Kepco vs. CIR
Kepco vs. CIR
Kepco vs. CIR
Jiliµµi nrs
~upre111e QConrt
:fll!l11nil11
FIRST DIVJSION
Prom ulgated:
COMMISSIONER OF
INTERNAL REVENUE,
Respondent.
·Jut ·2 8 2020
x------------------------------------------------------------------------·---------- -
RESOLUTION
LOPEZ, J.:
This resolves the ( I) Petition for Review 1 filed under Rule 45 of the
Rules of Court which seeks to reverse the Decision 2 dated November 26,
20 I 5 and Resolution 3 dated July 11 , 2016 of the Court of Tax Appeals
(CTA) En Banc dism issing Kepco Philippines Corporation's (Kepco) appeal
for being filed out of time; and (2) Manifestation and Motion to Render
Judgment on the Case Based on the Parties' Compromise Settlement under
Section 204(A) of the National Internal Revenue Code (NIRC) 4
(Manifestation) filed by Kepco which prays to declare the case closed and
terminated.
1
!?ollo, pp. 3-55.
Id. at 59-70 ; penned by Presiding Justice Roman G. Del Rosario, with the conc urrence o f A ssociate
Justices Juanita C. Castaneda, Jr., Lovell R. Bautista. Erlinda P. Uy, Caesar A . Casanova, Esperanza R.
Fabon- Victorino, C ielito N. Mindaro-Grul la, A melia R. Cotan gco-M analastas, and M a. Belen M.
Ringpis-Liban.
1 Id. at 71-81: penned by Presiding .lustict! Roman G. Del Rosario, with the concurrence of Associate
Justices Juanita C. Castaiiecla, Jr., Erlinda P. Uy, Esperan za R. Fabon-Victorino, Amelia R.
Cotangco-Manalastas, and Ma. Belen M. Ringpis-Liban; with the dissenting opinion of Associate Justice
Lovell R. Bautista; and Associate Justices Caesar A . Casanova. C ielito N. Mindaro-Gru lla (on leave).
1
• Id. al 422-427 .
I
Resolution 2 G.R. Nos. 225750-51
Facts
Subsequently, on June 25, 2010, Kepco filed its petition before the
CTA Division (docketed as CTA Case No. 8112). 8 The Commissioner of
9
Internal Revenue (CIR) filed his Answer on September 29, 2010. In due
course, after trial, both parties submitted their respective memorandum and
the case was submitted for Decision. 10
Not satisfied, on May 5, 2014, Kepco elevated the case to the CTA En
Banc; while the CIR filed his Petition for Review on May 22, 2014. 14
13
After consolidation and the filing by the parties of their comments and
memorandum, 15 the CTA En Banc rendered its Decision on November 26,
2015, dismissing Kepco's petition in CTA Case No. 8112 for being filed out
of time; and granting the CIR's petition. The dispositive portion of the
Decision reads:
5
Id. at 87.
6
Id. at 62, 87-88. The deficiency taxes are computed as follows:
Deficiency VAT
Basic tax due I 02,409,676.58
Interest and compromise penalty 57,?31 ,074.2 1
Total deficiency VAT I 59,640,750.79
Deficiency FWT
Basic tax due 79,459,643.84
Interest and compromise penalty f> 44 827 I 77.27
Total deficiency FWT P 124,286,82 I. I I
7
Id. at 63.
8
Id. at 63, 88.
9
Id. at 6l
10
Id. at 64.
11
/d.at84-128.
12
/J. at 59-60.
13
Id. at 64; docketed as CTA EB No . I 161.
14
Id. at 64; docketed as CTA EB No. I I 66.
15
The CIR filed a Manifestation seeking to adopt its Petition for Review filed on May 22, 2014 and
Comment fi led on May 22, 20 14 as its Memorandum; id. at 65.
Resolutio n 3 G.R. Nos. 225750-5 1
1
<• Id at 68-69.
17
Id. at 76.
18
Id. al 3-55.
19
Id. at 380-400.
20
Id at 408-4 14.
21 h/.at422-427.
22 1' I 02,409,676.58 ( I 00% of bns ic deficiency VAT) plus P3 1,783.857 ..54 (40% or basic defic iency FWT or
1'79,459,643.84).
21
Rollo, p. 469.
24
/d.at470-471.
25
Id. at 478-488 .
r
Resolution 4 G.R. Nos. 225750-5 l
The OSG avers that the compromise agreement is not valid because
first, it failed to allege and prove any of the grounds for a valid compromise
under Section 326 of Revenue Regulations (RR) No. 30-2002;27 second, the
CTA did not yet issue any adverse Decision against Kepco, hence, there is
no "doubtful validity" to speak of as a ground for a valid compromise
pursuant to Section 228 of RR No. 8-2004; 29 and third, Kepco did not pay in
In its Reply, 34 Kepco insists that there exists doubtful validity on the
assessment for TY 2006 which prompted the CIR to consider and accept
r
4
J Id. at 496-508.
Resolution 6 G.R. Nos. 225750-51
Kepco's compromise offer. Contrary to the OSG's claim, Kepco paid 40%
of the basic tax assessed for TY s 2006, 2007 and 2009 in the amount of
Pl43,891,831.90. In compliance with the recommendation of the Technical
Working Group (TWG) of the Bureau of Internal Revenue (BIR) to increase
the compromise offer, Kepco paid additional amounts and finalized the
compromise offer to P260,848,425 .80. This amount was approved by the
NEB on December 11, 201 7.
Meanwhile, the CIR filed his own Reply35 to the OSG's Comment.
The CIR asserts that Kepco paid the full 40% of the basic tax assessed for
TY s 2006, 2007 and 2009 when it applied for compromise. In consonance
with Revenue Memorandum Order (RMO) No. 20-2007, 36 the application
was evaluated and processed, the LT Enforcement Collection Division
recommended the approval of Kepco's application and thereafter, forwarded
the favorable recommendation to Large Taxpayers Service (LTS)-Evaluation
Board. After various proposals from the LTS-Evaluation Board to increase
the compromise amount and the immediate compliance of Kepco by paying
the proposed increase, the L TS-Evaluation Board recommended the
approval of the application to the NEB based on doubtful validity.
Eventually, the NEB approved Kepco's application and the CIR issued
Certificate of Availment in its favor.
Ruling
r
Resolution 7 G.R. Nos. 225750-51
Kepco 's case falls under paragraph e - the assessment became final
because Kepco failed to appeal the inaction or "deemed denial" of the CIR
to the CTA within 30 days after the expiration of the 180-day period and
there is reason to believe that the assessment is lacking in legal and/or
factual basis.
It must be noted that when Kepco filed its protest to the FLO on
November 26, 2009, the CIR had 180 days or until May 25,2010 to act on the
protest. 39 Thereafter, Kepco may elevate its protest to the CTA within 30
days from the lapse of the 180-day period,40 or until June 24, 2010. Section
7(a)(2)41 of RA No. 9282 42 provides that the "inaction" of the CIR or his
failure to decide a disputed assessment within the 180-day period is
"deemed a denial" of the protest. 43 Section 3(a)(2),44 Rule 4 of the Revised
39
See Armigos v. Court of Appeals, 258-A Phil. 56 1 ( 1989).
.io See Section 3(a)(2), Rul e 4 of the Revised Rules of the CTA.
SEC. 3. Cases within the Jurisdiction of the Court in Divisions. -The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
xxxx
(2) Inaction by the Commissioner oflnternal Revenue in cases involving disputes assessments, xx x
where the National Internal Revenue Code or other applicable law provides a specific peri od fo r
act'ion: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under Section 228 of the National Intern al
Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to
th(l Court and does not necessarily constitute a formal decision of the Commiss ioner of Internal
Revenue on the tax case; xx x.
41
Sec. 7. Jurisdiction. - The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
xxxx
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto,
or other matters arising under the National Internal Revenue Code or other laws adm inistered by
the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific
period of action, in which case the inaction shall be deemed a denial; xx x (Emphasis supplied.)
42
An 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; March 30, 2004.
4
J See Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc., G.R. Nos. 20 1398-99 &
201418-19, October 3, 2018, 881 SCRA 451 , 509.
44
SEC. 3. Cases within the jurisdiction of"the Court in Divisions. - The Court in Divisions shall exercise:
(a) Exclusive original over or appellate jurisdiction to review by appeal the following:
xxxx
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code or other app licable law
provides a specific period for action: Provided, that in case of disputed assessments, the
inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period
under Section 228 of the National Internal revenue Code shal l be deemed a denial for purposes
of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a
formal decision of the Commissioner of Internal Revenue on the tax case; Provicled,ji1rther,
that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue
on the disputed assessments beyond the one hundred eighty day-period abovernentioned, the
taxpayer may appeal such final decision to the Cou1i under Section 3(a), Rule 8 of these Rules;
and Provided, stillji1r1her, that in the case of claims for refund of taxes erroneously or illegally
Resolution 9 G.R. Nos. 225750-51
Rules of the CTA further clarifies that "that in case of disputed assessments,
the inaction of the [CIR] within the [180]-period under [Section] 228 of the
[ 1997 NIRC] shall be deemed a denial for purposes of allowing the taxpayer
to appeal his case to the [CTA]." Clearly, the inaction is deemed an adverse
decision of the CIR on the administrative protest. Thus, for purposes of
determining whether taxpayers may already appeal to the CTA, the inaction
of the CIR within 180 days shall be deemed denial or an adverse decision of
the CIR. Since Kepco failed to appeal the inaction or deemed denial or
adverse decision of the CIR on June 24, 2010, the assessment for deficiency
VAT and FWT for TY 2006 became final, executory and demandable.
Contrary to the OSG' s claim that Kepco did not pay the full amount
offered for compromise upon filing of its application, records show that
Kepco paid !>143,891,831.9046 representing 40% of the basic tax assessed
for TVs 2006, 2007 and 2009 when it applied for compromise on January
19, 2017.47 For TY 2006, which is the subject of the instant case, Kepco
paid !>40,963,870.63 48 (40% of basic deficiency VAT of !>102,409,676.58)
and !>31,783,857.5449 (40% of basic deficiency FWT of !>79,459,643.84) on
January 19, 2017. Notably, the minimum compromise amount under Section
204(A) 50 of the 1997 NIRC and Section 451 of RR No. 30-2002 is 40% of
the basic tax assessed. Kepco complied with the requirement of payment of
the compromise offer as a pre-condition for the processing of the
application.
collected, the tax payer must file a petition for review with the Court prior to the expiration of
the two-year period under Section 229 of the National Internal Revenue Code;
15
' See PNOC v. Court of Appeals, 496 Phil. 506, 572 (2005).
46
Rollo, p. 5 17.
47
Id. at 5 10-522.
8
~ Id. at 433.
4~ Id. at 441.
50
Supra note 37.
51
Sec. 4. Prescribed Minimum Percentages of Compromise Settlement. - xx x
XX XX
2. For cases of "doubtfit! validity" - A minimum compromise rate equivalent to forty percent (40%) of
the basic assessed tax.
" Roll~ pp. 584-587.
SJ Id. at 582.
Resolution 10 G.R. Nos. 225750-5 1
To be sure, Kepco already paid 100% of the basic deficiency VAT and
40% of the basic deficiency FWT for TY 2006 in the aggregate amount of
I i P 134,193,534.12, as evidenced by BIR payment forms. 59 The CIR approved
I the compromise settlement as early as December J 1, 2017. Kepco now only
I
seeks to have the instant case closed and terminated. Thus, to allow the OSG
to question the validity of the compromise settlement alleging anomalies in
its approval is not only unfair to Kepco and taxpayers alike that entered into
compromise agreements in good faith but there will also be no final and
definitive settlement of tax compromises. The dissenting opinion of J ustice
Carpio in PNOC v. Court ofAppeals60 is enlightening:
51
· SECT ION. 2. AMENDMENT. - Secti on 6 of Revenue Regulations No. 30-2002 shall now read as
follows:
"SEC. 6 . /\PPROVAL OF OFFER OF COM PROMISE. - Except for offers or compromise where the
approv~I is delegated to the REB pursuant to the succeed ing paragraph, all com promise settlements
within lhejurisd ict ion or the National Of'lice (NO) shall be approved by a majority of al l the members of
the NEB composed of the Comm issioner and the four (4) Deputy Commissioners. All decisions or th e
NEB, granting the requt:st or the la xpnyer or favorable lo th e taxpayer, shall have the concurrence or the
Commissioner.
X. XX x''
55
Rollu, p. 583. Signed by Mr. /\lli·edo V. Misaj on, OIC-ACIR, Co llection Service, Head, TWG on
Comprom ise.
51' See /\rlicle 2037, Civil Code. A compromise has upon the parties the effec t and authority of resjuclicota:
but there shall be no execution cxcepl in compliance with a_juclic ial compromise.
57
See f'NUC v. Co11rl o/Ap;mtls, s11pra note 45.
sx See A rt. 2038, Civil Code. A compromise in which there is mistake, fraud, v iolence, intimidation, undue
influence, orta lsity of documents, is subject lo the provisions or article 1330 of this Code.
59
Rollo, pp. 430-441.
VAT 1~ 40,963,870.63
VAT P 6 1,445,805.95
FWT 1~ 31,783,857.54
Total 1~ 134,193,534.12
(,o Supra note 45 at 6 19-622.
r
Resolution 11 G.R. Nos. 225750-51
General, who withdrew as counsel for the BIR, maintains that the
compromise agreement is valid.
xxxx
And whether one or the other party understood the law of the
case more correctly than the other, cannot be material to the validity of
the bargain. For if it were, then it would follow that contracts by the
parties settling their own disputes, would at last be made to stand or
fa ll, according to the opinion of the appellate court how the law wou ld
have determined it. (Emphas is supp lied)
The same principle holds true in the present case. The parties to
the compromise agreement have voluntarily settled the tax liability
arising from PNB's failure to withhold the final tax on PNOC's
interest income. The parties have fully implemented in good faith
the compromise agreement. The new BIR Commissioner cannot
just annul the legitimate compromise agreements made by his
predecessors in the performance of their regular duties where the
parties entered into · the compromise agreements in good faith and
had already fully implemented the compromise agreements.
61
G .R. No. L-20410, December I 0, 1923.
G2
122 Phil. 80 I ( 1965).
Resolution 12 G .R. Nos. 225750-51
xxxx
(Emphasis supplied)
Indeed, while taxes are the lifeblood of the government, the power of
taxation should be "exercised with caution to minimize the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest
the tax collector kill the "hen that lays the golden egg." x xx [T]o maintain
the general public's trust and confidence in the Government this power must
be used justly and not treacherously." 64 After all, "in balancing the scales
between the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights
of a citizen to due process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen's right is
amply ptotected by the Bill of Rights under the Constitution."65
Finally, records show that the OSG acted as counsel for the BIR in the
case proceedings before the CTA Division in CTA Case No. 8112. Consistent
with R.A. No. 9417, 66 the OSG is entitled to 5% of the total deficiency tax
liabilities of Kepco but only for TY 2006. 67 The deficiency tax liabilities of
Kepco for TYs 2007 and 2009 are not the subject matter of the present
petition.
63
Supra note 45 at 622.
64
Phi/ex Mining Corp. v. Commissioner of Internal Revenue, 356 Phil. 189, 202 ( 1998), citing Roxas v.
Court o_(Tax Appeals, 131 Phil. 773 ( 1968).
65
Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc., 738 Phil. 335, 356
(2014), quoting Commissioner o/lnternal Revenue v. Metro Star Superama, Inc., 652 Phil. I 72 (20 I0).
66
Otherwise known as "An Act lo Strengthen the Office of the Solicitor General by Expanding and
Streamlining its Bureaucracy, Upgrading Employee Skills and Augmenting Benefits. and
Appropriating Funds There.for and.for Other Purposes."
67
See Commissioner of Internal Revenue v. Sec. o/Juslice, el al., 799 Phil. 13 (2016).
' ' ..
Resolution 13 G.R. Nos. 225750-51
SO ORDERED.
WE CONCUR:
Chie -Justice
Chairperson
(. If_&,~, . .,.
EC. REW'l ◄ JR.,
AMY ~rfo-;AVIER
Associate Justice
CERTIFICATION
DIOSDADO M. PERAL TA
Chief Justice