ALPHA

RHO
LAMBDA
LAW
SOCIETY
BAR OPERATIONS 2018
CASES DECIDED/PENNED BY
JUSTICE MARIANO DEL CASTILLO

TAXATION LAW
 ASIA TRUST DEVELOPMENT BANK, INC. v. CIR
G.R. No. 201530, 201680-81; April 19, 2017
Judicial Procedures

DOCTRINE: An appeal to the CTA En Banc must be preceded by the timely filing of a motion
for reconsideration or new trial with the CTA Division; amended decisions are considered
different decisions, hence, a separate MR or MNT must be filed assailing the same.

FACTS:
In 2000, BIR issued assessment notice to Asiatrust for several deficiency taxes from 1996-
1998.
Asiatrust protested, but due to CIR’s inaction, it filed a PetRev before CTA raising the
defense of prescription and that it availed of Tax Abatement Program, and the Tax Amnesty
Law.
CTA Division cancelled the assessment made outside the prescriptive period of 3 years; but
it sustained validity of other assessment because Asiatrust failed to prove that it availed of
the Tax Abatement Program and Tax Amnesty Law because it failed to present the letter of
termination supposedly issued by BIR granting the application to avail of the programs. o
On CTA Division’s first decision, CIR was able to file an MR, albeit, denied; but not on the
Amended decision that CTA Division later issued.
Upon appeal, CTA En Banc affirmed the ruling as to Asiatrust, but denied CIR’s appeal on
the ground that it didn’t file an MR on the Amended Decision of CTA Division.

ISSUE:
1. Whether letter of intention is required to show that Asiatrust’s application for the
programs was granted.

2. Whether MR before CTA Division is required before CIR can appeal before CTA En
Banc.

HELD:
1. Yes, letter of intention is required.
Application for tax abatement is considered approved only upon issuance of the letter of
termination. Based on the relevant rules, it is clear that he last step in the tax abatement
process is the issuance of the termination letter. Its presentation is essential as it proves
that the taxpayer's application for tax abatement has been approved; and without which, a
tax assessment cannot be considered closed and terminated.
Even if Asiatrust shows that it had paid the basic tax as part of the tax abatement program,
it still does not show that the application was granted; it only shows that Asiatrust paid the
basic tax.

2. Yes, MR is required.
An appeal to the CTA En Banc must be preceded by the filing of a timely motion for
reconsideration or new trial with the CTA Division. Under the Rules of CTA, in order for the
CTA En Banc to take cognizance of an appeal via a petition for review, a timely motion for
reconsideration or new trial must first be filed with the CTA Division that issued the
assailed decision or resolution.
Failure to do so is a ground for the dismissal of the appeal as the word "must" indicates that
the filing of a prior motion is mandatory, and not merely directory.
The same rule applies in amended decisions because an amended decision is a different
decision, and thus, is a· proper subject of a motion for reconsideration. An amended
decision is defined as "any action modifying or reversing a decision of the Court en banc or
in Division."
For failure to do so, the CTA Division’s Amended decision has attained finality insofar as CIR
is concerned and therefore, may no longer question the merits of the case.
 COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE’S MEDICAL CENTER
G.R. No. 203514; February 13, 2017
Exemptions from Taxation

DOCTRINE: For an institution to be completely exempt from income tax, it is required that
the institution should operate exclusively for charitable or social welfare purpose. In case
such institution earns income from its for-profit activities, it will not lose its tax exemption.
However, its income from for profit activities will be subject to income tax at the
preferential 10% rate pursuant to Sec. 27(B) of the NIRC.

FACTS:
The respondent received from the Large Taxpayers Service-Documents Processing and
Quality Assurance Division of the Bureau of Internal Revenue (BIR) an audit assessment
assessing for deficiency income tax under Section 27 (B) of the NIRC. The respondent filed
with petitioner an administrative protest assailing the assessments and claimed that as a
nonstick, nonprofit charitable and social welfare organization under Section 30 (E) and (G)
of the NIRC, it is exempt from paying income tax. However, the same was denied by the
petitioner. Aggrieved, the respondent elevated the matter to the Court of Tax Appeals (CTA)
and rendered a decision finding that the respondent is not liable for deficiency income tax
since it is exempt from paying such. The CTA En Banc affirmed the cancellation and setting
aside of the audit assessment issued against the respondent.

ISSUE: Whether or not the respondent is liable to pay income tax under Section 27 (B) of
the NIRC insofar as its revenues from paying patients are concerned

HELD: Yes, the respondent is subject to 10% income tax insofar as its revenues from paying
patients are concerned.
The respondent failed to meet the requirements under Section 30(E) and (G) of the NlRC to
be completely tax exempt from all its income. However, it remains a proprietary nonprofit
hospital under Section 27(B) of the NIRC as long as it does not distribute any of its profits to
its members and such profits are reinvested pursuant to its corporate purposes. St. Luke’s,
as a proprietary nonprofit hospital, is entitled to the preferential tax rate of 10% on its net
income from its for-profit activities. To be clear, for an institution to be completely exempt
from income tax, Section 30(E) and (G) of the 1997 NIRC requires said institution to operate
exclusively for charitable or social welfare purpose. But in case an exempt institution under
Section 30(E) or (G) of the said Code earns income from its for-profit activities, it will not
lose its tax exemption. However, its income from for profit activities will be subject to
income tax at the preferential 10% rate pursuant to Section 27(B) thereof.

ALLIED BANKING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 175097; February 5, 2010
Taxpayer’s Remedies

DOCTRINE: The Commissioner of Internal Revenue (CIR) as well as his duly authorized
representative must indicate clearly and unequivocally to the taxpayer whether an action
constitutes a final determination on a disputed assessment. It will determine whether the
taxpayer should exhaust administrative remedies before the CIR or file an appeal to the
CTA.

FACTS:
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment
Notice (PAN) to petitioner Allied Banking Corporation (Allied) for deficiency Documentary
Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax (GRT) in the
amount of P38,995,296.76 on industry issue for the taxable year 2001. Allied received the
PAN on May 18, 2004 and filed a protest against it on May 27, 2004. On July 16, 2004, the
BIR wrote a Formal Letter of Demand with Assessment Notices to Allied, and was received
by the latter on August 30, 2004. The demand letter stated:
It is requested that the above deficiency tax be paid immediately upon receipt hereof,
inclusive of penalties incident to delinquency. This is our final decision based on
investigation. If you disagree, you may appeal the final decision within thirty (30) days from
receipt hereof, otherwise said deficiency tax assessment shall become final, executory and
demandable.
On September 29, 2004, Allied filed a Petition for Review with the CTA. After CIR filed its
answer, it filed a Motion to Dismiss on the ground that Allied failed to file an administrative
protest on the Formal Letter of Demand with Assessment Notices. Allied opposed the
Motion to Dismiss. The CTA granted the CIR’s Motion to Dismiss and ruled that: “neither the
assessment nor the formal demand letter itself is appealable to this Court. It is the decision
of the CIR on the disputed assessment that can be appealed to this Court. A disputed
assessment is one wherein the taxpayer or his duly authorized representative filed an
administrative protest against the formal letter of demand and assessment notice within
thirty (30) days from date [of] receipt thereof. In this case, petitioner failed to file an
administrative protest on the formal letter of demand with the corresponding assessment
notices. Hence, the assessments did not become disputed assessments as subject to the
Courts review under Republic Act No. 9282.

Allied’s MR was denied by the first division of the CTA, hence, the case was decided by the
CTA en banc. This latter court affirmed the decision of the former. It emphasized that an
administrative protest is an integral part of the remedies given to a taxpayer in challenging
the legality or validity of an assessment. Although there are exceptions to the doctrine of
exhaustion of administrative remedies, this case does not fall in any of the exceptions.

ISSUE: Whether or not the Formal Letter of Demand can be construed as a final decision of
the CIR appealable to the CTA under RA 9282?

HELD: Yes, sec. 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases involving disputed
assessments.
The word “decisions” in the provision of RA 9282 has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments.
A careful reading of the Formal Letter of Demand with Assessment Notices led the Court to
agree with Allied that this is an exception to the rule on exhaustion of administrative
remedies. It found the CIR estopped from claiming that the filing of the Petition for Review
was premature because Allied failed to exhaust all administrative remedies.
The Formal Letter of Demand with Assessment Notices reads:
“It is requested that the above deficiency tax be paid immediately upon receipt hereof,
inclusive of penalties incident to delinquency. This is our final decision based on
investigation. If you disagree, you may appeal this final decision within thirty (30) days
from receipt hereof, otherwise said deficiency tax assessment shall become final, executory
and demandable.”

It appears from the demand letter that the CIR has already made a final decision on the
matter and that the remedy of Allied is to appeal the final decision within 30 days. Records
show that Allied disputed the PAN but not the Formal Letter of Demand with Assessment
Notices. Nevertheless, the Court cannot blame Allied for not filing a protest against the
Formal Letter of Demand with Assessment Notices since the language used and the tenor of
the demand letter indicate that it is the final decision of the CIR. The CIR should indicate, in
a clear and unequivocal language, whether his action on a disputed assessment constitutes
his final determination thereon in order for the taxpayer concerned to determine when his
or her right to appeal to the tax court accrues. Moreover, CIR used the word “appeal”
instead of protest, reinvestigation, or reconsideration. Although there was no direct
reference for Allied to bring the matter directly to the CTA, it cannot be denied that the
word “appeal” under prevailing tax laws refers to the filing of a Petition for Review with the
CTA. As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms “protest,
reinvestigation and reconsideration” refer to the administrative remedies a taxpayer may
take before the CIR, while the term “appeal” refers to the remedy available to the taxpayer
before the CTA.
The Court is not disregarding the rules of procedure, but in this particular case, it is saying
that the Formal Letter of Demand can be considered a final decision of the CIR appealable to
the CTA because the words used, specifically the words “final decision” and “appeal”, taken
together led petitioner to believe that the Formal Letter of Demand with Assessment
Notices was in fact the final decision of the CIR on the letter-protest it filed and that the
available remedy was to appeal the same to the CTA.

COMMISSIONER OF INTERNAL REVENUE v. KUDOS METAL CORPORATION

G.R. No. 178087; May 5, 2010
Taxpayer’s Remedies

DOCTRINE: The prescriptive period on when to assess taxes benefits both the government
and the taxpayer. Exceptions extending the period to assess must, therefore, be strictly
construed.
FACTS:
On April 15, 1999, the respondent filed its Annual Income Tax Return (ITR) for the taxable
year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue
(BIR) served upon respondent three Notices of Presentation of Records which the latter
failed to comply and led to the issuance of the Subpoena Duces Tecum dated September 21,
2006, receipt of which was acknowledged by respondent’s President, Mr. Chan Ching Bio, in
a letter dated October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco, respondent’s accountant, executed a Waiver of the
Defense of Prescription, which was notarized on January 22, 2002, received by the BIR
Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4,
2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T.
Salazar.
This was followed by a second Waiver of Defense of Prescription executed by the
respondent’s accountant on February 18, 2003, notarized on February 19, 2003, received
by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant
Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year
1998 against the respondent which was followed by a Formal Letter of Demand with
Assessment Notices for taxable year 1998, dated September 26, 2003 which was received
by respondent on November 12, 2003.

Believing that the government’s right to assess taxes had prescribed, respondent filed a
Petition for Review with the Court of Tax Appeals (CTA).
The CTA Second Division issued a Resolution cancelling the assessment notices issued
against respondent for having been issued beyond the prescriptive period and found that
the first Waiver of the Statute of Limitations incomplete and defective for failure to comply
with the provisions of Revenue Memorandum Order (RMO) No. 20-90.
On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it
ruled that the Assistant Commissioner was authorized to sign the waiver pursuant to
Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the first waiver was
still invalid based on the second and third grounds stated by the CTA Second Division (i.e.,
the waiver failed to indicate the date of acceptance and the fact of receipt by the taxpayer of
his file copy was not indicated on the original copy.
Thus, this petition for review on certiorari seeks to set aside the decision of the CTA
affirming the cancellation of the assessment notices for having been issued beyond the
prescriptive period and the resolution denying the motion for consideration.
ISSUE: Whether or not the government’s right to assess unpaid taxes of respondent
prescribed
HELD: Yes, Sec. 203 of the NIRC mandates the government to assess internal revenue taxes
within 3 years from the last day prescribed by law for the filing of the tax return or the
actual date of filing of such return, whichever comes later. Hence, an assessment notice
issued after the three-year prescriptive period is no longer valid and effective subject to
exceptions provided under Section 222 of the Tax Code, as amended.
Sec. 222(b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period.
Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and
are void.

CIR v. SMART COMMUNICATIONS

G.R. No. 179045-46; August 25, 2010
Taxpayer’s Remedies

DOCTRINE: The withholding agent has authority to file a claim for refund on behalf of the
principal taxpayer because the withholding agent is considered the statutory taxpayer, and
he is an agent of the principal taxpayer.

FACTS:
Smart entered into an agreement with Malaysian company Prism, where Prism will provide
programming and installation services to Smart for the latter’s services such as Smart
Money, etc. Initially thinking that Smart’s payments to Prism constitute royalties, Smart
withheld a 25% royalty tax that was provided under RP-Malaysia Tax Treaty. This was
remitted to BIR. Later, Smart filed a claim for refund on the ground that it erroneously
withheld from Prism, when the payments were actually business profits, hence, not subject
to royalty tax. Under the treaty, royalties are payments for the right to use the patent, trade
mark, etc.
Under the treaty, business profits of an enterprise in a contracting state are taxable only in
that State, unless it has a permanent establishment in the other contracting state.
CIR questions the validity of the claim for refund, and the authority of Smart to file the claim
despite being merely a withholding agent.

ISSUES:
1. Whether Smart, as the withholding agent of Prism, can file a claim for refund.
2. Whether the claim for refund is valid on the ground that the payment was not royalties
but business profits.

HELD: Yes, Smart has the authority, based on the case of CIR v P&G.
The withholding agent may file the claim for refund because it is considered as the statutory
taxpayer. Under the Tax Code, the person entitled to claim the refund is the taxpayer, and
the taxpayer is the person subject to the tax imposed. Similarly, the withholding agent is
held personally liable for the tax withheld, and ensures that the same is remitted to BIR. As
such, the withholding agent is considered the statutory taxpayer.
The withholding agent is an agent of the principal taxpayer. As agent, he is authorized to file
the necessary return, and pay the tax to the government; such authority may reasonably be
held to include the authority to file a claim for refund, and to bring action for recovery of the
same. Corollary thereto, the refund claimed belongs to the principal and therefore, must be
returned to him. a. There is nothing in that case that requires that in order for the
withholding agent to have the authority to file the claim, the taxpayer and agent must be
related parties, i.e., wholly owned subsidiary of the taxpayer.

HELD: Yes, it is valid claim for refund because some of the payments are royalties, while
others were business profits; hence, there can be a refund with respect to the business
profits erroneously treated as royalties. Some of the services to be installed by Prism are
intellectual properties of Prism while others were intellectual property of Smart. Payments
for the installation of those belonging to Prism are royalties, the rest are business profits.
 CE CASECAN WATER AND ENERGY COM. v NUEVA ECIJA
G.R. No. 196278; June 17, 2015
Real Property Taxation

DOCTRINE: It is the CTA that has the power to determine whether the RTC committed
grave abuse of discretion in issuing an interlocutory order in a local tax case. Local tax cases
include cases involving Real Property Tax because Real Property Tax is a local tax.

FACTS:
CE Company entered into a Build-operate-transfer with NIA wherein NIA will reimburse CE
for any real prop tax (RPT) that the latter will be made to pay. CE was assessed with RPT by
Nueva Ecija Provincial Assessor, which CE assailed before Local Board of Assessment
Appeals (LBAA). LBAA dismissed the case, so CE filed an appeal before Central Board of
Assessment Appeals. During pendency of appeal, CE was made to pay under protest current
RPT and its arrearages. CE made another appeal on the assessed arrearages before the
LBAA. Without waiting for the LBAA and CBAA, CE filed a complaint for injunction and
damages before RTC to restrain the collection of RPT. RTC dismissed, while CA dismissed
the Pet for Certiorari for lack of jurisdiction.

ISSUE: Whether CA properly dismissed on the ground of lack of jurisdiction.

HELD: Yes, the dismissal is proper because appellate jurisdiction over local tax cases is with
CTA. It is the CTA which has the power to rule on the Pet for Certiorari assailing an
interlocutory order of the RTC relating to a local tax case. This is based on jurisprudence
which provides that CTA has jurisdiction to determine whether RTC committed grave abuse
of discretion in issuing an interlocutory order in cases falling within the CTA’s exclusive
appellate jurisdiction.
In tax cases, CTA is the tribunal with the specialized competence over tax and tariff matters.
Furthermore, law expressly confers upon the CTA the role of judicial review over local tax
cases without mention of any other court that may exercise such power.

The injunction case is clearly a local tax case because in praying to restrain the collection of
RPT, CE also implicitly questions the propriety of the assessment of such RPT. Hence, in
ruling as to whether to restrain the collection, the RTC must first necessarily rule on the
propriety of the assessment. CE was indirectly challenging the validity of the assessment.
Moreover, it has been previously held that RPT is a local tax.

COMMISSIONER OF INTERNAL REVENUE v. LA TONDENA DISTILLERS, INC.

G.R. No. 175188; July 15, 2015
Documentary Stamp Tax

DOCTRINE: Transfer of real property to a surviving corporation pursuant to a merger is not

subject to Documentary Stamp Tax (DST).

FACTS:
Respondent La Tondeña Distillers, Inc. entered into a Plan of Merger with three other
beverage and bottling companies. As a result of the merger, the assets and liabilities of the
absorbed corporations were transferred to respondent, the surviving corporation.
Respondent later changed its corporate name to Ginebra San Miguel, Inc. (GSMI).
Respondent requested for a confirmation of the tax-free nature of the said merger from the
Bureau of Internal Revenue (BIR) which later issued a ruling stating that pursuant to
Section 40(C)(2) and (6)(b) of the 1997 National Internal Revenue Code (NIRC), “No gain or
loss shall be recognized by the absorbed corporations as transferors of all assets and
liabilities”. However, the transfer of assets, such as real properties, shall be subject to DST
imposed under Section 196 of the NIRC.
October 31, 2001 - Paid the BIR P14.14 Million in DST.
October 14, 2003 - Claiming its exemption from paying DST, respondent filed with
petitioner Commissioner of Internal Revenue (CIR) an administrative claim for tax refund
or tax of the P14.14 Million paid representing the DST it allegedly erroneously paid on the
occasion of the merger.
CTA 2ND DIVISION – Declared the respondent entitled to its claim for tax refund Section
196 of the NIRC does not apply because there is no purchaser or buyer in the case of a
merger.
CTA EN BANC – Affirmed the Division’s ruling.

ISSUE: Whether or not the respondent exempted from payment of DST?

HELD: Yes, petition dismissed.

In a merger, the real properties are not deemed "sold" to the surviving corporation and the
latter could not be considered as "purchaser" of realty since the real properties subject of
the merger were merely absorbed by the surviving corporation by operation of law and
these properties are deemed automatically transferred to and vested in the surviving
corporation without further act or deed. Therefore, the transfer of real properties to the
surviving corporation in pursuance of a merger is not subject to documentary stamp tax.

BELLE CORPORATION v. CIR

G.R. No. 181298; January 10, 2011
Taxpayer’s Remedies

DOCTRINE: Once the option to carry-over excess income tax payments to the succeeding
years has been made, it becomes irrevocable.

FACTS:
On May 30, 1997, petitioner filed its ITR of 1st Qtr. of 1997, showing a gross income of
P741,607,495, a deduction of P65,381,054, a next taxable income of P676,226,441, and an
income tax due of P236,679,254, which petitioner paid on even date through PCI Bank.
On Aug. 14, 1997, petitioner filed its 2nd Qtr. ITR, declaring an overpayment of income taxes
amounting to P66,634,290. Because of this, no taxes were paid for the 2nd and 3rd Qtrs. of
1997. Petitioner’s ITR for the taxable year ending Dec. 31, 1997 thereby reflected an
overpayment of income taxes totaling P132,043,528.
Instead of claiming the amount as a tax refund, petitioner decided to apply it as a tax credit
to the succeeding taxable year by marking the tax credit option box in its 1997 ITR. For
1998, petitioner amended its ITR showing an overpayment of P106,447,318. On April 12,
2000, petitioner filed its administrative claim for refund for the excess payment for 1997
totaling P106,447,318. Notwithstanding the filing of the administrative claim for refund,
petitioner carried over the amount of P106,447,318 to the taxable year 1999 and applied a
portion thereof to its 1999 MCIT liability, as evidenced by its 1999 ITR.
On April 14, 2000, due to the CIR’s inaction, petitioner appealed its refund claim with the
CTA. To prove entitlement, it submitted its ITR for the 1st Qtr. of 1997, tentative ITRs for
the rest of the Qtrs. and 1998, its final ITRs for 1997-1999, its letter-claim for refund, and
official receipt issued by PCI Bank.
CTA denies the refund claim. CA affirms CTA ruling.

ISSUE: Whether or not respondent is entitled to the refund.

HELD: No, applying Sec. 76 of the NIRC, remedies are refund or carry-over the excess to the
succeeding years. Availment of one precludes the other. But the option to carry-over is
irrevocable. Hence, unutilized excess income tax payments may no longer be refunded.
Since petitioner already carried over its 1997 excess income tax payments to 1998, it may
no longer file a refund claim of unutilized tax credits for 1997.
Once the option to carry-over excess income tax payments to the succeeding years has been
made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income
tax payments may no longer be allowed.
 J.R.A PHILIPPINES, INC. v. CIR
G.R. No. 177127; October 11, 2010
Value – Added Tax

DOCTRINE: The absence of the word "zero-rated" on the invoices/receipts is fatal to a claim
for credit/refund of input VAT.

FACTS:
Petitioner J.R.A. Philippines, Inc., a domestic corporation, is engaged in the manufacture and
wholesale export of jackets, pants, trousers, overalls, shirts, polo shirts, ladies' wear, dresses
and other wearing apparel. It is registered with the Bureau of Internal Revenue (BIR) as a
VAT taxpayer and as an Ecozone Export Enterprise with the Philippine Economic Zone
Authority (PEZA).
On separate dates, petitioner filed with the Revenue District Office (RDO) No. 54 of the BIR,
Trece Martires City, applications for tax credit/refund of unutilized input VAT on its zero-
rated sales for the taxable quarters of 2000 in the total amount of P8,228,276.34.
The claim for credit/refund, however, remained unacted by the respondent. Hence,
petitioner was constrained to file a petition before the CTA.
On April 16, 2002, petitioner filed a Petition for Review with the CTA for the refund/credit
of the same input VAT.

CIR contended that:

In an action for refund, the burden of proof is on the taxpayer to establish its right to refund,
and failure to do so is fatal to the claim for refund/ credit. Petitioner must show that it has
complied with the provisions of Section 204 (c) and 229 of the Tax Code on the prescriptive
period for claiming tax refund/credit. Claims for refund are construed strictly against the
claimant for the same partake the nature of exemption from taxation.

CTA division denied the petition. MR also denied. CTA en banc affirmed division’s ruling

ISSUE: Whether the failure to print the word "zero-rated" on the invoices/receipts is fatal to
a claim for credit/ refund of input VAT on zero-rated sales.

HELD:
Yes, the absence of the word "zero-rated" on the invoices/receipts is fatal to a claim for
credit/refund of input VAT.
This was resolved in Panasonic Communications Imaging Corporation of the Philippines
(formerly Matsushita Business Machine Corporation of the Philippines) v. Commissioner of
Internal Revenue where the Court said that the denial of petitioner's claim for tax
credit/refund for non-compliance with Sec. 4.108-1 of R.R. No. 7-95, which requires the
word "zero rated" to be printed on the invoices/receipts covering zero-rated sales.
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate
in this case is set at zero. When applied to the tax base or the selling price of the goods or
services sold such zero rate results in no tax chargeable against the foreign buyer or
customer. But, although the seller in such transactions charges no output tax, he can claim a
refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero
rating, which allows him to recover the input taxes he paid relating to the export sales,
making him internationally competitive.
The requirement is reasonable and is in accord with the efficient collection of VAT from the
covered sales of goods and services. As explained by the CTA's First Division, the
appearance of the word "zero-rated" on the face of invoices covering zero-rated sales
prevents buyers from falsely claiming input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful claim for input VAT is made, the government
would be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.
Consistent with jurisprudence, petitioner's claim for credit/ refund of input VAT for the
taxable quarters of 2000 must be denied. Failure to print the word "zero-rated" on the
invoices/receipts is fatal to a claim for credit/ refund of input VAT on zero-rated sales.
 CIR v. SM PRIME HOLDINGS
G.R. No. 183505; February 26, 2010
Value – Added Tax

DOCTRINE: Legislature never intended to include cinema/theater operators or proprietors

in the coverage of VAT.

FACTS:
Respondents SM Prime Holdings and First Asia Realty Dev’t Corporation are domestic
corporations engaged in the business of operating cinema houses.
This case involves 4 cases of protests against the Preliminary Assessment Notice (PAN)
issued by the BIR against SM Prime Holdings and First Asia Realty Development
Corporation. The PAN was issued for the collection of VAT deficiencies.
In all cases, the Commissioner of Internal Revenue denied the protest filed by the
respondents. CIR stated in its decision that the business of operating of cinema houses is
subject to VAT.
All of the cases were appealed to the Court of Tax Appeals. SM filed a motion to consolidate
all cases because it stated that it is also a majority shareholder of First Asia Realty.
CTA division ruled in favor of the respondents and stated that “the activity of showing
cinematographic films is not a service covered by the NIRC, but an activity subject to
amusement tax under the Local Government Code.” CTA en banc affirmed CTA division. On
appeal, the petitioner CIR raised the ff. arguments that the list provided by law is not
exhaustive because it covers all sales of services unless exempted by law. CTA erred in
ruling because the provisions are clear and unambiguous.
On appeal, the respondent raised the ff. arguments: That a plain reading of Sec. 108
provides that gross receipts of operators of cinemas and theaters derived from public
admission are not among the services subject to VAT.

ISSUE: Whether or not the gross receipts of cinema houses is subject to Value Added Tax
(VAT)

HELD: No, They are subject to amusement tax under the Local Government Code.
The mere fact that they are taxed by the local government unit and not by the national
government is immaterial. The Local Tax Code, in transferring the power to tax gross
receipts derived by cinema/theater operators or proprietor from admission tickets to the
local government, did not intend to treat cinema/theater houses as a separate class. No
distinction must, therefore, be made between the places of amusement taxed by the
national government and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses
operators or proprietors, who would be paying an additional 10% VAT on top of the 30%
amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax.
Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would
be in a better position than those taxed under the LGC of 1991. We need not belabor that a
literal application of a law must be rejected if it will operate unjustly or lead to absurd
results. Thus, we are convinced that the legislature never intended to include
cinema/theater operators or proprietors in the coverage of VAT.
A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale
or exchange of services" subject to VAT is not exhaustive. The words, "including," "similar
services," and "shall likewise include," indicate that the enumeration is by way of example
only.
Since the activity of showing motion pictures, films or movies by cinema/ theater operators
or proprietors is not included in the enumeration, it is incumbent upon the court to the
determine whether such activity falls under the phrase "similar services." The intent of the
legislature must therefore be ascertained.
 FORT BONIFACTIO DEV’T CORP. v. CIR
G.R. No. 173425; September 4, 2012
Value – Added Tax
DOCTRINE: Prior payment of taxes is not required for a taxpayer to avail of the 8%
transitional input tax credit

FACTS:
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic
corporation engaged in the development and sale of real property.
On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT) system by amending
certain provisions of the old National Internal Revenue Code (NIRC). RA 7716 extended the
coverage of VAT to real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business. On September 19, 1996, petitioner submitted to
the Bureau of Internal Revenue (BIR) Revenue District No. 44, Taguig and Pateros, an
inventory of all its real properties, the book value of which aggregated P71,227,503,200.10
Based on this value, petitioner claimed that it is entitled to a transitional input tax credit of
P5,698,200,256, pursuant to Section 105 of the old NIRC. In October 1996, petitioner
started selling Global City lots to interested buyers.
For the first quarter of 1997, petitioner generated a total amount of P3,685,356,539.50 from
its sales and lease of lots, on which the output VAT payable was P368,535,653.95. Petitioner
paid the output VAT by making cash payments to the BIR totalling P359,652,009.47 and
crediting its unutilized input tax credit on purchases of goods and services of
P8,883,644.48. Realizing that its transitional input tax credit was not applied in computing
its output VAT for the first quarter of 1997, petitioner on November 17, 1998 filed with the
BIR a claim for refund of the amount of P359,652,009.47 erroneously paid as output VAT
for the said period. On February 24, 1999, due to the inaction of the respondent
Commissioner of Internal Revenue (CIR), petitioner elevated the matter to the Court of Tax
Appeals (CTA) via a Petition for Review. On October 12, 2000, the CTA denied petitioner’s
claim for refund. o According to the CTA, “the benefit of transitional input tax credit comes
with the condition that business taxes should have been paid first.”
In this case, since petitioner acquired the Global City property under a VAT-free sale
transaction, it cannot avail of the transitional input tax credit. The CTA likewise pointed out
that under Revenue Regulations No. (RR) 7-95, implementing Section 105 of the old NIRC,
the 8% transitional input tax credit should be based on the value of the improvements on
land such as buildings, roads, drainage system and other similar structures, constructed on
or after January 1, 1998, and not on the book value of the real property.

ISSUE: Whether or not petitioner is entitled to a refund of P359,652,009.47 erroneously

paid as output VAT for the first quarter of 1997.

HELD: Yes, it is entitled.

Prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax
credit Section 105 of the old NIRC reads: o SEC. 105. Transitional input tax credits. – A
person who becomes liable to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory as prescribed by regulations, be
allowed input tax on his beginning inventory of goods, materials and supplies equivalent to
8% of the value of such inventory or the actual value- added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable against the output tax.
Contrary to the view of the CTA and the CA, there is nothing in the above- quoted provision
to indicate that prior payment of taxes is necessary for the availment of the 8% transitional
input tax credit. Obviously, all that is required is for the taxpayer to file a beginning
inventory with the BIR.
Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies,
where prior taxes were paid, was not the intention of the law. Otherwise, it would have
specifically stated that the beginning inventory excludes goods, materials, and supplies
where no taxes were paid.
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit
because it is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax
refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by
the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from
one’s total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an
incentive to encourage investment. Thus, unlike a tax refund, prior payment of taxes is not a
prerequisite to avail of a tax credit.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of transition from non-VAT
to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on
the taxpayer.
At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion
of the income it derived from its sales as output VAT. The transitional input tax credit
mitigates this initial diminution of the taxpayer's income by affording the opportunity to
offset the losses incurred through the remittance of the output VAT at a stage when the
person is yet unable to credit input VAT payments.
As the Court sees it then, the 8% transitional input tax credit should not be limited to the
value of the improvements on the real properties but should include the value of the real
properties as well.