Tax Digests on Remedies

Compilation of Digests on Tax Cases involving Remedies

In partial fulfilment of the requirements of Tax 2

Professor Dina D. Lucenario UP College of Law nd 2 Semester, AY 2011-2012

Bustamante, Blesie Mae Dela Cruz, Mabel Laperal, Fatima Madrid, Kristoffer Gabriel Nisperos, Benedict Patagan, Gerille Hope Pulido, Karina Sotto, Leighton John

Cases Covered                             

Silk Air v. CIR CIR v. Aegis People Support CIR v. Keihin-Everett Forwarding San Roque v. CIR CIR v. PIL Management CIR v. Mirant Philippines Manila North Tollways Corp. v. CIR CIR v. FarEast Bank Mermac Inc. v. CIR Maunsell Philippines v. CIR CIR v. PNB Stablewood Philippines v. CIR St. Paul College v. CIR CIR v. KEPCO Iljan Corp. Republic, represented by the Commissioner of Customs, v. NPC Alliance Corp. City of Makati v. CIR Festo Holdings v. CIR PNB v. CIR DNATA Inc. v. CIR Sea Lion Fishing Corp. v. People CIR v. AsiaTrust Development Corp. Luzon Hydro Corp. v. CIR Union Cement Corp. v. CIR La Flor dela Isabela v. CIR Fax N Parcel Inc. v. CIR Hermano San Miguel Febres Cordero Medical Foundation v. CIR Laurence Lee Luang v. Esquivias Cargill Philippines v. CIR RCBC v. CIR 1

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Edison (Bataan) Cogeneration Corp. v. CIR International Exchange Bank v. CIR People v. Lim and Coronacion People v. Kintanar

Silk Air Singapore Ltd. V. CIR 25 January 2012 Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed by the SEC to do business in the Philippines as an on-line international carrier operating the Cebu-Singapore-Cebu and Davao-Singapore-Davao routes. In the course of its international flight operations, petitioner purchased aviation fuel from Petron Corporation (Petron) from July 1, 1998 to December 31, 1998, paying the excise taxes thereon in the sum of P5,007,043.39. It filed an administrative claim for refund in the amount of P5,007,043.39 representing excise taxes on the purchase of jet fuel from Petron, which it alleged to have been erroneously paid. The claim is based on Section 135 (a) and (b) of the 1997 Tax Code, which provides: SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and

Petitioner also invoked Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore). Due to inaction of the CIR, it filed a petition for review with the CTA. CTA denied the same, ruling that while petitioner‟s country indeed exempts from similar taxes petroleum products sold to Philippine carriers, petitioner nevertheless failed to comply with the second requirement under Section 135 (a) of the 1997 Tax Code as it failed to prove that the jet fuel delivered by Petron came from the latter‟s bonded storage tank. On appeal, the CA affirmed the CTA, ruling that while petitioner is exempt from paying excise taxes on petroleum products purchased in the Philippines by virtue of Section 135 (b), petitioner is not the proper party to seek for the refund of the excise taxes paid. ISSUE: WON Silk Air has the legal personality to file an administrative claim for refund of excise taxes allegedly erroneously paid to its supplier of aviation fuel in the Philippines HELD: No Excise taxes, which apply to articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines, is basically an indirect tax. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production or from the customs custody, the tax, in reality, is actually passed on to the end consumer as part of the transfer value or selling price of the goods, sold, bartered or exchanged. In early cases, we have ruled that for indirect taxes (such as valued-added tax or VAT), the proper party to question or seek a refund of the tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even when he shifts the burden thereof to another. Thus, in Contex Corporation v. Commissioner of Internal Revenue, we held that while it is true that petitioner corporation should not have been liable for the VAT inadvertently passed on to it by its supplier since their transaction is a zerorated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Rather, it is the petitioner‟s suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter.

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In the first Silkair case decided on February 6, 2008, this Court categorically declared: The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that “[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production.” Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. The decision in the second Silkair case reiterated the rule that in the refund of indirect taxes such as excise taxes, the statutory taxpayer is the proper party who can claim the refund. We also clarified that petitioner Silkair, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform its status into a statutory taxpayer.

Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the excise tax is imposed directly on Petron as the manufacturer. Furthermore, petitioner has not demonstrated that it dutifully complied with its contractual undertaking to timely submit to Petron a valid certificate of exemption so that Petron may subsequently file a claim for excise tax credit/refund pursuant to Revenue Regulations No. 3-2008 (RR 3-2008). It was indeed premature for petitioner to assert that the denial of its claim for tax refund nullifies the tax exemption granted to it under Section 135 (b) of the 1997 Tax Code and Article 4 of the Air Transport Agreement.

CIR v. Aegis People Support Inc. – could not find a copy of this case :/ CIR v. Keihin-Everett Forwarding February 2012

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a taxpayer as “any person subject to tax.” In Commissioner of Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the Court ruled that:

FACTS:

„A “person liable for tax” has been held to be a “person subject to tax” and properly considered a “taxpayer.” The terms “liable for tax” and “subject to tax” both connote a legal obligation or duty to pay a tax.‟

On December 21, 2004 and May 10, 2005, respondent filed with the BIR RDO an administrative claim for issuance of TCC for its alleged unutilized input VAT for the four quarters of taxable year 2003 for P3 M and P3.7 M in 2004.

The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax is already paid by Petron. Petron, being the manufacturer, is the “person subject to tax.” In this case, Petron, which paid the excise tax upon removal of the products from its Bataan refinery, is the “person liable for tax.” Petitioner is neither a “person liable for tax” nor “a person subject to tax.” There is also no legal duty on the part of petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.

Keihin is in a forwarding business. It filed its Quarterly VAT Returns for the third quarter of 2003 and 4th qtr in 2004.

Alleging petitioner's inaction on its application for issuance of TCC, respondent sought judicial intervention via a Petition for Review filed on October 25, 2005, but covering only the claim for the 3rd and 4th quarters of 2003. CTA Division granted petition partially. Not convinced, petitioner sought a reconsideration.

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CIR said that the CTA Division erred when it ruled that the two Petitions for Review were filed within the two year prescriptive period reckoned from the date of filing of the corresponding quarterly VAT Returns for being contrary to the clear and unequivocal provision of the NIRC. CIR added that Keihin filed its appeal beyond the 30-day period in doing so. ISSUE: Whether or not the tax claim is within the prescriptive period. HELD: NO The governing provision is Section 112 of the NIRC, as amended. The provision is explicit on the period within which an administrative as well as judicial claim for refund should be filed to merit consideration: "SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:

FACTS: San Roque, a corporation engaged in operating power-generating plants and under contract with the Govt., allegedly had unutilized input VAT credits in 2007. On May 28, 2008, it filed an administrative claim for refund of unutilized input VAT for the 1st and 2nd quarters of 2007 (first claim), and another admin claim for unutilized VAT credit for the 3rd and 4th quarters on March 30, 2009 (second claim) with the CIR. In view of CIR‟s inaction and to suspend the running of 2-year prescriptive period, it filed a judicial claim with the CTA on March 13, 2009 for the first claim and on June 26, 2009 for the second claim. HELD: The 30-day period within which to file an appeal with the CTA as provided in Sec 112 of NIRC is jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its jurisdiction. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. This rule applies to cases of tax refund or issuance of tax credit certificate where the taxpayer may, within 30 days upon receipt of decision denying the claim or after expiration of 120 days, appeal the decision or the unacted claim with the CTA.

From the foregoing, it is clear that a VAT-registered person, such as respondent, has two (2) years after the close of the taxable quarter when the pertinent sales were made, within which to apply with the CIR a claim for refund or tax credit of creditable input tax that remains unutilized. The CIR, on the other hand, has 120 days from the date of submission of complete documents in support of the application for refund or tax credit of input tax to grant such claim.

Both administrative claims were filed on time. However, the judicial claim for the first claim was filed out of time or 140 days after the filing of admin claim – beyond the 120-day period. On the other hand, the second judicial claim was prematurely filed, or only after 88 days from filing of the administrative claim.

If denied, upon notice of denial or expiration of the allowable period of 120 days without any action on the part of the CIR, the VAT-registered person has 30 days, within which to appeal the adverse decision or the inaction of the CIR with the Court of Tax Appeals.

FACTS:

San Roque v. CIR CTA Cases 7882 & 7937 16 February 2012

CIR v. PL Management

PL earned P24M in 1997 from UMPC, where UMPC withheld P1.2M. In 1998 PL filed a lost for its 1997 earnings and signified that it had a creditable withholding tax of P1,200,000.00 for 1997 to be as tax credit in 1998. In 1999, it filed for a loss of P2.7M so it was not able to claim the P1.2M credit. On April 12, 2000, the respondent filed with CIR a claim for the refund of the P1.2M refund.

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CIR did not act so PL filed cases with CTA, which later denied claim of PL saying the refund claim was filed out of time. Tax payment on nApril 13, 1998, claim of refund is on April 14, 2000, beyond the two year allowed. Appeal with the CA was for PL, the CA saying that the prescriptive period is not jurisdictional and might be suspended for reasons of equity. ISSUE: Whether the two-yr prescriptive period for tax claim is nonjurisdictional and can be suspended for equity HELD: No, PL already chose to carry over the excess, refund can‟t be availed of. The Court of Appeals mistakenly understood the phrase "for that taxable period" as a prescriptive period for the irrevocability rule. There is a misplaced application of the CIR v. BPI case. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer's excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period. The irrevocability rule: Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the

taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The options are alternative. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. PL already chose to carry over the excess tax paid, refund can‟t be availed. Commissioner of Internal Revenue v. Asiatrust Development Bank, Inc., CTA EB No. 614; Asiatrust DevelopmentBank v. Commissioner of Internal Revenue, CTA EB No. 677 18 November 2011 FACTS: Taxpayer filed a Petition for Review before the CTA in Division for failure of the CIR to act on its protest within the prescribed period. Both the CIR and the taxpayer filed Motions for Partial Reconsideration assailing the decision of the Court in Division partially granting the petition. The Court in Division denied the Commissioner of Internal Revenue‟s plea for reconsideration for lack of merit, while it partially granted that of the taxpayer. The Court in Division substantially modified its former decision prompting the taxpayer to file another Motion for Partial Reconsideration of the amended decision which was denied by the Court. The CIR did not file the same motion but instead filed a Petition for Review before the Court of Tax Appeals En Banc. ISSUE: WON the appeal may be filed with the CTA en banc. HELD: Before an appeal may be filed with the Court of Tax Appeals En Banc by aggrieved party, it must be preceded by the filing of a motion for reconsideration or new trial with the Division that rendered the questioned decision. CIR v. Mirant (Philippines) Operations Group 5

15 June 2011 FACTS:

3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.

Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these companies with maintenance and management services in connection with the operation, construction and commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively.

Mirant complied with all the legal requirements and it is entitled, as it opted, to a refund of its excess creditable withholding tax for the taxable year 2000 in the amount of ₱38,620,427.00.

On September 20, 2001, Mirant wrote the BIR a letter claiming a refund of ₱87,345,116.00 representing overpaid income tax.

Held: In claiming refund of overpaid CWT, submission of the original Monthly Remittance Return of CWT (BIR Form No. 1601-E) is mandatory. Amended return will not suffice. The original form will help ascertain if the two-year prescriptive period has been met and the alleged overpaid CWT has been remitted.

CTA 1st Division: Partially granted Mirant‟s claim for refund but the amount was reduced to P38 million which constitutes the duly substantiated unutilized creditable withholding taxes. ISSUE: WON Mirant is entitled to a tax refund or to the issuance of a tax credit certificate and, if it is, then what is the amount to which it is entitled.

Manila North Tollways Corp. v. CIR 23 September 2011

CIR v. FarEast Bank & Trust Company (now Equitable PCI Bank) 15 March 2010

HELD: YES but it is limited to the substantiated claim. Ratio: 1. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment. 2. Mirant complied with all the requirements for the refund of its unutilized creditable withholding taxes for taxable year 2000. The requisites for claiming a tax credit or a refund of creditable withholding tax: 1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return that the income received was declared as part of the gross income; and

FACTS: Far East filed Corporate Annual Income Tax Return for 1994 for Corporate Banking Unit and Foreign Currency Deposit Unit with reflected refundable income tax of P12M. The P12M refund was carried over and applied for the 1995 income tax return. In 1995, Far East claimed that it overpaid tax payments by P17M. P13M is being sought for refund and chose that the remaining will be carried over. Far East then claimed for the refund of the P13.6M, which the CIR did not act upon. Far East filed a claim for refund. CTA denied claim for refund. CA reversed the CTA, ruling that Far East duly proved that the income derived from rentals and sale of real property upon which the taxes were withheld were included in the return as part of the gross income. ISSUE: WON respondent is entitled to the refund.

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HELD: NO, The burden of proof for the claim is with the claimant which it failed to establish.

and establish fact of withholding by submitting a copy of the withholding tax statement (BIR Form 2307) issued by the payor/buyer.

A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:

In the instant case, the payee/seller took charge of deducting the amount of withholding tax from the payment received, remitting the same to the BIR. To prove fact of withholding of CWT, the taxpayer/refund claimant (MERMAC) presented BIR Form 1606 (withholding tax remittance return), which it filed relative to the sale of its real property. Due to CIR‟s inaction on its claim for refund amounting to 2,010,452.00, it filed a Petition for Review w/ the CTA 2nd Division, which partially granted MERMAC‟s claim for refund but only as to the amount of 92, 899.80 . It filed a Petition for Review with the CTA En Banc.

1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return that the income received was declared as part of the gross income; and 3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld. Moreover, the fact that the petitioner failed to present any evidence or to refute the evidence presented by respondent does not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a taxpayer‟s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the taxpayer. And while the petitioner has the power to make an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund.

ISSUE: WON BIR Form 1606 suffices to establish fact of withholding HELD: No, it does not suffice because it did not emanate from the payor. A claim for refund of excess creditable withholding taxes in accordance with settled jurisprudence, must comply w/ the following requisites: 1) Claim for refund filed within 2-year prescriptive period under Sec. 204 (C) in relation to Section 229 of the NIRC 2) It is shown on the return of the recipient that the income payment received was declared as part of gross income 3) Fact of withholding established by a copy of a statement duly issued by payor (withholding agent) to the payee, showing the amount paid and amount of tax withheld

FACTS:

Petitioner complied with the first two requisites, but failed to comply with the third. It is the BIR Form No. 2307 issued by the income payor, the duly constituted withholding agent, which establishes the fact of withholding. The BIR Form 1606 (withholding tax remittance form) should come from the payor and not the payee since the payor is in a better position to state that the withholding of tax was in fact made, being the duly constituted withholding agent.

MERMAC wanted to avail of the refund or issuance of tax credit certificate of excess or unapplied creditable withholding tax (CWT) under Section 204 of the Tax Code. Section 2.58.3 (B) of the RR 2-98 requires that such taxpayer claiming refund of excess CWT must show on the return that the income payment subjected to withholding tax was declared part of its gross income,

To be entitled to a refund or issuance of tax credit certificate of excess/unapplied creditable withholding tax, the fact of withholding, among others, must be established. The document, which may be accepted as evidence to establish fact of withholding, must (1) emanate from the payor itself, and not merely from the payee, and must (2) indicate the name of the

Mermac Inc. v. CIR CTA EB 699, 27 July 2011

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payor, the (3) income payment basis of the tax withheld, the (4) amount of tax withheld, and the (5) nature of the tax paid. Hence, for purposes of entitlement to refund or excess creditable withholding tax, the only acceptable evidence is BIR Form No. 2307 to establish fact of withholding. The provisions of the law must be applied accordingly, and industry practice, i.e. for real estate companies to remit on behalf of clients (mostly individual buyers) the creditable withholding tax due on its income from the sale of property, does not justify non-compliance with the law.

The original return is important in order for CTA to ascertain whether the filing of the administrative and judicial claims for refund or issuance of a tax credit certificate was made within the two-year reglementary period. Absent such document, it has no way of determining whether the claim was timely filed. Moreover, the original return is necessary for the CTA to verify if petitioner's original option was to be issued a tax credit certificate for the unapplied creditable taxes withheld since once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period.

Dispositive: petition denied Maunsell Philippines, Inc. v CIR CTA case, 26 December 2011 Maunsell claims that in 2006, it accumulated creditable withholding taxes amounting to P3,839,671.31. In its AMENDED income tax return for 2006, it chose the option "To be issued a Tax Credit Certificate" for its overpaid taxes. On July 13, 2007 it filed on administrative claim for the issuance of a tax credit certificate with the BIR. Since, BIR did not act on the claim, the company filed a petition before the CTA on January 15, 2009. ISSUE: WON Petitioner's right to claim for issuance of tax credit certificate of the overpaid income taxes for FY 2006 is substantiated with supporting documents? HELD: No Maunsell failed to offer evidence of its filing of ORIGINAL income tax return for 2006. Sec. 229 provides that “in any case no such suit or proceeding shall be filed after the expiration of 2 years from the date of payment of the tax or penalty regardless of any supervening cause”. In PAL vs. CIR, it was held that the counting should be made from the date of filing of the original final adjustment return and not from the date of filing of the amended return.

Under Section 76, if quarterly tax payments made during the said taxable year is not equal to the total tax due the corporation has an option to (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid. Thus, if petitioner has originally chosen the option "to be carried-over as tax credit next year/quarter", it will be precluded from claiming the issuance of a tax credit certificate for the said excess payment. CIR v. PNB CTA EB 577 & 580, Resolution of 6 February 2012 FACTS: PNB submitted its Annual ITR (covering the year 2003) before the CIR in April 2004 where it reflected the amount of P33M, representing its unused and unutilized income tax. PNB‟s ITR was amended on October 25, 2004, where the amount was increased to P 40.114M, and on November 8, 2004, where the amount was again increased to P 40.165M. On February 17, 2005, petitioner filed its administrative claim for refund. However, on March 29, 2005, PNB again filed its amended Annual ITR which showed the amount of P 45.456M as overpayment. On the same date, PNB filed its amended administrative claim for refund or issuance of tax credit certificate, thus superseding its earlier administrative claim for refund of its alleged unutilized creditable withholding taxes for the taxable year 2003 in the amount of P40.25 M, claiming that it carried over the amount of P 4.93 M as prior year‟s credit.

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As respondent has not acted on petitioner‟s claim, PNB filed a Petition for Review before the CTA for the refund or issuance of tax credit certificate representing its unused and unutilized creditable withholding taxes for the calendar year 2003 pursuant to Sec. 76 and 229 of the NIRC. The CTA Division granted PNB‟s petition, but only to the extent of P39.3M.Both appealed. PNB wanted to have a refund amounting to P 40.25M. CIR, in its petition, raised the argument that PNB is not entitled to the refund of its excess creditable withholding tax credits because it failed to sufficiently prove that it did not carry-over and apply its 2003 excess tax credits against its quarterly income tax liabilities for the succeeding years. CIR alleged that PNB's failure to formally offer as evidence its quarterly income tax returns for the taxable year 2004 is fatal to its claim for refund. ISSUE: WON The presentation of the quarterly income tax returns is a legal requisite for the claim for refund of excess creditable withholding tax credits. HELD: NO The presentation of the quarterly income tax returns of PNB for the first, second and third quarters of the taxable year 2004 is not a legal requisite for the claim for refund of excess creditable withholding tax credits for the taxable year 2003. The NIRC of 1997 did not require the presentation of the quarterly income tax returns to prove the claim for refund of creditable withholding taxes. According to Sec. 76, a corporate taxpayer who is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry-over the excess credits to the succeeding taxable years; (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. Furthermore, Section 2.58 of BIR Revenue Regulations No. 2-98, as amended, set forth the requisites for the entitlement to a refund of excess creditable withholding tax credits: 1. That the claim for refund was filed within the two-year prescriptive period as provided under Section 204 (c) in relation to Section 229 of the NIRC of 1997; 2. That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom ; and

3. That the income upon which the taxes were withheld were included in the return of the recipient. Nowhere in the law or in its implementing rules and regulations is it indicated that the presentation of quarterly tax returns for the succeeding taxable years is a requisite to establish the entitlement to the refund of excess creditable withholding tax credits. As regards PNB‟s claim, the CTA found that PNB failed to prove and substantiate each and every component of the Total Tax Credits/ Payments reflected on its final adjustment return. In order to establish the factual basis of its claim for refund, petitioner must substantiate its prior year's excess tax credits to overcome the burden of proof required. Stablewood Philippines v. CIR CTA EB 712, 15 November 2011 FACTS: Stablewood is the successor-in-interest of Orca Plant which was dissolved by operation of law by virtue of its merger with Rolls-Royce Power Ventures (Philippines), Inc. and Orca Energy, Inc. In 2006, Orca Plant filed its 2005 Annual ITR through the Electronic Payment and Filing System (EFPS) indicating that its creditable withholding tax (CWT) is “to be refunded‟. On that same year, a claim for refund was filed by Orca through SGV & Co. Due to the inaction of the BIR, a Petition for Review was filed with the CTA. CTA denied the refund claim because Orca carried-over its excess tax credits of 2005 inclusive of the claimed amount as “Prior year‟s Excess Credits” in its Quarterly ITRs for the first three quarters of taxable year 2006. Orca‟s original option to refund the said amount was thus negated by its very act of carrying over said excess amount to the succeeding taxable quarters of 2006. Orca filed a petition for review with the CTA En Banc. It argued that the CTA has no basis to conclude that it exercised its option to carry-over because the quarterly tax returns were not final. Ruling of the CTA En Banc: Sec. 76 of the NIRC – “… Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the 9

succeeding taxable years had been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore.”

The BIR Ruling interpreted the provisions of the NIRC. It was issued in the exercise of the Commissioner‟s power to interpret tax laws. The administrative remedy is to appeal the adverse ruling with the Sec. of Finance within 30 days from the receipt of such ruling.

St. Paul College of San Rafael v. CIR CTA Resolution, 2 February 2012

Because St. Paul did not file an appeal with the Sec. of Finance, it has failed to exhaust all available administrative remedies before filing the Petition for Review with the CTA.

FACTS:

Failure to exhaust all available administrative remedies results to lack of cause of action, one of the grounds for dismissing a complaint.

St. Paul College is a non-stock, non-profit educational institution. In a letter dated Feb. 23, 2009, the RDO required it to explain its failure to affix the P15 documentary stamp tax on school diplomas issued to graduates in the school years 2006-2007 and 2007-2008. St. Paul filed its reply, which was forwarded to the BIR National Office. BIR Ruling No. 143-2010 was issued. The Ruling stated that even if non-stock, non-profit educational institutions are exempt from the DST, they are “collecting agents” for the BIR and shall be personally liable for failure to remit the DST as “collecting agents”. No notice of assessment has been issued against St. Paul. Instead of filing an appeal with the Sec. of Finance to have the BIR Ruling set aside, it filed a Petition for Review with the CTA, contesting the BIR Ruling.

ISSUE: WON the CTA has jurisdiction RULING: The CTA’s jurisdiction to resolve tax disputes excludes the power to rule on the constitutionality or validity of a law, rule or regulation. The authority is vested before the regular courts. The validity of BIR Ruling should have been elevated to the Sec. of Finance and eventually before the regular courts, not with the CTA. Petition dismissed for being prematurely filed and for lack of jurisdiction. Dispositive: MR denied for lack of merit.

ISSUE: WON the petition for review is premature for non-exhaustion of administrative remedies. RULING: Before a party is allowed to seek the court‟s intervention, he/she/it should have availed of all administrative processes. The aggrieved party must not only initiate the prescribed administrative procedure, but must also pursue it to its appropriate conclusion before seeking judicial intervention. Sec. 4, NIRC – The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

CIR v. Kepco Ilijan Corp. CTA EB Resolution, 15 November 2011 FACTS: Kepco Ilijan Corporation (Petitioner) is a domestic corporation engaged in the production and sale of electricity as an Independent Power Producer (IPP), whose produced electricity is sold solely to NPC. For the first three quarters of taxable year 2005 and for October 2005, petitioner filed its Quarterly and Monthly VAT Returns showing that it 10

incurred expenses representing importation and domestic purchases of goods and services, for which petitioner also incurred input VAT. Petitioner filed an administrative claim for refund with the BIR representing input VAT allegedly incurred by petitioner from importations and domestic purchases of capital goods/equipment and services preparatory to its production and eventual sale of electricity to NPC. Due to respondent's inaction and in order to suspend the running of the twoyear prescriptive period under the National Internal Revenue Code (NIRC), petitioner filed the present Petition for Review on April 24, 2007. HELD: The administrative claim for refund or issuance of tax credit certificate of unutilized input VAT attributable to zero-rated sales is governed by Section 112 (A) of the 1997 NIRC. Based on Section 112 (A) the application for refund of unutilized input VAT attributable to zero-rated sales may be made only within two (2) years after the close of the taxable quarter when the sales were made. This period, however, refers solely to applications for refund/credit filed with the Commissioner of Internal Revenue (CIR) and not to appeals made to the CTA. The period within which to file judicial claims is found under Section 112 (0)10 of the 1997 NIRC. Accordingly, judicial claim for refund should be filed within thirty (30) days from receipt of the decision of the CIR or upon the expiration of the one hundred twenty (120) days in case of inaction of the CIR. The observance of these periods is mandatory and non-compliance therewith would result in the denial of the claim. Applying the same to the present case, the administrative claim for refund filed by respondent covering the first to third quarters of 2005 was filed on October 28. 2005 and for the month of October 2005, the administrative claim was filed on December 7, 2005. It is clear that the administrative claims were filed within the two-year prescriptive period. However, despite the timely filing of the administrative claims, this Court is constrained to deny respondent's refund claim on the ground that its judicial claim was filed out of time. Records show that

respondent filed its Petition for Review on April 24, 2007, way beyond the 30day period from the lapse of the 120-day period for the CIR to decide the claim. Republic of the Philippines, represented by the Commissioner of Customs, v. NPC Alliance Corp. CTA EB Resolution, 20 January 2012 A Decision or Order which is appealable to the Court of Tax Appeals En Banc is that which has resolved the case with finality, and which, in effect, terminates or finally disposes of a case, as it leaves nothing to be done by the court as the case has finally been decided on the merits. The Commissioner of Customs filed a Petition for Review before the Court of Tax Appeals En Banc assailing the Resolution of a division of the Court denying the Bureau of Customs Motion for Reconsideration, which allowed the posting of a bond. The Court held that the petition was prematurely filed before the Court of Tax Appeals En Banc for being interlocutory as it still leaves something to be done by the court a quo and the same may not be subject of review under the Revised Rules of the Court of Tax Appeals. In fact, Section 1, Rule 41 of the 1997 Rules of Civil Procedure, as amended, which applies suppletorily to proceeding before the Court of Tax Appeals, expressly provides that no appeal may be taken from an interlocutory order. The proper procedure that petitioner should have taken in this case was to await for the final termination of the proceedings before the Court in Division, prior to the filing of the instant petition for review, because it is a well-settled rule that only final orders or judgments on the merits may be the subject of appeal. CIR v. City of Makati CTA EB 641, Resolution of 19 January 2012 FACTS: City of Makati received assessment notices imposing deficiency taxes in the amount of 1.3B for the years 1999-2002. Makati, however, protested. BIR, on its part, said that the assessments against Makati were already final and executory.

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Makati, nonetheless, requested for another reinvestigation. Revenue officer and a deputy commissioner granted the request. Meetings were thereafter made between Makati and the Secretary of Finance, and BIR officials for the reconciliation of the records and positions of Makati and the BIR and Makati offered compromise settlement of the tax liabilities for 1999-2001. Pursuant to the compromise settlement, Makati paid P100M in payment of the taxes due for 1999-2001. Makati, thereafter, offered compromise settlement of the taxes due for 2002-2004 but BIR denied, and issued tax assessments anew against Makati. BIR said that Makati is still liable for deficiency taxes for the taxable years 1999-2001, and 2002-2004. Makati protested. CIR denied. Makati then filed a Petition for Review with the CTA. ISSUE: WON the reinvestigation of the case reversed the finality of the assessments HELD: No Only the Commissioner of Internal Revenue has the power to reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue (“BIR”), which power cannot be delegated. In assessment cases, a reopening/reinvestigation after a final decision on disputed assessment (“FDDA”) has been issued must be initiated by the commissioner. Otherwise, the reopening / reinvestigation is without authority and failure to appeal the FDDA to CTA would render the assessment final and executory. Here, the reinvestigation was merely granted by a revenue officer and a deputy commissioner. Festo Holdings Inc. v. CIR CTA Case 8226, 2 September 2011 FACTS: Respondent filed a Motion to Dismiss the Petition for Review commenced by Festo Holdings on the ground of lack of jurisdiction. The Revenue District Officer who signed the letter which became the basis of the instant petition, cannot be deemed an alter ego of the CIR for purposes of issuing a final decision on petitioner's protest under a delegated authority. As such, the subject letter is not the CIR's final decision on petitioner's protest; thus, the 30 day period to file an appeal was yet to commence, rendering the instant petition premature.

ISSUE: WON the CTA has jurisdiction HELD/RATIO: NO. The appeal was premature. In the event that a taxpayer's protest against the final assessment notice is denied by the CIR's duly authorized representative, the aggrieved party has the option whether to directly file an appeal with the Court of Tax Appeals within the thirty (30) day period, or move for a reconsideration with the CIR also within the same period. In this case, the petitioner appealed the case before this Court within the reglementary period. However, the Revenue District Officer who issued the letter cannot be considered as the CIR's decision appealable to this Court, in the absence of any proof that the former was authorized to decide and act in behalf of the latter on the protest of a taxpayer. Nowhere is it provided that a Revenue District Officer can issue decisions that are appealable to this Court. Therefore, there being no decision of the CIR in the present case, this Court cannot take cognizance of the present case. PNB v. CIR 14 December 2011 PNB appeals from the adverse ruling of the CTA. The CTA Division held that payments of withholding taxes for a certain taxable year were creditable to the payee‟s income tax liability as determined after it had filed its income tax returns the following year. Since PNB posted net losses, it was not liable for any income tax and consequently, the taxes withheld during the course of the taxable year, which was 1998, while collected legally under Revenue Regulations No. 02-98, Section 2.57 (B), became untenable and took on the nature of erroneously collected taxes at the end of that year. While the right to a refund is not automatic and must be established by sufficient evidence, there is nothing in the Tax Code that would suggest that the actual remittance of the withholding tax is a condition precedent to claim for a tax refund. Moreover, the CTA Division added, that the CIR failed to present the certification to prove his contention of PNB‟s non-remittance of the disallowed amount. However, the CTA Division affirmed the disallowance of eight transactions, amounting to ₱445,578.92 as they had 12

already been reported as income for other years, had not been recorded, or were not supported by pertinent documents. ISSUE: WON the CTA En Banc should give due course to PNB‟s petition for review mailed through LBC Express instead of registered mail HELD: No PNB failed to comply w/ these procedural rules: 1) Petition was filed late, 4 days beyond extended period, and offered no justification as to why it sent its petition via ordinary mail instead of registered mail 2) Petition was not accompanied by required duplicate originals or certified true copies of assailed Decision, and Affidavit of Service. DNATA, Inc. v. CIR CTA Resolution, 11 October 2011 DNATA was issued a formal assessment notice on sept 12, 2007 for P8.3 million in deficiency income tax, value-added tax, withholding tax on compensation, and expanded withholding tax for 2003. On Oct 18 2007, DNATA filed a letter of protest assailing the validity of the FAN, and praying for its cancellation and withdrawal. On March 18, 2008, the CIR issued a final decision denying DNATA 's protest, on the ground that it failed to submit proof/documents necessary for the cancellation and withdrawal of the FAN within the 60 days reglementary period from the filing of the protest. DNATA then filed a petition for review with the CTA through registered mail. DNATA raised the issue of the BIR's failure to inform them of the need for additional supporting documents. ISSUE: Whether or not the petition was perfected on time HELD: NO Ratio: DNATA filed the petition through registered mail on the next working day after the deadline, which was a Saturday. But it did not pay the docket fees through postal money order; instead, it paid the docket fees on the day the

registered mail was received by the Court, or May 5, 2008. While petitioner was deemed to have filed its petition for review on time, it failed to perfect its appeal for non-payment of the corresponding docket and other lawful fees at the same time that it filed its initiatory pleading as required in Sec 1, Rule 42 of the Rules of Civil Procedure. Basic is the rule that docket and other lawful fees must be paid within the period for taking an appeal, and that where the filing of the initiatory pleading is not accompanied by payment of the docket fees, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period. The payment of the docket fees within the prescribed period is mandatory for the perfection of the appeal. Without payment, the appellate court does not acquire jurisdiction on the subject matter of the action and the decision sought to be appealed from becomes final and executory. In the case of Villena v Rupisan, the Supreme Court went further to say that the appellate court acquires jurisdiction on the subject matter of the action only upon payment of the correct amount of docket fees regardless of the date of filing of the case. While it is true that petitioner subsequent to the filing of its petition for review paid the required docket and other fees, the same did not cure the defect as the payment was effected beyond the reglementary period for perfecting an appeal. The payment of appellate docket fees is not a mere technicality of law or procedure but an essential requirement for the perfection of an appeal. It is jurisdictional, an issue that may be raised even for the first time on appeal. The lack of it will render the proceedings conducted null and void. The strict application of the jurisdictional nature of the rule on payment of appellate docket fees may be mitigated under exceptional and meritorious circumstances to better serve the interest of justice. However, there is no showing of any satisfactory reason to justify relaxation of what otherwise should be a stringent application of the rule. For failure to pay the corresponding docket fees on time, petitioner also failed to seasonably perfect its appeal, divesting the CTA of jurisdiction or authority to take cognizance of the instant Petition for Review. As provided in Section 228 of the NIRC, for failure to perfect an appeal on time, the decision rendered by CIR has become final, executory and demandable. 13

Sea Lion Fishing Corp. v. People 23 March 2011 FACT: The Captain, crew and fishermen aboard F/V Sea Lion were arrested for illegal fishing in Mangsee Island in Balabac, Palawan. Various charges were filed against them but the Provincial Prosecutor found probable cause only against the Chinese fishermen and recommended the vessel and all the fishing gadgets, paraphernalia and equipment (which were previously confiscated) released upon proper showing of evidence of its ownership of the aforesaid vessel by Sea Lion Fishing Corp (which claims to be its owner). The RTC found the fishermen guilty and the confiscated vessel and equipment were placed under the [temporary] custody of the Philippine Coast Guard. Sea Lion‟s Motion for Reconsideration was denied. It then filed a petition for Certiorari and Mandamus with the CA, but the same was also denied. Thus, Sea Lion filed a Petition for Review on Certiorari with the SC raising the sole issue of whether the confiscation of F/V Sea Lion was valid. Held: The confiscation of the vessel and equipment allegedly used in the commission of the crime can be confiscated, regardless of ownership. When these are claimed by a third-party not liable to the offense, such third-party must first establish its ownership over the same. On Remedy: Petitioner pursued an incorrect remedy when it sought recourse before the CA. The filing of a Petition for Certiorari under Rule 65 of the Rules of Court before the CA is limited only to the correction of errors of jurisdiction or grave abuse of discretion on the part of the trial court. The CA did not find either lack or error of jurisdiction or grave abuse of discretion. There was no jurisdictional error because based on the Informations, the offenses were committed within the territorial jurisdiction of the trial court. The penalties imposable under the law were also within its jurisdiction. As a necessary consequence, the trial court had the authority to determine how the

subject fishing vessel should be disposed of. Likewise, no grave abuse of discretion attended the issuance of the trial court's order to confiscate F/V Sea Lion considering the absence of evidence showing that said vessel is owned by a third party. Evidently, the remedial relief pursued by the petitioner was infirm and improper. We also agree with the CA's observation that the trial court impliedly recognized petitioner's right to intervene when it pronounced that petitioner failed to exercise its right to claim ownership of the F/V Sea Lion. This being the case, petitioner should have filed an appeal instead of a petition for certiorari before the CA. Under Rule 65 of the Rules of Court, certiorari is unavailing when an appeal is the plain, speedy, and adequate remedy. CIR v. AsiaTrust Development Bank CTA, 16 November 2011 Facts: Taxpayer filed a Petition for Review before the CTA in Division for failure of the CIR to act on its protest within the prescribed period. Both the CIR and the taxpayer filed Motions for Partial Reconsideration assailing the decision of the Court in Division partially granting the petition. The Court in Division denied the Commissioner of Internal Revenue‟s plea for reconsideration for lack of merit, while it partially granted that of the taxpayer. The Court in Division substantially modified its former decision prompting the taxpayer to file another Motion for Partial Reconsideration of the amended decision which was denied by the Court. The CIR did not file the same motion but instead filed a Petition for Review before the Court of Tax Appeals En Banc. Issue: W/N the appeal may be filed with the CTA en banc. Held: Before an appeal may be filed with the Court of Tax Appeals (CTA) En Banc by aggrieved party, it must be preceded by the filing of a motion for reconsideration or new trial with the Division that rendered the questioned decision. Luzon Hydro Corporation v. CIR CTA EB 722, 6 January 2012

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Facts: LHC is duly registered as a VAT taxpayer. A Power Purchase Agreement (PPA) with the Napocor was entered into by The Consortium of Northern Mini Hydro Corp.; Ever Electrical Manufacturing Inc.; Aboitiz Equity Ventures Inc; Pacific Hydro Limited. The PPP was for the development of Bakun hydroelectric facilities.

administrative and judicial claims for tax refund was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D). Take note that the reckoning of the 2-year period for filing/claiming refund or issuance of TCC is from the close of the quarter when such sales were made and compliance with the "120-30 day period" under Section 112 (C) is crucial in filing a judicial claim.

LHC filed administrative claim with BIR for refund of its unutilized VAT from June to September 2006 in the amount of P4,151,852.39.

When petitioner filed its administrative claim for tax refund on 30 April 2007, respondent had 120 days within which to decide on petitioner's claim for tax refund. And in case of full or partial denial of the claim or failure of respondent to act on the application within the 120 day period, petitioner has 30 days to appeal the decision or inaction with the Court of Tax Appeals. Thus, respondent had to render a decision within 120 days from 30 April 2007 or until 27 August 2007. However, petitioner filed the instant petition for review with the Court of Tax Appeals only on 18 July 2008, almost a year after the lapse of the period allowed by law to file the judicial claim for tax refund with the Court of Tax Appeals. Clearly, the instant petition for review was filed out of time.

CTA 3rd Division: Dismissed the claim for having been filed beyond the 30day period for claiming refund. Issue: WON the administrative and judicial claim were filed within the reglementary period allowed by law. The administrative claim was filed within the reglementary period of 2 years from the close of the taxable quarter, the judicial claim was filed beyond the period mandated under Section 112 (C). Note: This case only discussed procedural issues as regards the mandatory period for the filing of a motion for reconsideration which is 15 days. When a judgment becomes final and executory, it becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executor judgment, is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. Held: The assailed decision was received by LHC on November 26, 2010 and petitioner had 15 days or until December 11, 2010 to file its Motion for Reconsideration. However, petitioner filed its motion only on December 22, 2010 or nine days after the lapse of the prescribed period. Note: The more detailed discussion is in the 2008 case of CIR v. Mirant. CIR v. Mirant Pagbilao Corporation (MPC) 12 September 2008 GR No. 172129 The claim for refund of creditable Value Added Tax input taxes in the amount of Php4,151,852.39 for the months of June to September 2006 must be strictly construed and petitioner has the burden of proving that the requirements were met or complied with especially the requirement that petitioner's

Under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. Held: While the administrative claim was filed within the reglementary period of 2 years from the close of the taxable quarter, the judicial claim was filed beyond the period mandated under Section 112 (C). Thus, the Court is constrained to DENY the petitioner's claim for refund or issuance of TCC. La Flor dela Isabela, Inc. v CIR La Flor is a domestic corporation. In 2000 the letter of authority for assessment for taxable year 1999 was issued by the BIR. From 2002 to 2005, La Flor executed five Waivers to extend BIR‟s period to assess the taxes. The Formal Letter of Demand (FDL) for the tax deficiency was received by La Flor before the expiration of the 5th waiver in 2005.

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La Flor immediately filed a protest against the FDL. It also filed a supplemental protest less than two weeks after. After 2 years, June 2007, La Flor received a Final Decision on Disputed Assessments (FDDA) indicating its deficiency taxes in the total amount of P10,460,217.23. On October 2007, petitioner filed an application for tax amnesty. Ten days later it also filed an application for compromise agreement pursuant to Section 204 of the Tax Code. La Flor received an undated Warrant of Distraint and/or Levy (WDL) issued by BIR. ISSUE: WON La Flor can still validly assail the assessment. HELD: NO. If a protest is not acted upon by respondent within 180 days from submission of supporting documents, the taxpayer adversely affected by such inaction may appeal to the CTA within 30 days from the lapse of the 180-day period. La Flor should have appealed to the CTA when it did not receive action on its protest immediately. To reiterate, the failure of a taxpayer to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding the said taxpayer from interposing the defenses of legality or validity of the assessment and prescription of the Government's right to assess. Indeed, any objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal revenue taxes. Fax N Parcel, Inc. v CIR CTA Case 7415, 22 November 2011 FACTS: Fax N Parcel is contesting the assessments issued by the CIR for deficiency income tax and VAT for the 4th quarter of 2002. In March 2005, the CIR had issued against petitioner a Preliminary Assessment Notice (PAN), with attached details of discrepancies for unreported income from understatement of sales during the 4th quarter of 2002. In April, the CIR issued a Formal Assessment Notice (FAN), prompting petitioner to file a Protest Letter in July, which the CIR failed to act on, hence this petition for

review. ISSUE: WON the assessment for alleged undeclared income from petitioner‟s unreported sales for the 4th quarter of 2002 based on the BIR‟s computergenerated Quarterly Report on third party Information on Purchases is valid HELD: No When served with subpoena duces tecum and ad tesfificandum, 11 of the 15 alleged purchasers of petitioner, through their duly authorized officers or representatives, either controverted or denied respondent‟s allegations. The quarterly report of the BIR also showed considerable discrepancies. As admitted by the respondent‟s own witness, the summary lists of purchases received by the BIR were not verified with other externally sourced data to check the integrity of the information gathered. The Integrated Tax System of the BIR can only check or validate the format and possible viruses in the computer program, not the content or substance of the encoded summary lists of purchases. While assessments have the presumption of correctness and regularity in its favor, it is also equally true that assessments should not be based on mere presumptions, no matter how reasonable or logical the presumption might be (citing CIR v. Hantex Trading, March 31, 2005). Assessments lack sufficiency in evidence when it is based on the BIR‟s computer-generated third party information which was not verified with other externally sourced data; esp. when third parties controvert the allegations. Finally, imputation of fraud against petitioner adding 50% surcharge to its alleged income and VAT liabilities is erroneous since the claimed fraudulent intent was merely deduced from the fact that there was an under-declaration of sales/income for the 4thquarter of 2002, which respondent failed to establish. Fraud cannot be presumed but must be proved. Dispositive: petition granted Hermano (San Miguel) Febres Cordero Medical Foundation, Inc. v. CIR C.T.A. CASE NO. 8194 9 January 2012 16

Hermano is seeking the cancellation of Final Assessment Notice (FAN) issued by the BIR for VAT deficiency amounting to P2,607,933.07, arising from its sale of pharmacy items to its in-patients, in line with its rendering of “hospital services.” Hermano‟ grounds are: (1) The FAN is void for they merely showed a mathematical computation of petitioner's tax liability without stating the factual and legal bases of the same; (2) CIR failed to take into consideration that its sales of pharmacy items to its in-patients are exempt from VAT pursuant to Section 109(L). Ruling: FAN is not void based in the first ground. Section 228 provides that in the assessment, “The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void” to ensure that taxpayers are duly apprised of the basis of the tax assessments against them. Here, in the "Details of Discrepancies", attached to the assessment, the details contained therein showed that the factual basis for assessing petitioner for deficiency VAT was the discrepancy from RELIEF and Third-Party Matching. In a long line of cases, the SC has ruled that the requirement of the law to inform the taxpayer of the basis of the assessment does not necessarily mean that it be a full narration of the facts and laws on which the assessment is based. Here, Hermano was able to intelligently make its protest by stating that its sales of pharmaceutical items in favor of its in-patients are exempt from VAT. This circumstance proves that petitioner was sufficiently informed of the facts and the law as to why the assessment has been issued against it. However, the assessment of VAT deficiency was incorrect. As held in Perpetual Succour Hospital vs. CIR and St. Luke's Medical Center v. CTA & CIR, hospital services includes not only the services of the doctors, nurses and allied medical personnel, but also the necessary laboratory services, and making available the medicines, drugs and pharmaceutical items that are necessary in the diagnosis, treatment and care of patients. Sale of drugs or pharmaceutical items to inpatients of the hospital are, therefore, considered part of the hospital services covered by Section 109 (l) of the NIRC of 1997, as amended.

Laurence Lee v. Luang and Sixto Esquivias IV in his capacity as Commissioner of Internal Revenue CTA Resolution, 23 February 2012 Petitioner owned a Unioil gas station. He sent a letter dated June 21, 2005 to the BIR to inform said office that his business operations would cease by the middle of the year 2005 and that taxes were to be incurred only up to June 30, 2005. Said letter was also meant to inform the BIR of the cessation of reportorial requirements that must be complied with by the taxpayer pursuant to the operation of a business entity. Petitioner filed his second (2nd) quarter VAT return on July 26, 2005. Petitioner received a copy of a Formal Letter of Demand and a FAN on November 5, 2008 for alleged deficiency VAT, deficiency income tax, and compromise penalties for the year 2005 amounting to P 7.7M. Petitioner filed a Protest to the FAN, but there was no response from the CIR. Petitioner thus filed a Petition for Review before the CTA, claiming that after the issuance of the Letter Notice (LN) dated April 30, 2007, there is no evidence that a Preliminary Assessment Notice (PAN) was served upon petitioner pursuant to RR No. 12-99 and as such, petitioner believes that the deficiency VAT and income tax assessments issued against him must be considered void for being violative of the due process. On the other hand, respondent argues that the absence of a PAN may not invalidate the assessment, and that what is essential is that petitioner was able to file his protest to the FAN/Formal Letter of Demand within thirty (30) days from receipt of the same. W/N the absence of a Preliminary Assessment Notice violates invalidates an assessment. HELD: YES. Section 228 of the Tax Code requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. The sending of a PAN to taxpayer to inform him of the assessment made is but part of the 'due process requirement in the issuance of a deficiency tax assessment,' the absence of which renders nugatory any assessment made by the tax authorities. The use of the word 'shall' in subsection 3.1.2 of Revenue Regulations 12-99 describes the mandatory nature 17

of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of petitioner's right to due process. Cargill Philippines Inc. v CIR CTA Case 7928, 23 August 2011 In Sept 9, 2008, Cargill received a Preliminary Assessment Notice (PAN) assessing deficiency VAT and compromise penalty for the period covering Sept 2005 to Aug 2005. Soon after, Cargill also received a Final Assessment Notice (FAN) together with an Audit Result / Assessment Notice. It was found liable of VAT in the amount of Php5.4M++. Cargill filed a protest but the same was not acted upon. Thus, it filed a Petition for Review with the CTA. Cargill argues that it was denied due process and that the assessment period has lapsed. In its answer, the CIR said that Cargill the assessment was proper because it failed to respond to the PAN with the 15-day allowable period. Ruling of the CTA: The CIR has substantially complied with the requirements of due process because Cargill was given the opportunity to refute the PAN and was able to exercise its option to protest the FAN. However, the period to assess has prescribed – assessments should be served to the taxpayer within a three-years period counted from the day the return was filed. Therefore, the assessments served on Sept 9, 2008 for the periods of Sept 2004 to May 2005 are barred by prescription. RCBC v. CIR 7 September 2011 FACTS: - RCBC filed its Corporate Annual Income Tax Return for Foreign Currency Deposit Unit for 1994 and 1995. - CIR issued Letter of Authority, authorizing a special audit team to examine RCBC‟s books of accounts and other records for all internal revenue taxes from Jan. 1, 1994 to Dec. 31, 1995.

- Jan. 23, 1997. RCBC executed 2 Waivers of the Defense of Prescription Under the Statute of Limitations of the NIRC covering the internal revenue taxes for 1994 and 1995, effectively extending the period of the BIR to assess up to Dec. 31, 2000. - Jan. 27, 2000. RCBC received a Formal Letter of Demand with Assessment Notices for deficiency tax assessments. - RCBC filed a protest on Feb. 24, 2000. On Nov. 20, 2000, it filed a petition for review with the CTA. - Dec. 6, 2000. RCBC received another Formal Letter of Demand with Assessment Notices. The original amount of deficiency taxes was drastically reduced (from P4.1B to P303M). - RCBC paid P15M but refused to pay assessments for deficiency onshore tax and DST. It claimed that the waivers of the Statute of Limitations were not valid because they were not signed or conformed to by the CIR as required under Sec. 222(b) of the Tax Code. - CTA (1st Div.) rendered its Decision partially granting the petition for review. It considered as closed and terminated the assessments for deficiency taxes, except for the final tax on FCDU onshore income and deficiency DST for 1994 and 1995. It ordered RCBC to pay the amounts due plus 20% delinquency tax. - RCBC filed MR. CTA modified its decision for its inadvertence in the addition of the total deficiency taxes. CTA en banc denied RCBC‟s petition for lack of merit. ISSUE: WON RCBC, by paying the other tax assessment covered by the waivers, is estopped from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax. RULING: RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the waivers, impliedly admitted the validity of those waivers. Had it truly believed that the waivers are invalid and that the assessments were issued beyond the prescriptive period, it should not have paid the reduced amount of taxes in the revised assessment. Upon the receipt of the revised assessment, RCBC immediately made payment on the uncontested taxes. It is estopped from questioning the validity of the waivers. 18

ISSUE: WON RCBC can be held liable for deficiency onshore tax HELD: Yes The liability of the withholding agent is independent from that of the taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability of the tax remains with the taxpayer because the gain was realized and received by him. RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent. Petition denied.

assessments for deficiency withholding tax on compensation and expanded withholding tax for taxable year 2000. The EBCC, on the other hand, was ordered to pay the CIR the amount of Two Million Two Hundred Thirty Two Thousand One Hundred Forty Six Pesos and 91/100 (P2,232,146.91), representing EBCC's deficiency final withholding tax. Both appealed the decision to CTA En Banc. Assessment in Issue: Interest Payments from EBCC's Intercompany Loans from Ogden Power International Holdings, Inc. amounting to P7,707,504.96; Interest Payments on Syndicated Loans in Dollars made by EBCC amounting to P2,520,117.76. CTA En Banc Ruling:

Edison (Bataan) Cogeneration Corp. v. CIR 30 January 2012 Facts: On February 2, 2004, Edison (Bataan) Cogeneration Corporation (EBCC) received respondent's Formal Letter of Demand and Final Assessment Notice, dated January 23, 2004, assessing petitioner for alleged deficiency income tax, VAT, withholding tax on compensation, EWT and FWT for taxable year 2000, On March 3, 2004, petitioner protested said assessments by filing a letterprotest dated March 2, 2004 with respondent CIR. Subsequently, petitioner and the assigned BIR examiners had several meetings between March and May 2004, where petitioner furnished respondent with certain documents, as requested by the examiners. CIR failed to render a decision on petitioner's protest, within the 180-day period prescribed in Section 228 of the Tax Code; thus, on November 25, 2004, petitioner filed the instant Petition for Review. On November 30, 2010, the Court Former Second Division partially granted the Petition for Review and ordered CIR to cancel and set aside the

The determination of EBCC's liability for the deficiency FWT on Interest Payments from Inter-company loans from Ogden Power is subject to the provision of Revenue Regulation (RR) No. 2-98, the controlling revenue issuance at the time the loan agreement was entered into. Applying RR No. 2-98, there is no question then that the obligation to withhold only accrues when the loan is paid or becomes payable or when it becomes due, demandable or legally enforceable, whichever comes first. Upon analysis of the loan agreement between EBCC and Ogden, the Court En Bane finds no controversy on the date when the obligation to pay the loan to the lender has commenced, which as indicated in the loan agreement is on June 1, 2002. The CIR alleges that it is on January 5, 2000, when the loan document was notarized that the interest started to accrue. On the part of EBCC, it alleges that the intention of the parties was to set simultaneously the payment of the loan and the interest. The obligation to withhold the interest over the loan only commenced on June 1, 2002. EBCC alleges that with the admission of the CIR's witness, Revenue Officer 19

Dahlia V. Nitura, of EBCC's payment of FWT amounting to P2,842,630.20 the liability imposed by the Court Former Second Division is already complied with. On the other hand, the CIR reiterates EBCC's failure to prove the remittance of the withholding tax by the lending banks due to lack of evidence. EBCC is duty bound to prove that indeed it has remitted the amount of P2,842,630.20 as payment for its deficiency FWT. For cases filed before the Court are litigated de novo/ party litigants should prove every minute aspect of their cases. Unfortunately, in this case, EBCC has failed to present sufficient evidence to prove remittance of its payment. Thus, the Court En Bane adopts the computation of the Court Former Second Division on EBCC's deficiency FWT on its interest payments on its dollar-denominated syndicated loan liability amounting to P1,785,717.53 for the year 2000. International Exchange Bank v. CIR CTA Case 7875, 18 October 2011 Petitioner, a banking institution duly organized and existing under the laws of the Philippines, was on April 13, 1999 served Letter of Authority by the Commissioner of Internal Revenue directing the examination by a "Special Team created pursuant to RSO 797-98" of petitioner‟s books of accounts and other accounting records for the year 1997 and "unverified prior years." An examination of said documents was in fact conducted. Petitioner subsequently received on November 16, 1999 a "Notice to Taxpayer" from the Assistant Commissioner, Enforcement Service of the Bureau of Internal Revenue, notifying it of the results of the examination conducted by the Special Team regarding its tax liabilities, which amounted to P465,158,118.31 for 1996 and P17,033,311,974.23 for 1997, and requesting it to appear for an informal conference to present its side. On January 6, 2000, petitioner was personally served with an undated Pre-Assessment Notice (PAN) assessing it of deficiency on its purchases of securities from the Bangko Sentral ng Pilipinas or Government Securities Purchased-Reverse Repurchase Agreement (RRPA) and its FSD for the taxable years 1996 and 1997. On January 12, 2000, petitioner received a Formal Assessment Notice (FAN) for deficiency DST on its RRPA and FSD, including surcharges, in the amounts of P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an accompanying demand letter requesting payment thereof within 30 days. Acting on the FAN, petitioner filed on February 11, 2000 a protest letter alleging that the assessments should be reconsidered on the grounds that: (1) the assessments are null and void for having been issued without any authority

and due process, and were made beyond the prescribed period for making assessments; (2) there is no law imposing DST on RRPA, and assuming that DST was payable, it is the Bangko Sentral ng Pilipinas which is liable therefor; (3) there is no law imposing DST on its FSD; and (4) assuming the deficiency assessments for DST were proper, the imposition of surcharges was patently without legal authority. Petitioner argued that its FSD is not subject to DST since it was not one of the documents enumerated either under the 1977 Tax Code (Tax Code) or the 1997 National Internal Revenue Code (NIRC). Respondent on the other hand argued that petitioner should be liable not only for DST on its FSD but also on its RRPA. The First Division of the CTA and the CTA En Banc upheld the propriety of the DST. ISSUE: WON a Savings Account-Fixed Savings Deposit (FSD) evidenced by a passbook issued by petitioner subject to documentary stamp tax (DST) for the years 1996 and 1997 HELD: NO RATIO: The applicable provision is Section 180 of the Tax Code, as amended by R.A. 7660, which reads: Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not payable on sight or demand. - On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities or certificates of deposits drawing interest,or orders for the payment of any sum of money otherwise than at sight or on demand, or on all promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever will yield a higher tax: 20

Provided, however, That loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section. As correctly found by the CTA En Banc, a passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest. A document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor. What is important and controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is paramount. Contrary to petitioner‟s claim, not all certificates of deposit are negotiable. A certificate of deposit may or may not be negotiable as gathered from the use of the conjunction or, instead of and, in its definition. A certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other person or his order. In any event, the negotiable character of any and all documents under Section 180 is immaterial for purposes of imposing DST. Orders for the payment of sum of money payable at sight or on demand are of course explicitly exempted from the payment of DST. Thus, a regular savings account with a passbook which is withdrawable at any time is not subject to DST, unlike a time deposit which is payable on a fixed maturity date. As for petitioner‟s argument that its FSD is similar to a regular savings deposit because it is evidenced by a passbook, and that based on the legislative deliberations on the bill which was to become R.A. 9243 which amended Section 180 of the NIRC (which is to a large extent the same as Section 180 of the Tax Code, as amended by R.A. 7660), Congress admitted that deposits evidenced by passbooks which have features akin to time deposits are not subject to DST, the same does not lie. The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns

interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit. People v. Katherine Lim CTA Criminal Case 0-113, 12 December 2011 FACTS: Katherine M Lim and Edelyn Coronacion were president and accountant, respectively, of UEAM, a company engaged in the manufacture of automotive spare parts. Sometime in 2000, UEAM informed the BIR of its decision to permanently close and cease operations. BIR issued UEAM a tax verification notice relative to its closure of business. The verification resulted in the issuance of an assessment for alleged value-added tax (VAT) deficiency on the company‟s allegedly taxable inventories appearing in its audited financial statements, which were considered by the BIR as “transaction deemed sale” subject to VAT under Section 106(B)(4) of the Tax Code. Lima and Coronacion, however, failed to pay the tax. Hence, a criminal case was filed against them pursuant to Sec. 255, in relation to Sec. 253 (d), and 256 of the Tax Code. To negate criminal liability, Lim and Coronacion argued UEAM‟s lack of willfulness in its default saying that the prosecution failed to prove that UEAM indeed received the preliminary assessment notice (PAN). ISUE: WON prosecution failed to prove that UEAM received the PAN. HELD: YES A taxpayer may deny that he received an assessment form BIR. And if he does so, it is incumbent upon the BIR to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi shifts to the BIR to prove that the taxpayer received the assessment in the due course of the mail. Willfulness of not paying the tax requires the showing of knowledge and voluntariness. Here, the prosecution failed to present the registry return receipts. The prosecution, therefore, failed to prove that Lim and Coronacion had knowledge of their obligation to pay the taxes of UEAM. The prosecution was not able to prove that Lim and Coronacion willfully failed to pay the assessed tax.

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People v. Gloria Kintanar CTA Criminal Case, Resolution of 16 November 2011 FACTS: Spouses Kintanar allegedly failed to file their income tax returns for the years 2000 and 2001. The BIR, asking them to cooperate, make the tax returns, and pay the taxes, sent them the following documents: 1) Letter of Access No. 00029663, dated March 28, 2003, which was received by petitioner's husband on April 3, 2003; 2) Second Request for Presentation of Records, dated April21, 2003 , was received by a certain George Llorente on April23, 2003; 3) Final Notice, dated May 5, 2003, was received by George Llorente; 4) Subpoena Duces Tecum, dated June 11, 2003; 5) Letter by Chief Rosimo, dated September 3, 2003; 6) Preliminary Assessment Notice, dated December 9, 2003, together with the Details of Discrepancies, for taxable years 1999 to 2002; 7) Memorandum, dated February 26, 2004; 8) Formal Letter of Demand, dated February 26, 2004, together with Assessment Notices; 9) Letter of Chief Guballa, dated September 30, 2004; and 10)Final Decision on Disputed Assessment, dated December 13, 2004. The spouses did not heed these notices and failed to cooperate. Two separate informations were filed against them. Criminal action for tax evation ensued. Section 255 of the NIRC of 1997, as amended, contemplates four different situations punishable by law, each of which constitutes failure to perform in a timely manner, an obligation imposed by the NIRC of 1997, as amended, to wit: 1) To pay any tax; 2) To make a return; 3) To keep any record; and 4) To supply correct and accurate information.

1) The accused is a person required to make or file a return; 2) The accused failed to make or file the return at the time required by law; and 3) That failure to make or file the return was willful. The defenses were: It was the husband who filed. The husband delegated an accountant who did not properly file the tax returns. The return (evidence for the defense) was made in Novaliches, instead of in Paranaque, the RDO with jurisdiction over their legal residences. ISSUE: WON the Spouses are guilty beyond reasonable doubt of tax evation. HELD: Yes BIR, through documentary and testimonial evidence, were able to prove all of the elements of Sec 255 with respect to failure to make or file a return. Dispositive for both cases (2000 and 2001): GUlLTY beyond reasonable doubt of violation of Section 255 of the National Internal Revenue Code of 1997, as amended, and is hereby SENTENCED to suffer an indeterminate penalty of one (1) year, as minimum, to two (2) years, as maximum, and is ORDERED to pay a fine in the amount of P10,000.00, with subsidiary imprisonment in case accused has no property with which to meet the said fine, or unable to pay such fine, pursuant to Section 280 of the NIRC of 1997, as amended. As regards the civil liability, accused is ORDERED to PAY deficiency income tax for taxable year 2000, the amount of P3,156,470.22, inclusive of penalties, surcharges and interests, plus 20% interest per annum accounted from April 12, 2005 until full payment thereof, pursuant to Section 249 (C ) (3) of the NIRC of 1997, as amended.

The elements of Violation of Section 255 of the NIRC of 1997, as amended, for failure to make or file a return, are, as follows:

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