CASE NO.

1
ZAPANTA VS. POSADAS
G.R. Nos. L-29204-09, December 29, 1928

FACTS:

During his lifetime, Father Braulio donated some of his property by the instruments to the six plaintiffs, severally,
with the condition that some of them would pay him a certain amount of rice, and others of money every
year, and with the express provision that failure to fulfill this condition would revoke the donations ipso facto.
These six plaintiff-donees are relatives, and some of them brothers of Father Braulio Pineda. The donations
contained another clause that they would take effect upon acceptance. They were accepted during
Father Braulio's lifetime by every one of the donees. Father Braulio Pineda died in January 1925 without any
ascendants or descendants leaving a will in which he instituted his sister Irene Pineda as his sole heiress.

The six plaintiffs filed a separate action against the Collector of Internal Revenue and his deputy for the sums
of which each of them paid, under protest, as inheritance tax on the property donated to them, in
accordance with section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835, and
by section 1 of Act No. 3031. Section 1536 of the Administrative Code reads:

Every transmission by virtue of inheritance, devise, bequest, gift mortis causa or advance in
anticipation of inheritance, devise, or bequest of real property located in the Philippine Islands and
real rights in such property; . . .

The trial court in deciding these six cases, held that the donations to the six plaintiffs made by the deceased
Father Braulio Pineda are donations inter vivos, and therefore, not subject to the inheritance tax, and ordered
the defendants to return to each of the plaintiffs the sums paid by the latter.

ISSUE:

Whether the donations made by Father Braulio Pineda to each of the plaintiffs are donations inter vivos,
or mortis causa.

RULING:

It is so expressly stated in the instruments in which they appear. They were made in consideration of the
donor's affection for the donees, and of the services they had rendered him, but he has charged them with
the obligation to pay him a certain amount of rice and money, respectively, each year during his lifetime,
the donations to become effective upon acceptance. They are therefore not in the nature of
donations mortis causa but inter vivos.

In the donations in question, their effect, that is, the acquisition of, or the right to, the property, was produced
while the donor was still alive, for according to their expressed terms they were to have this effect upon
acceptance, and this took place during the donor's lifetime. If the donor's life is mentioned in connection
with this condition, it is only fix the donor's death as the end of the term within which the condition must be
fulfilled, and not because such death of the donor is the cause which determines the birth of the right to the
donation. The property donated passed to the ownership of the donees from the acceptance of the
donations, and these could not be revoked except upon the nonfulfillment of the condition imposed, or for
other causes prescribed by the law, but not by mere will of the donor.

Neither can these donations be considered as an advance on inheritance or legacy, according to the terms
of section 1536 of the Administrative Code. it cannot be said that the plaintiffs received such advance on
inheritance or legacy, since they were not heirs or legatees of their predessor in interest upon his death (sec.
1540 of the Administrative Code).

Besides, the documents in which these donations appear, being instruments which do not contain the
requisites of a will, are not valid to transmit the property to the donees (sec. 618, Code of Civil Procedure.)
Then the defendants are not justified in collecting from the donees the inheritance tax, on property which
has not been legally transferred to them, and in which they acquired no right.
CASE NO. 2
PUIG VS. PEÑAFLORIDA
G.R. No. L-15939, January 31, 1966

FACTS:

Estela Magbanua Peñaflorida, et al., insist that the reservation by the donor of the right to dispose of the
property during her lifetime in the deed of December 28, 1949 indicates that title had passed to the donee
in her lifetime, otherwise, it is argued, the reservation would be superfluous, and they cite American authorities
in support.

ISSUE:

Whether the donation was mortis causa or inter vivos.

RULING:

The donation is mortis causa. This thesis would be plausible if the reservation of the power to dispose were
the only indication to be considered in deciding whether the donation of December 28, 1949 was mortis
causa or inter vivos. But such is not the case. The Court in its decision took to account not only the foregoing
circumstance but also the fact that the deceased expressly and consistently declared her conveyance to
be one of donation mortis causa, and further forbade the registration of the deed until after her death. All
these features concordantly indicated that the conveyance was not intended to produce any definitive
effects, nor to finally pass any interest to the grantee, except from and after the death of the grantor.

We see nothing in the deed itself to indicate that any right, title or interest in the properties described was
meant to be transferred to Doña Estela Magbanua prior to the death of the grantor, Carmen Ubalde Vda.
de Parcon. Necessarily meant, according to section 50 of the Land Registration Act, that the deed in
question should not take effect as a conveyance nor bind the land until after the death of the "donor".

Neither did the document operate to vest possession upon Doña Estela Magbanua, in view of the express
condition that (paragraph 3) if at the date of her death the donor had not transferred, sold, or conveyed
one-half of lot 58 of the Pototan Cadastre to other persons or entities, the donee would be bound to pay to
Caridad Ubalde, married to Tomas Pedrola, the amount of P600.00, and such payment was to be made on
the date the donee took possession of Lot No. 58. As the obligation to pay the legacy to Caridad Ubalde
would not definitely arise until after the death of the donor, because only by then would it become certain
that the "donor" could not transfer the property to someone else, and such payment must precede the taking
possession of the property "donated", it necessarily follows that the "donee's" taking of possession could not
occur before the death of the donor.

It being thus clear that the disposition contained in the deed is one that produces no effect until the death
of the grantor, we are clearly faced by an act mortis causa of the Roman and Spanish law. We thus see no
need of resorting to American authorities as to the import of the reservation of the donor's right to dispose of
the donated property, for the Spanish authorities are very clear on this point.

The presence of an acceptance is but a consequence of the erroneous concept of the true nature of the
juridical act, and does not indicate that in the same is a true donation inter vivos.

Appellant Magbanua further argues that the reserved power of the donor to convey the donated property
to other parties during her lifetime is but a resolutory condition (albeit a potestative one) that confirms the
passing of the title to the donee. In reality, this argument is a veritable petitio principii; it takes for granted
what has to be proved, i.e., that some proprietary right has passed under the terms of the deed, which, as
we have shown, is not true until the donor has died.

It requires no argument to demonstrate that the power, as reserved in the deed, was a power to destroy the
donation at any time, and that it meant that the transfer is not binding on the grantor until her death made
it impossible to channel the property elsewhere which, in the last analysis, as held in our main decision,
signifies that the liberality is testamentary in nature, and must appear with the solemnities required of last wills
and testaments in order to be legally valid.
CASE NO. 3.
DEL ROSARIO VS. FERRER
G.R. No. 187056, September 20, 2010

FACTS:

Spouses Leopoldo and Guadalupe Gonzales executed a document entitled "Donation Mortis Causa" on
August 27, 1968 in favor of their two children, Asuncion and Emiliano, and their granddaughter, Jarabini. The
deed of donation reads:
1.) It is our will that this Donation Mortis Causa shall be irrevocable and shall be respected by the
surviving spouse;
2.) It is our will that Jarabini Gonzales-del Rosario and Emiliano Gonzales will continue to occupy the
portions now occupied by them;
3.) It is further our will that this DONATION MORTIS CAUSA shall not in any way affect any other distribution
of other properties belonging to any of us donors whether testate or intestate and where ever
situated; and
4.) It is our further will that any one surviving spouse reserves the right, ownership, possession and
administration of this property herein donated and accepted and this Disposition and Donation shall
be operative and effective upon the death of the DONORS.

Although denominated as a donation mortis causa, which in law is the equivalent of a will, the deed had no
attestation clause and was witnessed by only two persons. The named donees, however, signified their
acceptance of the donation on the face of the document.

Guadalupe, the donor wife, died in September 1968. A few months later or on December 19, 1968, Leopoldo,
the donor husband, executed a deed of assignment of his rights and interests in subject property to their
daughter Asuncion. Leopoldo died in June 1972.

In 1998 Jarabini filed a "petition for the probate. Asuncion opposed the petition, invoking his father Leopoldo’s
assignment of his rights and interests in the property to her.

After trial, the RTC rendered a decision finding that the donation was in fact one made inter vivos, the donors’
intention being to transfer title over the property to the donees during the donors’ lifetime, given its
irrevocability. Consequently, said the RTC, Leopoldo’s subsequent assignment of his rights and interest in the
property was void since he had nothing to assign. The RTC thus directed the registration of the property in
the name of the donees in equal shares.

On Asuncion’s appeal the CA rendered a decision reversing that of the RTC. The CA held that Jarabini
cannot, through her petition for the probate of the deed of donation mortis causa, collaterally attack
Leopoldo’s deed of assignment in Asuncion’s favor. The CA further held that, since no proceeding exists for
the allowance of what Jarabini claimed was actually a donation inter vivos, the RTC erred in deciding the
case the way it did. Finally, the CA held that the donation, being one given mortis causa, did not comply
with the requirements of a notarial will, rendering the same void. Following the CA’s denial of Jarabini’s
motion for reconsideration, she filed the present petition with this Court.

ISSUE:

Whether the donation is mortis causa or inter vivos.

RULING:

Since the donation in this case was one made inter vivos, it was immediately operative and final. The reason
is that such kind of donation is deemed perfected from the moment the donor learned of the donee’s
acceptance of the donation. The acceptance makes the donee the absolute owner of the property
donated.

Given that the donation in this case was irrevocable or one given inter vivos, Leopoldo’s subsequent
assignment of his rights and interests in the property to Asuncion should be regarded as void for, by then, he
had no more rights to assign. He could not give what he no longer had. Nemo dat quod non habet.

The trial court cannot be faulted for passing upon, in a petition for probate of what was initially supposed to
be a donation mortis causa, the validity of the document as a donation inter vivos and the nullity of one of
the donor’s subsequent assignment of his rights and interests in the property. The Court has held before that
the rule on probate is not inflexible and absolute. Moreover, in opposing the petition for probate and in
putting the validity of the deed of assignment squarely in issue, Asuncion or those who substituted her may
not now claim that the trial court improperly allowed a collateral attack on such assignment.
CASE NO. 4
ABELLO VS. CIR
G.R. No. 120721, February 23, 2005

FACTS:

During the 1987 national elections, petitioners contributed ₱882,661.31 each to the campaign funds of
Senator Edgardo Angara, then running for the Senate. In letters dated April 21, 1988, the BIR assessed each
of the petitioners ₱263,032.66 for their contributions. On August 2, 1988, petitioners questioned the assessment
through a letter to the BIR. They claimed that political or electoral contributions are not considered gifts under
the NIRC, and that, therefore, they are not liable for donor’s tax. The claim for exemption was denied by the
Commissioner.

ISSUE:

Whether or not the political contributions of the private respondents to Sen. Edgardo Angara are taxable
gifts.

RULING:

A gift is generally defined as a voluntary transfer of property by one to another without any consideration or
compensation therefor.

In the instant case, the contributions are voluntary transfers of property in the form of money from private
respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under the definition
of donation or gift.

As correctly pointed out by the Solicitor General:

The fact that the contributions were given to be used as campaign funds of Sen. Angara does not affect the
character of the fund transfers as donation or gift. There was thereby no retention of control over the
disposition of the contributions. There was simply an indication of the purpose for which they were to be used.
For as long as the contributions were used for the purpose for which they were intended, Sen. Angara had
complete and absolute power to dispose of the contributions. He was fully entitled to the economic benefits
of the contributions.

Section 91 of the Tax Code is very clear. A donor’s or gift tax is imposed on the transfer of property by gift.

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:

Political Contributions. – For internal revenue purposes, political contributions in the Philippines are considered
taxable gift rather than taxable income. This is so, because a political contribution is indubitably not intended
by the giver or contributor as a return of value or made because of any intent to repay another what is his
due, but bestowed only because of motives of philanthropy or charity. His purpose is to give and to bolster
the morals, the winning chance of the candidate and/or his party, and not to employ or buy. On the other
hand, the recipient-donee does not regard himself as exchanging his services or his product for the money
contributed. But more importantly he receives financial advantages gratuitously.

Accordingly, in the absence of an express exempting provision of law, political contributions in the Philippines
are subject to the donor’s gift tax.

In the light of the above BIR Ruling, it is clear that the political contributions of the private respondents to Sen.
Edgardo Angara are taxable gifts. The vagueness of the law as to what comprise the gift subject to tax was
made concrete by the above-quoted BIR ruling. Hence, there is no doubt that political contributions are
taxable gifts.
CASE NO. 5
LLADOC VS CIR
G.R. No. L-19201, June 16, 1965

FACTS:

IM.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash sometime in 1957 to Rev. Fr. Crispin Ruiz, then
parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a
new Catholic Church in the locality. The total amount was actually spent for the purpose intended.

Thereafter, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic
Parish of Victorias, Negros Occidental, of which petitioner was the priest.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the
motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner
appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro
Lladoc claimed, among others, that at the time of the donation, he was not the parish priest in Victorias; that
there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he
should not be liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even
against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions
of the Constitution.

ISSUE:

Whether or not petitioner should be liable for the assessed donee's gift tax.

RULING:

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and
parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively
for religious purposes. The exemption is only from the payment of taxes assessed on such properties
enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the
Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not
rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the
privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627).

Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition
of which on property used exclusively for religious purposes, does not constitute an impairment of the
Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as
employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes.
And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the
exemption herein must be denied.

In view here of and considering that as heretofore stated, the assessment at bar had been properly made
and the imposition of the tax is not a violation of the constitutional provision exempting churches, parsonages
or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish Victorias
Pertains, is liable for the payment thereof.
CASE NO. 6
LORENZO V POSADAS
Gr No. 43082, June 1937

FACTS:

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit
5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate
of his will and the settlement and distribution of his estate were begun in the Court of First Instance of
Zamboanga. The will was admitted to probate. Said will provides, among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for
a period of ten (10) years after my death, and that the same be handled and managed by the executors,
and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County
of Rosecommon, Ireland, and that he be directed that the same be used only for the education of my
brother's children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley
to be disposed of in the way he thinks most advantageous.

xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley,
is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint
a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years
after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of
office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and
the plaintiff herein was appointed in his stead.

ISSUES:

1. When does the inheritance tax accrue and when must it be satisfied?

2. Should the inheritance tax be computed on the basis of the value at the time of the testator's death or
on its value ten years later?

3. In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees?

4. What law governs the case?

5. Has there been delinquency in the payment of the inheritance tax?

RULING:

1. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of that date. But it must be
paid before the delivery of the properties in question to PJM Moore as trustee on March 10, 1924.

2. It should be computed at the time of the decedent's death, regardless of any subsequent contingency
value of any increase or decrease and notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or depreciation.

3. No. The compensation of a trustee, earned not in the administration of the estate, but in the
management thereof for the benefit of the legatees or devises, does not come properly within the class
or reason for exempting administration expenses.

4. Act 3031 and not Act 3606 applies. Even if Act 3606 is more favorable to the taxpayer, revenue laws,
generally, which impose taxes collected by means ordinarily resorted to for the collection of taxes are
not classes as penal laws.

5. Yes. That taxes must be collected promptly is a policy deeply entrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax. The mere fact that the
estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax
laws or exempt it from the payment of the inheritance tax.
CASE NO. 7
MARCOS II VS CA
GR No. 120880, June 5, 1997

FACTS:

The Marcos family was assessed by the BIR after it failed to file estate tax returns. Bongbong Marcos sought
for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late
Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. However
the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that
they became final and unappealable after the period for filing of opposition has prescribed. Marcos
contends that the properties could not be levied to cover the tax dues because they are still pending
probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the
probate court or until the probate proceedings are terminated.

ISSUE:

Whether or not the pendency of probate proceedings over the estate of the deceased preclude the
assessment and collection.

RULING:

No. it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued
that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the
late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in
the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same can be enforced and
collected.

On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to
any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate
court which approves the assessment and collection of the estate tax.
CASE NO. 8
VIDAL DE ROCES VS POSADAS JR
GR No. L-34937, March 13, 1933

FACTS:

On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain parcel of
lands situated in Manila to the plaintiffs herein who with their respective husbands accepted them in the
same public documents which were duly recorded in the registry of deeds. By virtue of said donations, the
plaintiffs took possession of the said lands, received the fruits thereof and obtained the corresponding transfer
certificate of title. On January 25, 1926, the donor died in the city of Manila leaving the forced heir and her
will which was admitted to probate, she bequeathed to each of the donees the sum of Php5,000. After the
estate had been distributed among the instituted legatees and before the delivery of their respective shares,
the appellee herein, as collector of internal revenue, ruled that the appellant as donees and legatees should
pay as inheritance taxes the sums of Php16,673 and Php13,951.45 respectively. At first, the appellants refused
to pay the aforementioned taxes but, at the insistence of the appellee in order not to delay the adjudication
of the legacies, they agreed at last to pay them under protest. Hence, plaintiff-appellants filed an action to
recover the taxes paid under protest.

ISSUE:

Whether or not inheritance tax should be imposed on donations inter vivos.

HELD:

Yes. The tax collected by the appellee on the properties donated in 1925 really constitutes an inheritance
tax imposed on the transmission of said properties in contemplation or in consideration of the donor’s death
and under circumstance that the donees were later instituted as the former’s legatees. For this reason, the
law considers such transmission in the form of gifts inter vivos, as advances on the inheritance and nothing
therein violates any constitutional provision, in as much as said legislation is within the power of the legislature.
Property subject to inheritance tax – the inheritance tax ordinarily applies to all property within the power of
the state to reach passing by will or the laws regulating intestate succession or by gifts inter vivos in the
manner designated by statute, whether such property be real or personal, tangible or intangible, corporeal
or incorporeal.

Property Subject to Inheritance Tax. — The inheritance tax ordinarily applies to all property within the power
of the state to reach passing by will or the laws regulating intestate succession or by gift inter vivos in the
manner designated by statute, whether such property be real or personal, tangible or intangible, corporeal
or incorporeal.

The gifts referred to in section 1540 of the Revised Administration Code are, obviously, those donations inter
vivos that take effect immediately or during the lifetime of the donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the transmission of which is not made in contemplation of the
donor's death should not be understood as included within the said legal provision for the reason that it would
amount to imposing a direct tax on property and not on the transmission thereof, which act does not come
within the scope of the provisions contained in Article XI of Chapter 40 of the Administrative Code which
deals expressly with the tax on inheritances, legacies and other acquisitions mortis causa.

Our interpretation of the law is not in conflict with the rule laid down in the case of Tuason and Tuason vs.
Posadas, supra. We said therein, as we say now, that the expression "all gifts" refers to gifts inter vivos inasmuch
as the law considers them as advances on inheritance, in the sense that they are gifts inter vivos made in
contemplation or in consideration of death. In that case, it was not held that that kind of gifts consisted in
those made completely independent of death or without regard to it.
CASE NO. 9
ARTURO TOLENTINO V. SECRETARY OF FINANCE AND COMMISSIONER OF INTERNAL REVENUE
G.R. No. 115455; October 30, 1995

FACTS:

The present case involves motions seeking reconsideration of the Court’s decision dismissing the petitions for
the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax
Law. The motions, of which there are 10 in all, have been filed by the several petitioners.

The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the VAT
while maintaining those granted to others, the law discriminates against the press. On the other hand, asserts
that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that
Congress shall “evolve a progressive system of taxation”.

Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite policy
of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives. To subject cooperatives to the VAT would, therefore, be to infringe a constitutional policy.

ISSUE:

Whether or not the Expanded Value-Added Tax Law should be declared unconstitutional.

RULING:

No. With respect to the first contention, it would suffice to say that since the law granted the press a privilege,
the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by
granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in
withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. The PPI asserts that it does not really matter that the law does not
discriminate against the press because “even nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional.” The Court was speaking in that case (Murdock v. Pennsylvania) of a license tax,
which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it
lays a prior restraint on the exercise of its right. The VAT is, however, different. It is not a license tax. It is not a
tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedom under the
Constitution.

Anent the first contention of CREBA, it has been held in an early case that even though such taxation may
affect particular contracts, as it may increase the debt of one person and lessen the security of another, or
may impose additional burdens upon one class and release the burdens of another, still the tax must be paid
unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract
in its true legal sense. It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as
the sale of agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of food items, petroleum, medical
and veterinary services, etc., which are essential goods and services was already exempt under Section 103,
pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716.

Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions while subjecting
those of petitioner to the payment of the VAT. Finally, it is contended that R.A. No. 7716 also violates Art. VI,
Section 28(1) which provides that “The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation”. Nevertheless, equality and uniformity of taxation mean that all
taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement
it is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed in
similar situation. Furthermore, the Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall “evolve a progressive system of
taxation.” The constitutional provision has been interpreted to mean simply that “direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized.” The mandate to Congress is not to
prescribe, but to evolve, a progressive tax system.

As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which
only the following are exempt from taxation: charitable institutions, churches, and parsonages, by reason of
Art. VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

With all the foregoing ratiocinations, it is clear that the subject law bears no constitutional infirmities and is
thus upheld.
CASE NO. 10
ABAKADA GURO PARTY LIST VS EXECUTIVE SECRETARY
G.R. No. 168056, September 1, 2005

FACTS:

ABAKADA GURO Party List challenged the constitutionality of R.A. No. 9337 particularly Sections 4, 5 and 6,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). These
questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006.

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution. They further
argue that VAT is a tax levied on the sale or exchange of goods and services and cannot be included within
the purview of tariffs under the exemption delegation since this refers to customs duties, tolls or tribute
payable upon merchandise to the government and usually imposed on imported/exported goods. They also
said that the President has powers to cause, influence or create the conditions provided by law to bring
about the conditions precedent. Moreover, they allege that no guiding standards are made by law as to
how the Secretary of Finance will make the recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by the President since the former
is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to impose the
increased tax rate or not.

ISSUES:

1. Whether or not R.A. No. 9337 has violated the provisions in Article VI, Section 24, and Article VI, Section
26 (2) of the Constitution.

2. Whether or not there was an undue delegation of legislative power in violation of Article VI Sec 28 Par 1
and 2 of the Constitution.

3. Whether or not there was a violation of the due process and equal protection under Article III Sec. 1 of
the Constitution.

RULING:

As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
(VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature. The VAT is a tax
on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and
services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax
paid to the buyer, with the seller acting merely as a tax collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers

1. R.A. No. 9337 has not violated the provisions. The revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain
any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to
the House revenue bill.

2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative process can go forward.

3. Supreme Court held no decision on this matter. The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been established. Whether it relates to the subject of
taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of
assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule,
the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
CASE NO. 11
COMMISSIONER OF INTERNAL REVENUE v MAGSAYSAY LINES INC et al
GR 146984, JULY 28, 2006

FACTS:

Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares
in its wholly-owned subsidiary the NMC. The NDC decided to sell in one lot its NMC shares and 5 of its ships.
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions
for the public auction was that the winning bidder was to pay a value-added tax of 10% on the value of the
vessels.

ISSUE:

WON the sale by NDC of the 5 vessels to the private respondents is subject to VAT under the NIRC of 1986

RULING:

NO. Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to
VAT. Section 99 of the Tax Code and its subsequent incarnations, VAT is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities, in the course of trade or business.
These transactions outside the course of trade or business may invariably contribute to the production chain,
but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within
the course of trade or business, the providers of such goods or services would hardly, if at all, have the
opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since
the accumulation of output VAT arises in the first place only through the ordinary course of trade or business.
CASE NO. 12
COMMISSIONER OF INTERNAL REVENUE VS PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
GR 140230, DECEMBER 15, 2005

FACTS:

From 1992 to 1994, PLDT paid taxes amounting to more than P164 M for equipment, machineries and spare
parts it imported for its business and also paid VAT amounting to more than P116 M for similar importations. It
sought a confirmatory ruling on its tax exemption privileges under Sec 12, RA 7082, which is the law that
granted its franchise. BIR then responded by saying that the said company shall only be subjected to 3%
franchise tax on gross receipts “in lieu of all taxes” thus, it shall also be exempted from VAT. Armed by its
ruling, PLDT claimed for tax refund amounting to more than P280 M representing the compensating taxes,
advance sales taxes, VAT and other internal revenue taxes alleged to have been erroneously paid on its
importations. Not having been acted upon by the BIR it filed a petition for review before the CTA which ruled
in its favour but reduced the total amount to P 223+ M. CTA associate judge Saga maintained that the phrase
“in lieu of all taxes” found in Sec 12 of RA 7082 refers to exemption from direct taxes only and does not cover
indirect taxes, such as VAT, compensating tax and advance sales tax. CIR appealed to the CA who affirmed
the CTA’s decision. Hence, this petition.

ISSUE:
WON the 3% franchise tax exempts the PLDT from paying all other taxes including indirect taxes

RULING:

NO. Direct taxes are those exacted from the very person who, it is intended or desired, should pay them.
They are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.

Indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it.

The NIRC classifies VAT as “an indirect tax … the amount of which may be shifted or passed on to the buyer,
transferee or lessee of the goods”. The 10% VAT on importation of goods is in the nature of an excise tax
levied on the privilege of importing articles. It is imposed on all taxpayers who import goods. It is not a tax on
the franchise of a business enterprise or on its earnings, as stated in Section 2 of RA 7082.

Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or
of raw materials to be processed into merchandise can shift the tax or lay the “economic burden of the tax”
on the purchaser by subsequently adding the tax to the selling price of the imported article or finished
product.

Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles,
whether in the course of business or not.

The liability for the payment of the indirect taxes lies with the seller of the goods or services, not in the buyer
thereof. Thus, one cannot invoke one’s exemption privilege to avoid the passing on or the shifting of the VAT
to him by the manufacturers/suppliers of the goods he purchased. Hence, it is important to determine if the
tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of
the purchase price, otherwise it is presumed that the tax exemption embraces only those taxes for which the
buyer is directly liable. Since RA 7082 did not specifically include indirect taxes in the exemption granted to
PLDT, the latter cannot claim exemption from VAT, advance sales tax and compensating tax.

The clause “in lieu of all taxes” in Section 12 of RA 7082 is immediately followed by the qualifying clause “on
this franchise or earnings thereof”, suggesting that the exemption is limited to taxes imposed directly on PLDT
since taxes pertaining to PLDT’s franchise or earnings are its direct liability.

Accordingly, indirect taxes, not being taxes on PLDT’s franchise or earnings, are not included in the
exemption provision. PLDT’s allegation that the Bureau of Customs assessed the company for advance sales
tax and compensating tax for importations entered between October 1, 1992 and May 31, 1994 when the
value-added tax system already replaced, if not totally eliminated, advance sales and compensating taxes,
is with merit. Pursuant to Executive Order No. 273, a multi-stage value-added tax was put into place to
replace the tax on original and subsequent sales tax. Therefore, compensating tax and advance sales tax
were no longer collectible internal revenue taxes under the NIRC when the Bureau of Customs made the
assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer
under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994.
A refund of the amounts paid as such taxes is thus proper.
CASE NO. 13
COMMISSIONER OF INTERNAL REVENUE v SEAGATE TECHNOLOGY PHILIPPINES
GR 153866, FEBRUARY 11, 2005

FACTS:

A VAT-registered enterprise, STP is registered with the Philippine Export Zone Authority (PEZA) and certified to
engage in the manufacture of recording components primarily used in computers for export. VAT returns
were filed for the period 1 April 1998 to 30 June 1999. With supporting documents, a claim for refund of VAT
input taxes in the amount of 28 million pesos (inclusive of the 12-million VAT input taxes subject of this Petition
for Review) was filed on 4 October 1999.

CIR did not act promptly upon STP's claim so the latter elevated the case to the CTA for review in order to
toll the running of the two-year prescriptive period.

On appeal, CIR asserted that by virtue of the PEZA registration alone of STP, the latter is not subject to the
VAT. According to CIR, STP's sales transactions intended for export are not exempt.

ISSUE:

WON STP is entitled to refund or tax credit for purchases

RULING:

YES. STP is entitled to refund or tax credit. As a PEZA-registered enterprise within a special economic zone, STP
is entitled to the fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy
all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844.

Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-
rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered
and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input
VAT paid on capital goods purchased, STP is entitled to such VAT refund or credit.

STP, which as an entity is exempt, is different from its transactions which are not exempt. The end result,
however, is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is
merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the
transactions themselves.
CASE NO. 14
COMMISIONER OF INTERNAL REVENUE v SEKISUI JUSHI PHILIPPINES
GR NO. 149671, JULY 21, 2006

FACTS:

Respondent is a domestic corporation whose principal office is located at the Special Export Processing
Zone, Laguna Technopark, Binan, Laguna. On November 11, 1998, it filed two separate applications for tax
credit/refund of VAT input taxes paid for the period of January to March 1997 and of April to June 1997
respectively.

ISSUE:

WON respondent is entitled to the refund or issuance of tax credit certificate for unutilized input taxes paid
on domestic purchase of capital goods and services for the period covering January to June 1997

RULING:

YES. While an ecozone is geographically within the Philippines, it is deemed separate customs territory and is
regarded in law as foreign soil. Sales of suppliers from outside the borders of the ecozone to this separate
customs territory are deemed exports and treated as export sales. These sales are zero-rated or subject to a
tax rate of 0%. Since 100% of the products of the respondent are exported, all its transactions are deemed
export sales and are thus VAT zero rated. It has been shown that respondent has no output tax with which it
could offset its paid input tax. Since the subject input tax it paid for its domestic purchases of capital goods
and services remained unutilized, it can claim a refund for the input VAT previously charged by its suppliers.
CASE NO. 15
COMMISSIONER OF INTERNAL REVENUE v AMERICAN EXPRESS INTERNATIONAL INC
GR 152609, JUNE 29, 2005

FACTS:

The respondent is a servicing unit of American Express International, Inc.- Hong Kong Branch and is engaged
primarily to facilitate the collections of AmEx-HK receivables from card members situated in the PH and the
payments to service establishments in the country. On March 23, 1999 it amended its quarterly VAT returns
for the period of January to December 1997. On April 13, 1999 it filed with the BIR a letter-request for the
refund of its 1997 excess input taxes.

ISSUE:

WON petitioner’s sale of service is VAT zero rated

RULING:

YES. The respondent met with all three requirements for exemption from the destination rule. Its facilitation
service is performed in the PH. It is a service other than ‘processing, manufacturing or repacking of goods’.
Such service meets the statutory condition that it be paid in acceptable foreign currency duly accounted
for in accordance with BSP rules and regulation and thus should be zero rated.
CASE NO 16.
SILKAIR (SINGAPORE) PTE, LTD VS COMMISSIONER OF INTERNAL REVENUE
G.R. No. 173594, February 6, 2008

FACTS:

Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the laws of Singapore which
has a Philippine representative office, is an online international air carrier operating the Singapore-Cebu-
Davao-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes. On
December 19, 2001, 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 following Commissioner of Internal Revenue v. Victorias Milling Co., Inc.,
et al. Respondent Commissioner on Internal Revenue (CIR) opposed the petition. The Second Division of the
CTA denied Silkair’s 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 the petitioner is the proper party to claim for refund or tax credit.

RULING:

No. 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 "unless 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.
CASE NO. 17
SAN ROQUE POWER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 180345, November 25, 2009

FACTS:

Petitioner is a domestic corporation organized under the corporate laws of the Republic of the Philippines. It
was incorporated for the sole purpose of building and operating the San Roque Multipurpose Project in San
Manuel, Pangasinan, which is an indivisible project consisting of the power station, the dam, spillway, and
other related facilities. It is registered with the Board of Investments (BOI) on a preferred pioneer status to
engage in the design, construction, erection, assembly, as well as own, commission, and operate electric
power-generating plants and related activities, for which it was issued the Certificate of Registration. As a
seller of services, petitioner is registered with the BIR as a VAT taxpayer. Petitioner 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. During the cooperation period of 25 years
commencing from the completion date of the Power Station, the NPC shall purchase all the electricity
generated by the Power Plant.

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,
now the 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. Petitioner
sought the refund of the amount of ₱249,397,620.18 representing its unutilized excess VAT on its importation
and local purchases of various goods and services for the year 2002.

ISSUE:

Whether or not petitioner is entitled to refund or tax credit.

RULING:

Yes. Petitioner’s claim for refund or credit is justified under Section 112(A) of the NIRC. It complied with the
criteria set forth in the provision. More importantly, petitioner’s claim complied with the sixth requirement—
the existence of zero-rated or effectively zero-rated sales, to which creditable input taxes may be attributed.
The fourth quarter return for the year 2002, which petitioner filed, reported a zero-rated sale in the amount of
₱42,500,000.00. 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.

It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the
tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect
tax so as to encourage the development of particular industries. Effective zero-rating was intended to relieve
the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there
been no exemption. In this case, petitioner is being exempted from paying VAT on its purchases to relieve
NPC of the burden of additional costs that petitioner may shift to NPC by adding to the cost of the electricity
sold to the latter. Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter, further clarifies
that it is the lawmakers’ intention that NPC be made completely exempt from all taxes, both direct and
indirect. Congress granted NPC a comprehensive tax exemption because of the significant public interest
involved.
CASE NO. 18
COMMISSIONER OF INTERNAL REVENUE VS. TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC.
G.R. No. 150154, August 9, 2005

FACTS:

Respondent Toshiba was organized and established as a domestic corporation, duly-registered with the
Securities and Exchange Commission on July 07 1995, with the primary purpose of engaging in the business
of manufacturing and exporting of electrical and mechanical machinery, equipment, systems, accessories,
parts, components, materials and goods of all kinds, including, without limitation, to those relating to office
automation and information technology, and all types of computer hardware and software, such as HDD,
CD-ROM and personal computer printed circuit boards. On September 27 1995, respondent Toshiba also
registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise, with principal
office in Laguna Technopark, Biñan, Laguna. On December 1995, it registered with the Bureau of Internal
Revenue (BIR) as a VAT taxpayer and a withholding agent.

Respondent Toshiba filed its VAT returns for the first and second quarters of taxable year 1996, reporting input
VAT for a total of ₱18,247,303.94. It alleged that the said input VAT was from its purchases of capital goods
and services which remained unutilized since it had not yet engaged in any business activity or transaction
for which it may be liable for any output VAT. Consequently, respondent Toshiba filed with the One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF) applications for tax
credit/refund of its unutilized input VAT. The CIR denied the petition. The CTA ordered petitioner CIR to refund.
The Court of Appeals dismissed petitioner CIR’s Petition for Review and affirmed the CTA Decision.

ISSUE:

Whether or not respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of
capital goods and services.

RULING:

Yes. Petitioner CIR failed to differentiate between VAT-exempt transactions from VAT-exempt entities. An
exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed
in and expressly exempted from the VAT under the Tax Code, without regard to the tax status – VAT-exempt
or not – of the party to the transaction. An exempt party, on the other hand, is a person or entity granted
VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is
a signatory, and by virtue of which its taxable transactions become exempt from VAT.

I. An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by persons from the
Customs Territory to ECOZONE enterprises shall be subject to VAT at zero percent (0%).

It is important to note herein that respondent Toshiba is located within an ECOZONE. The national territory of
the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory.
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the
ECOZONES as a separate customs territory; thus, creating the fiction that the ECOZONE is a foreign territory.
As a result, sales made by a supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated
as an exportation from the Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a
purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. The
Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to
form part of the cost of goods destined for consumption outside of the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free
of VAT; while, those destined for use or consumption within the Philippines shall be imposed with ten percent
(10%) VAT. Applying this doctrine, the BIR issued Revenue Memorandum Circular no. 74-99, no output VAT
may be passed to an ECOZONE enterprise since it is a VAT-exempt entity.

II. Prior to RMC No. 74-99, however, PEZA-registered enterprises availing of the income tax holiday under
Executive Order No. 226, as amended, were deemed subject to VAT.
However, the rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-registered
enterprise shall be considered an export sale and subject to zero percent (0%) VAT was clearly established
only on 15 October 1999, upon the issuance of RMC No. 74-99. Prior to the said date, however, whether or
not a PEZA-registered enterprise was VAT-exempt depended on the type of fiscal incentives availed of by
the said enterprise. This old rule clearly did not take into consideration the Cross Border Doctrine essential to
the VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice of fiscal
incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives: (1) If the PEZA-registered enterprise chose the five
percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916, as
amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax
holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent (10%).
The sale of capital goods by suppliers from the Customs Territory to respondent Toshiba in the present Petition
took place during the first and second quarters of 1996, way before the issuance of RMC No. 74-99, and
when the old rule was accepted and implemented by no less than the BIR itself. Since respondent Toshiba
opted to avail itself of the income tax holiday under Exec. Order No. 226, as amended, then it was deemed
subject to the ten percent (10%) VAT. It was very likely therefore that suppliers from the Customs Territory had
passed on output VAT to respondent Toshiba, and the latter, thus, incurred input VAT. It bears emphasis that
the CTA, with the help of SGV & Co., the independent accountant it commissioned to make a report, already
thoroughly reviewed the evidence submitted by respondent Toshiba consisting of receipts, invoices, and
vouchers, from its suppliers from the Customs Territory. Accordingly, the Court gives due respect to and
adopts the CTA’s findings that the suppliers of capital goods from the Customs Territory did pass on output
VAT to respondent Toshiba and the amount of input VAT which respondent Toshiba could claim as
credit/refund.
CASE NO. 19
CORAL BAY NICKEL CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 190506, JUNE 13, 2016

FACTS:

The petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt mixed sulphide,
is a VAT entity registered with the Bureau of Internal Revenue (BIR). It is also registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone Export Enterprise at the Rio Tuba Export Processing Zone
under PEZA Certificate of Registration. On August 5, 2003, the petitioner filed its Amended VAT Return
declaring unutilized input tax from its domestic purchases of capital goods, other than capital goods and
services, for its third and fourth quarters of 2002 totalling ₱50,124,086.75. On June 14, 2004, it filed with Revenue
District Office No. 36 in Palawan its Application for Tax Credits/Refund (BIR Form 1914) together with
supporting documents.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA by petition for
review, praying for the refund of the aforesaid input VAT.

ISSUE:

Whether or not petitioner, an entity located within an ECOZONE, is entitled to the refund of its unutilized input
taxes incurred before it became a PEZA-registered entity.

RULING:

No. The petitioner's insistence, that Toshiba is not applicable because Toshiba Information Equipment (Phils)
Inc., the taxpayer involved thereat, was a PEZA-registered entity during the time subject of the claim for tax
refund or credit, is unwarranted. The most significant difference between Toshiba and this case is that
Revenue Memorandum Circular No. 74-99 was not yet in effect at the time Toshiba Information Equipment
(Phils) Inc. brought its claim for refund. Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives, namely: (1) if the PEZA-registered enterprise chose
the 5% preferential tax on its gross income in lieu of all taxes, as provided by Republic Act No. 7916, as
amended, then it was VAT-exempt; and (2) if the PEZA-registered enterprise availed itself of the income tax
holiday under Executive Order No. 226, as amended, it was subject to VAT at 10% (now, 12%). Based on this
old rule, Toshiba allowed the claim for refund or credit on the part of Toshiba Information Equipment (Phils)
Inc. This is not true with the petitioner. With the issuance of RMC 74-99, the distinction under the old rule was
disregarded and the new circular took into consideration the two important principles of the Philippine VAT
system: the Cross Border Doctrine and the Destination Principle.

The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan. Its plant site was
specifically located inside the Rio Tuba Export Processing Zone - a special economic zone (ECOZONE). As
such, the purchases of goods and services by the petitioner that were destined for consumption within the
ECOZONE should be free of VAT; hence, no input VAT should then be paid on such purchases, rendering the
petitioner not entitled to claim a tax refund or credit. We should also take into consideration the nature of
VAT as an indirect tax. Although the seller is statutorily liable for the payment of VAT, the amount of the tax is
allowed to be shifted or passed on to the buyer. However, reporting and remittance of the VAT paid to the
BIR remained to be the seller/supplier's obligation. Hence, the proper party to seek the tax refund or credit
should be the suppliers, not the petitioner.
CASE NO. 20
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION VS. CIR
G.R. Nos. 141104 & 148763, June 8, 2007

FACTS:

These are consolidated cases involving the unsuccessful claims of herein petitioner Atlas Consolidated Mining
and Development Corporation for the refund/credit of the input Value Added Tax (VAT) on its purchases of
capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. Petitioner
corporation is engaged in the business of mining, production, and sale of various mineral products, such as
gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. In G.R. No. 141104, petitioner
corporation filed with the BIR its VAT Return for the first quarter of 1992. It alleged that it likewise filed with the
BIR the corresponding application for the refund/credit of its input VAT on its purchases of capital goods and
on its zero-rated sales in the amount of P26,030,460.00. When its application for refund/credit remained
unresolved by the BIR, petitioner corporation filed its Petition for Review with the CTA. Asserting that it was a
"zero-rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue
(respondent Commissioner) to refund/credit petitioner corporation. After due trial, the CTA promulgated its
Decision denying its claim for refund. The appellate court dismissed the appeal of petitioner corporation. The
subsequent motion for reconsideration of petitioner corporation was also denied by the CA. G.R. No. 148763
involves almost the same set of facts as in G.R. No. 141104, except that it relates to the claims of petitioner
corporation for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales made
in the last three taxable quarters of 1990.

ISSUE:

Whether or not petitioner is entitled for the refund/credit of the input Value Added Tax (VAT) on its purchases
of capital goods and on its zero-rated sales.

RULING:

No. Although the Court agreed with the petitioner corporation that sales to EPZA-registered enterprises
operating within economic processing zones were effectively zero-rated and were not covered by Revenue
Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated sales during the second, third, and fourth quarters of
1990 and the first quarter of 1992, for not being established and substantiated by appropriate and sufficient
evidence.

Section 2 of Revenue Regulations No. 2-88, which applied to zero-rated export sales to export-oriented BOI-
registered enterprises, should not be applied to the applications for refund/credit of input VAT filed by
petitioner corporation since it based its applications on the zero-rating of export sales to enterprises registered
with the EPZA and located within export processing zones. It must be emphasized that PASAR and PHILPHOS,
in addition to being registered with the BOI, were also registered with the EPZA and located within an export-
processing zone. Sales to export processing zones are subjected to special tax treatment. Article 77 of the
Omnibus Investments Code of 1987 establishes the tax treatment of goods or merchandise brought into the
export processing zones. Of particular relevance is paragraph 2, which provides that "Merchandise
purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone,
shall be considered as export sales and the exporter thereof shall be entitled to the benefits allowed by law
for such transaction."

Such tax treatment of goods brought into the export processing zones are only consistent with the Destination
Principle and Cross Border Doctrine to which the Philippine VAT system adheres. Hence, actual export of
goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use
or consumption within the Philippines shall be imposed with 10% VAT. Export processing zones are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons from the Philippine customs territory
to those inside the export processing zones are already taxed as exports. Plainly, sales to enterprises operating
within the export processing zones are export sales, which, under the Tax Code of 1977, as amended, were
subject to 0% VAT.
CASE NO. 21
COMMISSIONER OF INTERNAL REVENUE v. MANILA MINING CORPORATION
GR NO. 153204, AUGUST 31, 2005

FACTS:

Respondent Manila Mining Corporation (MMC), a VAT-registered enterprise, filed its VAT Returns for the year
of 1991 with the BIR. MMC, relying on Sec. 2 of Executive Order (E.O.) 581 as amended which provides that
gold sold to the Central Bank is considered an export sale which under Section 100(a)(1) of the NIRC, as
amended by E.O. 273, is subject to zero-rated if such sale is made by a VAT-registered person, filed an
application for tax refund/credit of the input VAT it paid from such year. The Commissioner of Internal
Revenue (CIR) failed to act upon MMC’s application within sixty (60) days from the dates of filing. MMC was
then filed a Petition for Review against the CIR before the Court of Tax Appeals (CTA) seeking the issuance
of tax credit certificate or refund. The CIR specifically denied the veracity of the amounts stated in MMC’s
VAT returns and application for credit/refund as the same continued to be under investigation. However,
such was not verified prompting MMC to file a “SUPPLEMENT (To Annotation of Admission)” alleging that as
the reply was not under oath, “an implied admission of its requests arose” as a consequence thereof. The
CTA granted MMC’s Request for Admissions and denied the CIR’s Motion to Admit Reply. The CTA denied
MMC’s claim for refund of input VAT for failure to prove that it paid the amounts claimed as such for the year
1991, no sales invoices, receipts or other documents as required having been presented. Upon appeal of
MMC to the Court of Appeals (CA), it reversed the decision of the CTA and granted MMC’s claim for refund
or issuance of tax credit certificates on the ground that there was no need for MMC to present the
photocopies of the purchase invoices or receipts evidencing the VAT paid and the best evidence rule is
misplaced since this rule does not apply to matters which have been judicially admitted.

ISSUE:

Whether or not MMC adduced sufficient evidence to prove its claim for refund of its input VAT for taxable
year 1991.

HELD:

As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it as
purchaser. Zero rating is primarily intended to be enjoyed by the seller – MMC, which charges no output VAT
but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers. For
a judicial claim for refund to prosper, however, MMC must not only prove that it is a VAT registered entity and
that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by purchase
invoices or official receipts. It is required that a photocopy of the purchase invoice or receipt evidencing the
value added tax paid shall be submitted together with the application. This MMC failed to do.
CASE NO. 22
SITEL PHILS. CORP., ETC VS CIR
GR NO. 201326, FEBRUARY 8, 2017

FACTS:

Sitel, a corporation organized and existing under the laws of the Philippines, is engaged in the business of
providing call center services from the Philippines to domestic and offshore businesses. It is registered with
the Bureau of Internal Revenue (BIR) as a VAT taxpayer, as well as with the Board of Investments on pioneer
status as a new information technology service firm in the field of call center. On March 28, 2006, Sitel filed
separate formal claims for refund or issuance of tax credit with the One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center of the Department of Finance for its unutilized input VAT arising from domestic
purchases of goods and services attributed to zero-rated transactions and purchases/importations of capital
goods for the 1st, 2nd, 3rd and 4th quarters of 2004 in the aggregate amount of P23,093,899.59.

ISSUE:

Whether or not petitioner is entitled to a refund or tax credit of its unutilized input vat arising from purchases
of goods and services attributable to zero-rated sales and purchases/importations of capital goods for the
1st, 2nd, 3rd, [and] 4th quarters of taxable year 2004 in the aggregate amount of P20,994,405.16.

RULING:

The Court clarified that an essential condition to qualify for zero-rating under the aforequoted provision is
that the service-recipient must be doing business outside the Philippines, to wit:

The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of
goods" and that payment for such services be in acceptable foreign currency accounted for in accordance
with BSP rules. Another essential condition for qualification to zero-rating under Section 102(b)(2) is that the
recipient of such services is doing business outside the Philippines.
CASE NO. 23
CIR VS EASTERN TELECOM PHILS. INC.
GR NO. 163835, JULY 7, 2010

FACTS:

Eastern is a domestic corporation granted by Congress with a telecommunications franchise under Republic
Act (RA) No. 7617 on June 25, 1992. Under its franchise, Eastern is allowed to install, operate, and maintain
telecommunications system throughout the Philippines.

From July 1, 1995 to December 31, 1996, Eastern purchased various imported equipment, machineries, and
spare parts necessary in carrying out its business activities. The importations were subjected to a 10% value-
added tax (VAT) by the Bureau of Customs, which was duly paid by Eastern.

On September 19, 1997, Eastern filed with the CIR a written application for refund or credit of unapplied input
taxes it paid on the imported equipment during the taxable years 1995 and 1996 amounting to
₱22,013,134.00. In claiming for the tax refund, Eastern principally relied on Sec. 10 of RA No. 7617, which allows
Eastern to pay 3% of its gross receipts in lieu of all taxes on this franchise or earnings thereof. In the alternative,
Eastern cited Section 106(B) of the National Internal Revenue Code of 19776 (Tax Code) which authorizes a
VAT-registered taxpayer to claim for the issuance of a tax credit certificate or a tax refund of input taxes paid
on capital goods imported or purchased locally to the extent that such input taxes7 have not been applied
against its output taxes.

ISSUE:

Whether Eastern is entitled to refund tax.

HELD:

It is significant to point out here that refund of input taxes on capital goods shall be allowed only to the extent
that such capital goods are used in VAT[-]taxable business. A perusal of the evidence submitted before [the
CTA] does not show that the alleged capital goods were used in VAT[-]taxable business of [Eastern].

In raising these matters in his motion for reconsideration, the CIR put forward the applicability of Section
104(A) because, essentially, the applicability of the provision boils down to the question of whether the
purchased capital goods which a taxpayer paid input taxes were also used in a VAT-taxable business, i.e.,
transactions that were subject to VAT, in order for them to be refundable/creditable. Once proved that the
taxpayer used the purchased capital goods in a both VAT taxable and non-VAT taxable business, the
proportional allocation of tax credits stated in the law necessarily applies. SEC. 4.106-1. Refunds or tax credits
of input tax. (b) Capital Goods. – Only a VAT-registered person may apply for issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be
allowed to the extent that such input taxes have not been applied against output taxes. The application
should be made within two (2) years after the close of the taxable quarter when the importation or purchase
was made.

Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used
in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the
ratable portion corresponding to the taxable operations.

That the CTA failed to rule on this question when it resolved the CIR’s motion for reconsideration should not
be taken against the CIR. It was the CTA which committed an error when it failed to avail of that "meaningful
opportunity to avoid or correct any alleged errors before those errors become the basis for an appeal.
CASE NO. 24
CIR VS PHILIPPINE HEALTH CARE PROVIDERS INC.
GR NO. 167330, SEPTEMBER 18, 2009

FACTS:

Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate
a prepaid group practice health care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal,
and financial responsibilities of the organization." Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive, diagnostic and curative medical services
provided by its duly licensed physicians, specialists and other professional technical staff participating in the
group practice health delivery system at a hospital or clinic owned, operated or accredited by it. On January
27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in the total amount of ₱224,702,641.18.
Issue: Whether petitioner is entitled to the cancellation of VAT.

HELD:

Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC
and there was never any legislative intent to impose the same on HMOs like petitioner, the same should not
be arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for adequate medical services at a
cost which the average wage earner can afford. HMOs arrange, organize and manage health care
treatment in the furtherance of the goal of providing a more efficient and inexpensive health care system
made possible by quantity purchasing of services and economies of scale. They offer advantages over the
pay-for-service system (wherein individuals are charged a fee each time they receive medical services),
including the ability to control costs. They protect their members from exposure to the high cost of
hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they play
an important role in society as partners of the State in achieving its constitutional mandate of providing its
citizens with affordable health services.
CASE NO. 25
CIR VS ACESITE HOTEL CORP.
GR NO. 147295, February 16, 2007

FACTS:

Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in
Manila. It leases 6,768.53 square meters of the hotel’s premises to the Philippine Amusement and Gaming
Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to PAGCOR’s
casino patrons through the hotel’s restaurant outlets. For the period January (sic) 96 to April 1997, Acesite
incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR
during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed
to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status.

Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT
to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of non-
payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR
was subject to zero rate as it was rendered to a tax-exempt entity.

ISSUE:

Whether there was tax refund paid by mistake.

HELD:

Acesite paid VAT by mistake. Considering the foregoing discussion, there are undoubtedly erroneous
payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR.
Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was
not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments. In
UST Cooperative Store v. City of Manila, we explained that "there is erroneous payment of taxes when a
taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing
exemption in his favor at the time the payment was made." Such payment is held to be not voluntary and,
therefore, can be recovered or refunded.

Moreover, it must be noted that aside from not raising the issue of Acesite’s compliance with pertinent
Revenue Regulations on exemptions during the proceedings in the CTA, it cannot be gainsaid that Acesite
should have done so as it paid the VAT under a mistake of fact. Hence, petitioner’s argument on this point is
utterly tenuous.
CASE NO. 26
PAGCOR vs BIR
GR No. 172087, MARCH 15, 2011

FACTS:

For resolution of this Court is the Petition for Certiorari and Prohibition1 with prayer for the issuance of a
Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine
Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of Section 1 of Republic
Act (R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code of 1997, by
excluding petitioner from exemption from corporate income tax for being repugnant to Sections 1 and 10 of
Article III of the Constitution. Petitioner further seeks to prohibit the implementation of Bureau of Internal
Revenue (BIR) Revenue Regulations No. 16-2005 for being contrary to law. PAGCOR was created pursuant
to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977. Simultaneous to its creation, P.D. No. 1067-B3
(supplementing P.D. No. 1067-A) was issued exempting PAGCOR from the payment of any type of tax,
except a franchise tax of five percent (5%) of the gross revenue. Thereafter, on June 2, 1978, P.D. No. 1399
was issued expanding the scope of PAGCOR's exemption.

ISSUE:

Whether PAGCOR is exempted from tax.

HELD:

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction
on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from
indirect taxes, like VAT, as follows:

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to
PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR
is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting
with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR
from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with
PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,
152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B
(3), R.A. 8424.

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly
granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject
to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino
operations, it is exempting PAGCOR from being liable to indirect taxes.
CASE NO. 27
FORT BONIFACIO DEVELOPMENT CORPORATION VS. CIR
GR NOS. 158885 & 170680, APRIL 2, 2009

FACTS:

Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development and sale of real
property. On 8 February 1995, FBDC acquired by way of sale from the national government, a vast tract of
land that formerly formed part of the Fort Bonifacio military reservation, located in what is now the Fort
Bonifacio Global City (Global City) in Taguig City. Since the sale was consummated prior to the enactment
of Rep. Act No. 7716, no VAT was paid thereon. FBDC then proceeded to develop the tract of land, and
from October, 1966 onwards it has been selling lots located in the Global City to interested buyers.

Following the effectivity of Rep. Act No. 7716, real estate transactions such as those regularly engaged in by
FBDC have since been made subject to VAT. As the vendor, FBDC from thereon has become obliged to
remit to the Bureau of Internal Revenue (BIR) output VAT payments it received from the sale of its properties
to the Bureau of Internal Revenue (BIR). FBDC likewise invoked its right to avail of the transitional input tax
credit and accordingly submitted an inventory list of real properties it owned, with a total book value of
P71,227,503,200.00.

On 14 October 1996, FBDC executed in favor of Metro Pacific Corporation two (2) contracts to sell, separately
conveying two (2) parcels of land within the Global City in consideration of the purchase prices at
P1,526,298,949.00 and P785,009,018.00, both payable in installments. For the fourth quarter of 1996, FBDC
earned a total of P3,498,888,713.60 from the sale of its lots, on which the output VAT payable to the BIR was
P318,080,792.14. In the context of remitting its output VAT payments to the BIR, FBDC paid a total of
P269,340,469.45 and utilized (a) P28,413,783.00 representing a portion of its then total transitional/presumptive
input tax credit of P5,698,200,256.00, which petitioner allocated for the two (2) lots sold to Metro Pacific; and
(b) its regular input tax credit of P20,326,539.69 on the purchase of goods and services.

ISSUE:

Whether or not Section 105 of the Old NIRC may be interpreted in such a way as to restrict its application in
the case of real estate dealers only to the improvements on the real property belonging to their beginning
inventory, and not the entire real property itself.

HELD:

On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties,
together with the improvements thereon, in the beginning inventory of goods, materials and supplies, based
on which inventory the transitional input tax credit is computed. It can be conceded that when it was drafted
Section 105 could not have possibly contemplated concerns specific to real properties, as real estate
transactions were not originally subject to VAT. At the same time, when transactions on real properties were
finally made subject to VAT beginning with Rep. Act No. 7716, no corresponding amendment was adopted
as regards Section 105 to provide for a differentiated treatment in the application of the transitional input tax
credit with respect to real properties or real estate dealers.

It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate transactions
subject to VAT for the first time. Prior to the amendment, Section 100 had imposed the VAT "on every sale,
barter or exchange of goods," without however specifying the kind of properties that fall within or under the
generic class "goods" subject to the tax.

Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax (EVAT) law, expanded
the coverage of the VAT by amending Section 100 of the Old NIRC in several respects, some of which we will
enumerate. First, it made every sale, barter or exchange of "goods or properties" subject to VAT.27 Second,
it generally defined "goods or properties" as "all tangible and intangible objects which are capable of
pecuniary estimation."28 Third, it included a non-exclusive enumeration of various objects that fall under the
class "goods or properties" subject to VAT, including "[r]eal properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business."29

From these amendments to Section 100, is there any differentiated VAT treatment on real properties or real
estate dealers that would justify the suggested limitations on the application of the transitional input tax on
them? We see none.

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for lease in
the ordinary course of trade or business" that are subject to the VAT, and not when the real estate
transactions are engaged in by persons who do not sell or lease properties in the ordinary course of trade or
business. It is clear that those regularly engaged in the real estate business are accorded the same treatment
as the merchants of other goods or properties available in the market. In the same way that a milliner
considers hats as his goods and a rancher considers cattle as his goods, a real estate dealer holds real
property, whether or not it contains improvements, as his goods.
Had Section 100 itself supplied any differentiation between the treatment of real properties or real estate
dealers and the treatment of the transactions involving other commercial goods, then such differing
treatment would have constituted the statutory basis for the CIR to engage in such differentiation which said
respondent did seek to accomplish in this case through Section 4.105-1 of RR 7-95. Yet the amendments
introduced by Rep. Act No. 7716 to Section 100, coupled with the fact that the said law left Section 105
intact, reveal the lack of any legislative intention to make persons or entities in the real estate business subject
to a VAT treatment different from those engaged in the sale of other goods or properties or in any other
commercial trade or business.

If the plain text of Rep. Act No. 7716 fails to supply any apparent justification for limiting the beginning
inventory of real estate dealers only to the improvements on their properties.

It is correct, as pointed out by the CTA, that upon the shift from sales taxes to VAT in 1987 newly-VAT registered
people would have been prejudiced by the inability to credit against the output VAT their payments by way
of sales tax on their existing stocks in trade. Yet that inequity was precisely addressed by a transitory provision
in E.O. No. 273 found in Section 25 thereof. The provision authorized VAT-registered persons to invoke a
"presumptive input tax equivalent to 8% of the value of the inventory as of December 31, 1987 of materials
and supplies which are not for sale, the tax on which was not taken up or claimed as deferred sales tax
credit", and a similar presumptive input tax equivalent to 8% of the value of the inventory as of December
31, 1987 of goods for sale, the tax on which was not taken up or claimed as deferred sales tax credit.30

Section 25 of E.O. No. 273 perfectly remedies the problem assumed by the CTA as the basis for the
introduction of transitional input tax credit in 1987. If the core purpose of the tax credit is only, as hinted by
the CTA, to allow for some mode of accreditation of previously-paid sales taxes, then Section 25 alone would
have sufficed. Yet E.O. No. 273 amended the Old NIRC itself by providing for the transitional input tax credit
under Section 105, thereby assuring that the tax credit would endure long after the last goods made subject
to sales tax have been consumed.

Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax
credit. Goods, as commonly understood in the business sense, refers to the product which the VAT-registered
person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves
which constitute their "goods." Such real properties are the operating assets of the real estate dealer.

Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such "real properties
held primarily for sale to customers or held for lease in the ordinary course of trade or business." Said definition
was taken from the very statutory language of Section 100 of the Old NIRC. By limiting the definition of goods
to "improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in
the Old NIRC, but also the definition which the same revenue regulation itself has provided.