SUMMARY OF SIGNIFICANT CTA CASES (August 2009) By: Atty.

Dianna Lynne Sin Baysac

The Court in Division denied CIRs ruled that it also cannot consider its waiver as valid since it does not respondent corporation received such waiver after the CIRs acceptance.

motion and copy of the show that copy of the

1. COMMISSIONER OF INTERNAL REVENUE vs. CHAILEASE FINANCE CORPORATION (CTA EB No. 440 [CTA Case No. 7021], August 28, 2009) In order for a waiver of the statute of limitations under the NIRC to be valid and binding, it must strictly conform with the provisions of Revenue Memorandum Order No. 20-90. ------------------------------------------------------------Chailease Finance Corporation (Respondent) is a finance corporation duly organized and existing under the laws of the Republic of the Philippines. On September 12, 2003, the BIR issued Final Assessment Notices (FANs) against Respondent for Income Tax, Percentage Tax, Expanded Withholding Tax and Documentary Stamp Tax Deficiencies in the total amount of P37,066,259.62 for the taxable year 1999. Respondent timely protested these Assessments on the ground of Prescription. The Court in Division found that, indeed, the assessments are barred by prescription. Moreover, it also found defective respondents copy of the Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code (Waiver). Aggrieved, the CIR filed an MR arguing that the Court in Division erred in using respondents copy of the waiver instead of using its (petitioner CIRs) copy.

Hence, the CIR filed a Petition for Review with the Court of Tax Appeals En Banc. CTA EB denied the Petition for lack of Merit. The Court iterated the ruling of the Division regarding Prescription and the Waiver of Defense of Prescription. Thus: On the issue of Prescription Under Section 230 of the 1997 NIRC as amended, internal revenue taxes must be assessed within 3 years counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This rule governs the governments right to assess internal revenue taxes mainly to protect the interests of the taxpayers from unreasonable investigation. For that reason, the government must assess internal revenue taxes on time so as not to extend ad infinitum the period of assessment and deny taxpayers the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.1 On the issue of the Waiver of the Defense of Prescription To be valid, a waiver of the statute of limitations under paragraphs (b) and (d) of Section 222 must be: In writing; Agreed by both the Commissioner and the taxpayer; Before the expiration of the ordinary prescriptive periods for assessment and collection; and For a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is
1

1) 2) 3) 4)

CIR v. FMF Devt Corp. G.R. 167765, June 30, 2008.

executed prior to the expiration of the first period agreed upon. Corollary thereto, the BIR issued RMO 20-90 on April 04, 1990 to lay down an even more detailed and mandatory procedure for the execution of such waiver: The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but there should be no deviation from such form. The phrase "but not after ______ 19 ___" should be filled up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. The waiver must be signed by an authorized revenue official. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. a. b. c. d. e.

1.

The CTA EB, cited Philippine Journalists, Inc. v CIR2, which emphasized the mandatory nature of the provisions of RMO No. 20-90: The waiver must set a definite date. The waiver must be accepted by the CIR or his representative. The date of acceptance by the CIR or his representative must be indicated. The taxpayer must be furnished a copy of the accepted waiver. The waiver is not a unilateral act by either but a bilateral agreement by both the BIR and the taxpayer. In this case, even if the Court used the copy of the CIR, still it would not suffice because all 3 copies of the waiver were found to be defective. The first was not signed by a revenue officer. The second, did not contain an expiration date, aside from it also not being signed by a revenue officer. And the third, did not show that respondent received a copy of the waiver accepted by the BIR.

2.

2. ST. LUKES MEDICAL CENTER, INC. V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7340, August 24, 2009) Is a waiver of the statute of limitation executed after the expiration of the ordinary prescriptive periods for assessment and collection, and which does not state a definite period of extension, valid?

3. 4.

5.

On April 15, 1986 and April 15, 1987, St. Lukes filed its profit and loss statement and balance sheet for the taxable year 1985 and 1986 respectively. Pursuant to a Letter of Authority (LOA) dated February 26, 1988, the BIR conducted an investigation to ascertain the tax liabilities of petitioner for said taxable years.
2

Id.

St. Lukes executed a Waiver of the Defense of Prescription for the taxable year 1985. On April 11, 1990, St. Lukes received final assessment notices for 1985 and 1986 deficiency income tax and deficiency expanded withholding tax. On May 25, 1990, St. Lukes filed an administrative protest. The BIR, then, cancelled the 1985 and 1986 income tax deficiency, but affirmed the 1985 and 1986 withholding tax deficiency. Thus, St. Lukes filed this present Petition for Review. Period to Assess According to the then 268 and 269 of the Tax Code, the BIR had a period of 3 years, or 10 years in case of false or fraudulent return, after the last day prescribed by law for the filing of return to assess deficiency taxes from St. Lukes. As for the 10 year period of assessment to apply, the filing of false returns must be with intent to evade tax. As found by the Revenue Examiner, however, there was no showing that St. Lukes filed a false Annual Returns for withholding taxes nor was there intention to evade tax. Hence, the BIR had only until April 15, 1989 and April 15, 1990, respectively, to assess petitioner. Since the assessments were received by St. Lukes beyond April 15, 1990, the BIRs right to assess it has already prescribed, regardless of the execution of a Waiver of Defense of Prescription . Requisites for a Valid Waiver of Statute of Limitations A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; 3

(2) agreed by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods of assessment and collection; and (4) for a definitive period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. Here, the waiver shows that it was executed after the expiration of the ordinary prescriptive periods for assessment and collection; and did not state a definite period beyond the ordinary prescriptive periods for assessment and collection. For the purpose of safeguarding taxpayers from any unreasonable examination, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.3 Here, the respondent CIR did not strictly comply with the requisites for a valid waiver, hence it is declared invalid and without effect.

3. RAYTHEON-EBASCO OVERSEAS LTD. PHILIPPINE BRANCH V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 6458, August 06, 2009) In an option to carry-over the excess creditable withholding tax, is the taxpayer entitled to subsequently file a claim for refund? ------------------------------------------------------------CIR v. B.F. Goodrich Phils, Inc. G.R. 104171, February 24, 1999.
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Petitioner is a foreign corporation duly organized under the laws of the United States of America and is licensed to do business in the Philippines. On April 17, 2000, petitioner filed with the BIR its Annual Income Tax Return (ITR) for taxable year 1999, reflecting no income tax liability either at the MCIT rate of 2% or at the regular rate of 33%. Consequently, it was unable to utilize the reported creditable taxes withheld for taxable year 1999 in the amount of P29,489,926.00. On the following April 18, 2001, petitioner filed is ITR with an income tax due of P1,299,730.00 credited against its unused creditable withholding tax. Additionally, petitioner again incurred an excess credit, leaving an income tax overpayment of P81,252,940.00. On April 16, 2002, petitioner filed a letter with the CIR, and thereafter a petition with the CTA, claiming refund in that amount representing its excess/unutilized creditable withholding taxes. The CIR moved to dismiss the petition on the ground of lack of cause of action to claim refund because petitioner opted to carry-over its excess creditable withholding taxes for taxable years 1999 and 2000 to succeeding taxable years. The CTA dismissed the claim due to lack of cause of action. Petitioner appealed with the Court of Appeals (CA) and the CA granted its petition ordering the remand of the case for further study and reception of evidence. On the issue of irrevocability, the CA said that the irrevocability of option to carry-over is limited only for the year when such option was exercised, so much so that the taxpayer can still refund the unutilized excess credits carried over to the succeeding year. The resolution of the issue of petitioners entitlement to the issuance of TCC for its unutilized excess tax credits hinges on the proper interpretation of Section 4

76 of the 1997 NIRC, quoting a portion herein, (o)nce 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 cash refund or issuance of tax credit certificate shall be allowed therefor. A corporation, thus, has 2 options: carry-over or apply for a refund/TCC. If, however, the option to carry-over is chosen in its Annual Corporate Adjustment Return, the same shall be irrevocable for that taxable period. The law is clear and unequivocal. In this case, although petitioner did not expressly mark any option in its ITR for 1999, such intention is evident in its claiming of such excess tax credits in its ITR for 2000. In fact, petitioner likewise carried the same in the year 2001. Also, the Court cannot subscribe to the position advocated by the Honorable CA that the irrevocability applies only to the immediately succeeding taxable year. Taxable period refers to the taxable year when petitioner derived excess income tax payment and elected the option to carry-over. In the case of petitioner, taxable year 1999. This excess will be carried over to succeeding taxable years until fully utilized. And, contrary to petitioners assertion, it would not be unjust to bar the claim for refund since the excess will not be forfeited in favour of the government but will remain in the account of petitioner. Petitioner is not left without any recourse since the excess amount may be carried over to the succeeding taxable years and credited against its future income tax liabilities until the same is fully utilized. Aptly, the use of the phrase succeeding taxable years (in Section 76 of the 1997 NIRC) implies that once the option to carry-over is made, the law already

allows a perpetual carry-over since a change from carryover to refund is no longer permitted. The rationale interpretation, therefore, is to apply the phrase taxable period to the year when the option to carry over was made.4

quarterly income taxes paid/withheld has two options of: 1 ) carry-over the excess credit to the next quarters/years, or 2) apply for a refund in the form of either a cash refund or a tax credit certificate. However, once the option to carry-over has been made, the same becomes irrevocable for that taxable period. (Walden case)

4. PHILIPPINE BANK OF COMMUNICATIONS V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7435, August 10, 2009); (see also WALDEN AB AYALA MANAGEMENT CO., INC. V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7750, August 03, 2009) 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 cash refund or issuance of tax credit certificate shall be allowed therefor, except if the taxpayers business has already ceased in its existence (Walden AB Ayala v. CIR). ------------------------------------------------------------On April 7, 2006, PBCom filed an administrative claim for refund or issuance of a tax credit certificate with the CIR and later, due to respondents inaction, the herein Petition for Review with the CTA. The Court found PBComs claim unmeritorious partly for the following reason: The Court found that petitioner has opted to carryover its claimed excess withholding tax for the year 2003 amounting to 17,578,318.00 and automatically applied the same amount against the estimated tax liabilities for the succeeding taxable quarters of 2004. Section 76 of the NIRC is clear that a corporation entitled to a tax credit or refund of the excess
4

Taxpayer must not have opted to carry-over and credit the excess income tax to the taxable quarters of the succeeding taxable years. In the event of cessation of business, however, petitioner may now opt to claim for refund even if it previously chose the irrevocable option to carry-over since there is no more opportunity for it to utilize such excess credits. Nonetheless, the provisions of Section 52(C) and 235 of the 1997 NIRC must still be complied with. Thus, in the event of cessation of business, petitioner must first notify the respondent of its intention and settle all its tax liabilities in order to secure a tax clearance. The rationale behind these Sections is to ensure that no corporation may escape payment of taxes and other liabilities to the government simply by opting to dissolve the corporation and retire from business or reorganize its business.

5. CE LUZON GEOTHERMAL POWER COMPANY, INC. V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7393, August 26, 2009) What are the requisites to be complied with in order to properly claim a refund, or an issuance of a tax credit certificate (TCC) representing unutilized input VAT? ------------------------------------------------------------5

United Pictures AB v. CIR, CTA Case No. 6240.

CE Luzon is principally engaged in the business of power generation and subsequent sale of generated power to the Philippine National Oil Company (PNOC), pursuant to a Power Purchase Agreement (PPA). It filed its Quarterly VAT Returns for the 4 quarters of taxable year 2004 showing unutilized input VAT. Thereafter, it filed administrative claims for refund of the whole amount. With the CIRs inaction, however, and to toll the period of prescription, CE Luzon filed a Petition for Review with the CTA praying for the refund or issuance of TCC allegedly representing unutilized input VAT from petitioners domestic purchases, services rendered by nonresidents, and importation of goods. The CIR puts in as defense various arguments such as non-compliance with the requirements of timeliness, registration, invoicing, and documentation. In sum, the issue boils down to whether CE Luzon is entitled to a refund or issuance of a TCC representing unutilized input VAT. The court resolved the issue methodically: The pertinent provisions to the foregoing are Sections 110 (B) and 112 (A) of the NIRC of 1997. From these provisions, before a claimant will be entitled to a refund or tax credit of input tax due or paid attributable to zero-rated or effectively zerorated sales, the following requisites must be complied with: That there must be zero-rated or effectively zerorated sales; That input taxes were incurred or paid; That such input taxes are attributable to zero-rated or effectively zero-rated sales; That the input taxes were not applied against any output VAT liability; and That the claim for refund was filed within the 2-year prescriptive period counted from the close of the taxable quarter when the sales were made. 6

There must be zero-rated or effectively zero-rated sales CE Luzon bases its zero-rating from Electric Power Industry Reform Act (EPIRA)5 and its Implementing Rules and Regulations providing that pursuant to the objective of lowering electricity rates to endusers, sales of generated power by generation companies shall be value added tax zero-rated. In order to qualify, petitioner must prove that: (a) it is a generation company and (b) it derived sales from power generation. Records prove that indeed CE Luzon owns and operates a power plant facility located in Leyte Province which has been accredited by the Department of Energy (DOE) as a Block Power Production Facility (BPPF) since January 15, 1994. Input taxes were incurred or paid, and such input taxes are attributable to zero-rated or effectively zero-rated sales As to the 2nd requisite, CE Luzon has produced receipts from power generation services to PNOC in the amount of P4,686,348,370.84. With respect to its claim that they incurred the amount of P22,764,594.40 in input VAT, it presented various suppliers invoices, official receipts, Bureau of Customs (BOC) Import Entries and Internal Revenue Declarations (IEIRDs), and bank official receipt in support of its claim. The Court-commissioned Independent CPA, although disallowed the amount of P3,500,571.61 on the grounds of: some purchases were supported only by certified true copies of VAT Invoices/ VAT OR, input tax on Overseas Communication Tax (OCT) and on purchase of petroleum products, DST and local taxes were included, Invoice not in the name of Petitioner, Invoices with VAT stamp, Invoices without date, Invoice/OR without BIR authority to print, no supporting documents, no
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a. b. c. d. e.

Republic Act No. 9136 (R.A. 9136).

IEIRD machine validation, and other analogous reasons, found that most part of the claim is in order. Hence, the Court allowed only the amount of P19,264,022.79 as input tax attributable to zero-rated sale from power generation. The input taxes were not applied against any output VAT liability A perusal of petitioners Quarterly VAT Returns for the four quarters of 2004 show that it has no output tax liability against which the substantiated input VAT may be applied or credited The claim for refund was filed within the 2-year prescriptive period counted from the close of the taxable quarter when the sales were made Lastly, the Court also found that the claim was filed well within the prescriptive period. In the recent case of CIR v. Mirant,6 the Supreme Court (SC) held that the reckoning period of the two-year prescriptive period for filing a claim of refund for input VAT commences from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT, regardless of whether said tax was paid or not. CE Luzons administrative claims for input VAT refund for taxable year 2004 filed on April 12, 2005 and December 14, 2005, and the Petition for Review filed on December 29, 2005, were all timely filed before the expiration of the period on 2006.

(see also PHILEX MINING CORPORATION V. COMMISSIONER OF INTERNAL REVENUE (CTA Case Nos. 7528 & 7564, August 10, 2009) When is the reckoning of the two-year prescriptive period for filing a claim of refund or issuance of a Tax Credit Certificate (TCC) for input VAT? ------------------------------------------------------------Team Energy (Respondent) is principally engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC) under a Build-Operate-Transfer (BOT) Scheme. Respondent filed its VAT quarterly returns for taxable year 2002. On December 22, 2004, it filed an administrative claim for refund of unutilized input VAT for taxable year 2002 with Revenue District Office No. 60 in the amount of P79,918,002.95. Due to petitioners inaction and to toll the running of the prescriptive period, respondent elevated its claim to the CTA via Petition for Review. In Answer, petitioner CIR alleged that the claim was filed beyond the two-year prescriptive period. To resolve the issues, the Court iterated the requisites to be followed under Section 112 of the 1997 NIRC one of which requires that the claim for refund was filed within the 2-year prescriptive period counted from the close of the taxable quarter when the sales were made. The recent case of CIR v. Mirant7 settled the proper interpretation of Section 112 (A) of the NIRC providing for the prescriptive period within which to claim a refund for input VAT. The Court said that the above proviso clearly provides in no uncertain terms that unutilized input VAT payments xxx must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made
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6 COMMISSIONER OF INTERNAL REVENUE V. TEAM ENERGY CORPORATION (FORMERLY MIRANT PAGBILAO CORPORATION) (CTA E.B No. 422 [CTA Case No. 6957], August 14, 2009);
6

G.R. 172129, September 12, 2008.

565 SCRA 154.

pertaining to the input VAT regardless of whether said tax was paid or not. Thus, the period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. Record shows that respondent filed its administrative claims for taxable year 2002 on December 22, 2003, while the judicial claim on April 22, 2004. As to its claim for first quarter of 2002 filed on March 31, 2002, therefore, the court declared that it is already barred as the prescriptive period within which to claim refund as regards that period has expired on March 31, 2004. The amount granted under the Division is, therefore, reduced to P51,134,951.40.

NORTHERN LUZON DRUG CORPORATION V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7612, August 11, 2009) Is the 20% discount granted by drugstores to senior citizens in their purchase of medicine treated as a tax credit or tax deduction? ------------------------------------------------------------Petitioners are duly licensed by the BFAD, DTI and BIR to operate drug stores. On various dates during the period of January 1, 2004 to March 20, 2004, petitioner allegedly granted 20% sales discount in the amount of P3,175,980.00 to qualified senior citizens on their purchases of medicines, pursuant to R.A. 7432 or the Senior Citizens Act. In its 2004 Annual Income Tax Return filed on April 15, 2005, petitioner reported and treated said discount as prepaid tax credit but declaring it as creditable tax withheld. On April 14, 2007, petitioner filed a Request for the Issuance of a TCC for the same amount. The sole question to be resolved in this case is whether or not petitioner is entitled to a tax credit. The Court answers in the affirmative. Tax Credit or Tax Deduction The pertinent law indicating the proper treatment of the 20% sales discount to qualified senior citizens on their purchase of medicine is Section 4(a) of R.A. 7432, which states that the private establishment may claim the cost as tax credit. It is clear from the said provision that private establishments, like herein petitioner, may claim the cost of granting the 20% discount as tax credit.

Concurring and Dissenting Opinion of J. Ernesto D. Acosta Only the administrative claims must be filed within the period set in Section 112 (A) of the NIRC, i.e. two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. With regard to the filing of judicial claim, however, paragraph (D) of Section 112 should be applied, i.e. 30 days from receipt of the decision denying the claim, or the expiration of 120 days, which uses the word appeal while paragraph (A) of Section 112 uses apply.

7. SOUTHERN LUZON DRUG CORPORATION V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7608, August 11, 2009) and 8

The treatment of the 20% sales discount as a tax credit and not as mere deductions from gross income has been consistently upheld by the courts.8 The difference lies in the manner of treatment, thus, a tax credit is used by private establishment only after the tax has been computed while a tax deduction, before the tax is computed. R.A. 7432 unconditionally grants a tax credit to all covered entities. Thus, provisions of a revenue regulation that withdraws or modifies such grant are void.9 If the claim, however, falls within the amendment of R.A. 7632 by R.A. 9257,10 the discount shall now be treated as a tax deduction and not the previously allowed tax credit.

P6,175,000.00, which the latter subsequently sold for P98,000,000.00. At the outset of this case, Mr. Maraon has already been questioning the legality of the alleged sale by him of his BW 1,300,000 shares to Ramon Mapa/WSPI. The Court, accordingly, ruled on this matter first before delving into the main issue of the case. Mr. Maraon alleged that a certain Ramon Mapa and/or WSPI fraudulently and illegally used his name to effect the transaction on the subject BW shares and that he did not receive any consideration from such sale. The court, however, found that the records, particularly the Ledger of Statement of Account, Security Movement Report of petitioner, Stock Debit Memo of WSPI, and the form used by the broker to debit shares of stock transferred and Stock In Receipts of ICC Securities, Inc., show that the shares transferred were received and credited to the account of Ramon Mapa to the extent of 1,300,000 BW shares. Authenticated copies of said documents were secured from the brokers and it was ascertained that the transfer transactions had been consummated. Secondary Issues: Due Process and Newly Discovered Evidence Mr. Maraon allege that he did not receive any notice or Letter of Authority from respondent with respect to the examination of his books of accounts or accounting records of 1999. Likewise, he alleged that he did not receive notices prior to the Formal Letter of Demand, hence, his right to due process was violated. Upon examination of the records, however, it was found that the notices were actually served to the residential house of petitioner on December 2, 2000; February 27, 2001 and April 17, 2001, respectively. The Assessment Notice with attached Formal Letter 9

8. MANUEL MARAON, JR. V. COMMISSIONER OF INTERNAL REVENUE (CTA EB No. 399 [CTA Case No. 6711, August 10, 2009) What is the tax implication of an Over The Counter (OTC) sales transactions of shares of stock? ------------------------------------------------------------Factual Issues Mr. Maraon was assessed for deficiency Capital Gains Tax of P17,086,689.25 and deficiency Documentary Stamp Tax of P18,207.38, plus surcharge and interest, for failure to pay the same after the sale of its 1,300,000 Best World Resources , Incorporation shares to Mr. Ramon Mapa/ Wise Securities Philippines, Inc. (WSPI) in the amount of
Baliuag Drug, Corp. v. CIR, CTA Case No. 6537, November 25, 2004. Del Rosario Drug, Corp. v. CIR, CTA Case No. 5357, April 6, 1998. 9 CIR v. Central Luzon Drug, Corp. G.R. No. 159647, April 15, 2005. 10 Approved February 24, 2004.
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of Demand was also served to the same residential address indicated in the previous notices. Petitioner, on the other hand, failed to present evidence disputing his receipt of the notices. It was also found by the Court in Division that there was no violation of petitioners right to due process since several opportunities were given to petitioner to appear at the administrative level but petitioner ignored said notices. Assuming arguendo that petitioner only received the Formal Letter of Demand and not the Preliminary Assessment Notices, the same is sufficient compliance with due process requirements. On the issue of a newly discovered evidence, Mr. Maraon sought to present a testimony of Mr. Mapa in the form of a judicial affidavit, disclaiming that Mr. Maraon had anything to do with the BW shares and avowing that WSPI was merely using Mr. Maraons account. The Court, however, ruled that such cannot qualify as a newly discovered evidence because Section 5 of Rule 15 of the Revised Rules of the CTA requires that: a) the evidence was discovered after the trial; b) such evidence could not have been discovered and produced at the trial with reasonable diligence; c) it is material, not merely cumulative, corroborative or impeaching; and d) it is of such weight that, if admitted, will probably change the judgment. The question of whether evidence is newly discovered has two aspects: a temporal one, i.e., when was the evidence discovered, and a predictive one, i.e., when should or could it have been discovered. It is to the latter that the requirement of due diligence has relevance. In this case, Mr. Mapas testimony already existed long before the trial of this case. More importantly, Mr. Mapa was subpoenaed as a hostile witness for the petitioner but did not appear. Had petitioner exercised reasonable diligence, he could have produced Mr. Mapa during the trial. 10

Main issue: Propriety of the CGT and DST After the sale of the said shares by Mr. Maraon to Mr. Mapa/WSPI, the BIR assessed petitioner for deficiency CGT and DST in connection with the sale/ transfer of the subject BW shares of stock through OTC transactions. Basic is the rule that tax assessments by tax examiners are presumed correct and made in good faith. Pursuant to the NIRC of 1997, as amended, over the counter transactions are subject to the following taxes: 1. Capital Gains Tax; Final capital gains tax of 5% for not over P100,000 ; to 10% on any amount in excess of P100,000, shall be assessed on the net capital gains realized on the sale/ transfer of shares of stock listed but not traded in the stock exchange (Over-the-Counter Transactions), prescribed under Section 24 (C) of the 1997 Tax Code and Sections 6 (a) and (b) (2) of Revenue Regulations (R.R) 2-82 dated March 29, 1982. 2. Documentary Stamp Tax; and The amount of P1.50 on each Two Hundred pesos of the par value of the shares or certificate of stock shall be collected on the sale, transfer of shares or certificates of stock as provided under Section 176 of the NIRC of 1997, as amended. 3. Civil Penalties and Interests. In case of wilful neglect to file CGT and DST returns and pay the corresponding taxes thereon, a 50% surcharge will be imposed in accordance with Section 248 (B) of the NIRC. Plus a 20% interest per annum pursuant to Section 249 (B). With the transaction being proven to have taken place, Mr. Maraon is hereby ordered to pay the amounts due to the government. DISSENTING OPINION BY J. CAESAR A. CASANOVA

The requirements for newly discovered evidence are on all fours in this case. The affidavit was already existing but discovered only after trial, and it is material evidence which would determine the success and defeat of the case. The veracity of Mr. Maraons allegation that he was unaware of the alleged transaction can only be threshed out in a hearing wherein he can present the affidavit and for respondent to be given the opportunity to crossexamine the said witness.

partially prepared with or without the use of any machine or instruments or without being pressed or sweetened, which, according to respondent, Philippine Tobaccos product is classified under (L-6). In the case of a manufacturer (L-7), however, they shall be exempted from the prepayment of this tax if the same are to be exported or to be used by another manufacturer on which the excise tax will eventually be paid under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary of Finance. Philippine Tobacco insists that it is not covered by Section 144 but, instead, by Section 140 which exempts the sale in bulk of stemmed leaf tobacco by one manufacturer to another. The Secretary of Finance, however, in exercise of his authority under both Sections 140 and 144, promulgated Revenue Regulations (RR) No. 17-67 defining partially manufactured tobacco to include stemmed leaf. The question in this case is whether petitioner is liable for deficiency excise tax on stemmed leaf tobacco based on Sec. 144 of the NIRC of 1997. To answer this question, the Court clarified the rule on who is qualified for exemption. Petitioner is classified as an L-6 permittee, per its declaration and in accordance with the definition in the RR 17-67, i.e, those engaged in the hand stripping or threshing whole leaf tobacco for themselves or for other L-6 or L-7 permittees. According to this RR, L-6 permittees are liable to pay P0.75 excise tax on their stemmed leaf tobacco based on Section 144 of the NIRC. Said RR further provides an exemption from prepayment of the excise tax, but it explains that in order to avail of the exemption under Section 144 of the NIRC, the claimant must be a manufacturer, classified as L-7 permittee. The rationale is explained by the Court, thus, only an L-7 permittee is qualified to avail of such exemption from pre-payment because such 11

9. PHILIPPINE TOBACCO FLUE-CURING AND REDRYING CORPORATION V. COMMISSINER OF INTERNAL REVENUE (CTA Case No. 7377, August 10, 2009) Exemption from taxation is highly disfavoured in law and he who claims an exemption from his share of the common burden in taxation must be able to justify his claim by showing that Congress intended to exempt him by words too plain to be mistaken. An exemption from tax liability cannot be permitted to exist upon vague implications. ------------------------------------------------------------On July 16, 2004, petitioner received from Deputy Commissioner of Large Taxpayers Service (LTS) a Notice of Discrepancy which stated a deficiency excise tax of P1,467,247.79, inclusive of penalties. Petitioner replied claiming that there is no legal basis for holding it liable for the deficiency. Subsequently, it received a Preliminary Assessment Notice (PAN), and later a Final Assessment Notice (FAN), from respondent which it timely protested and petitioned a review for with the CTA. Respondent, insists that the assessment is valid and based on Section 144 (b) of the NIRC of 1997, as amended, which provide that a tax of P0.75 shall be collected on each kilogram of tobacco prepared or

stemmed leaf tobacco has been subjected to specific tax when an L-7 manufacturer purchased the same from wholesale leaf tobacco dealers designated as L-3, L-3F, L-3R, L-4, or L-6, the latter being a stripper of leaf tobacco. Moreover, the conditions for the availment of such exemption was already settled by the Supreme Court in the case of CIR v. La Campana11 providing the conditions under which stemmed leaf tobacco may be transferred from one factory to another without pre-payment of tax: a) The transfer shall be under an official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of its removal. b) Entry shall be made in the L-7 register in the place provided on the page removals. c) Corresponding debit entry shall be made in the L-7 register book of the factory receiving the tobacco under the heading Refuse, etc., received from the other factory, showing the date of receipt, assessment and invoice numbers, name and address of the consignor, from in which received, and the weight of tobacco. Clearly, the claimant for exemption must be an L-7 tobacco manufacturer because only an L-7 permittee has an official L-7 invoice, L-7 register and L-7 register book. Settled is the rule that a claim for refund or exemption from tax payments must be clearly shown and be based on language in law too plain to be mistaken. Taxation is the rule, exemption is the exception. Therefore, petitioner, not being a manufacturer or L-7 permittee, is liable in all its removals of partially prepared tobacco/stemmed tobacco leaf prepared by it.

10. CITY TREASURER OF MANILA V. CHINA BANKING CORPORATION and the Hon. PRESIDING JUDGE, METROPOLITAN TRIAL COURT, BRANCH 23, MANILA (CTA EB Case No. 434 [RTC SCA No. 04-111014] [MTC Civil Case Nos. 175169CV, 175172CV, 175177CV, 175178CV], August 06, 2009) What is the proper form of the letter of refund to be filed with the City Treasurer under the Local Government Code (LGC)? ------------------------------------------------------------China Bank Corp. (CBC) filed with the Metropolitan Trial Court (MTC) a petition for refund of the taxes that it paid under protest in January 2003 in the amount of P122,770.55. The City Treasurer of Manila (Petitioner) filed a motion to dismiss said case on the ground of lack of jurisdiction, which the MTC denied. Petitioner then filed a Petition for Certiorari with the Regional Trial Court (RTC), which affirmed the MTCs denial of its motion. Hence, Petitioner filed this Petition for Review with the CTA En Banc (EB). This Court reversed both the MTC and the RTC, and granted the motion to dismiss filed by petitioner on the ground of lack of jurisdiction. CBC maintains that the MTC properly acquired jurisdiction because it followed the mandate of Section 196 of the Local Government Code (LGC) commanding that an administrative claim for refund must first be filed with the City Treasurer before resorting to judicial action. The petitioner, on the other hand, argues that although CBC wrote a letter to the Office of the City Treasurer, such was only a letter of protest and not a claim for refund as contemplated in the said Section 196. A portion of the letter is quoted hereunder: 12

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G.R. No. 145275, November 15, 2001.

It is our position that we are not liable on the said additional local tax. And assuming that we are xxx, we vehemently disagree with the assessment on the ground xxx (of) double taxation. xxx In the meantime, to avoid penalties/surcharges and any threat of closure, we are remitting the aforesaid assessment UNDER PROTEST xxx. Please issue receipt for the corresponding amount. xxx In the above letter, CBC merely alleged that it is not liable on the assessed business tax, and assuming that is it, the same constitutes double taxation. The letter did not apprise petitioner of the formers intention to effect a refund. It is but a notice that it is paying the amount under protest. The LGC does not require a specific form of the letter of refund. However, there must be a categorical written statement on the part of the taxpayer whether he is manifesting his intention to effect a claim for refund or credit of alleged erroneous payment of local taxes, or writing a letter of protest or both.12 Hence, MTC has no jurisdiction over the case for failure of CBC to file a written claim for refund with the City Treasurer.

------------------------------------------------------------Petitioner (HP) seeks the refund or the issuance of a tax credit certificate (TCC) in the amount of P2,283,079.36 representing its erroneous double payment of its Expanded Withholding Tax (EWT) liability for March 2006. HP is enrolled with the BIRs Electronic Filing and Payment System (EFPS). Under the EFPS, the taxpayer pays the tax due on the return being filed using electronic fund transfer. Tax payments through electronic fund transfer are deemed paid after a Confirmation Number is issued to the taxpayer and to the BIR by the Authorized Agent Bank. Under the electronic fund transfer mechanism of the EFPS, funds are transferred from the taxpayers bank account to a bank account belonging to the BIR upon acknowledgement that each filed return has a corresponding payment transaction number. The EFPS indicates the date and time when a specific return is filed and paid by the taxpayer. HP alleged that on April 12, 2006 at about 9:01 A.M., it processed for payment through EFPS its EWT. While processing the return, however, it encountered a system problem while attaching the electronic copy of the Alpha List which is to be filed together with the return. Notwithstanding the same, petitioner completed the processing of the return without having attached the electronic copy of the Alpha List. The EFPS print-out bears Reference No. 020600001011134. After processing that return, HP tried to file the Alpha List through E-Submission using the BIR website, but failed. Hence, on the same day, it filed an Amended Return through the EFPS, attaching the Alpha List. The print-out bears Reference No. 020600001011233. Later, HP discovered that there was a double payment since their account was debited twice. 13

11. HEWLETT-PACKARD PHILIPPINES, CORPORATION V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7756, August 06, 2009) Basic is the principle that when money is paid to another under the influence if a mistake of fact, it may be recovered. The Government is not exempt from the scope of solutio indebiti principle.
China Banking Corporation v. City Treasurer of Manila, CTA EB Case No. 146, August 2, 2006/ G.R. No. 174999, March 5, 2007.
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HP, then, filed an Application for Refund. Is HP entitled to a refund? The Court answers in the affirmative. The documents submitted reveals that both returns were successfully processed and paid, evident from the HPs bank accounts being debited twice. Moreover, the payment transaction numbers and acknowledgement numbers for the two foregoing payments correspond to the payment transaction numbers and acknowledgement number in the payment confirmation. Payment of taxes under a mistake of fact is recoverable under Articles 2142 and 2154 of the Civil Code. A payment of tax under a mistake of fact has been held not to be voluntary, and is therefore recoverable (51 Am. Jur. 1023). On principle, a recovery should be allowed where money is paid under a mistake of fact although such mistake of fact may be induced by a mistake of laws, or where there is both a mistake of fact and a mistake of law. (40 Am. Jur. 846) In the instant case, HP, believing that the original return was not successfully processed and paid, made a mistake of filing an amended return a few minutes later, which was also successfully processed and paid. Such payment is held to be not voluntary and, therefore, can be recovered.

On June 9, 2004, UCPB received a Formal Letter of Demand and Assessment Notice for deficiency Gross Receipts Tax on all its FCDUs for taxable year 2000 in the amount of P112,280,954.88. Petitioner argues that its FCDU transactions are exempt from Gross Receipts Tax based on existing law and jurisprudence. The Court found petitioners argument to be untenable. The Court already declared that the phrase exempt from all taxes previously exempting FCDU from all taxes under Section 27 (D)(3) of the NIRC has been deleted thereby now subjecting such FCDU to GRT. Section 27(D)(3) amended the provision of Section 24 (e)(3) and deleted the exempt from all taxes phrase. The implication therefore of the amendment is that onshore income is now subject to 2 distinct forms of taxes: one, on income derived therefrom which is subject to a final tax of 10% under Section 27 (D) (3) and two, on gross receipts on the privilege of banks to earn income in all its other activities mentioned therein.13 Further, RR 10-98 implementing said section of the 1997 NIRC categorically states that income derived by an FCDU is now subject to a final withholding tax of 10% based on its gross income. On the issue of prescription, UCPB is claiming that respondents assessment dated June 2004 for its taxable year 2000 tax liability has already prescribed since Section 203 of the NIRC provides only for 3 years to assess taxpayers from the date of filing, or the last day of filing, whichever is later. Records show that petitioner paid on April 5, 2000; July 25, 2000; October 25, 2000 and January 25, 2001. Hence, 3 years from such payments have already prescribed on June 9, 2004, the date of respondents assessment.
Final decision dated March 2, 2004 of Commissioner on disputed assessment if gross receipts tax in the matter of protest of the Export and Industry Bank.
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12. UNITED COCONUT PLANTERS BANK V. COMMISSIONER OF INTERNAL REVENUE (CTA Case No. 7259, August 06, 2009) Is a Foreign Currency Deposit Unit (FCDU) of a bank liable for Gross Receipts Tax (GRT)? ------------------------------------------------------------14

The court said that UCPBs position would have been correct had they filed the correct returns on such dates. However, no return for the GRT was filed at all, exactly on the belief that it is exempt from it. Section 222 of the NIRC provides, as exception to Sec. 203, a longer period of 10 years to assess taxpayers who omit to file a return. Moreover, even though UCPB declared in its filed Return the tax payments for its income attributable to its regular banking functions, it failed, much less pay, its GRT liabilities. Such omission in the said Return, is tantamount to non-filing. After all, FCDU and the banks regular banking unit should be treated separate and that the income of one is not the income of the other. The assessment of respondent, therefore, is not time barred. On the issue of penalty, the court found that the imposition of 25% surcharge is proper as provided by Section 248 (A) (1) of the NIRC for failure to file any return on the date prescribed. As to the imposition of the compromise penalty, however, the court found it to be improper since that is imposed only in criminal prosecutions for violations committed by taxpayers the payment of which is based on a compromise agreement validly entered into between the taxpayer and the CIR. Thus, absent any showing that petitioner consented, its imposition cannot be allowed.

the basic corporate income tax based on annual net taxable income or the 2% franchise tax based on gross revenue, whichever is lower, in lieu of all taxes? ------------------------------------------------------------On July 15, 2005, PAL filed its ITR for fiscal year ending March 15, 2005 showing a zero taxable income with unused creditable withholding taxes. The BIR, issued an LOA for examination of the books of accounts of PAL and accounting records for all internal revenue liabilities for the year ending March 31, 2005. PAL complied and also submitted photocopied documents in reply to a request by the Chief of Large Taxpayers Service (LTS) Division. Thereafter, PAL received a Preliminary Assessment Notice (PAN) from LTS informing them that there is MCIT due to them in the amount of P98,809,379.45. PAL timely filed a written protest stating that under their franchise P.D. 1590, it is liable only for the basic corporate income tax based on annual net taxable income, or the 2% franchise tax based on gross revenue, whichever is lower, in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future. Subsequently, a Formal Assessment Notice (FAN) was issued against PAL. PAL filed a formal protest which was unacted, hence, it filed a Petition for Review with the CTA.

13. PHILIPPINE AIRLINES, INC. (PAL) V. COMMISSIONER OF INTERNAL REVENUE. (CTA Case No. 7840, August 27, 2009) Did the incorporation of the 2% Minimum Corporate Income Tax (MCIT) in the 1997 NIRC amend PALs franchise which subjects them only to 15

The BIR, through its LTS Division, argued that although PAL was previously not covered by the normal income tax rate, the advent of the NIRC of 1997 changed this and subjected PAL to the normal income tax rate for corporations, same with all franchise grantees. The previous preferential tax enjoyed by PAL must give way to the NIRCs

provision on Section 27 (E), as implemented by Revenue Regulation (RR) No. 9-9, which states that a corporation, beginning on the 4th taxable year from its operations , shall be imposed the 2% MCIT upon its gross income whenever the MCIT is greater than the normal income tax due, or whenever a corporation has zero or negative taxable income. The BIR interprets the phrase in PALs franchise of normal income tax or 2% franchise tax to mean that the normal income tax is either the 30% on its net income or the MCIT of 2% on its gross income. Hence, PAL should pay its taxes whichever is lower from the normal rate of 30% or 2% franchise tax; OR 2% MCIT or 2% franchise tax. PAL, on the other hand, clings to the in lieu of other taxes provision in their charter. It alleged that it has zero tax liability since its zero taxable income means zero corporate income tax due, which is definitely lower than 2% franchise tax. The sole issue in this case is whether PAL is liable to the MCIT. The court answers in the negative. Verba Legis Under the verbal legis rule, if the statute is clear, plain, and free form ambiguity, it must be given its literal meaning and applied without interpretation. This principle rests on the presumption that the words used by the legislature in a statute correctly express its intent and preclude the court from construing it differently.14 P.D. 1590 is very clear. PAL is liable to pay either: a) its basic corporate income tax, or b) franchise tax of 2%, whichever is lower. And this shall be in lieu of all other taxes. The language used in Section 13 of such P.D granting tax exemption is clearly allinclusive.15
PAGCOR v. PEJI Zamboanga City SEZA. G.R. 1773333, April 24, 2009. 15 CIR v. PAL. G.R. 180043, July 14 , 2009.
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Basic Corporate Income tax does not refer to MCIT The provision of Section 27 of the NIRC reads basic corporate income tax based on the grantees annual net taxable income. Taxable income does not include passive income subjected to withholding taxes. Clearly, the basic corporate income tax of PALs franchise relates to the general rate of 35%. Noteworthy also is the last paragraph of Section 13 of PALs franchise which allows carry over as a deduction from taxable income any net loss incurred in any year up to 5 years following the year of such loss. Said provision presupposes the possibility of a net loss which conversely, the MCIT wishes to substitute. To make PAL liable for MCIT because of its net loss negates the intention of the lawmakers to grant petitioner the option to choose the kind of tax that will make it liable for the least amount. Special v. General Furthermore, Section 27 (E) of the NIRC did not repeal PALs franchise since the 1997 NIRC is a general law whereas P.D. 1590 is a special law. Legislative Intent Notably, PAL was owned and operated by the government at the time its franchise was last amended. It can be reasonably contemplated that P.D. 1590 sought to assist the finances of the government corporation in the form of lower taxes. In the event that PAL incurs a loss, it shall have zero liability for basic corporate income tax, the lowest possible tax liability. There being no qualification to the exercise of its option under Section 13. Determining whether this tax exemption is wise or advantageous is outside the realm of judicial power. This matter is addressed to the sound discretion of the lawmaking department of the government.

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14. COMMISSIONER OF INTERNAL REVENUE V. CHUAYUCO STEEL MANUFACTURING CORPORATION (CTA EB Case No. 458 [CTA Case No. 6642], August 04, 2009) Can an allegation of fraud by the CIR prosper when it waived the right to present evidence? ------------------------------------------------------------Respondent corporation filed its Corporate Annual Income Tax Returns for taxable years 1996 and 1997 on April 15, 1997 and April 15, 1998 respectively. In 1998, a Revalidated Letter of Authority was issued by the BIR, thus respondents records were examined. For taxable year 1996, however, the BIR Tax Fraud Unit conducted an investigation. In 2000, respondent received a Preliminary Assessment Notice (PAN), and a Final Assessment Notice (FAN) on June 11, 2002, for deficiency income, value-added, and withholding tax assessments in the amount of P263,691,141.64. Respondent timely protested the assessment and filed a Petition for Review with the CTA premised on the prescribed right of the CIR to assess him The CIRs answer to this is that their right has not yet prescribed since the 3 year period provided in Section 203 of the NIRC is inapplicable, instead, what is pertinent is Section 222 which provides for 10 years to assess in case of fraud, falsity or omission. The CIR insist that in this case, there was fraud on the part of respondent since the discrepancy of the amount is so huge. On April 9, 2008, respondent corporation manifested that it has availed of the tax amnesty under R.A. 9480, and moved for the partial withdrawal of the Petition for Review.

With the amnesty, only the assessment for expanded withholding tax (EWT) remain, considering that it is not covered by R.A 9480, in the amount of P357,468.71, inclusive of 50% surcharge and 20% interest. Petitioner CIRs counsel waived his right to present evidence. The CTA in Division (CTA Div.) agreed with the respondent and cancelled this remaining assessment on the ground of prescription. Petitioner CIR is thus appealing such ruling insisting that the 10 year period should govern in this case since there was fraud on the part of respondent. The CTA En Banc denied petitioners petition and hereby affirmed the Divisions cancellation of the remaining assessment on the ground of prescription. The court explained that the CTA Div. ruled out the existence of fraud for failure of petitioner to prove such allegation. It was found that there was no failure to collect and remit withholding taxes as respondent corporation has satisfactorily proven its withholding and remittance of the correct withholding taxes by presenting its Monthly Remittance Return of Income Taxes Withheld and Annual Information Return of Income Taxes Withheld Compensation, Expanded and Final Withholding Taxes. Records also show that as a result of its investigation, the Tax Fraud Division has reconsidered some points in respondents protest and one of these is the cancellation of the 1996 assessment for withholding tax deficiencies. Furthermore, fraud was not proven by CIR. In fact, he did not present evidence before the Court in Division to prove his allegations, and consequently waived his right to present his evidence. Well settled

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is the rule that fraud cannot be presumed and it must be established by clear and sufficient evidence.16 Consequently, only the 3 year period to assess based on Section 203 of the NIRC is applicable in this case. Applying thus, the CIRs right to assess respondent has therefore prescribed. As to CIRs reliance on Sections 251 and 281 of the NIRC, Sec. 251 which provides for penalty for withholding agents who fail to collect and remit tax is applicable only after a finding of such failure and conviction, which are both wanting in this case. While Section, 281 which provides for a prescription of 5 years for violation of any provision of the tax code, refers to the prescription of crimes. It bears stressing that CIR never filed a criminal case against respondent. Hence, both provisions are not applicable in the instant case.

Heng Tong Textile, Co. V. CIR. G.R. No. L-19737, August 26, 1968.
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