fee or charge, or that such tax, fee or charge had been illegally collected from him. The provision
prepared by Liberty M. Toledo (Toledo) who was the City Treasurer of the City of Manila at the time. In requires the taxpayer to first file a written claim for refund before bringing a suit in court which must be
asking the court to refund the assessed taxes it had paid, Cosmos essentially alleged that the basis of initiated within two years from the date of payment. By necessary implication, the administrative remedy
the payment, which is the assessment issued by Toledo, is erroneous or illegal. of claim for refund with the local treasurer must be initiated also within such two-year prescriptive period
but before the judicial action.
It is, thus, totally misplaced to consider Cosmos as having abandoned its protest against the
assessment. By seasonably instituting the petition before the RTC, the assessment had not attained Unlike Section 195, however, Section 196 does not expressly provide a specific period within which the
finality. local treasurer must decide the written claim for refund or credit. It is, therefore, possible for a taxpayer
to submit an administrative claim for refund very early in the two-year period and initiate the judicial
Second, a taxpayer who had protested and paid an assessment is not precluded from later on claim already near the end of such two-year period due to an extended inaction by the local treasurer.
instituting an action for refund or credit. In this instance, the taxpayer cannot be required to await the decision of the local treasurer any longer,
otherwise, his judicial action shall be barred by prescription.
The taxpayers' remedies of protesting an assessment and refund of taxes are stated in Sections 195
and 196 of the LGC, to wit: Additionally, Section 196 does not expressly mention an assessment made by the local treasurer. This
simply means that its applicability does not depend upon the existence of an assessment notice. By
Section 195. Protest of Assessment. – When the local treasurer or his duly authorized representative
consequence, a taxpayer may proceed to the remedy of refund of taxes even without a prior protest
finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment
against an assessment that was not issued in the first place. This is not to say that an application for
stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and
refund can never be precipitated by a previously issued assessment, for it is entirely possible that the
penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a
taxpayer, who had received a notice of assessment, paid the assessed tax, fee or charge believing it to
written protest with the local treasurer contesting the assessment; otherwise, the assessment shall
be erroneous or illegal. Thus, under such circumstance, the taxpayer may subsequently direct his
become final and executory. The local treasurer shall decide the protest within sixty (60) days from the
claim pursuant to Section 196 of the LGC.
time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a
notice cancelling wholly or partially the assessment. However, if the local treasurer finds the Clearly, when a taxpayer is assessed a deficiency local tax, fee or charge, he may protest it under
assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the Section 195 even without making payment of such assessed tax, fee or charge. This is because the law
taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from on local government taxation, save in the case of real property tax, 28 does not expressly require
the lapse of the sixty (60)-day period prescribed herein within which to appeal with the court of "payment under protest" as a procedure prior to instituting the appropriate proceeding in court. This
competent jurisdiction otherwise the assessment becomes conclusive and unappealable. implies that the success of a judicial action questioning the validity or correctness of the assessment is
not necessarily hinged on the previous payment of the tax under protest.
Section 196. Claim for Refund of Tax Credit. – No case or proceeding shall be maintained in any court
for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for Needless to say, there is nothing to prevent the taxpayer from paying the tax under protest or
refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in simultaneous to a protest. There are compelling reasons why a taxpayer would prefer to pay while
any court after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, maintaining a protest against the assessment For instance, a taxpayer who is engaged in business
or from the date the taxpayer is entitled to a refund or credit. would be hard-pressed to secure a business permit unless he pays an assessment for business tax
and/or regulatory fees. Also, a taxpayer may pay the assessment in order to avoid further penalties, or
The first provides the procedure for contesting an assessment issued by the local treasurer; whereas,
save his properties from levy and distraint proceedings.
the second provides the procedure for the recovery of an erroneously paid or illegally collected tax, fee
or charge. Both Sections 195 and 196 mention an administrative remedy that the taxpayer should first
exhaust before bringing the appropriate action in court. In Section 195, it is the written protest with the
The foregoing clearly shows that a taxpayer facing an assessment may protest it and alternatively: (1) The reason is obvious. This is because an assessment was made, and if not appealed in court within
appeal the assessment in court, or (2) pay the tax and thereafter seek a refund.29 Such procedure may thirty (30) days from decision or inaction on the protest, it becomes conclusive and unappealable. Even
find jurisprudential mooring in San Juan v. Castro30 wherein the Court described for the first and only if the action in court is one of claim for refund, the taxpayer cannot escape assailing the assessment,
time the alternative remedies for a taxpayer protesting an assessment – either appeal the assessment invalidity or incorrectness, the very foundation of his theory that the taxes were paid erroneously or
before the court of competent jurisdiction, or pay the tax and then seek a refund.31 The Court, however, otherwise collected from him illegally. Perforce, the subsequent judicial action, after the local treasurer's
did not elucidate on the relation of the second mentioned alternative option, i.e., pay the tax and then decision or inaction, must be initiated within thirty (30) days later. It cannot be anytime thereafter
seek a refund, to the remedy stated in Section 196. because the lapse of 30 days from decision or inaction results in the assessment becoming conclusive
and unappealable. In short, the scenario wherein the administrative claim for refund falls on the early
As this has a direct bearing on the arguments raised in the petition, we thus clarify. stage of the two-year period but the judicial claim on the last day or late stage of such two-year period
does not apply in this specific instance where an assessment is issued.
Where an assessment is to be protested or disputed, the taxpayer may proceed (a) without payment, or
(b) with payment32 of the assessed tax, fee or charge. Whether there is payment of the assessed tax or To stress, where an assessment is issued, the taxpayer cannot choose to pay the assessment and
not, it is clear that the protest in writing must be made within sixty (60) days from receipt of the notice of thereafter seek a refund at any time within the full period of two years from the date of payment as
assessment; otherwise, the assessment shall become final and conclusive. Additionally, the subsequent Section 196 may suggest. If refund is pursued, the taxpayer must administratively question the validity
court action must be initiated within thirty (30) days from denial or inaction by the local or correctness of the assessment in the 'letter-claim for refund' within 60 days from receipt of the notice
treasurer; otherwise, the assessment becomes conclusive and unappealable. of assessment, and thereafter bring suit in court within 30 days from either decision or inaction by the
local treasurer.
(a) Where no payment is made, the taxpayer's procedural remedy is governed strictly by Section 195.
That is, in case of whole or partial denial of the protest, or inaction by the local treasurer, the taxpayer's Simply put, there are two conditions that must be satisfied in order to successfully prosecute an action
only recourse is to appeal the assessment with the court of competent jurisdiction. The appeal before for refund in case the taxpayer had received an assessment. One, pay the tax and administratively
the court does not seek a refund but only questions the validity or correctness of the assessment. assail within 60 days the assessment before the local treasurer, whether in a letter-protest or in a claim
for refund. Two, bring an action in court within thirty (30) days from decision or inaction by the local
(b) Where payment was made, the taxpayer may thereafter maintain an action in court questioning the
treasurer, whether such action 1s denominated as an appeal from assessment and/or claim for refund
validity and correctness of the assessment (Section 195, LGC) and at the same time seeking a refund
of erroneously or illegally collected tax.
of the taxes. In truth, it would be illogical for the taxpayer to only seek a reversal of the assessment
without praying for the refund of taxes. Once the assessment is set aside by the court, it follows as a In this case, after Cosmos received the assessment of Toledo on 15 January 2007, it forthwith protested
matter of course that all taxes paid under the erroneous or invalid assessment are refunded to the such assessment through a letter dated 18 January 2007.34 Constrained to pay the assessed taxes and
taxpayer. charges, Cosmos subsequently wrote the Office of the City Treasurer another letter asking for the
refund and reiterating the grounds raised in the previous submitted protest letter. 35 In the meantime,
The same implication should ensue even if the taxpayer were to style his suit in court as an action for
Cosmos received on 6 February 2007 the letter of Toledo denying its protest. 36 Thus, on 8 March 2007,
refund or recovery of erroneously paid or illegally collected tax as pursued under Section 196 of the
or exactly thirty (30) days from its receipt of the denial, Cosmos brought the action before the RTC of
LGC. In such a suit for refund, the taxpayer cannot successfully prosecute his theory of erroneous
Manila.
payment or illegal collection of taxes without necessarily assailing the validity or correctness of the
assessment he had administratively protested. Under the circumstances, it is evident that Cosmos was fully justified in asking for the refund of the
assailed taxes after protesting the same before the local treasurer. Consistent with the discussion in the
It must be understood, however, that in such latter case, the suit for refund is conditioned on the prior
premises, Cosmos may resort to, as it actually did, the alternative procedure of seeking a refund after
filing of a written claim for refund or credit with the local treasurer. In this instance, what may be
timely protesting and paying the assessment. Considering that Cosmos initiated the judicial claim for
considered as the administrative claim for refund is the letter-protest submitted to the treasurer. Where
refund within 30 days from receipt of the denial of its protest, it stands to reason that the assessment
the taxpayer had paid the assessment, it can be expected that in the same letter-protest, he would also
which was validly protested had not yet attained finality.
pray that the taxes paid should be refunded to him. 33 As previously mentioned, there is really no
particular form or style necessary for the protest of an assessment or claim of refund of taxes. What is To reiterate, Cosmos, after it had protested and paid the assessed tax, is permitted by law to seek a
material is the substance of the letter submitted to the local treasurer. refund having fully satisfied the twin conditions for prosecuting an action for refund before the court.
Equally important is the institution of the judicial action for refund within thirty (30) days from the Consequently, the CTA did not commit a reversible error when it allowed the refund in favor of Cosmos.
denial of or inaction on the letter-protest or claim, not any time later, even if within two (2) years
from the date of payment (as expressly stated in Section 196). Notice that the filing of such judicial claim WHEREFORE, the petition is DENIED for lack of merit. The 16 February 2011 and 20 April 2011
for refund after questioning the assessment is within the two-year prescriptive period specified in Resolutions of the Court of Tax Appeals En Banc in C.T.A. E.B. No. 702 are hereby AFFIRMED.
Section 196. Note too that the filing date of such judicial action necessarily falls on the beginning portion
of the two-year period from the date of payment. Even though the suit is seemingly grounded on Section The 9 November 2010 Decision of the Court of Tax Appeals Third Division in C.T.A. AC No. 60 is
196,the taxpayer could not avail of the full extent of the two-year period within which to initiate likewise AFFIRMED.
the action in court.
SO ORDERED.

Velasco, Jr., (Chairperson), Bersamin, Leonen, and Gesmundo, JJ., concur.

 Petitioner should thus have, following the earlier above-quoted Section 195 of the Local Government
Code, either appealed the assessment before the court of competent jurisdiction or paid the tax and
then sought a refund." (citations omitted)
Endnotes: 32 Whether payment was made before, on, or after the date of filing the formal protest.
33
Where protest against assessment was first made, then later payment of the assessed tax,
1Rollo, substantial justice or procedural economy, at the very least, demands that the prior letter-protest be
pp. 29-36; penned by Associate Justice Erlinda P. Uy and concurred in by Presiding Justice
treated as having the same effect and import as a written claim for refund for purposes of satisfying the
Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A.
requirement of exhaustion of administrative remedies.
Casanova, Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla and
Amelia R. Cotangco-Manalastas. 36 The Complaint alleged 6 February 2007 as the date Cosmos received Toledo's letter denying the
9 protest. The petitioners failed to controvert this allegation. Thus, the RTC proceeded to render its
The petitioners previously filed a Motion for Extension of Time to File a Petition for Review, id. at 29.
decision operating under the premise that Cosmos seasonably filed the action on 8 March 2007, or
10 Section 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters within the 30-day period to appeal. The CTA Division likewise affirmed such finding of the lower court in
arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local its decision in C.T.A AC No. 60.
Government Code shall be maintained, except as herein provided, until and unless an appeal has been
previously filed with the CTA and disposed of this Act.

A party adversely affected by a resolution of a Division of the CTA on motion for reconsideration or new
trial, may file a petition for review with the CTA en banc. (underlining supplied)
11 Section 1. Review of cases in the Court en banc. - In cases falling under the exclusive appellate
jurisdiction of the Court en banc, the petition for review of a decision or resolution of the Court in
Division must be preceded by the filing of a timely motion for reconsideration or new trial with the
Division. (underscoring supplied)
27 In Yamane v. BA Lepanto Condominium Corporation, 510 Phil. 750, 763-764 (2005), the Court
explained that even though Section 195 utilized the term 'appeal', the law did not vest appellate
jurisdiction on the regional trial courts over the denial by the local treasurer of a tax protest. The Court
described the court's jurisdiction in this instance as original in character, viz:

"[S]ignificantly, the Local Government Code, or any other statute for that matter, does not expressly
confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local
treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of
the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by
Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals,
B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-
judicial entities."
28 Section 252 of the LGC requires payment under protest of an assessment for real property tax, to wit:

Section 252. Payment Under Protest. - (a) No protest shall be entertained unless the taxpayer first pays
the tax. There shall be annotated on the tax receipts the words "paid under protest." The protest in
writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the
protest within sixty (60) days from receipt.
31 Id.; the pertinent text of the decision in San Juan v. Castro reads:

"That petitioner protested in writing against the assessment of tax due and the basis thereof is on record
as in fact it was on that account that respondent sent him the abovequoted July 15, 2005 letter which
operated as a denial of petitioner's written protest.