G.R. No.

184145               December 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure, assailing the July 17, 2008 Decision  and the August 12, 2008 Resolution  of the
1 2

Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243)
entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the
Securities and Exchange Commission, authorized to do business in the Philippines and listed with
the Philippine Economic Zone Authority as an ecozone IT export enterprise.  It is also a VAT-
3

registered entity engaged in the export sales of computer-aided engineering and design. 4

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from
January 1, 2003 to June 30, 2003.  On August 9, 2004, it filed a claim for tax credit or refund in the
5

amount of P 2,149,684.88 representing unutilized input VAT attributable to its zero-rated

sales.  Because petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim,
6

respondent was compelled to file a petition for review with the CTA on May 5, 2005. 7

On October 4, 2007, the Second Division of the CTA rendered its Decision  partially granting
8

respondent’s claim for refund or issuance of a tax credit certificate in the reduced amount of P
1,147,683.78. On the matter of the timeliness of the filing of the judicial claim, the Tax Court found
that respondent’s claims for refund for the first and second quarters of 2003 were filed within the
two-year prescriptive period which is counted from the date of filing of the return and payment of the
tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of
2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition
for review with the CTA on April 26, 2005  was within the prescriptive period.  Petitioner moved for
9 10

reconsideration but the same was denied in a Resolution dated January 3, 2008. 11

Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed
to show that (1) its purchases of goods and services were made in the course of its trade and
business, (2) the said purchases were properly supported by VAT invoices and/or official receipts
and other documents, and (3) that the claimed input VAT payments were directly attributable to its
zero-rated sales. Petitioner also averred that the petition for review was filed out of time. 12

The CTA En Banc in its Decision,  dated July 17, 2008, upheld the decision of the CTA Second
13

Division, ruling that the judicial claim was filed on time because the use of the word "may" in Section
112(D) (now subparagraph C) of the National Internal Revenue Code (NIRC) indicates that judicial
recourse within thirty (30) days after the lapse of the 120-day period is only directory and permissive
and not mandatory and jurisdictional, as long as the petition was filed within the two-year prescriptive
period. The Tax Court further reiterated that the two-year prescriptive period applies to both the
administrative and judicial claims. Petitioner’s motion for reconsideration was denied in the August
12, 2008 Resolution of the CTA. 14

Hence, this petition.

The Issues

Petitioner raises the following grounds for the allowance of the petition:

The Court of Tax Appeals En Banc erred in holding that respondent’s judicial claim for refund
was filed within the prescriptive period provided under the Tax Code.

II

The Court of Tax Appeals En Banc erred in partially granting respondent’s claim for refund
despite the failure of the latter to substantiate its claim by sufficient documentary proof. 15

The Court’s Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent
failed to comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the
NIRC, citing the case of Commissioner of Internal Revenue v. Aichi  where the Court categorically
16

held that compliance with the prescribed periods in Section 112 is mandatory and jurisdictional.
Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within
which the CIR should act on the claim expired on December 7, 2004 without any action on the part
of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or until January 6,
2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5,
2005.  Petitioner further posits that the 30-day period within which to file an appeal with the CTA is
17

jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its
jurisdiction to entertain the same. 18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in
keeping with the two-year prescriptive period provided for in Sections 204(c) and 229 of the
NIRC.  DEPI interprets Section 112, in relation to Section 229, to mean that the 120-day period is
19

the time given to the CIR to decide the case. The taxpayer, on the other hand, has the option of
either appealing to the CTA the denial by the CIR of the claim for refund within thirty (30) days from
receipt of such denial and within the two-year prescriptive period, or appealing an unacted claim to
the CTA anytime after the expiration of the 120-day period given to the CIR to resolve the
administrative claim for as long as the judicial claim is made within the two-year prescriptive
period.  Following respondent’s reasoning, its filing of the judicial claim on April 26, 2005 was filed
20

on time because it was made after the lapse of the 120-day period and within the two-year period
referred to in Section 229.

The petition is meritorious.

Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The
Commissioner may –

xxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit
for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit
or refund within two (2) years after the payment of the tax or penalty: Provided, however, That
a return filed showing an overpayment shall be considered as a written claim for credit or refund.

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise
after payment xxx. (Emphases supplied)

This Court has previously made a pronouncement as to the inapplicability of Section 229 of the
NIRC to claims for excess input VAT. In the recently decided case of Commissioner of Internal
Revenue v. San Roque Power Corporation,  the Court made a lengthy disquisition on the nature of
21

excess input VAT, clarifying that "input VAT is not ‘excessively’ collected as understood under
Section 229 because at the time the input VAT is collected the amount paid is correct and
proper."  Hence, respondent cannot advance its position by referring to Section 229 because
22

Section 112 is the more specific and appropriate provision of law for claims for excess input VAT.

Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:

Sec. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered person, whose sales are zero-
rated or effectively zerorated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax

xxx

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A)
applies only to the filing of administrative claims with the CIR and not to the filing of judicial claims
with the CTA. In other words, for as long as the administrative claim is filed with the CIR within the
two-year prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the
CTA need not fall in the same two-year period.

At any rate, respondent’s compliance with the two-year prescriptive period under Section 112(A) is
not an issue. What is being questioned in this case is DEPI’s failure to observe the requisite 120+30-
day period as mandated by Section 112(C) of the NIRC.

120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:

Sec. 112. Refunds or Tax Credits of Input Tax

xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals. (emphasis supplied)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the
abovequoted provision is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling
in San Roque, where the Court En Banc settled the controversy surrounding the application of the
120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the
120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took into account the
issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled
taxpayers by explicity stating that taxpayers may file a petition for review with the CTA even before
the expiration of the 120-day period given to the CIR to decide the administrative claim for refund.
Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive
the CTA of jurisdiction to hear the case, such a strict application will be made from the effectivity of
the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from
December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation
of Aichi), during which taxpayers need not wait for the lapse of the 120+30- day period before filing
their judicial claim for refund.

The case at bench, however, does not involve the issue of premature filing of the petition for review
with the CTA. Rather, this petition seeks the denial of DEPI’s claim for refund for having been filed
late or after the expiration of the 30-day period from the denial by the CIR or failure of the CIR to
make a decision within 120 days from the submission of the documents in support of respondent’s
administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the
120+30-day period. In denying the taxpayer’s claim for refund, this Court explained that:
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late
filing.  Philex did not file any petition with the CTA within the 120-day period. Philex did not
1âwphi1

also file any petition with the CTA within 30 days after the expiration of the 120-day period.
Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days
after the lapse of the 120-day period. In any event, whether governed by jurisprudence before,
during or after the Atlas case, Philex’s judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to
the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was
indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day
period to file its judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege,
not a constitutional right. The exercise of such statutory privilege requires strict compliance
with the conditions attached by the statute for its exercise. Philex failed to comply with the
statutory conditions and must thus bear the consequences.  (Emphases supplied)
23

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for
having been filed late. Although respondent filed its administrative claim with the BIR on August 9,
2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply
with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the
inaction of the CIR for 120 days after the submission of the documents in support of the claim, the
taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days
granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days
therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI
only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite
having had ample time to file the same, almost four months after the period allowed by law. As a
consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the claim.

The Court has held time and again that taxes are the lifeblood of the government and, consequently,
tax laws must be faithfully and strictly implemented as they are not intended to be liberally
construed.  Hence, We are left with no other recourse but to deny respondent's judicial claim for
24

refund for non-compliance with the provisions of Section 112 of the NIRC.

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008
Resolution of the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are
hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit
through its petition for review before the CTA is DENIED.

SO ORDERED.
G.R. No. 169234               October 2, 2013

CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON.
CESAR S. GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE
BOARD OF TAX (ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B.
TANO, IN HER CAPACITY AS THE CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.

DECISION

PEREZ, J.:

A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to
assess real property tax. Such claim questions the correctness of the assessment and compliance
with the Q applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code
(LGC) of 1991, particularly as to requirement of payment under protest, is mandatory.

Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July
2005 Decision1 of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the
Resolutions dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment
Appeals (CBAA) in CBAA Case No. L-37 remanding the case to the Local Board of Assessment
Appeals (LBAA) of Baguio City for further proceedings.

The facts

The factual antecedents of the case as found by the CTA En Banc areas follows:

In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp
John Hay Development Corporation about the issuance against it of thirty-six (36) Owner’s Copy of
Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering
various buildings of petitioner and two (2) parcels of land owned by the Bases Conversion
Development Authority (BCDA) in the John Hay Special Economic Zone (JHSEZ), Baguio City,
which were leased out to petitioner.

In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal
basis due to the City Assessor’s failure to identify the specific properties and its corresponding
assessed values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs
(with an additional ARP on another building bringing the total number of ARPs to thirty-seven [37])
against the buildings of petitioner located within the JHSEZ were issued on the basis of the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA)
of Baguio City an appeal under Section 2262 of the LGC of 1991 challenging the validity and
propriety of the issuances of the City Assessor. The appeal was docketed as Tax Appeal Case No.
2002-003. Petitioner claimed that there was no legal basis for the issuance of the assessments
because it was allegedly exempted from paying taxes, national and local, including real property
taxes, pursuant to RA No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.3

The Ruling of the BTAA

In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure
Before the LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment
under protest of the subject real property taxes before the hearing of its appeal. Subsequently, the
BTAA dismissed petitioner’s Motion for Reconsideration in the 20 September 2002 Resolution6 for
lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal
docketed as CBAA Case No. L-37.

The Ruling of the CBAA

The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003,7 set aside the BTAA’s
order of deferment of hearing, and remanded the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of the realty taxes on subject properties as
assessed by the respondent City Assessor of Baguio City, either in cash or in bond.

Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by
the LBAA was merely in compliance with the mandate of the law. The governing provision in this
case is Section 231, not Section 226, of RA No. 7160 which provides that "appeal on assessments
of real property made under the provisions of this Code shall, in no case, suspend the collection of
the corresponding realty taxes on the property involved as assessed by the provincial or city
assessor, without prejudice to subsequent adjustment depending upon the final outcome of the
appeal." In addition, as to the issue raised pertaining to the propriety of the subject assessments
issued against petitioner, allegedly claimed to be a tax-exemptentity, the CBAA expressed that it has
yet to acquire jurisdiction over it since the same has not been resolved by the LBAA.

On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of merit.9

Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the

CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by
Section 9 of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the
following issues for its consideration: (1) whether or not respondent City Assessor of the City of
Baguio has legal basis to issue against petitioner the subject assessments with serial nos. 01-
07040-008887 to 01-07040-008922for real property taxation of the buildings of the petitioner, a tax-
exemptentity, or land owned by the BCDA under lease to the petitioner; and (2)whether or not the
CBAA, in its Resolutions dated 23 May 2003 and 8September 2004, has legal basis to order the
remand of the case to the LBAA of Baguio City for further proceedings subject to a full and up-to-
date payment, in cash or bond, of the realty taxes on the subject properties as assessed by the City
Assessor of the City of Baguio.10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005,11 the CTA En Banc found that petitioner has indeed
failed to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the
petition and affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA for
further proceedings subject to compliance with said Section, in relation to Section 7, Rule V of the
Rules of Procedure before the LBAA.

Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue on
whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits. To do otherwise would not only
be procedurally wrong but legally wrong. It therefore concluded that before a protest may be
entertained, the tax should have been paid first without prejudice to subsequent adjustment
depending upon the final outcome of the appeal and that the tax or portion thereof paid under
protest, shall be held in trust by the treasurer concerned.

Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks
to set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax issued
against it by respondent City Assessor of Baguio City.12

The Issue

The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of
merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the
case to the LBAA of Baguio City for further proceedings subject to a full and up-to-date payment of
realty taxes, either in cash or in bond, on the subject properties assessed by the City Assessor of
Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be
Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-
exemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the payment of
the real property taxes subject of this petition.13

Our Ruling

The Court finds the petition unmeritorious and therefore rules against petitioner.

Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:

SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first
pays the tax. There shall be annotated on the tax receipts the words "paid under protest." The
protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who
shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.
 (d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed
in subparagraph (a), the tax payer may avail of the remedies as provided for in Chapter 3,
Title Two, Book II of this Code. (Emphasis and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the
LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to
the procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on
the payment of real property taxes, follow:

SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.

SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial evidence or such relevant evidence on
record as a reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon
witnesses, administer oaths, conduct ocular inspection, take depositions, and issue
subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted
solely for the purpose of ascertaining the facts without necessarily adhering to technical rules
applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy of the decision of the
Board. In case the provincial or city assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the person having legal interest therein
of such fact using the form prescribed for the purpose. The owner of the property or the
person having legal interest therein or the assessor who is not satisfied with the decision of
the Board may, within thirty (30) days after receipt of the decision of said Board, appeal to
the Central Board of Assessment Appeals, as here in provided. The decision of the Central
Board shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
(Emphasis supplied)

The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative
remedies available to a taxpayer or real property owner who does not agree with the assessment of
the real property tax sought to be collected.

The language of the law is clear. No interpretation is needed. The elementary rule in statutory
construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba legis non est recedendum. From the
words of a statute there should be no departure.15
To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact,
the words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such
payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from
said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within
sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless
the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the
property not satisfied with the action of the provincial, city, or municipal assessor in the assessment
of his property may file an appeal with the LBAA of the province or city concerned, as provided in
Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he
may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which
exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and
resolutions of the Local Boards involving contested assessments of real properties, claims for tax
refund and/or tax credits, or overpayments of taxes.16

Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the occasion to extensively discuss
the subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct
recourse before the courts on issue of the correctness of assessment of real estate taxes. The
pertinent articulations follow:

x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Parañaque on petitioners’ properties.
The allegations in the said petition purportedly questioning the assessor’s authority to assess and
collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In fact,
there is nothing in the said petition that supports their claim regarding the assessor’s alleged lack of
authority. What petitioners raise are the following:

(1) some of the taxes being collected have already prescribed and may no longer be
collected as provided in Section 194 of the Local Government Code of 1991; (2) some
properties have been doubly taxed/assessed; (3) some properties being taxed are no longer
existent;

(4)some properties are exempt from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in the assessment and collection of
taxes due on petitioners’ properties, and that respondents committed grave abuse of
discretion in making the "improper, excessive and unlawful the collection of taxes against the
petitioners."

Moreover, these arguments essentially involve questions of fact. Hence, the petition should have
been brought, at the very first instance, to the LBAA.

Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal.

Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in order
for the court a quo to resolve the petition, the issues of the correctness of the tax assessment and
collection must also necessarily be dealt with.
 xxxx

In the present case, the authority of the assessor is not being questioned. Despite petitioners’
protestations, the petition filed before the court a quo primarily involves the correctness of the
assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition
and mandamus. The court a quo is therefore precluded from entertaining the petition, and it
appropriately dismissed the petition.18 (Emphasis and underlining supplied)

By analogy, the rationale of the mandatory compliance with the requirement of "payment under
protest" similarly provided under Section 64of the Real Property Tax Code (RPTC)19 was earlier
emphasized in Meralcov. Barlis,20 wherein the Court held:

We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to entertain
a Petition for Prohibition absent petitioner’s payment under protest, of the tax assessed as required
by Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non
before the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no
jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state
or, in this case, the local government unit, shall be crippled in dispensing the needed services to the
people, and its machinery gravely disabled.

xxxx

There is no merit in petitioner’s argument that the trial court could take cognizance of the petition as
it only questions the validity of the issuance of the warrants of garnishment on its bank deposits and
not the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC
was in truth assailing the validity of the tax assessment and collection. To resolve the petition, it
would not only be the question of validity of the warrants of garnishments that would have to be
tackled, but in addition the issues of tax assessment and collection would necessarily have to be
dealt with too. As the warrants of garnishment were issued to collect back taxes from petitioner, the
petition for prohibition would be for no other reason than to forestall the collection of back taxes on
the basis of tax assessment arguments. This, petitioner cannot do without first resorting to the
proper administrative remedies, or as previously discussed, by paying under protest the tax
assessed, to allow the court to assume jurisdiction over the petition.

xxxx

It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first
opportunity - upon receipt of the3 September 1986 notices of assessment signed by Municipal
Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative
remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the
assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate
jurisdiction of the Central Board of Assessment Appeals(CBAA).

Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal. The failure to appeal within the statutory
period shall render the assessment final and unappealable.
Petitioner having failed to exhaust the administrative remedies available to it, the assessment
attained finality and collection would be in order. (Emphasis and underscoring supplied)

From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment
under protest" is a condition sine qua non before a protest or an appeal questioning the correctness
of an assessment of real property tax may be entertained.

Moreover, a claim for exemption from payment of real property taxes does not actually question the
assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a question of fact which should be resolved, at
the very first instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160 or the
LGC of 1991which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real
property is declared, who shall claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of
real property sufficient documentary evidence in support of such claim including corporate charters,
title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage
deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,
the same shall be dropped from the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and proved as tax-exempt shall be
included in the assessment roll, the above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any subsequent claim for exemption shall be
allowed only when sufficient proof has been adduced supporting the claim.21

Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be
paid under protest if the exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002
issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to
01-07040-008922) attached thereto, it filed its protest through a letter dated 3 April 2002seeking
clarification as to the legal basis of said assessments, without payment of the assessed real property
taxes. Afterwards, respondent City Assessor replied thereto in a letter dated 11 April 2002 which
explained the legal basis of the subject assessments and even included an additional ARP against
another real property of petitioner. Subsequently, petitioner then filed before the BTAA its appeal
questioning the validity and propriety of the subject ARPs.

Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the
"action" referred to in Section 226 which speaks of the local assessor’s act of denying the protest
filed pursuant to Section252. However, applying the above-cited jurisprudence in the present case, it
is evident that petitioner’s failure to comply with the mandatory requirement of payment under
protest in accordance with Section 252 of the LGC of 1991 was fatal to its appeal. Notwithstanding
such failure to comply therewith, the BTAA elected not to immediately dismiss the case but instead
took cognizance of petitioner’s appeal subject to the condition that payment of the real property tax
should first be made before proceeding with the hearing of its appeal, as provided for under Section
7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply recognized the
importance of the requirement of "payment under protest" before an appeal may be entertained,
pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension of
collection of the realty tax pending appeal.

Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner
contends that the requirement of paying the tax under protest is not applicable when the person
being assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer" within the
meaning of the law. In support thereto, petitioner alleges that it is exempted from paying taxes,
including real property taxes, since it is entitled to the tax incentives and exemptions under the
provisions of RA No. 7227 and Presidential Proclamation No. 420, Series of 1994,22 as stated in and
confirmed by the lease agreement it entered into with the BCDA.23

This Court is not persuaded.

First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that
every person by or for whom real property is declared, who shall claim exemption from payment of
real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real property is declared; thus, said person
shall be considered by law as the taxpayer thereof. Failure to do so, said property shall be listed as
taxable in the assessment roll.

In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in
the letters dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various
buildings owned by petitioner and parcels of land (leased out to petitioner) all located within the
JHSEZ, Baguio City. The subject letters expressed that the assessments were based on the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom the subject real
properties were declared.

Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of
fact, it expressly admitted ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA No. 7227. But petitioner did not
present any documentary evidence to establish that the subject properties being tax exempt have
already been dropped from the assessment roll, in accordance with Section 206. Consequently, the
City Assessor acted in accordance with her mandate and in the regular performance of her official
function when the subject ARPs were issued against petitioner herein, being the owner of the
buildings, and therefore considered as the person with the obligation to shoulder tax liability thereof,
if any, as contemplated by law.

It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same
for taxation purposes. As discussed above, the duty to declare the true value of real property for
taxation purposes is imposed upon the owner, or administrator, or their duly authorized
representatives. They are thus considered the taxpayers. Hence, when these persons fail or refuse
to make a declaration of the true value of their real property within the prescribed period, the
provincial or city assessor shall declare the property in the name of the defaulting owner and assess
the property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative, liable to pay back taxes. For that
reason, since petitioner herein is the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of
paying the subject tax in the present case; and accordingly, in questioning the reasonableness or
correctness of the assessment of real property tax, petitioner is mandated by law to comply with the
requirement of payment under protest of the tax assessed, particularly Section 252 of RA No. 7160
or the LGC of 1991.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.26 Thus applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, this Court holds that
petitioner is considered a taxable entity in this case.

Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on
whether or not it is entitled to exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at the very instance, before the LBAA, for
the following grounds: (a) petitioner’s reliance on its entitlement for exemption under the provisions
of RA No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed by Section
18,27 Article XVI of the Lease Agreement dated 19 October 1996 it entered with the BCDA. However,
it appears from the records that said Lease Agreement has yet to be presented nor formally offered
before any administrative or judicial body for scrutiny; (b) the subject provision of the Lease
Agreement declared a condition that in order to be allegedly exempted from the payment of taxes,
petitioner should have first paid and remitted 5% of the gross income earned by it within ninety (90)
days from the close of the calendar year through the JPDC. Unfortunately, petitioner has neither
established nor presented any evidence to show that it has indeed paid and remitted 5% of said
gross income tax; (c) the right to appeal is a privilege of statutory origin, meaning a right granted
only by the law, and not a constitutional right, natural or inherent. Therefore, it follows that petitioner
may avail of such opportunity only upon strict compliance with the procedures and rules prescribed
by the law itself, i.e. RA No. 7160 or the LGC of 1991; and (d) at any rate, petitioner’s position of
exemption is weakened by its own admission and recognition of this Court’s previous ruling that the
tax incentives granted in RA No. 7227 are exclusive only to the Subic Special Economic and Free
Port Zone; and thus, the extension of the same to the JHSEZ (as provided in the second sentence of
Section 3 of Presidential Proclamation No. 420)28 finds no support therein and therefore declared null
and void and of no legal force and effect.29 Hence, petitioner needs more than mere arguments
and/or allegations contained in its pleadings to establish and prove its exemption, making prior
proceedings before the LBAA a necessity.

With the above-enumerated reasons, it is obvious that in order for a complete determination of
petitioner’s alleged exemption from payment of real property tax under RA No. 7160 or the LGC of
1991, there are factual issues needed to be confirmed. Hence, being a question of fact, petitioner
cannot do without first resorting to the proper administrative remedies, or as previously discussed,
by paying under protest the tax assessed in compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be
paid before any protest thereon may be considered. It is without a doubt that such requirement of
"payment under protest" is a condition sine qua non before an appeal may be entertained. Thus,
remanding the case to the LBAA for further proceedings subject to a full and up-to-date payment,
either in cash or surety, of realty tax on the subject properties was proper.

To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.30 The right of local government
units to collect taxes due must always be upheld to avoid severe erosion. This consideration is
consistent with the State policy to guarantee the autonomy of local governments and the objective of
RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local autonomy to
empower them to achieve their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.31

All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether
full or partial, does not question the authority of local assessor to assess real property tax, but
merely raises a question of the reasonableness or correctness of such assessment, which requires
compliance with Section 252 of the LGC of 1991. Such argument which may involve a question of
fact should be resolved at the first instance by the LBAA.

The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the
CBAA's position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground
of exemption since the LBAA has not decided the case on the merits. This is in compliance with the
procedural steps prescribed in the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En
Bane in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment
Appeals of Baguio City for further proceedings. No costs.

SO ORDERED.
G.R. No. 197117               April 10, 2013

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation
(petitioner), assailing the March l, 2011 Decision2 and the May 27, 2011 Resolution3 of the Court of
Tax Appeals (CTA) En Bane, in CTA E.B. No. 563, which affirmed the May 21, 2009 Decision of the
CTA-Second Division.

The Facts:

Petitioner is a non-lire insurance corporation and considered as a "Large Taxpayer under Revenue
Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994."4 After
submitting its corporate income tax return for taxable year ending December 31, 1997, petitioner
received a Letter of Authority, dated October 30, 1998, from respondent Commissioner of Internal
Revenue (CIR) to allow it to examine their books of account and other accounting records for 1997
and other unverified prior years.

On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income,
withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes for
taxable year 1997.

On February 24, 2000, petitioner protested the said tax assessments.

During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for
Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99; ST-VAT-
97-0222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA
Second Division granted the said motion in a Resolution,5 dated March 31, 2008.

Consequently, on May 21, 2009, the CTA Second Division partially granted the petition.6 It directed
petitioner to pay CIR a reduced tax liability of ₱1,994,390.86. The dispositive portion reads:
WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding
tax on compensation, expanded withholding tax and final tax in the reduced amount of
₱1,994,390.86, computed as follows:

  Basic Surcharges Interest Total

Tax

 
Deficiency ₱774,200.55 ₱193,550.14 ₱312.227.34 ₱1,279,978.03

Withholding

Tax on

Compensation

ST-WC-97-0221-99

 
Deficiency 132,724.02 33,181.01 53,526.27 219,431.30

Expanded

Withholding

Tax ST-EWT-97-
0218-99

 
Deficiency 299,391.84 74,847.96 120,741.73 494,981.53

Final

Withholding

Tax ST-FT-97-0219-
99

 
TOTALS ₱1,206,316.41 ₱301,579.11 ₱486,495.34 ₱1,994,390.86

Petitioner’s Motion for Partial Reconsideration7 was likewise denied by the CTA Second Division in
its October 29, 2009 Resolution.8
Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc.9

On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division.10

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the
₱500,000.00 Director’s Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales,
Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was
already subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that Section 5 of
Revenue Regulation No. 12-86 expressly identified a director to be an employee.

As to transportation, subsistence and lodging, and representation expenses, the expenses would not
be subject to withholding tax only if the same were reimbursement for actual expenses of the
company. In the present case, the CTA En Banc declared that petitioner failed to prove that they
were so.

As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate that

the commissions earned totaling ₱905,428.36, came from reinsurance activities and should not be
subject to withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost
and service/contractors and purchases.

As to deficiency final withholding taxes, "petitioner failed to present proof of remittance to establish
that it had remitted the final tax on dividends paid as well as the payments for services rendered by
the Malaysian entity."11

As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal
Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty
(30) days from receipt of the demand letter, thus, delinquency interest accrued from such non-
payment.

Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May 27,
2011 Resolution.12

Hence, this petition.13

The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for:

a. deficiency withholding taxes on compensation on directors’ bonuses under Assessment No. ST-
WC-97-0021-99;

b. deficiency expanded withholding taxes on transportation, subsistence and lodging, and

representation expense; commission expense; direct loss expense; occupancy cost; and
service/contractor and purchases under Assessment No. ST-EWT-97-0218-99;

c. deficiency final withholding taxes on payment of dividends and computerization expenses to

foreign entities under Assessment No. ST-FT-97-0219-99; and

d. delinquency interest under Section 249 (c) (3) of the NIRC.

The Court finds no merit in the petition.

For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation
No. 12-86,14 to wit:

An individual, performing services for a corporation, whether as an officer and director or merely as a
director whose duties are confined to attendance at and participation in the meetings of the Board of
Directors, is an employee.

The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does
not ipso facto create a presumption that they are not employees of the corporation, because the
imposition of withholding tax on compensation hinges upon the nature of work performed by such
individuals in the company. Moreover, contrary to petitioner’s attestations, Revenue Regulation No.
2-98,15 specifically, Section 2.57.2. A (9) thereof,16 cannot be applied to this case as the latter is a
later regulation while the accounting books examined were for taxable year 1997.

As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and
representation expense, commission expense, direct loss expense, occupancy cost,
service/contractor and purchases, the Court finds no cogent reason to deviate from the findings of
the CTA En Banc. As correctly observed by the CTA Second Division and the CTA En Banc,
petitioner was not able to sufficiently establish that the transportation expenses reflected in their
books were reimbursement from actual transportation expenses incurred by its employees in
connection with their duties as the only document presented was a Schedule of Transportation

Expenses without pertinent supporting documents. Without said documents, such as but not limited
to, receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether
the amounts reflected in the schedule of expenses were disbursed for transportation.

With regard to commission expense, no additional documentary evidence, like the reinsurance
agreements contracts, was presented to support petitioner’s allegation that the expenditure
originated from reinsurance activities that gave rise to reinsurance commissions, not subject to
withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the correct
total occupancy cost that should be subjected to withholding tax, hence, petitioner is liable for the
deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated that
it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to
present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CTA
Second Division and En Bane, however, stipulations cannot defeat the right of the State to collect
the correct taxes due on an individual or juridical person because taxes are the lifeblood of our
nation so its collection should be actively pursued without unnecessary impediment.

As to the deficiency final withholding tax assessments for payments of dividends and
computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine & Fire
Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that petitioner failed to present evidence to
show the supposed remittance to Matsui.

The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997
NIRC to be proper, because failure to pay the deficiency tax assessed within the time prescribed for
its payment justifies the imposition of interest at the rate of twenty percent (20%) per annum, which
interest shall be assessed and collected from the date prescribed for its payment until full payment is
made.
It is worthy to note that tax revenue statutes are not generally intended to be liberally
construed.18 Moreover, the CTA being a highly specialized court particularly created for the purpose
of reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great
respect and are generally upheld by this Court, unless there is a clear showing of a reversible error
or an improvident exercise of authority.19 Absent such errors, the challenged decision should be
maintained.

WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011
Resolution of the Court of Tax Appeals En Bane, in CTA E.B. No. 563, are AFFIRMED.

SO ORDERED.

G.R. No. 187485               February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.

X----------------------------X

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

x----------------------------x

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

The Cases

G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as
well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA
EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as
the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second
Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal
Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power
Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods
and services for the taxable year 2001.

G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010
as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its
Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010
Resolution10of the CTA Second Division and granted the CIR’s petition for review in CTA Case No.
7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporation’s
(Taganito) judicial claim for P8,365,664.38 tax refund or credit.

G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010
as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The
CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA
Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription,
Philex Mining Corporation’s (Philex) judicial claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with
G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was
assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and
196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act
upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue
("BIR") National Office Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was
incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate
power-generating plants and related facilities pursuant to and under contract with the Government of
the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
governmentowned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It
is likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage
in the design, construction, erection, assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was issued Certificate of Registration No.
97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the
National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and
generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-
Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San
Roque] shall be responsible for the design, construction, installation, completion, testing and
commissioning of the Power Station and shall operate and maintain the same, subject to NPC
instructions. During the cooperation period of twenty-five (25) years commencing from the
completion date of the Power Station, NPC will take and pay for all electricity available from the
Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of
the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount
of ₱559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the
same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of
₱559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year
2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001
since it increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San
Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate
amount of ₱560,200,283.14.

[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with
the Court [of Tax Appeals] in Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it
cited the following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or
effectively zero-rated sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its Property, Plant and
Equipment account; and failure to prove that the related construction costs were capitalized in its
books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or
credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-
registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT
invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-
year prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint
Stipulation of Facts, Records, p. 157). It was also established that the instant claim of
₱560,200,823.14 is already net of the ₱11,509.09 output tax declared by [San Roque] in its
amended VAT return for the first quarter of 2001. Moreover, the entire amount of ₱560,200,823.14
was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns
for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1).
This means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input
taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the
succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input
VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,
2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and
N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O").
On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001,
October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth
quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended
claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for
Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally
filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims
for refund (original and amended) and the Petition for Review fall within the two-year prescriptive
period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November
2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s
claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of
San Roque in the amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT
on its purchases of capital goods and services for the taxable year 2001. The CTA based the
adjustment in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain
whether the related purchases are in the nature of capital goods; and the purchases pertain to
capital goods. Moreover, the reduction of claims was based on the following: the difference between
San Roque’s claim and that appearing on its books; the official receipts covering the claimed input
VAT on purchases of local services are not within the period of the claim; and the amount of VAT
cannot be determined from the submitted official receipts and invoices. The CTA Second Division
denied San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-
rated or effectively zero-rated sales because San Roque had no record of such sales for the four
quarters of 2001.

The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby
MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX
CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty
Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty
Five Centavos (₱483,797,599.65) representing unutilized input VAT on purchases of capital goods
and services for the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA
Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of
merit.

The Court of Tax Appeals’ Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San
Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and
resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not
prematurely filed. The pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case.
However, what the petitioner failed to consider is Section 112(A) of the same provision. The
respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the
claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed
within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a
claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of
the tax due. If the said period is about to expire but the BIR has not yet acted on the
application for refund, the taxpayer may interpose a petition for review with this Court within
the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now
Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit
or proceeding must be started in the Court of Tax Appeals before the end of the two-year period
without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs.
The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the
taxpayer need not wait indefinitely for a decision or ruling which may or may not be
forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer
to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now
Commissioner) of Internal Revenue on his claim for refund. It would make matters more
exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief
until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal
convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired
jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever
action respondent (herein petitioner) may take. At stake are claims for refund and unlike
disputed assessments, no decision of respondent (herein petitioner) is required before one
can go to this Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03
dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the
Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that
taxpayers need not wait for the lapse of the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund
cases that are aligned to the statutory requirements that refund cases should be elevated to the
Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC
No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to
wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative agency (Bureau of
Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court and at the same time is still under
process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons
from the tax court, shall request from the head of the investigating/processing office for the docket
containing certified true copies of all the documents pertinent to the claim. The docket shall be
presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by
the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall
continue processing the refund/TCC case until such time that a final decision has been reached by
either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency,
the latter shall cease from processing the claim. On the other hand, if the administrative agency
is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the
findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the
CTA.23 (Emphasis supplied)

G.R. No. 196113

Taganito Mining Corporation v. CIR

The Facts

The CTA Second Division’s narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa
St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission
with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary
purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing,
exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for
market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone,
and all kinds of ores, metals and their by-products and which by-products thereof of every kind and
description and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in
lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to
purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other
properties whatsoever which this corporation may from time to time find to be to its advantage to
mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire,
develop and utilize water rights in such manner as may be authorized or permitted by law; to
purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve,
repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private
telegraph and telephone lines, and other communication media, as may be needed by the
corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise
acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses,
waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric
lights and power plants and compressed air plants, chemical works of all kinds, concentrators,
smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling
houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and
other works, conveniences and properties of any description in connection with or which may be
directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize
or otherwise aid or take part in any operations;

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an
exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-
88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with
authority to exercise the functions of the said office, including inter alia, the power to decide refunds
of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered by
Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National
Office Building, Diliman, Quezon City.

[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1,
2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and
amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:

Exhibit(s) Quarter Nature of Mode of filing Filing Date

the Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006
U to U-4 3rd Original Electronic October 19, 2005
V to V-4 Amended Electronic October 18, 2006
Y to Y-4 4th Original Electronic January 20, 2006
Z to Z-4 Amended Electronic October 18, 2006

As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales
amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations of goods
(other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic
purchases and importations of capital goods amounting to P6,050,933.95, the details of which are
summarized as follows:

Period Zero-Rated Sales Input VAT on Input VAT on Total Input VAT
Covered Domestic Domestic
Purchases and Purchases and
Importations Importations
of Goods and of Capital
Services Goods
 01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
03/31/05
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
06/30/05
07/01/05 - 480,784,287.30 144,887.67 - 144,887.67
09/30/05
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03
12/31/05
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38

On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and
Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of
its supposed input VAT amounting to ₱8,365,664.38 for the period covering January 1, 2004 to
December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax
Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same
amount.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR],
to correct the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as
actually referring to the period covering January 1, 2005 to December 31, 2005.

As the statutory period within which to file a claim for refund for said input VAT is about to lapse
without action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17,
2007.

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination

by the Bureau of Internal Revenue (BIR);

5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT
on domestic purchases of goods and services and on importation of capital goods for the
period January 1, 2005 to December 31, 2005 is not properly documented;

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;

7. Proof of compliance with the prescribed checklist of requirements to be submitted

involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-
98, otherwise there would be no sufficient compliance with the filing of administrative
claim for refund, the administrative claim thereof being mere proforma, which is a
condition sine qua non prior to the filing of judicial claim in accordance with the
provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as
amended, requires the submission of complete documents in support of the application
filed with the BIR before the 120-day audit period shall apply, and before the taxpayer
could avail of judicial remedies as provided for in the law. Hence, [Taganito’s] failure to
submit proof of compliance with the above-stated requirements warrants immediate
dismissal of the petition for review.
 8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in
Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of
Revenue Regulations No. 7-95.

9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic
Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31
SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 1211).

SPECIAL AND AFFIRMATIVE DEFENSES

11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure
on the part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which
provides, thus:

Section 112. Refunds or Tax Credits of Input Tax. –

x x x           x x x          x x x

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.

In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)

12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue
on November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously
the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the petition
was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.

During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving
its supposed entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not
to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganito’s] "Memorandum" filed on January 19,
2009 and [the CIR’s] "Memorandum" filed on December 19, 2008.24

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010,
the CTA Second Division found that Taganito complied with the requirements of Section 112(A) of
RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated
or effectively zero-rated sales.26

The pertinent portions of the CTA Second Division’s Decision read:

Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was
amended on November 29, 2006, and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter
covering the period January 1, 2005 to December 31, 2005.

In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of
₱8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of
EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE
PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2005 to December 31, 2005.

SO ORDERED.27

The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn,
filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.

In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA
Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of
Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally
Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in
seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under
Section 112.

The Court of Tax Appeals’ Ruling: En Banc

On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8
January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganito’s entire claim for refund be denied.

In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed
and set aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning
of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the
close of the taxable quarter when the sales were made. The CTA EB also relied on this Court’s
rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input
VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the
sales were made. Aichi further emphasized that the failure to await the decision of the
Commissioner or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature
filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well
within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA
EB found that Taganito’s judicial claim was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of
only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day
period prescribed in Section 112(D) of the 1997 Tax Code.

The dispositive portion of the Decision states:

WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated
January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are
hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for
Review filed in CTA Case No. 7574 for having been prematurely filed.

SO ORDERED.32

In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before
the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or
Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax
Erroneously or Illegally Collected). Justice Bautista also relied on this Court’s ruling in Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected
national internal revenue tax are the same, insofar as both are monetary amounts which are
currently in the hands of the government but must rightfully be returned to the taxpayer. Justice
Bautista concluded:

Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or
tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the
denial of its claim, or after the lapse of the 120-day period in the event of inaction by the
Commissioner, provided that both administrative and judicial remedies must be undertaken within
the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an
Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganito’s motion in a
Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this
Court’s rulings in Aichi and Mirant.

G.R. No. 197156

Philex Mining Corporation v. CIR

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the exploration and
operation of mine properties and commercial production and marketing of mine products, with office
address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.

[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government
entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes,
fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith,
including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals]
and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR
Road, Quezon City.

On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005
and Amended VAT Return for the same quarter on December 1, 2005.

On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with
the One Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act
on such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;

6. [Philex] should prove its legal basis for claiming for the amount being refunded.37

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with
the BIR, but also to the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd
quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial
claim filed on 17 October 2007 was filed late and therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.

The Court of Tax Appeals’ Ruling: En Banc

Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009
Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.

The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA
Second Division’s Decision and Resolution.

The pertinent portions of the Decision read:

In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that
on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of Finance, per
Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day
period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund
to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426
days way beyond the 30- day period prescribed by law.

Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition
for Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for
Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the
CTA in Division; and not due to prescription.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE
COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the
Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10,
2009 denying [Philex’s] Motion for Reconsideration are hereby AFFIRMED, with modification that the
dismissal is based on the ground that the Petition for Review in CTA Case No. 7687 was filed way
beyond the 30-day prescribed period to appeal.

SO ORDERED.39

G.R. No. 187485

CIR v. San Roque Power Corporation

The Commissioner raised the following grounds in the Petition for Review:

I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund
was not prematurely filed.

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of
Tax Appeals (Second Division) granting [San Roque’s] claim for refund of alleged unutilized
input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40

G.R. No. 196113

Taganito Mining Corporation v. CIR

Taganito raised the following grounds in its Petition for Review:

I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying
the Aichi doctrine in violation of [Taganito’s] right to due process.

II. The Court of Tax Appeals committed serious error and acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in erroneously interpreting the
provisions of Section 112 (D).41

G.R. No. 197156

Philex Mining Corporation v. CIR

Philex raised the following grounds in its Petition for Review:

 I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that
the petition was filed with the CTA within the period set by prevailing court rulings at the time
it was filed.

II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in
this instant case.42

The Court’s Ruling

For ready reference, the following are the provisions of the Tax Code applicable to the present
cases:

Section 105:

Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.

xxxx

Section 110(B):

Sec. 110. Tax Credits. —

(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be credited
in every quarter shall not exceed seventy percent (70%) of the output VAT:]43 Provided, however,
That any input tax attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.

Section 112:44

Sec. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)
(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
 engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of
goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may
be made only within two (2) years after the close of the taxable quarter when the importation
or purchase was made.

(C) Cancellation of VAT Registration. — A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which may be used
in payment of his other internal revenue taxes

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)
and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph
shall be subject to post audit by the Commission on Audit.

Section 229:

Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in

any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.

(All emphases supplied)

I. Application of the 120+30 Day Periods

a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as
CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-
day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim more
than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roque’s application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the
first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of
1997. Thus, the waiting period has been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and thus
without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayer’s petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.46

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of
the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue
taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA
without waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to
review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The
charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific
period" required by law, such "inaction shall be deemed a denial"48 of the application for tax
refund or credit. It is the Commissioner’s decision, or inaction "deemed a denial," that the taxpayer
can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.49

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque’s void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes [its]
validity." There is no law authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his
own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which are against the law or which infringe
upon the rights of others."50 For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition
with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-
day period just because the Commissioner merely asserts that the case was prematurely filed with
the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or
excessively collected from him, does not entitle him as a matter of right to a tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such
tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule
that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions
for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the numerical correctness of the claim for tax
refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of
prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer’s
claim for tax refund or credit, whether or not the Commissioner questions the numerical correctness
of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious,
particularly in claims for tax refunds or credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every tax refund case will have to be
decided on the numerical correctness of the amounts claimed, regardless of non-compliance with
mandatory and jurisdictional conditions.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years
before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to
comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse
for its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine merely stated
that the two-year prescriptive period should be counted from the date of payment of the output VAT,
not from the close of the taxable quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+30 52 day periods.

In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the
Court in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the
taxpayer to appeal to the CTA from the decision or inaction of the Commissioner.53 Thus,
the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day
mandatory and jurisdictional period. Also, the difference between the Atlas doctrine on one hand,
and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the two-
year prescriptive period from the date of payment of the output VAT, which means within 20 days
after the close of the taxable quarter. The output VAT at that time must be paid at the time of filing of
the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."

Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the
administrative claims filed with the Commissioner, and the petitions for review filed with the CTA,
were all filed within two years from the date of payment of the output VAT, following Section 229:

Date of Filing Return Date of Filing Date of Filing

Period Covered
& Payment of Tax Administrative Claim Petition With CTA
2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992
Close of Quarter
30 June 1990
 3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
Close of Quarter
30 September 1990
4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
Close of Quarter
31 December 1990

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th
day after the close of the taxable quarter. Had the twoyear prescriptive period been counted from
the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would
have already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period from
the "close of the taxable quarter when the sales were made" as expressly stated in the law, which
means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine
and the later Mirant doctrine is not material to San Roque’s claim for tax refund.

Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because

what is at issue in the present case is San Roque’s non-compliance with the 120-day mandatory and
jurisdictional period, which is counted from the date it filed its administrative claim with the
Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as
the administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory
period whether the Atlas or the Mirant doctrine is applied.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which
to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of complete documents." Following the verba
legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction
because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA
to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-
day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of
the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is
almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly
situated as San Roque - both cannot claim being misled, misguided, or confused by
the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of
the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim
with the CTA on time.

c. G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005;
(2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007
its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year prescriptive period under Section
112(A).

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT
under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day
period, to decide Philex’s claim. Since the Commissioner did not act on Philex’s claim on or before
17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial
claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its
judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007,
or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x58 (Emphasis supplied)

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day
period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably
filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed
a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.

II. Prescriptive Periods under Section 112(A) and (C)

There are three compelling reasons why the 30-day period need not necessarily fall within the two-
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input
tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may be filed by the taxpayer with
the Commissioner on the last day of the two-year prescriptive period and it will still strictly
comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit
is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial claim with
the CTA but to the filing of the administrative claim with the Commissioner. As held
in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to appeals made to
the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days60), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to
the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files
his administrative claim on the 611th day, the Commissioner, with his 120-day period, will
have until the 731st day to decide the claim. If the Commissioner decides only on the 731st
day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA
because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes utterly
useless, even if the taxpayer complied with the law by filing his administrative claim within
the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the
taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer
still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).

III. "Excess" Input VAT and "Excessively" Collected Tax

The input VAT is not "excessively" collected as understood under Section 229 because at the time
the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability
of, and legally paid by, a VAT-registered seller61 of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods, properties, or services. This tax liability
is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The
second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally
liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or
credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event,
the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the
input VAT is not "excessively" collected as understood under Section 229. At the time of payment of
the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no
claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more
than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Thus, the taxpayer who legally
paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the
date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully
collected." The prescriptive period is reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax
actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within
two years from his date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part of the purchase
price has no personality to file the judicial claim under Section 229.63

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was made by
the person legally liable to pay the output VAT. This prescriptive period has no relation to the date
of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A),
which has a different reckoning period from Section 229. Moreover, the person claiming the refund
or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the
VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that
he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid
the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the
chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on
the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT
only on the value that he adds to the goods, properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
companies generating power through renewable sources of energy.64 Thus, a non zero-rated VAT-
registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future
output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively"
collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and claiming credit for the input VAT under the
VAT System, who can file the judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax
under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT
under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is
no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or
services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is
"erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short,
there must be a wrongful payment because what is paid, or part of it, is not legally due. As the
Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or
illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive
payment because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then
the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may
have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim
a refund or credit for such "excessively" collected tax, and thus there will no longer be any "excess"
input VAT. This will upend the present VAT System as we know it.

IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8
June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date of payment of the output
VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input
VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT.

The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer’s
claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies.65 Such doctrine is basic and elementary.

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
day periods optional just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt
of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch
of the imagination can the word "may" be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.

The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to
do away with the old rule, so that under the VAT System the taxpayer will always have 30
days to file the judicial claim even if the Commissioner acts only on the 120th day, or does
not act at all during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.

V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for
the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes
the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day
period. RMC 49-03 states: "In cases where the taxpayer has filed a ‘Petition for Review’ with the
Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency
(either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance), the administrative agency and the court may act on
the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such premature
filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner
can still continue to evaluate the administrative claim. There is nothing new in this because even
after the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of
determining if the BIR should actually concede to the taxpayer’s judicial claim. The internal
administrative evaluation of the taxpayer’s claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot
operate to divest the Commissioner of his jurisdiction to decide an administrative claim
within the 120-day mandatory period, unless the Commissioner has clearly given cause for
equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of
Appeals,68 that the expiration of the 120-day period is mandatory and jurisdictional before a judicial
claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code.

Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:

Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power
to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers
acting in good faith should not be made to suffer for adhering to general interpretative rules of the
Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly
provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of

the rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial to the taxpayers, except in the
following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers
from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is
not limited to a reversal only by the Commissioner because this Section expressly states,
"Any revocation, modification or reversal" without specifying who made the revocation, modification
or reversal. Hence, a reversal by this Court is covered under Section 246.

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly

on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof
that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have received
under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued
by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of
the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would result to the taxpayer. Hence,
where an assessment for deficiency withholding income taxes was made, three years after a new
BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment
was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets
of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.  in the later cases
1âwphi1

of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega

Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc.,
and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have
no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer,
as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIR’s own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer’s
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable
to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds
and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the addressee, or the entity responded to,
in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on
BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer.

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial
claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10
December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its
judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed
its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered
by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact
the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque
never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court,
the CTA, or before the Commissioner.

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial
claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No.
DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity.
Philex’s situation is not a case of premature filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim.
Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period following the expiration of
the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day
period.

VII. Existing Jurisprudence

There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that
the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San
Roque’s failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing
San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions
do not support even remotely the claim that this Court had already made such a ruling. None of
these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day
mandatory period is inconsequential as long as the administrative and judicial claims are
filed within the two-year prescriptive period.

In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was
actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The
Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in
a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75
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." In the words of the Court, "Ultimately, however, the issue
still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of
its input VAT on its purchases of capital goods and services, to which this Court answers in the
affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the
instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in
petitioner’s export sales invoices operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioner’s failure to indicate
"TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification." Again,
nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First
Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales,
nevertheless denied petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the
ruling of the First Division that "valid VAT official receipts, and not mere sale invoices, should
have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the
CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioner’s motion for
reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole
issue in this case is whether petitioner complied with the substantiation requirements in claiming for
tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the
two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner:
"Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent
Ironcon’s application for refund of its excess creditable VAT withheld." The Commissioner argued
that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable
VAT withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether
the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT
withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to
VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:

Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and
local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC.
Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on
input taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95,
notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax
credit.

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years
from August 7, 1995 making it exempt from income tax but not from other taxes such as
VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to
petitioner’s claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able
to establish through a report certified by an independent Certified Public Accountant that the input
taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export
sales. Since it did not have any output tax against which said input taxes may be offset, it had the
option to file a claim for refund/tax credit of its unutilized input taxes.

Considering the submission of the parties and the evidence on record, we find the petition bereft of
merit.

Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is
untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered
enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had
two options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No.
7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and
1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the
tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. (Emphasis supplied)

Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to
VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input
VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait
for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA,
this issue was not raised before the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day period to lapse.

Any issue, whether raised or not by the parties, but not passed upon by the Court, does not
have any value as precedent. As this Court has explained as early as 1926:

It is contended, however, that the question before us was answered and resolved against the
contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no
question was raised nor was it even suggested that said section 216 did not apply to a public officer.
That question was not discussed nor referred to by any of the parties interested in that case. It has
been frequently decided that the fact that a statute has been accepted as valid, and invoked and
applied for many years in cases where its validity was not raised or passed on, does not prevent a
court from later passing on its validity, where that question is squarely and properly raised and
presented. Where a question passes the Court sub silentio, the case in which the question
was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor
should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs.
Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310,
319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and
Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in
the interpretation of the question presented here.76 (Emphasis supplied)

In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even
raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu
Toyo does not constitute binding precedent on the nature of the 120-day period.

There is also the claim that there are numerous CTA decisions allegedly supporting the argument
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute
precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to
this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may
warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine
legal system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78

x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or
the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their
own right because they interpret what the laws say or mean. Unlike rulings of the lower courts,
which bind the parties to specific cases alone, our judgments are universal in their scope and
application, and equally mandatory in character. Let it be warned that to defy our decisions is to
court contempt. (Emphasis supplied)

The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils.,
Inc.:79

The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already
established in a final decision of the Supreme Court. That decision becomes a judicial precedent
to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based
on the principle that once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. (Emphasis supplied)

VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the
taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque
failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and
jurisdictional.

Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a

later contrary law, more so in this case where the later law was enacted precisely to amend the prior
administrative regulation and the law it implements.

The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)

Sec. 106. Refunds or tax credits of creditable input tax. —

(a) x x x x

(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within
sixty (60) days from the date of submission of complete documents in support of the
application filed in accordance with subparagraphs (a) and (b) hereof. In case of full or
partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from receipt of the decision denying the
claim or after the expiration of the sixty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996)

Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x

xxxx

(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the
Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the
date of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.

In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the receipt of said denial, otherwise the decision will become final. However, if no action on the
claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the
sixty (60) day period from the date of submission of the application but before the lapse of
the two (2) year period from the date of filing of the VAT return for the taxable quarter, the
taxpayer may appeal to the Court of Tax Appeals.

xxxx

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax —

(A) x x x

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the
Commissioner shall grant the refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete documents
in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.

There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716,
the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is
mandatory and jurisdictional.

Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no
longer mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the
Commissioner fails to act on the administrative claim, the taxpayer may file the judicial claim even
"before the lapse of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is
still mandatory and jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented
it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day
period. This cannot be disputed. 1âwphi1

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner
during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no
action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60)
day period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-
year prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-
year prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to
expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse
of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial
claim can be filed only "after the sixty (60) day period," this period remains mandatory and
jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.

Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95,
an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to
the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original
intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting
the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative
issuance, becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails
over a prior inconsistent administrative issuance.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner
has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only
within thirty days after the Commissioner partially or fully denies the claim within the 120- day
period, or (2) only within thirty days from the expiration of the 120- day period if the
Commissioner does not act within the 120-day period.

There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more
than five years before San Roque filed its administrative claim on 28 March 2003, the law has
been clear: the 120- day period is mandatory and jurisdictional. San Roque’s claim, having been
filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code.
Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and
jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can
only file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative
claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To
recall, San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its
administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot
recover any refund or credit because San Roque did not wait for the 60-day period to lapse,
contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even
comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the
taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax
refund or credit. San Roque did not comply with the express condition for such statutory grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its
tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has
suffered the economic adversities arising from poor tax collections, forcing the government to
continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic
malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax
refunds or credits. The tax refund claims in the present cases are not a pittance. Many other
companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its
head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue

in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power
Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R.
No. 197156 for a tax refund or credit of P23,956,732.44.
SO ORDERED.

G.R. No. 134062             April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

CORONA, J.:

This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the
Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case
No. 4715.

In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands’ (BPI’s) deficiency percentage and documentary stamp
taxes for the year 1986 in the total amount of ₱129,488,656.63:

1986 – Deficiency Percentage Tax

Deficiency percentage tax ₱ 7, 270,892.88

Add: 25% surcharge 1,817,723.22
20% interest from 1-21-87 to 10-28-88 3,215,825.03
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND COLLECTIBLE ₱12,319,441.13

1986 – Deficiency Documentary Stamp Tax

Deficiency percentage tax ₱93,723,372.40

Add: 25% surcharge 23,430,843.10
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND COLLECTIBLE ₱117,169,215.50.5

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as
shown above. Said assessment has been based on return – (filed by you) – (as verified) – (made by
this Office) – (pending investigation) – (after investigation). You are requested to pay the above
amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial
Treasurer of xxx6

In a letter dated December 10, 1988, BPI, through counsel, replied as follows:

1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a
deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the assessment. This is all the
more so when the assessment involves astronomical amounts, as in this case.

We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and
as to the percentage tax, it is important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.

2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise
forged between your office and the Bankers Association of the Philippines [BAP] on this
issue and of BPI’s submission of its computations under this compromise. There is therefore
no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue,
we should like to be informed about what those issues are.

3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what
particular percentage tax is involved and how your examiner arrived at the deficiency. As
soon as this is explained and clarified in a proper letter of assessment, we shall inform you of
the taxpayer’s decision on whether to pay or protest the assessment.7

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

… although in all respects, your letter failed to qualify as a protest under Revenue Regulations No.
12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised against
the validity of our assessment… still we obliged to explain the basis of the assessments.

xxx xxx xxx

… this constitutes the final decision of this office on the matter.8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIR’s May 8,
1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21,
1992.10

On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become
final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.12 It denied reconsideration in a resolution dated May 27, 1996.13

On appeal, the CA reversed the tax court’s decision and resolution and remanded the case to the
CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid
assessments because they did not inform the taxpayer of the legal and factual bases therefor. It
declared that the proper assessments were those contained in the May 8, 1991 letter which provided
the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the
CTA on time.17 The CIR elevated the case to this Court.

This petition raises the following issues:

1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and

2) whether or not BPI was liable for the said taxes.

The former Section 27018 (now renumbered as Section 228) of the NIRC stated:

Sec. 270. Protesting of assessment. — When the [CIR] or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the [CIR] shall issue an
assessment based on his findings.

xxx xxx xxx (emphasis supplied)

Were the October 28, 1988 Notices Valid Assessments?

The first issue for our resolution is whether or not the October 28, 1988 notices19 were valid
assessments. If they were not, as held by the CA, then the correct assessments were in the May 8,
1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by
BPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February
18, 1992 would be well within the 30-day period provided by law.20

The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid
assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which
was designed for the precise purpose of notifying taxpayers of the assessed amounts due and
demanding payment thereof.21 He contends that there was no law or jurisprudence then that required
notices to state the reasons for assessing deficiency tax liabilities.22

BPI counters that due process demanded that the facts, data and law upon which the assessments
were based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section
228), specifically provides that:

"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void."

According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
process requires even under the former Section 270.
BPI’s contention has no merit. The present Section 228 of the NIRC provides:

Sec. 228. Protesting of Assessment. — When the [CIR] or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following
cases:

xxx xxx xxx

The taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

xxx xxx xxx (emphasis supplied)

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of
the deficiency taxes were made. He merely notified BPI of his findings, consisting only of the
computation of the tax liabilities and a demand for payment thereof within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v.
Reyes,24 we held that:

In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR's findings was changed in
1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.25 (emphasis supplied; italics in the original)

Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law
required a written statement to the taxpayer of the law and facts on which the assessments were
based. The Court cannot read into the law what obviously was not intended by Congress. That
would be judicial legislation, nothing less.

Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met the
requirements of a valid assessment under the old law and jurisprudence.

The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void

was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted
sentence.27 The fact that the amendment was necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning.28

Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by
RA 8424 was an innovation and could not be reasonably inferred from the old law.29 Clearly, the
legislature intended to insert a new provision regarding the form and substance of assessments
issued by the CIR.30

In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:

xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of
the legal and factual basis of the former’s decision to charge the latter for deficiency documentary
stamp and gross receipts taxes.31

In other words, the CA’s theory was that BPI was deprived of due process when the CIR failed to
inform it in writing of the factual and legal bases of the assessments —even if these were not called
for under the old law.

We disagree.

Indeed, the underlying reason for the law was the basic constitutional requirement that "no person
shall be deprived of his property without due process of law."32 We note, however, what the CTA had
to say:

xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity
to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI]
ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh]
out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel
honestly tell this Court that they did not know anything about the assessments?

Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]
contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager
of the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which
contain his analysis regarding the findings of the [CIR’s] examiner, Mr. San Pedro and that the same
worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].

xxx xxx xxx

From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature
and basis of the assessments, and was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which states that "this ASSESSMENT
becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33

The CA never disputed these findings of fact by the CTA:

[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse on the part of the [CTA].34

Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision:35

Sec. 270. Protesting of assessment. 1a\^/phi1.net

xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt of
the said decision; otherwise, the decision shall become final, executory and demandable.

Implications Of A Valid Assessment

Considering that the October 28, 1988 notices were valid assessments, BPI should have protested
the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not
qualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of the taxpayer’s decision on whether to pay
or protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a protest since it did not
even consider the October 28, 1988 notices as valid or proper assessments.

The inevitable conclusion is that BPI’s failure to protest the assessments within the 30-day period
provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA
correctly dismissed BPI’s appeal for lack of jurisdiction. BPI was, from then on, barred from disputing
the correctness of the assessments or invoking any defense that would reopen the question of its
liability on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to
protest the assessments:

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties,
an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed
to have failed to appeal the CIR’s final decision regarding the disputed assessments within the 30-
day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final
decision … on the matter." BPI therefore had 30 days from the time it received the decision on June
27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal
in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer
the repercussions of its omission. We have already declared that:

… the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the
basis of his statement indubitably showing that the Commissioner's communicated action is
his final decision on the contested assessment, the aggrieved taxpayer would then be able to
take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer
would be able to determine when his right to appeal to the tax court accrues.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer
to continually delay the finality of the assessment — and, consequently, the collection of the
amount demanded as taxes — by repeated requests for recomputation and
reconsideration. On the part of the [CIR], this would encourage his office to conduct a careful and
thorough study of every questioned assessment and render a correct and definite decision thereon
in the first instance. This would also deter the [CIR] from unfairly making the taxpayer grope in the
dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in
administrative action.39 (emphasis supplied)

Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the public
will suffer if taxpayers will not be held liable for the proper taxes assessed against them:

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being
of the people.40

WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of
Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.

SO ORDERED.
 [G.R. No. L-22734. September 15, 1967.]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. MANUEL B. PINEDA, as

one of the heirs of deceased ATANASIO PINEDA, Respondent.

Solicitor General for Petitioner.

Manuel B. Pineda for and in his own behalf as Respondent.

SYLLABUS

1. TAXATION; INCOME TAX; LIABILITY OF HEIR FOR TAX DUE THE ESTATE. — An heir
is liable for the assessment against the estate as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir, he is individually answerable for
the part of the tax proportionate to the share he received from the inheritance
(Government of the Philippine Islands v. Santos, 56 Phil., 827). His liability, however,
cannot exceed the amount of his share (Art. 1311, Civil Code). As a holder of the
property belonging to the estate, he is liable for the tax up to the amount of the
property in his possession.

2. ID.; ID.; WAYS OF COLLECTION. — The Government has two ways of collecting the
taxes in question. One, by going after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance received. Another remedy,
pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said
property of the estate which is in the hands of an heir or transferee to the payment of
the tax due the estate.

DECISION

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were
had in the Court of First Instance of Manila (Case No. 71129) wherein the surviving
widow was appointed administratrix. The estate was divided among and awarded to the
heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda’s share
amounted to about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated
the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it
found that the corresponding income tax returns were not filed. Thereupon, the
representative of the Collector of Internal Revenue filed said returns for the estate on
the basis of information and data obtained from the aforesaid estate proceedings and
issued an assessment for the following: chanrob1es virtual 1aw library

1. Deficiency income tax

1945 P135.83

1946 436.95

1947 1,206.91 P1,779.69

Add: 5% surcharge 88.98

1% monthly interest

from November 30,

1953 to April 15, 1957 720.77

Compromise for late

filing 80.00

Compromise for late

payment 40.00

________

Total Amount due P2,707.44.

2. Additional residence tax for

1945 14.50

=======

3. Real Estate dealer’s tax for

the fourth quarter of

1946 and the whole year

of 1947 207.50

======

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he
appealed to the Court of Tax Appeals alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs."
cralaw virtua1aw library

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the
decision of the Commissioner on the ground that his right to assess and collect the tax
has prescribed. The Commissioner appealed and this Court affirmed the findings of the
Tax Court in respect to the assessment for income tax for the year 1947 but held that
the right to assess and collect the taxes for 1945 and 1946 has not prescribed. For
1945 and 1946 the returns were filed on August 24, 1953; assessments both taxable
years were made within five years therefrom or on October 19, 1953; and the action to
collect the tax was filed within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1, 1948; the assessment
was made on October 19, 1953, more than five years from the date the return was
filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We
remanded the case to the Tax Court for further appropriate proceedings. 1

In the Tax Court, the parties submitted the case for decision without additional
evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B.
Pineda liable for the payment corresponding to his share of the following taxes: chanrob1es virtual 1aw library

Deficiency income tax

1945 P135.83

1946 436.95

Real estate dealer’s fixed tax 4th

quarter of 1946 and whole year

of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
Manuel B. Pined liable for the payment of all the taxes found by the Tax Court to be due
from the estate in the total amount of P760.28 instead of only for the amount of taxes
corresponding to his share in the estate.

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for
unpaid income tax due the estate only up to the extent of and in proportion to any
share he received. He relies on Government of the Philippine Islands v. Pamintuan 2
where We held that "after the partition of an estate, heirs and distributees are liable
individually for the payment of all lawful outstanding claims against the estate in
proportion to the amount or value of the property they have respectively received from
the estate."cralaw virtua1aw library

We hold that the Government can require Manuel B. Pineda to pay the full amount of
the taxes assessed.

Pineda is liable for the assessment as an heir and as a holder- transferee of property
belonging to the estate/taxpayer. As an heir he is individually answerable for the part of
the tax proportionate to the share he received from the inheritance. 3 His liability
however cannot exceed the amount of his share. 4

As a holder of property belonging to the estate, Pineda is liable for the tax up to the
amount of the property in his possession. The reason is that the Government has a lien
on the P2,500.00 received by him from the estate as his share in the inheritance, for
unpaid income taxes 4 for which said estate is liable, pursuant to the last paragraph of
Section 315 of the Tax Code, which we quote hereunder: jgc:chanrobles.com.ph

"If any person, corporation, partnership, joint-account (cuenta en participacion),

association, or insurance company liable to pay the income tax, neglects or refuses to
pay the same after demand, the amount shall be a lien in favor of the Government of
the Philippines from the time when the assessment was made by the Commissioner of
Internal Revenue until paid with interest, penalties, and costs that may accrue in
addition thereto upon all property and rights to property belonging to the
taxpayer: . . ." cralaw virtua1aw library

By virtue of such lien, the Government has the right to subject the property in Pineda’s
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of
P760.28. After such payment, Pineda will have a right of contribution from his co-heirs,
5 to achieve an adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two days of collecting the taxes in question. One, by going
after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy was adopted in Government of
the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action
against all the heirs for the collection of the tax. This action rests on the concept that
hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first
liable. 6 The reason why in case suit is filed against all the heirs the tax due from the
estate is levied proportionately against them is to achieve thereby two results: first,
payment of the tax; and second, adjustment of the shares of each heir in the
distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax is by
subjecting said property of the estate which is in the hands of an heir or transferee to
the payment of the tax due the estate. This second remedy is the very avenue the
Government took in this case to collect the tax. The Bureau of Internal Revenue should
be given, in instances like the case at bar, the necessary discreation to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision
of the Tax Code above quoted, because taxes are the lifeblood of Government and their
prompt and certain availability is an imperious need. 7 And as afore-stated, in this case
the suit seeks to achieve only one objective: payment of the tax. The adjustment of the
respective shares due to the heir from the inheritance, as lessened by the tax, is left to
await the suit for contribution by the heir from whom the Government recovered said
tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby

ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as
deficiency income tax for 1945 and 1946, and real estate dealer’s fixed tax for the
fourth quarter to his right of contribution from his co-heirs. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro,

Angeles and Fernando, JJ., concur.
G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional

Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos.
11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to
Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the
respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein
petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969
(Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of
the order of July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against
the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule
86 of the Rules of Court.
 2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that
the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by
the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has
herein provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though the
claim has been presented directly before the court in the administration proceedings.
Claims not yet due, or contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money
against the decedent." Under the familiar rule of statutory construction of expressio unius est
exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned.
Thus, if a statute enumerates the things upon which it is to operate, everything else must
necessarily, and by implication be excluded from its operation and effect (Crawford, Statutory
Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-
23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as
well as the matter of prescription thereof are governed by the provisions of the National Internal
revenue Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See
also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R.
No. L-10681, March 29, 1958). Even without being specifically mentioned, the provisions of Section
2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the
Court as not affecting the aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its control over the administrator,
the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate." The abolition of the Committee on Claims does not alter the basic
ruling laid down giving exception to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after
the distribution of the decedent's estate among his heirs who shall be liable therefor in proportion of
their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form
of exception from the application of the statute of non-claims, is not hard to find. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious need.
(Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA
105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the philosophy
behind the government's exception, as a general rule, from the operation of the principle of estoppel.
(Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30,
1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571;
Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59
SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine
Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of
Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal
Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even
after the distribution of the estate of the decedent among his heirs (Government of the Philippines
vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner
of Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last
paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was made by the Commissioner of
Internal Revenue until paid with interests, penalties, etc. By virtue of such lien, this court held that
the property of the estate already in the hands of an heir or transferee may be subject to the
payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the
unpaid taxes due the decedent may be collected, even without its having been presented under
Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property of the estate of
the decedent has vested in the heirs, the decedent, represented by his estate, continues as if he
were still alive, subject to the payment of such taxes as would be collectible from the estate even
after his death. Thus in the case above cited, the income taxes sought to be collected were due from
the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section
2, Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the
time originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited
which reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after the
date of the first publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of
Payment of Taxes) which, though filed after the expiration of the time previously limited but before
an order of the distribution is entered, should have been granted by the respondent court, in the
absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect
represents a claim of the people at large, the only reason given for the denial that the claim was filed
out of the previously limited period, sustaining thereby private respondents' contention, erroneously
as has been demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in
the total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax
Code is a final one and the respondent estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein granted and respondent estate is ordered to
pay and discharge the same, subject only to the limitation of the interest collectible thereon as
provided by the Tax Code. No pronouncement as to costs.

SO ORDERED.
G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
APPEALS, respondents.

The Solicitor General for petitioner.

Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:

The judicial proceedings over the present controversy commenced with CTA Case No. 4099,
wherein the Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to
grant a refund to herein private respondent Citytrust Banking Corporation (Citytrust) in the amount of
P13,314,506.14, representing its overpaid income taxes for 1984 and 1985, but denied its claim for
the alleged refundable amount reflected in its 1983 income tax return on the ground of
prescription.  That judgment of the tax court was affirmed by respondent Court of Appeals in its
1

judgment in CA-G.R. SP
No. 26839.  The case was then elevated to us in the present petition for review on certiorari wherein
2

the latter judgment is impugned and sought to be nullified and/or set aside.

It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim
for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing
the alleged aggregate of the excess of its carried-over total quarterly payments over the actual
income tax due, plus carried-over withholding tax payments on government securities and rental
income, as computed in its final income tax return for the calendar year ending December 31, 1985. 3

Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period,
Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099,
claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total
amount of P19,971,745.00. 4

In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of
the National Internal Revenue Code of 1977, as amended, since the petition was filed only on
August 28, 1986. 5

On February 20, 1991, the case was submitted for decision based solely on the pleadings and
evidence submitted by herein private respondent Citytrust. Herein petitioner could not present any
evidence by reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit
the records of the case, as well as the investigation report thereon, to the Solicitor General.
6

However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion
praying for the suspension of the proceedings in the said case on the ground that the claim of
Citytrust for tax refund in the amount of P19,971,745.00 was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by
Citytrust of the required confirmation receipts which would show whether or not the aforestated
amount was actually paid and remitted to the BIR. 7

Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired
jurisdiction over the case, it could no longer be divested of the same; and, further, that the
proceedings therein could not be suspended by the mere fact that the claim for refund was being
administratively processed, especially where the case had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and
Y-3 adduced in the case, which clearly showed that there was an overpayment of income taxes and
for which a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive
proof of and an admission by herein petitioner that there had been an overpayment of income taxes. 8

The tax court denied the motion to suspend proceedings on the ground that the case had already
been submitted for decision since February 20, 1991. 9

Thereafter, said court rendered its decision in the case, the decretal portion of which declares:

WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for
the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in
its 1983 income tax return is hereby denied on the ground of prescription.
Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking Corp.
in the amount of P13,314,506.14 representing the overpaid income taxes for 1984
and 1985, recomputed as follows:

1984 Income tax due P 4,715,533.00

Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits —
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67
——————— ———————
Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00
———————
Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P — 0 —

Less: W/T on rentals 36,716.47*
———————
Tax Overpayment (36,716.47)*
Less: FCDU payable 18,874.00
———————
Amount Refundable for 1985 P (17,842.47)
 * Note:

These credits are smaller than the claimed amount because only the
above figures are well supported by the various exhibits presented
during the hearing.

No pronouncement as to costs.

SO ORDERED. 10

The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of
withholding has been established by the statements and certificates of withholding taxes
accomplished by herein private respondent's withholding agents, the authenticity of which were
neither disputed nor controverted by herein petitioner; (2) no evidence was presented which could
effectively dispute the correctness of the income tax return filed by herein respondent corporation
and other material facts stated therein; (3) no deficiency assessment was issued by herein
petitioner; and (4) there was an audit report submitted by the BIR Assessment Branch,
recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which
enjoys the presumption of regularity in the performance of official duty. 11

A motion for the reconsideration of said decision was initially filed by the Solicitor General on the
sole ground that the statements and certificates of taxes allegedly withheld are not conclusive
evidence of actual payment and remittance of the taxes withheld to the BIR.  A supplemental motion
12

for reconsideration was thereafter filed, wherein it was contended for the first time that herein private
respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-
office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only
lately that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes covered by Demand/Assessment Notice No.
FAS-1-84-003291-003296. 13

Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust.  Thereafter, the Court of Tax Appeals issued a resolution denying both
14

motions for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was
declared as part of the gross income, and that the fact of withholding was duly established.
Moreover, with regard to the argument raised in the supplemental motion for reconsideration anent
the deficiency tax assessment against herein petitioner, the tax court ruled that since that matter was
not raised in the pleadings, the same cannot be considered, invoking therefor the salutary purpose
of the omnibus motion rule which is to obviate multiplicity of motions and to discourage dilatory
pleadings.15

As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court
of Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax
Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court
erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private
respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's
findings of deficiency income and business tax liabilities against private respondent for the year 1984
bars such payment. 16

After a careful review of the records, we find that under the peculiar circumstances of this case, the
ends of substantial justice and public interest would be better subserved by the remand of this case
to the Court of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal
Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its counsel, the Solicitor General, due to
the unavailability of the necessary records which were not transmitted by the Refund Audit Division
of the BIR to said counsel, as well as the investigation report made by the Banks/Financing and
Insurance Division of the said bureau/ despite repeated requests.  It was under such a predicament
17

and in deference to the tax court that ultimately, said records being still unavailable, herein
petitioner's counsel was constrained to submit the case for decision on February 20, 1991 without
presenting any evidence.

For that matter, the BIR officials and/or employees concerned also failed to heed the order of the
Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the
Court of Tax Appeals which provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within ten days after
filing his answer, all the records of the case in his possession, with the pages duly numbered, and if
the records are in separate folders, then the folders shall also be numbered.

The aforestated impassé came about due to the fact that, despite the filing of the aforementioned
initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of
the BIR still continued to act administratively on the claim for refund previously filed therein, instead
of forwarding the records of the case to the Court of Tax Appeals as ordered. 18

It is a long and firmly settled rule of law that the Government is not bound by the errors committed by
its agents.  In the performance of its governmental functions, the State cannot be estopped by the
19

neglect of its agent and officers. Although the Government may generally be estopped through the
affirmative acts of public officers acting within their authority, their neglect or omission of public
duties as exemplified in this case will not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation.  It is axiomatic that the
20

Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which
the State effects its functions for the welfare of its constituents.  The errors of certain administrative
21

officers should never be allowed to jeopardize the Government's financial position,  especially in the
22

case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.

Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's
supplemental motion for reconsideration alleging bringing to said court's attention the existence of
the deficiency income and business tax assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inextricably intertwined with the right of respondent bank to
claim for a tax refund for the same year. To award such refund despite the existence of that
deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent
cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the
same year.

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts
stated therein are true and correct. The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the
refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any
list, statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said list, statement, or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."

Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should
subsequently be upheld, the Government will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of
ten years after discovery of the falsity, fraud or omission in the false or fraudulent return
involved.  This would necessarily require and entail additional efforts and expenses on the part of
23

the Government, impose a burden on and a drain of government funds, and impede or delay the
collection of much-needed revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically
necessary and legally appropriate that the issue of the deficiency tax assessment against Citytrust
be resolved jointly with its claim for tax refund, to determine once and for all in a single proceeding
the true and correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded,   it would be only just and fair
24

that the taxpayer and the Government alike be given equal opportunities to avail of remedies under
the law to defeat each other's claim and to determine all matters of dispute between them in one
single case. It is important to note that in determining whether or not petitioner is entitled to the
refund of the amount paid, it would necessary to determine how much the Government is entitled to
collect as taxes. This would necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute res judicata on both parties as
to all the matters subject thereof or necessarily involved therein.

The Court cannot end this adjudication without observing that what caused the Government to lose
its case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom,
and not to syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General
found himself once again gives substance to the public perception and suspicion that it is another
proverbial tip in the iceberg of venality in a government bureau which is pejoratively rated over the
years. What is so distressing, aside from the financial losses to the Government, is the erosion of
trust in a vital institution wherein the reputations of so many honest and dedicated workers are
besmirched by the acts or omissions of a few. Hence, the liberal view we have here taken pro hac
vice, which may give some degree of assurance that this Court will unhesitatingly react to any bane
in the government service, with a replication of such response being likewise expected by the people
from the executive authorities.

WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby
SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings
and appropriate action, more particularly, the reception of evidence for petitioner and the
corresponding disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment
herein.

SO ORDERED.
G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959.  On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
1

was stamp received on the same day in the office of the petitioner.   On March 12, 1965, a warrant of
2

distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest.   A search of the protest 3

in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant.   On April 7, 1965, Atty. 4

Guevara was finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be served.  Sixteen days 5

later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals. 6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.  It is true 7

that as a rule the warrant of distraint and levy is "proof of the finality of the assessment"   and 8

renders hopeless a request for reconsideration,"   being "tantamount to an outright denial thereof
9

and makes the said request deemed rejected."   But there is a special circumstance in the case at
10

bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted,"   the protest filed by private respondent was not pro
11

forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income   but later conformed to the decision of the respondent
12

court rejecting this assertion.  In fact, as the said court found, the amount was earned through the
13

joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.  Ultimately, after its
14

incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.  For this sale, Algue received as agent a commission of P126,000.00, and it was
15

from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.
16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.  The Court of Tax Appeals also found, after
17

examining the evidence, that no distribution of dividends was involved. 18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose.   It should be
19

remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00.   Admittedly, everything seemed to be informal. This
20

arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00.   After deducting the said fees, Algue still had a balance of P50,000.00 as clear
21

profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary

expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the
stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders.  23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.
G.R. No. L-7988            January 19, 1916

THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA, plaintiff-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

Haussermann, Cohn and Fisher for appellant.

City Attorney Escaler for appellee.

MORELAND, J.:

The question at issue in this case is whether or not the building and grounds of the Young Men's
Christian Association of Manila are subject to taxation, under section 48 of the charter of the city of
Manila quoted in the footnote [syllabus].

The city of Manila, contending that the property is taxable, assessed it and levied a tax thereon. It
was paid under protest and this action begun to recover it on the ground that the property was
exempt from taxation under the charter of the city of Manila. The decision was for the city and the
association appealed.

The Young Men's Christian Association came to the Philippine with the army of occupation in 1898.
When the large body of troops in Manila was removed to permanent quarters at Fort William
McKinley in February, 1905, an independent association for Manila was organized under the
direction of the Army and navy departments. Shortly after the organization of the association the
directors made a formal request to the international committee of the Young Men's Christian
Association in New York City for the assistance and cooperation of its foreign department. I
response to this request Mr. John R. Mott, general secretary of the foreign department, visited
Manila in January 1907. After a conference with the directors and interested friends it was decided to
conduct a campaign to secure funds for an adequate and permanent association. In the name of the
international committee and friends in America Mr. Mott guaranteed P170,000 for the construction of
a building on condition that friend in the Philippines secure the site and adequately furnish the
building. The campaign for funds was begun here on February 15, 1907, and, by the 15th of March
following, P83,000 was subscribed, nearly one thousand different persons contributing. Thereupon
the Young Men's Christian Association of Manila was incorporated under the law of the Philippine
Islands and received its character in June, 1907.

A site for the new building was selected on Calle Concepcion, Ermita, and the building contract was
let on the 8th of January following. The cornerstone was laid with appropriate ceremonies on July
10, 1908, and the building was formally dedicated on October 20, 1909.

The building is composed of three parts. The main structure, located in the center, is three stories
high and includes a reception hall, social hall and game rooms, lecture room, library, reading room
and rooming apartments. The small building lying to the left of the principal structure, as one faces
the front from Called Concepcion, is the kitchen and servant's quarters. The large wing to the right is
known as the athletic building, where the bowling alleys, swimming pool, locker rooms and
gymnasium-auditorium are located. The construction is of reinforced concrete with steel trussed roof
covered with interlocking red tiles.

The main or central portion of the building is 150 by 45 feet and stands 20 meters back from the
sidewalk. An iron canopy, suspended by brackets, projects over the driveway which lies in front and
shelters the main entrance. A wide arched doorway opens into a large reception room, on the left of
which is the public office and the secretary's private office, while on the right is the reading and
writing rooms, and beyond that the library, each about 30 feet square. From the reception room, on
the left, a broad concrete stairway leads to the second floor.

Passing out of the rear of the reception hall one enters upon a veranda some 15 feet in width
running the full length of the main structure which looks out on the tennis courts and affords an
excellent place for lounging, games and general social purposes. To the left of the entrance hall and
also opening upon the veranda are two large rooms of about the same size as those on the right of
the reception hall, the first being the billiard room and the other the restaurant. The athletic building
is entered from the rear veranda. It is a two story wing 68 by 85 feet. Passing from the veranda into
the athletic hall one finds first, on the left, the toilet room, and beyond this, to the rear, the shower
baths and locker rooms. The swimming pool is in the center of the athletic wing and is 60 by 19 feet
in size, lined with cement. To the right of the swimming pool are the bowling alleys. A wide stairways
leads to the second floor. Above the swimming-pool and bowling alley is a large room 50 by 85 feet
which is the gymnasium and also the auditorium when occasion requires. About one-third of the roof
converting the athletic wing is used as a roof garden.

The second and third floors of the main building are given over almost wholly to rooming apartments
and baths. On the second floor over the entrance hall is a members' parlor, from which a small
balcony projects over the main entrance. The remainder of the second floor and all to the third are
composed of the living rooms. These apartments, of which there are 14 on the second and 20 on the
third floor are approximately 18 by 14 feet each. They provide accommodations for 64 men.

The purposes of the association, as set forth in its charter and constitution, are:

To develop the Christian character and usefulness of its members, to improve the spiritual,
intellectual, social and physical condition of young men, and to acquire, hold, mortgage, and
dispose of the necessary lands, buildings and personal property for the use of said
corporation exclusively for religious, charitable and educational purposes, and not for
investment or profit.

The purposes of this association shall be exclusively religious, charitable and educational, in
developing the Christian character and usefulness of its members and in improving the
spiritual, mental, social and physical condition of young men.

Speaking generally, the association claims exemption from taxation on the ground that it is a
religious, charitable and educational institution combined. That it has an educational department is
not denied. It is undisputed that the aim of this department is to furnish, at much less than cost,
instruction in subjects that will greatly increase the mental efficiency and wage-earning capacity of
young men, prepare them in special lines of business and offer them special lines of study. Attention
is given to subjects included in civil service and consular examinations both here and in the United
States. The courses offer commercial subjects, as well as many others, and include stenography
and typewriting, bookkeeping, arithmetic, English composition, foreign languages, including
elementary and advanced Spanish and Tagalog, special courses in Philippine history, public
speaking, surveying, horticulture, tropical dependencies, and the group of subjects required for
entrance into the consular services, such as political economy, American and modern history.
Courses are also offered in law, social, ethics, political economy and other subjects.

The institution has also its religious department. In that department there are, generally speaking,
three main lines of work — Bible study, religious meetings and special classes. Course are offered in
the Life of Christ and the Old Testament and in the larger social significance of the teachings of
Jesus. Meetings are held on Sunday afternoons and several times during the week and courses are
offered in the study of missions, in the method of teaching the Bible and kindred subjects.

The atmosphere of the Young Men's Christian Association is distinctly religious and there is constant
effort on the part of the officials to create a religious spirit; and to that end there is continuous
pressure to induce members to attend not only the religious services of the association but also
those of one or another of the churches of Manila. While the association is nonsectarian, it is
preeminently religious; and the fundamental basis and groundwork is the Christian religion. All of the
officials of the association are devoted Christians, members of a church, and have dedicated their
lives to the spread of the Christian principles and building of Christian character.

The institution also has charitable features. It makes no profit on any of its activities. The professors
and instructors in all departments serve without pay and freely give of their time and ability to further
the purposes of the institution. The chief secretary and his assistant receive no salary from the
institution. Whatever they are paid comes from the United States. In estimating the cost of instruction
in the various departments, or of the other things for which pay is received, no account is taken of
the interest on the money invested in the grounds and building, of deterioration in value resulting
from the lapse of time, or of the fact that the professors and instructors and certain officials receive
no pay. We have, then, a building and grounds, professors and instructors, and certain institution
officials, furnished free of charge, and which makes no profit even on that basis. This, it would seem,
would lend some color to the claim that the association takes on some of the aspect of a charitable
institution. While it appears that the association is not exclusively religious or charitable or
educational, it is demonstrated that it is a happy combination of all three, giving to its membership
the religious opportunities of the church, the educational opportunities of the school and the
blessings of charity where needed without the recipient feeling or even knowing that he is the object
of charity.

It is claimed, however, that the institution is run as a business in that it keeps a lodging and boarding
house. It may be admitted that there are 64 persons occupying rooms in the main building as
lodgers or roomers and that they take their meals at the restaurant below. These facts, however, are
far from constituting a business in ordinary acceptation of the word. In the first place, no profit is
realized by the association in any sense. In the second place, it is undoubted, as it is undisputed,
that the purpose of the association is not, primarily, to obtain the money which comes from the
lodgers and boarders. The real purpose is to keep the membership continually within the sphere of
influence of the institution; and thereby to prevent, as far as possible, the opportunities which vice
president to young men in foreign countries who lack home or other similar influences. We regard
this feature of the institution not as a business or means of making money, but, rather, as a very
efficient means of maintaining the influence of the institution over its membership. As we held in the
case of the Columbia Club, religious and moral teachings do not always stop with the spoken word;
but to be effective in the highest degree they must follow the young man through as many moments
of his life as possible. To this end the feature of the Young Men's Christian Association to which
objection is made lends itself with great effect; and we are, accordingly, forced to regards this activity
of the institution not as a business but as a method by which the institution maintains its influence
and conserves the benefits which its organization was designed to confer.
As we have seen in the description already given of the association building and grounds, no part is
occupied for any but institutional purposes. From end to end the building and grounds are devoted
exclusively to the purposes stated in the constitution of the association. The library and reading
rooms, the game and lounging halls, the lecture rooms, the auditorium, the baths, pools, devices for
physical development, and the grounds, are all dedicated exclusively to the objects and purpose of
the association — the building of Christian character and the creation of moral sentiment and fiber in
men. It is the belief of the Young Men's Christian Association that a Christian man, a man of moral
sentiment and firm moral fiber, is yet a better man for being also all-round man — one who is sound
not only according to Christian principles and the highest moral conceptions, but physically and
mentally; whose body and mind act in harmony and within the limits which the rights of others set;
who are gentleman in physical and mental struggles, as well as in religious service; who have self-
respect and self-restraint; who can hit hard and still kindly; who can lose without envy; who can
congratulate his conqueror with sincerity; who can vie without temper, contend without malice,
concede without regret; who can win and still be generous, — in short, one who fights hard but
square. To the production of such men the association lends all its efforts, husbands all its
resources.

We are aware that there are many decisions holding that institutions of this character are not exempt
from taxation; but, on investigation, we find that the majority of them are based on statutes much
narrower than the one under consider and that in all probability the decisions would have been
otherwise if the court had been passing on a statute similar to ours. On the other hand, there are
many decisions of the courts in the United States founded on statutes like the Philippine statute
which hold that associations of this class are exempt from taxation. We have examined all of the
decisions, both for and against, with care and deliberation, and we are convinced that the weight of
authority sustains the positions we take in this case.

There is no doubt about the correctness of the contention that an institution must devote itself
exclusively to one or the other of the purpose mentioned in the statute before it can be exempt from
taxation; but the statute does not say that it must be devoted exclusively to any one of the purposes
therein mentioned. It may be a combination of two or three or more of those purposes and still be
entitled to exempt. The Young Men's Christian Association of Manila cannot be said to be an
institution used exclusively for religious purposes, or an institution used exclusively for charitable
purposes, or an institution devoted exclusively to educational purposes; but we believe it can be
truthfully said that it is an institution used exclusively for all three purposes, and that, as such, it is
entitled to be exempted from taxation.

The judgment appealed from is reversed and the cause remanded with instructions to enter a
judgment against the city of Manila and in favor of the Young Men's Christian Association of Manila
in the sum of P6,221.35. Without costs in this instance. So ordered.