THIRD DIVISION

G.R. No. 180345

November 25, 2009
SAN ROQUE POWER CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
CHICO-NAZARIO, J.:

FACTS:

San Roque Power Corporation, a domestic corporation incorporated for the sole purpose of
building and operating the San Roque Multi-purpose Project, entered into a Power Purchase Agreement
(PPA) with the National Power Corporation (NPC) to develop the hydro potential of the Lower Agno
River, and to be able to generate additional power and energy for the Luzon Power Grid, by developing
and operating the San Roque Multipurpose Project. Because of the exclusive nature of the PPA between
petitioner and the NPC, petitioner applied for and was granted five Certificates of Zero Rate by the BIR,
through the Chief Regulatory Operations Monitoring Division (Audit Information, Tax Exemption &
Incentive Division). Based on these certificates, the zero-rated status of petitioner commenced on
September 27, 1998 and continued throughout the year 2002. For the period January to December 2002,
petitioner filed with the respondent its Monthly VAT Declarations and Quarterly VAT Returns. Its
Quarterly VAT Returns showed excess input VAT payments on account of its importation and domestic
purchases of goods and services.

Petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input
VAT paid for the period January to March 2002, April to June 2002, July to September 2002, and October
to December 2002, respectively. After some amendments to the claims, it was reflected that petitioner
sought to recover a total amount of P249,397,620.18 representing its unutilized excess VAT on its
importation and domestic purchases of goods and services for the year 2002.

Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the
latter to file on April 5, 2004, with the CTA in Division, a Petition for Review before it could be barred by
the two-year prescriptive period within which to file its claim. Petitioner sought the refund of the amount
of P249,397,620.18 representing its unutilized excess VAT on its importation and local purchases of
various goods and services for the year 2002.

After a hearing on the merits, the CTA Second Division ruled that in order for petitioner to be
entitled to the refund or issuance of a tax credit certificate on the basis of Section 112(A) of the NIRC, it
must establish that it had incurred zero-rated sales or effectively zero-rated sales for the taxable year
2002. Since records show that petitioner did not make any zero-rated or effectively-zero rated sales for
the taxable year 2002, the CTA reasoned that petitioners claim must be denied. Petitioner appealed to the
CTA En Banc, but the latter denied the appeal.

ISSUE:
Whether or not petitioner is entitled to refund or tax credit in the amount of P249,397,620.18
representing its unutilized input VAT paid on importation and purchases of capital and other taxable goods
and services from January 1 to December 31, 2002.
HELD:
YES. To claim refund or tax credit under Section 112(A), petitioner must comply with the
following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or
effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not transitional
input taxes; (5) the input taxes have not been applied against output taxes during and in the succeeding
quarters; (6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) for
zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable
foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and
regulations; (8) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales volume; and (9) the claim is filed within two years after
the close of the taxable quarter when such sales were made.

Based on the evidence presented, petitioner complied with the abovementioned requirements.
 The main dispute in this case is whether or not petitioners claim complied with the sixth
requirementthe existence of zero-rated or effectively zero-rated sales, to which creditable input taxes
may be attributed. The CTA in Division and en banc denied petitioners claim solely on this ground.

However, upon closer examination of the records, it appears that on 2002, petitioner carried out a
"sale" of electricity to NPC. The fourth quarter return for the year 2002, which petitioner filed, reported a
zero-rated sale in the amount of P42,500,000.00. In the Affidavit of Echevarria dated 9 February 2005
(Exhibit "L"), which was uncontroverted by respondent, the affiant stated that although no commercial
sale was made in 2002, petitioner produced and transferred electricity to NPC during the testing period in
exchange for the amount of P42,500,000.00.

The Court is not unmindful of the fact that the transaction described hereinabove was not a
commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively zero-rated
taxpayers, Section 112(A) of the NIRC does not limit the definition of "sale" to commercial transactions
in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the
imposition of the VAT, does not limit the term "sale" to commercial sales, rather it extends the term to
transactions that are "deemed" sale.

After carefully examining this provision, this Court finds it an equitable construction of the law
that when the term "sale" is made to include certain transactions for the purpose of imposing a tax, these
same transactions should be included in the term "sale" when considering the availability of an exemption
or tax benefit from the same revenue measures. It is undisputed that during the fourth quarter of 2002,
petitioner transferred to NPC all the electricity that was produced during the trial period. The fact that it
was not transferred through a commercial sale or in the normal course of business does not deflect from
the fact that such transaction is deemed as a sale under the law.
 THIRD DIVISION
G.R. No. 183834
November 25, 2009
JIMMY R. NAPOLES, Petitioner,
vs.
OFFICE OF THE OMBUDSMAN (VISAYAS), NATIONAL BUREAU OF INVESTIGATION
(NBI) REGIONAL OFFICE NO. 7 and ANTONIO G. RUIZ, JR., Respondents.
NACHURA, J.:

FACTS:

Antonio G. Ruiz, Jr. went to the Bureau of Internal Revenue (BIR)-VII South District Office for
computation of the capital gains tax due him in connection with the sale of his 525-square-meter property
in Pardo, Cebu. Revenue District Officer Estrella Lopez assigned Jimmy Napoles, BIR Examiner I, to
determine the zonal valuation of the property as basis for the payment of capital gains tax. Using as
reference Department Order No. 18-97, Napoles informed Ruiz that the zonal valuation of the property
was P4,325.00 per square meter as of 1996 subject to 10% increase per annum. Ruiz disagreed and said
that the valuation should only be P3,100.00 per square meter. Ruiz proposed that an ocular inspection be
made at his expense. After the ocular inspection, Napoles insisted on the higher zonal valuation,
reasoning that the property is situated in an industrial zone; still, Ruiz insisted that it should only be
P3,100.00/sq. m.

According to Napoles, he advised Ruiz to talk to Lopez, who, in turn, instructed him to
accommodate Ruiz demand to reduce the zonal value to P3,100.00 per square meter on the condition that
it shall be subject to the approval of the BIRs Legal Division, and that if the same should be denied, Ruiz
must pay the appropriate amount of tax. Napoles computed the capital gains tax based on the
P3,100.00/sq. m. value, and according to Ruiz, Napoles handed him a written computation of the tax
assessment, but demanded, in addition, the amount of P10,000.00 to be used as "grease money" to speed
up the processing of the documents and the approval by the BIR Regional Office. Since then, Napoles
kept reminding Ruiz about the P10,000.00 grease money.

Irate, Ruiz reported the matter to the National Bureau of Investigation (NBI) Regional Office. An
entrapment operation was set, with Ruiz agreeing to a meeting with Napoles. Napoles was then arrested
and was subjected to ultraviolet light examination and was found to have yellow fluorescent smudges and
specks on his left and right hands. However, the marked money and the white envelope were not
recovered from Napoles. According to the NBI, Napoles threw the money and the envelope out of the
window of the car after he was arrested. An hour after the arrest, four P100.00 bills matching the serial
numbers of the marked money were recovered from a security guard manning the shopping mall.

The NBI filed a complaint for grave misconduct against Napoles before the Office of the
Ombudsman (Visayas). A criminal case was also filed against Napoles for violation of Section 3(b) of
Republic Act (R.A.) No. 3019 before the Regional Trial Court of Cebu. The Office of the Ombudsman
rendered a Decision finding Napoles guilty of grave misconduct, and imposed upon him the penalty of
dismissal from the service, including all its accessory penalties.

ISSUE:
Whether or not Napoles is guilty of grave misconduct

HELD:
YES. Interestingly, Napoles also utterly failed to provide any legitimate explanation as to why he
was meeting with Ruiz outside his office during office hours and under surreptitious circumstances. Thus,
the Office of the Ombudsman (Visayas) could not have been more correct when it ratiocinated that:
[R]egardless of the dispute involving the valuation of the property under consideration, the act of
[Napoles] in receiving money from the complainant under surreptitious circumstances is plain
and simple Misconduct. When considered together with the intention of causing the
undervaluation of property for purposes of lowering the tax due to the detriment of the
government, then the misconduct takes on a grave and serious character.
When Napoles agreed to meet with Ruiz under such circumstances, he deliberately violated his
fundamental and constitutional duty as a public employee, i.e., he must, at all times, be accountable to the
people, serve them with utmost responsibility, integrity, loyalty and efficiency, act with patriotism and
justice and lead a modest
 THIRD DIVISION

G.R. No. 186242

December 23, 2009

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
CITY TREASURER and CITY ASSESSOR of the CITY OF MANILA, Respondents.

VELASCO, Jr., J.:

FACTS:
Petitioner GSIS owns or used to own two parcels of land namely: the Katigbak property and the
Concepcion-Arroceros property. Both the GSIS and the Metropolitan Trial Court (MeTC) of Manila
occupy the Concepcion-Arroceros property, while the Katigbak property was under lease.

The City Treasurer of Manila addressed a letter to GSIS President and General Manager Winston
F. Garcia informing him of the unpaid real property taxes due on the aforementioned properties for years
1992 to 2002, broken down as follows: (a) PhP 54,826,599.37 for the Katigbak property; and (b) PhP
48,498,917.01 for the Concepcion-Arroceros property. The letter warned of the inclusion of the subject
properties in the scheduled October 30, 2002 public auction of all delinquent properties in Manila should
the unpaid taxes remain unsettled before that date.

In September 2002, the City Treasurer of Manila issued separate Notices of Realty Tax
Delinquency for the subject properties; afterwards, GSIS, wrote back emphasizing the GSIS exemption
from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291.

Two days after, GSIS filed a petition for certiorari and prohibition with prayer for a restraining
and injunctive relief wherein it prayed for the nullification of the assessments thus made and that
respondents City of Manila officials be permanently enjoined from proceedings against GSIS property.
GSIS would later amend its petition to include the fact that: (a) the Katigbak property, covered by TCT
Nos. 117685 and 119465 in the name of GSIS, has, since November 1991, been leased to and occupied by
the Manila Hotel Corporation (MHC), which has contractually bound itself to pay any realty taxes that
may be imposed on the subject property; and (b) the Concepcion-Arroceros property is partly occupied by
GSIS and partly occupied by the MeTC of Manila. Said petition was dismissed by the RTC.

ISSUES:

1. Whether or not GSIS under its charter is exempt from real property taxation;
2. Assuming that it is so exempt, whether GSIS is liable for real property taxes for its properties
leased to a taxable entity; and
3. Whether or not the properties of GSIS are exempt from levy.

HELD:

1. YES. The Local Government Code or RA 7160 provided the exercise of local government units
(LGUs) of their power to tax, the scope and limitations thereof, and the exemptions from taxations. Of
particular pertinence is the general provision on withdrawal of tax exemption privileges in Sec. 193 of the
LGC, and the special provision on withdrawal of exemption from payment of real property taxes in the
last paragraph of the succeeding Sec. 234.

However, almost 20 years after the issuance of the GSIS charter, i.e., PD 1146, it was further
amended and expanded by RA 8291 which took effect on June 24, 1997. Under it, the full tax exemption
privilege of GSIS was restored, the operative provision being Sec. 39 thereof.

The exempting proviso, couched as it were in an encompassing manner, brooks no other

construction but that GSIS is exempt from all forms of taxes. While not determinative of this case, it is to
be noted that prominently added in GSIS present charter is a paragraph precluding any implied repeal of
the tax-exempt clause so as to protect the solvency of GSIS funds.
2. NO. MHC ought to pay.
As declared in Testate Estate of Concordia T. Lim, "the unpaid tax attaches to the property and is
chargeable against the taxable person who had actual or beneficial use and possession of it regardless of
whether or not he is the owner." Of the same tenor is the Courts holding in the subsequent Manila
Electric Company v. Barlis and later in Republic v. City of Kidapawan. Actual use refers to the purpose
for which the property is principally or predominantly utilized by the person in possession thereof.

Being in possession and having actual use of the Katigbak property since November 1991, MHC
is liable for the realty taxes assessed over the Katigbak property from 1992 to 2002.

The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of
Lease to shoulder such assessment. As a matter of law and contract, therefore, MHC stands liable to pay
the realty taxes due on the Katigbak property. Considering, however, that MHC has not been impleaded in
the instant case, the remedy of the City of Manila is to serve the realty tax assessment covering the
subject Katigbak property to MHC and to pursue other available remedies in case of nonpayment, for said
property cannot be levied upon.

3. YES. A valid tax levy presupposes a corresponding tax liability. Nonetheless, it will not be remiss to
note that it is without doubt that the subject GSIS properties are exempt from any attachment,
garnishment, execution, levy, or other legal processes. This is the clear import of the third paragraph of
Sec. 39, RA 8291, which states that "The funds and/or the properties referred to herein as well as the
benefits, sums or monies corresponding to the benefits under this Act shall be exempt from attachment,
garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or
administrative bodies xxx".
 FIRST DIVISION

G.R. No. 171956

January 18, 2008

STATE LAND INVESTMENT CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent

SANDOVAL-GUTIERREZ, J.:

FACTS:
Petitioner, a real estate developer, filed with the Bureau of Internal Revenue its annual income tax
return for the calendar year ending December 31, 1997. After applying its total tax credits
of P23,632,959.05 against its income tax liability of P9,703,165.54, the amount of P13,929,793.51
remained unutilized. Petitioner opted to apply this amount as tax credit to the succeeding taxable year
1998.
On April 15, 1999, petitioner again filed with the BIR its annual income tax return for the
calendar year ending December 31, 1998, declaring a minimum corporate income tax due in the amount
of P4,187,523.00. Petitioner charged the said amount against its 1997 excess credit of P13,929,793.51,
leaving a balance of P9,742,270.51.
On April 7, 2000, petitioner filed with the BIR a claim for refund of its unutilized tax credit for
the year 1997 in the amount P9,742,270.51. In order to toll the running of the two-year prescriptive period
and there being no immediate action on the part of respondent Commissioner of Internal Revenue,
petitioner filed a petition for review with the Court of Tax Appeals. The CTA denied petitioners claim for
refund of its unutilized tax credit for 1997 and held that petitioners 1998 income tax return showed its
intention of carrying over its 1997 excess tax credit to the following taxable year 1999 by marking an "x"
on the box (appearing on its 1998 income tax return) indicating "to be carried as tax credit next year"; and
that petitioner failed to present its 1999 income tax return to enable the CTA to determine with certainty
that its 1997 tax credit was not charged against its tax liabilities for the said year (1999). Specifically, the
CTA ruled that the failure of petitioner to present its 1999 corporate annual income tax return is fatal to its
claim for refund.
Petitioner filed a motion for reconsideration and alleged that the "x" mark in its 1998 income tax
return indicating "to be carried as tax credit next year" was intended to show its intention to carry over as
tax credit for 1999 only what it earned during the taxable year 1998 amounting to P6,228,288.00, as it
was aware it could no longer utilize the 1997 excess tax credit for the year 1999.

ISSUE:
Whether or not petitioner is entitled to the refund of P9,742,270.51 representing the excess
creditable withholding tax for taxable year 1997

HELD:
YES. Under Section 69 (now Section 76) of the Tax Code then in force, a corporation entitled to
a refund of excess creditable withholding tax may either obtain the refund or credit the amount to the
succeeding taxable year.
It is well-defined from the said provision that if the total tax due is less than the quarterly tax
payments made during the year, a taxpayer is entitled to a refund or credit for the excess amount paid.
Petitioners 1997 income tax due amounted to P9,703,165.54. After applying its tax excess credits for
1996 in the amount of P9,289,084.00, the net income tax payable for 1997 was only P414,081.54.
However, based on the quarterly income tax payments of petitioner, the total creditable withholding tax
for the year 1997 amounted to P14,343,875.05. Thus, the amount of overpayment of tax as of 1997
was P13,929,793.51 (after deducting P414,081.54 from P14,343,875.05). In the final adjustment return
filed for the same taxable year, petitioner indicated its option to apply the said overpayment as tax
credit for the succeeding taxable year 1998, not 1999. There still remains a considerable excess payment
in the amount of P9,742,270.51 after petitioners payment of tax due for the year 1998 in the sum
of P4,187,523.00.
Section 69 clearly provides that a taxable corporation is entitled to a tax refund when the sum of
the quarterly income taxes it paid during a taxable year exceeds its total income tax due also for that year.
Consequently, the refundable amount that is shown on its final adjustment return may be credited, at its
option, against its quarterly income tax liabilities for the next taxable year. Excess income taxes paid in a
year that could not be applied to taxes due the following year may be refunded the next year. Thus, if the
excess income taxes paid in a given taxable year have not been entirely used by a taxable corporation
against its quarterly income tax liabilities for the next taxable year, the unused amount of the excess may
still be refunded, provided that the claim for such a refund is made within two years after payment of the
tax.

Both the CTA and the Court of Appeals failed to consider that petitioners intention was to apply
the tax credit corresponding to taxable year 1997 to its income tax due in 1998. It was not necessary on
the part of petitioner to file with the BIR its income tax return for 1999. In Philam Asset Management,
Inc. v. Commissioner of Internal Revenue, the Court held that the Tax Code merely requires the filing of
the final adjustment return for the preceding not the succeeding taxable year. Indeed, any refundable
amount indicated therein corresponding to the preceding taxable year may be credited against the
estimated income tax liabilities for the taxable quarters of the succeeding taxable year. Requiring that the
income tax return or the final adjustment return of the succeeding year be presented to the BIR in
requesting a tax refund has no basis in law and jurisprudence.
 SECOND DIVISION
G.R. No. 157264
January 31, 2008
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
CARPIO-MORALES, J.:

FACTS:
The Philippine Long Distance Telephone Company (PLDT) terminated the employment of
several rank-and-file, supervisory, and executive employees due to redundancy, and in compliance with
labor law requirements, it paid those separated employees separation pay and other benefits. As
withholding agent, it deducted from the separation pay withholding taxes in the total amount
of P23,707,909.20 which it remitted to the Bureau of Internal Revenue (BIR). Later on, PLDT filed with
the BIR a claim for tax credit or refund of the said amount invoking Section 28(b)(7)(B) of the 1977
NIRC which excluded from gross income "any amount received by an official or employee or by his heirs
from the employer as a consequence of separation of such official or employee from the service of the
employer due to death, sickness or other physical disability or for any cause beyond the control of the said
official or employee."
As the BIR took no action on its claim, PLDT filed a claim for judicial refund before the Court of
Tax Appeals (CTA). Then, in its Answer, the Commissioner of Internal Revenue contended that PLDT
failed to show proof of payment of separation pay and remittance of the alleged withheld taxes.
PLDT later manifested on March 19, 1998 that it was reducing its claim to P16,439,777.61
because a number of the separated employees opted to file their respective claims for refund of taxes
erroneously withheld from their separation pay.
In July 2000, the CTA denied PLDT's claim on the ground that it "failed to sufficiently prove that the
terminated employees received separation pay and that taxes were withheld therefrom and remitted to the
BIR."

ISSUE:

Whether or not there is a need for proof that the employees received their separation pay

HELD:

YES. Tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in
favor of the taxing authority, and the taxpayer bears the burden of establishing the factual basis of his
claim for a refund.

Under Section 28 (b)(7)(B) of the National Internal Revenue Code of 1977 (now Section
32(B)6(b) of the National Internal Revenue Code of 1997), it is incumbent on PLDT as a claimant for
refund on behalf of each of the separated employees to show that each employee did "x x x reflect in his
or its own return the income upon which any creditable tax is required to be withheld at the source ." Only
when there is an excess of the amount of tax so withheld over the tax due on the payee's return can a
refund become possible.

A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a)
declare the income payments it received as part of its gross income and (b) establish the fact of
withholding. On this score, the relevant revenue regulation provides as follows:

"Section 10. Claims for tax credit or refund. - Claims for tax credit or refund of income tax
deducted and withheld on income payments shall be given due course only when it is shown on
 the return that the income payment received was declared as part of the gross income and the
fact of withholding is established by a copy of the statement duly issued by the payer to the
payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld
therefrom."
In fine, PLDT must prove that the employees received the income payments as part of gross
income and the fact of withholding.
The CTA found that PLDT failed to establish that the redundant employees actually received
separation pay and that it withheld taxes therefrom and remitted the same to the BIR. With respect to the
redundant rank and file employees' final payment/terminal pay x x x, the cash salary vouchers relative
thereto have no payment acknowledgement receipts. Inasmuch as these cash vouchers were not signed by
the respective employees to prove actual receipt of payment, the same merely serves as proofs of
authorization for payment and not actual payment by the Petitioner of the redundant rank and file
employees' separation pay and other benefits. In other words, Petitioner failed to prove that the rank and
file employees were actually paid separation pay and other benefits.
 SECOND DIVISION

G.R. No. 173594

February 6, 2008

SILKAIR (SINGAPORE) PTE, LTD., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

CARPIO-MORALES, J.:

FACTS:
Silkair filed with the Bureau of Internal Revenue (BIR) a written application for the refund
of P4,567,450.79 excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation
from January to June 2000. As the BIR had not yet acted on the application as of December 26, 2001,
Silkair filed a Petition for Review before the CTA. Opposing the petition, respondent Commissioner on
Internal Revenue (CIR) alleged in his Answer that, among other things, Silkair failed to prove that the
sale of the petroleum products was directly made from a domestic oil company to the international
carrier. Since the excise tax on petroleum products is the direct liability of the manufacturer/producer,
and when added to the cost of the goods sold to the buyer, it is no longer a tax but part of the price which
the buyer has to pay to obtain the article.

The CTA denied Silkairs petition on the ground that as the excise tax was imposed on Petron
Corporation as the manufacturer of petroleum products, any claim for refund should be filed by the latter;
and where the burden of tax is shifted to the purchaser, the amount passed on to it is no longer a tax but
becomes an added cost of the goods purchased.

ISSUE:
Whether or not Silkair is entitled to the refund of excise taxes

HELD:
NO. Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 and
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).
Such reliance is erroneous.

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 exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air
Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be
construed as including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to
exist, it must not be enlarged by construction.

SECOND DIVISION

G.R. No. 151413

February 13, 2008

CAGAYAN VALLEY DRUG CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
VELASCO, Jr., J.:

FACTS:

Petitioner, a corporation and a duly licensed retailer of medicine and other pharmaceutical
products, alleged that in 1995, it granted 20% sales discounts to qualified senior citizens on purchases of
medicine pursuant to Republic Act No. (RA) 7432 and its implementing rules and regulations. It treated
the 20% sales discounts granted to qualified senior citizens in 1995 as deductions from the gross sales in
order to arrive at the net sales, instead of treating them as tax credit as provided by Section 4 of RA 7432.

In 1996, petitioner filed with the Bureau of Internal Revenue a claim for tax refund/tax credit of
the full amount of the 20% sales discount it granted to senior citizens for the year 1995, allegedly totaling
to PhP 123,083. The BIRs inaction on petitioners claim for refund/tax credit compelled petitioner to file
a petition for review before the CTA in order to forestall the two-year prescriptive period provided under
Sec. 230 of the 1977 Tax Code, as amended. The CTA dismissed the petition for lack of merit based on
petitioner's net loss in 1995.

ISSUE:
Whether or not the CTA erred in dismissing the petition for tax refund or tax credit

HELD:
YES. This issue is not new, as the Court has resolved several cases involving the very same issue.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation (Central Luzon), we held that
private drug companies are entitled to a tax credit for the 20% sales discounts they granted to qualified
senior citizens under RA 7432 and nullified Secs. 2.i and 4 of RR 2-94. In Bicolandia Drug Corporation
(formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue, we ruled that petitioner therein
is entitled to a tax credit of the "cost" or the full 20% sales discounts it granted pursuant to RA 7432. In
the related case of Commissioner of Internal Revenue v. Bicolandia Drug Corporation, we likewise ruled
that respondent drug company was entitled to a tax credit, and we struck down RR 2-94 to be null and
void for failing to conform with the law it sought to implement.

It is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable
year. This fact, however, without more, does not preclude petitioner from availing of its statutory right to
a tax credit for the 20% sales discounts it granted to qualified senior citizens. The law then applicable on
this point is clear and without any qualification. Sec. 4 (a) of RA 7432 pertinently provides that the grant
of twenty percent (20%) discount from all establishments relative to utilization of transportation services,
hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines
anywhere in the country: Provided, That private establishments may claim the cost as tax credit.

The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner
unavailable. This is the core issue resolved in Central Luzon, where we ruled that the net loss for a
taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior tax
payments are not required for such grant. We explained:
xxxx
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not.
On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax
payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits,
even though no taxes have been previously paid.

It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it extended
to qualified senior citizens for taxable year 1995. Considering that the CTA has not disallowed the PhP
123,083 sales discounts petitioner claimed before the BIR and CTA, we are constrained to grant them as
tax credit in favor of petitioner.

SECOND DIVISION
G.R. No. 160193
March 3, 2008
M.E. HOLDING CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, and
THE COMMISSIONER OF INTERNAL REVENUE, respondents.
VELASCO, Jr., J.:

FACTS:
Petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual Income Tax Return,
claiming 20% sales discount (amounting to PhP 603,424) it granted to qualified senior citizens. M.E.
treated the discount as deductions from its gross income purportedly in accordance with Revenue
Regulation No. (RR) 2-94, Section 2(i) of the Bureau of Internal Revenue issued on August 23, 1993.
However, it filed the return under protest, arguing that the discount to senior citizens should be treated as
tax credit under Sec. 4(a) of RA 7432, and not as mere deductions from M.E.'s gross income as provided
under RR 2-94.
Due to the inaction of the BIR, and to toll the running of the two-year prescriptive period in filing
a claim for refund, M.E. filed an appeal before the Court of Tax Appeals, and the same was granted by the
CTA. It ruled that the 20% sales discount granted to qualified senior citizens should be treated as tax
credit and not as item deduction from the gross income or sales.
Unfortunately, the CTA also ruled that while the independent auditor M.E. hired found the
amount PhP 603,923.46 as having been granted as sales discount to qualified senior citizens, M.E. failed
to properly support the claimed discount with corresponding cash slips. Thus, the CTA reduced M.E.'s
claim for PhP 603,923.46 sales discount to PhP 362,574.57 after the CTA disallowed PhP 241,348.89
unsupported claims, and consequently lowered the refundable amount to PhP 122,195.74. M.E.then filed
a Motion for Reconsideration, therein attributing its failure to submit and offer certain documents,
specifically the cash slips, to the inadvertence of its independent auditor who failed to transmit the
documents to M.E.'s counsel. The CTA denied the motion. M.E. appealed to the Court of Appeals, but the
latter merely dismissed it.

ISSUES:
Whether or not M.E. is entitled to claim the full tax credit the full amount of sales discount
granted to the senior citizen.
HELD:

YES. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of

Internal Revenue, we interpreted the term "cost" found in Sec. 4(a) of RA 7432 as referring to the amount
of the 20% discount extended by a private establishment to senior citizens in their purchase of
medicines. There we categorically said that it is the Government that should fully shoulder the cost of the
sales discount granted to senior citizens. Accordingly, M.E. is entitled to a tax credit equivalent to the
actual 20% sales discount it granted to qualified senior citizens.

It ought to be noted, however, that RA 9257, or The Expanded Senior Citizens Act of 2003,
amending RA 7432, was signed into law, ushering in, upon its effectivity on March 21, 2004, a new tax
treatment for sales discount purchases of qualified senior citizens of medicines. Sec. 4(a) of RA 9257
provides that, "(T)he establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the discount is
granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as amended."

Conformably, starting taxable year 2004, the 20% sales discount granted by establishments to qualified
senior citizens is to be treated as tax deduction, no longer as tax credit.

FIRST DIVISION
G.R. No. 161953

March 6, 2008

PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF CUSTOMS, Respondent.
CORONA, J.:

FACTS:
In 1999, Secretary Edgardo B. Espiritu of the Department of Finance (DOF) informed petitioner
that its tax debit memos (TDMs) and tax credit certificates (TCCs), which were assigned to it by various
entities, were fraudulently issued and transferred, and had to be cancelled. He asked petitioner to
immediately pay the BoC and the Bureau of Internal Revenue the value of the canceled TCCs as well as
the related penalties, surcharges and interests. Petitioner assailed the action of the DOF and asserted that
there was no legal and factual basis to invalidate the TCCs. Because petitioner was an assignee in good
faith (i.e., it observed the procedure prescribed by the Center), the TCCs were authentic and genuine as
far as it was concerned. Despite petitioner's objections, Commissioner Nelson A. Tan of the BoC
demanded from it the amount of P209,129,141. Thus, petitioner filed a formal protest, but the BoC did
not act on such protest. Consequently, petitioner filed a petition for review questioning the legality of the
cancellation of the TCCs in the Court of Tax Appeals (CTA).

Meanwhile, respondent filed a complaint for collection in the Regional Trial Court (RTC) of
Manila. It alleged that the TCCs petitioner purchased from Filipino Way Industries amounting
to P10,088,912 were spurious and were used by petitioner to pay customs duties and taxes on its
importations in 1997. Thus, in view of the invalidation, petitioner still owed respondent the amount
of P10,088,912 in unpaid customs duties and taxes. Petitioner immediately moved to dismiss the
collection case and contended that the RTC had no jurisdiction over the subject matter and that the
complaint for collection was prematurely filed. The RTC denied petitioner's motion and instead ordered it
to file an answer. Petitioner questioned the jurisdiction of the RTC. It averred that, in view of its pending
petition for review in the CTA, the RTC had no jurisdiction over the subject matter.

ISSUE:
Whether or not the RTC has jurisdiction over the subject matter
HELD:
YES. Respondent filed its complaint for collection on April 3, 2002. The governing law at that
time was RA 1125 or the old CTA Law. Section 7 thereof stated:

Section 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to
review by appeal, as herein provided
xxx
(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties,
fees or other money charges; seizure, detention or release of property affected; fines and
forfeitures or other penalties imposed in relation thereto; or other matters arising under
Customs Law or other laws or part of law administered by the Bureau of Customs; xxx

Inasmuch as the present case did not involve a decision of the Commissioner of Customs in any
of the instances enumerated in Section 7(2) of RA 1125, the CTA had no jurisdiction over the subject
matter. It was the RTC that had jurisdiction under Section 19(6) of the Judiciary Reorganization Act of
1980, as amended, which states that the RTC shall exercise exclusive original jurisdiction In all cases not
within the exclusive jurisdiction of any court, tribunal, person or body exercising judicial or quasi-judicial
functions.

(The Court is) not unmindful of petitioner's pending petition for review in the CTA where it is
questioning the validity of the cancellation of the TCCs. However, respondent cannot and should not
await the resolution of that case before it collects petitioner's outstanding customs duties and taxes for
such delay will unduly restrain the performance of its functions. Moreover, if the ultimate outcome of the
CTA case turns out to be favorable to petitioner, the law affords it the adequate remedy of seeking a
refund.

SECOND DIVISION

G.R. No. 174942

March 7, 2008

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
TINGA, J.:

FACTS:
Respondent, thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-
assessment notice (PAN) dated November 26, 1986. On April 7, 1989, respondent issued to the petitioner
assessment/demand notices FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency
withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82
and P24,587,174.63, respectively, for the years 1982 to 1986.
On April and May 1989, petitioner filed a protest on the demand/assessment notices and a
supplemental protest, respectively.
On March 12, 1993, petitioner requested for an opportunity to present or submit additional
documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records). Attached
to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned
assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank. Petitioner executed
several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994.
On August 9, 2002, respondent issued a final decision on petitioners protest ordering the
withdrawal and cancellation of the deficiency withholding tax assessment in the amount
of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency
DST assessment in the amount of P24,587,174.63 was reiterated and the petitioner was ordered to pay the
said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said
decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review
before the Court.
On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review
for lack of merit. On September 21, 2004, petitioner filed a Motion for Reconsideration of the
abovementioned Decision which was denied for lack of merit in a Resolution dated February 14, 2005.

ISSUE:
Whether or not the collection of the deficiency DST is barred by prescription;

HELD:

YES. The statute of limitations on assessment and collection of national internal revenue taxes
was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700. Thus, the CIR has three
(3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to
commence court proceedings for the collection thereof without an assessment.

When it validly issues an assessment within the three (3)-year period, it has another three (3)
years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax
is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date
the assessment notice had been released, mailed or sent to the taxpayer.

As applied to the present case, the CIR had three (3) years from the time he issued assessment
notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However,
it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.
Section 320 of the Tax Code of 1977 is plainly worded. In order to suspend the running of the
prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the
CIR.
The Court went on to declare that the burden of proof that the request for reinvestigation had been
actually granted shall be on the CIR. Such grant may be expressed in its communications with the
taxpayer or implied from the action of the CIR or his authorized representative in response to the request
for reinvestigation.
There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR
had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing
silence and inaction of the CIR on the request for reinvestigation, as he considered BPIs letters of protest
to be. In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for
the first time that he had granted the request for reinvestigation.

There is no evidence in this case that the CIR actually conducted a reinvestigation upon the
request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis
for the tax courts ruling that the filing of the request for reinvestigation tolled the running of the
prescriptive period for collecting the tax deficiency.

Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31
December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it
shows no date of acceptance in violation of RMO No. 20-90. At any rate, the records of this case do not
disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the
expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest.