G.R. No.

L-23988 January 2, 1968

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LEONARDO S. VILLA and THE COURT OF APPEALS, respondents.

Office of the Solicitor General for petitioner.

Jesus P. Garcia for respondents.

BENGZON, J.P., J.:

Jurisdiction over the subject matter is fundamental for a court to act on a given controversy. It is conferred by
law, 1 not by consent of the parties. 2 It can be challenged at any stage of the proceedings and for lack of it, a court
can dismiss a case ex mero motu. 3

To inquire into the existence of jurisdiction over the subject matter is the primary concern of a court, for thereon
would depend the ability of its entire proceedings. In this case, the parties submitted voluntarily to the jurisdiction of
the Court of Tax Appeals, adduced their evidence thereat. Thereafter, they submitted their cause for decision. At no
stage of the proceedings have they raised the issue of jurisdiction. However, as aforesaid, the consent of the parties
does not confer jurisdiction over the subject matter. Hence, We shall proceed to inquire whether or not the Court of
Tax Appeals had jurisdiction to entertain the so-called appeal of the taxpayer in this case.

Leonardo S. Villa, a doctor of medicine, and his wife filed joint income tax returns for the years 1951, 1952, 1953,
1954, 1955 and 1956 on April 2, 1952, March 30, 1953, February 26, 1954, March 31, 1955, April 2, 1956 and
March 23, 1957, respectively. Subsequently, the Bureau of Internal Revenue determined the income of the Villa
spouses by the use of networth method and accordingly issued on February 23, 1961 assessments for deficiency
income tax for the years 1951, 1952, 1953, 1954 and 1956 and residence tax for 1951 to 1957. Dr. Villa received
the assessments on April 7, 1961. Without contesting the said assessments in the Bureau of Internal Revenue, he
filed on May 4, 1961 a petition for review in the Court of Tax Appeals.

The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits and rendered the following
judgment:

IN VIEW OF THE FOREGOING CONSIDERATIONS, with the exception of that portion regarding the
additional residence taxes and surcharges for the years 1951 to 1957 in the amount of P244.00, for which
we hold petitioner liable, the decision appealed from is hereby reversed. The petitioner is ordered to pay to
the Commissioner of Internal Revenue or his representative the sum of P244.00, as additional residence tax
and surcharge without pronouncement as to costs.

From said judgment, the Commissioner of Internal Revenue has appealed to Us.

The law conferring jurisdiction on the Court of Tax Appeals is found in Section 7 of Republic Act 1125, the pertinent
part of which states:

Sec. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal as herein provided —

(1) Decisions of the Collector 4of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue;

The word "decisions" in paragraph 1, Section 7 of Republic Act 1125, quoted above, has been interpreted to mean
the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself. We quote what this Court said aptly in a previous case:

In the first place, we believe the respondent court erred in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days
prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he
is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and
the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the
disputed assessment, . . . 5(Emphasis supplied)

The same interpretation finds support in Section 11 of Republic Act 1125, which states: 1äwphï1.ñët

Sec. 11. Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by
a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city
 Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the
receipt of such decision or ruling. (Emphasis supplied)

Note that the law uses the word "decisions", not "assessments", further indicating the legislative intention to subject
to judicial review the decision of the Commissioner on the protest against an assessment but not the assessment
itself. 6

Since in the instant case the taxpayer appealed the assessment of the Commissioner of Internal Revenue without
previously contesting the same, the appeal was premature and the Court of Tax Appeals had no jurisdiction to
entertain said appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal
Revenue on disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take cognizance
only of such matters as are clearly within its jurisdiction. 7

WHEREFORE, the judgment appealed from is set aside for lack of jurisdiction and the petition for review filed in the
Court of Tax Appeals is hereby ordered dismissed. No costs. So ordered.

G.R. No. 175097

ALLIED BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

DEL CASTILLO, J.:

The key to effective communication is clarity.

The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate clearly and
unequivocally to the taxpayer whether an action constitutes a final determination on a disputed assessment.1 Words
must be carefully chosen in order to avoid any confusion that could adversely affect the rights and interest of the
taxpayer.

Assailed in this Petition for Review on Certiorari2 under Section 12 of Republic Act (RA) No. 9282,3 in relation to
Rule 45 of the Rules of Court, are the August 23, 2006 Decision4 of the Court of Tax Appeals (CTA) and its October
17, 2006 Resolution5 denying petitioner’s Motion for Reconsideration.

Factual Antecedents

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of
₱12,050,595.60 and Gross Receipts Tax (GRT) in the amount of ₱38,995,296.76 on industry issue for the taxable
year 2001.6 Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004.7

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which partly
reads as follows:8

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident
to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision
within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory
and demandable.

Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.9

Proceedings before the CTA First Division

On September 29, 2004, petitioner filed a Petition for Review10 with the CTA which was raffled to its First Division
and docketed as CTA Case No. 7062.11

On December 7, 2004, respondent CIR filed his Answer.12 On July 28, 2005, he filed a Motion to Dismiss13 on the
ground that petitioner failed to file an administrative protest on the Formal Letter of Demand with Assessment
Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.14
On October 12, 2005, the First Division of the CTA rendered a Resolution15 granting respondent’s Motion to
Dismiss. It ruled:

Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to this Court. It is the
decision of the Commissioner of Internal Revenue on the disputed assessment that can be appealed to this Court
(Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out by respondent, a disputed
assessment is one wherein the taxpayer or his duly authorized representative filed an administrative protest against
the formal letter of demand and assessment notice within thirty (30) days from date [of] receipt thereof. In this case,
petitioner failed to file an administrative protest on the formal letter of demand with the corresponding assessment
notices. Hence, the assessments did not become disputed assessments as subject to the Court’s review under
Republic Act No. 9282. (See also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)

WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is hereby DISMISSED for lack of
jurisdiction.

SO ORDERED.16

Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its Resolution
dated February 1, 2006.17

Proceedings before the CTA En Banc

On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc.18 The case was docketed as CTA EB
No. 167.

Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA First
Division, the CTA En Banc denied the Petition for Review19as well as petitioner’s Motion for Reconsideration.20

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order
for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies
given to a taxpayer in challenging the legality or validity of an assessment. According to the CTA En Banc, although
there are exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not fall in any of
the exceptions.

Issue

Hence, the present recourse, where petitioner raises the lone issue of whether the Formal Letter of Demand dated
July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under RA 9282.

Our Ruling

The petition is meritorious.

Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review by appeal
decisions of the CIR in cases involving disputed assessments

The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its
jurisdiction.21 Section 7 of RA 9282 provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial; (Emphasis supplied)

xxxx

The word "decisions" in the above quoted provision of RA 9282 has been interpreted to mean the decisions of the
CIR on the protest of the taxpayer against the assessments.22 Corollary thereto, Section 228 of the National Internal
Revenue Code (NIRC) provides for the procedure for protesting an assessment. It states:
SECTION 228. Protesting of Assessment. – When the Commissioner 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:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by
the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt
persons.

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

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of
Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and demandable.

In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a
Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of
petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof.
Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA.
Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.

The case is an exception to the

rule on exhaustion of administrative remedies

However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with
petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on
the part of the administrative agency concerned.

In the case of Vda. De Tan v. Veterans Backpay Commission,23 the respondent contended that before filing a
petition with the court, petitioner should have first exhausted all administrative remedies by appealing to the Office of
the President. However, we ruled that respondent was estopped from invoking the rule on exhaustion of
administrative remedies considering that in its Resolution, it said, "The opinions promulgated by the Secretary of
Justice are advisory in nature, which may either be accepted or ignored by the office seeking the opinion, and any
aggrieved party has the court for recourse". The statement of the respondent in said case led the petitioner to
conclude that only a final judicial ruling in her favor would be accepted by the Commission.

Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review was
premature because petitioner failed to exhaust all administrative remedies.

The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the following:

1. That the said assessment has already prescribed in accordance with the provisions of Section 203 of the
Tax Code.
 2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has been deleted, the
wording of Section 28(A)(7)(b) discloses that there are no other taxes imposable upon FCDUs aside from
the 10% Final Income Tax.

Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not prescribed for
[sic] simply because no returns were filed, thus, the three year prescriptive period has not lapsed.

With the implementation of the CTRP, the phrase "exempt from all taxes" was deleted. Please refer to Section
27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for deficiency gross receipts tax on
onshore income from foreign currency transactions in accordance with the rates provided under Section 121 of the
said Tax Code. Likewise, deficiency documentary stamp taxes was [sic] also assessed on Loan Agreements, Bills
Purchased, Certificate of Deposits and related transactions pursuant to Sections 180 and 181 of NIRC, as
amended.

The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A) and 249(b),
respectively, of the National Internal Revenue Code, as amended.

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident
to delinquency. This is our final decision based on investigation. If you disagree, you may appeal this final decision
within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory
and demandable.24 (Emphasis supplied)

It appears from the foregoing demand letter that the CIR has already made a final decision on the matter and that
the remedy of petitioner is to appeal the final decision within 30 days.

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,25 we considered the language used and
the tenor of the letter sent to the taxpayer as the final decision of the CIR.

In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment
Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with
Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision
of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal
language, whether his action on a disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court accrues.26 Viewed in the light of the
foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with
Assessment Notices to be a final decision.

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices, respondent used
the word "appeal" instead of "protest", "reinvestigation", or "reconsideration". Although there was no direct reference
for petitioner to bring the matter directly to the CTA, it cannot be denied that the word "appeal" under prevailing tax
laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner, under Section 228 of
the NIRC, the terms "protest", "reinvestigation" and "reconsideration" refer to the administrative remedies a taxpayer
may take before the CIR, while the term "appeal" refers to the remedy available to the taxpayer before the CTA.
Section 9 of RA 9282, amending Section 11 of RA 1125,27 likewise uses the term "appeal" when referring to the
action a taxpayer must take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then,
petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue from
respondent. Besides, any doubt in the interpretation or use of the word "appeal" in the Formal Letter of Demand with
Assessment Notices should be resolved in favor of petitioner, and not the respondent who caused the confusion.

To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by
Section 3 of BIR Revenue Regulations No. 12-99.28 It is the Formal Letter of Demand and Assessment Notice that
must be administratively protested or disputed within 30 days, and not the PAN. Neither are we deviating from our
pronouncement in St. Stephen’s Chinese Girl’s School v. Collector of Internal Revenue,29 that the counting of the 30
days within which to institute an appeal in the CTA commences from the date of receipt of the decision of the CIR on
the disputed assessment, not from the date the assessment was issued. 1avv phi 1

What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices which was
not administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA
because the words used, specifically the words "final decision" and "appeal", taken together led petitioner to believe
that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-
protest it filed and that the available remedy was to appeal the same to the CTA.

We note, however, that during the pendency of the instant case, petitioner availed of the provisions of Revenue
Regulations No. 30-2002 and its implementing Revenue Memorandum Order by submitting an offer of compromise
for the settlement of the GRT, DST and VAT for the period 1998-2003, as evidenced by a Certificate of Availment
dated November 21, 2007.30 Accordingly, there is no reason to reinstate the Petition for Review in CTA Case No.
7062.
WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the October 17, 2006
Resolution of the Court of Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in CTA Case No.
7062 is hereby DISMISSED based solely on the Bureau of Internal Revenue’s acceptance of petitioner’s offer of
compromise for the settlement of the gross receipts tax, documentary stamp tax and value added tax, for the years
1998-2003.

SO ORDERED.

G.R. No. 135210 July 11, 2001

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ISABELA CULTURAL CORPORATION, respondent.

PANGANIBAN, J.:

A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate payment of a
tax deficiency assessment previously made, is tantamount to a denial of the taxpayer's request for reconsideration.
Such letter amounts to a final decision on a disputed assessment and is thus appealable to the Court of Tax
Appeals (CTA).

The Case

Before this Court is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Rules of Court, seeking to set
aside the August 19, 1998 Decision2 of the Court of Appeals3 (CA) in CA-GR SP No. 46383 and ultimately to affirm
the dismissal of CTA Case No. 5211. The dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, the assailed decision is REVERSED and SET ASIDE. Accordingly, judgment is hereby
rendered REMANDING the case to the CTA for proper disposition."4

The Facts

The facts are undisputed. The Court of Appeals quoted the summary of the CTA as follows:

"As succinctly summarized by the Court of Tax appeals (CTA for brevity), the antecedent facts are as
follows:

'In an investigation conducted on the 1986 books of account of [respondent, petitioner] had the
preliminary [finding] that [respondent] incurred a total income tax deficiency of P9,985,392.15,
inclusive of increments. Upon protest by [respondent's] counsel, the said preliminary assessment
was reduced to the amount of P325,869.44, a breakdown of which follows:

Deficiency Income Tax P321,022.68

Deficiency Expanded Withholding 4,846.76

Tax
Total P325,869.44

(pp. 187-189, BIR records)'

On February 23, 1990, [respondent] received from [petitioner] an assessment letter, dated February 9, 1990,
demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded
withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986
to December 31, 1986. (pp. 204 and 205, BIR rec.)

In a letter, dated March 22, 1990, filed with the [petitioner's] office on March 23, 1990 (pp. 296-311, BIR
rec.), [respondent] requested x x x a reconsideration of the subject assessment.

Supplemental to its protest was a letter, dated April 2, 1990, filed with the [petitioner's] office on April 18,
1990 (pp. 224 & 225, BIR rec.), to which x x x were attached certain documents supportive of its protest, as
well as a Waiver of Statute of Limitation, dated April 17, 1990, where it was indicated that [petitioner] would
only have until April 5, 1991 within which to asses and collect the taxes that may be found due from
[respondent] after the re-investigation.
 On February 9, 1995, [respondent] received from [petitioner] a Final Notice Before Seizure, dated December
22, 1994 (p. 340, BIR rec.). In said letter, [petitioner] demanded payment of the subject assessment within
ten (10) days from receipt thereof. Otherwise, failure on its part would constrain [petitioner] to collect the
subject assessment through summary remedies.

[Respondent] considered said final notice of seizure as [petitioner's] final decision. Hence, the instant
petition for review filed with this Court on March 9, 1995.

The CTA having rendered judgment dismissing the petition, [respondent] filed the instant petition anchored
on the argument that [petitioner's] issuance of the Final Notice Before Seizure constitutes [its] decision on
[respondent's] request for reinvestigation, which the [respondent] may appeal to the CTA."5

Ruling of the Court of Appeals

In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The CA considered the final notice sent by
petitioner as the latter's decision, which was appealable to the CTA. The appellate court reasoned that the final
Notice before seizure had effectively denied petitioner's request for a reconsideration of the commissioner's
assessment. The CA relied on the long-settled tax jurisprudence that a demand letter reiterating payment of
delinquent taxes amounted to a decision on a disputed assessment.

Hence, this recourse.6

Issues

In his Memorandum,7 petitioner presents for this Court's consideration a solitary issue:

"Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue
Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the
CTA."8

The Court's Ruling

The Petition is not meritorious.

Sole Issue:
The Nature of the Final Notice Before Seizure

The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR) to respondent reads as follows:

"On Feb. 9, 1990, [this] Office sent you a letter requesting you to settle the above-captioned assessment. To
date, however, despite the lapse of a considerable length of time, we have not been honored with a reply
from you.

In this connection, we are giving you this LAST OPPORTUNITY to settle the adverted assessment within ten
(10) days after receipt hereof. Should you again fail, and refuse to pay, this Office will be constrained to
enforce its collection by summary remedies of Warrant of Levy of Road Property, Distraint of Personal
Property or Warrant of Garnishment, and/or simultaneous court action.

Please give this matter your preferential attention.

Very truly yours,

ISIDRO B. TECSON, JR.

Revenue District Officer

By:
(Signed)
MILAGROS M. ACEVEDO
Actg. Chief Revenue Collection Officer"9

Petitioner maintains that this Final Notice was a mere reiteration of the delinquent taxpayer's obligation to pay the
taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested
assessment. Such decision, the commissioner contends, must unequivocably indicate that it is the resolution of the
taxpayer's request for reconsideration and must likewise state the reason therefor.
Respondent, on the other hand, points out that the Final Notice Before Seizure should be considered as a denial of
its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioner's last act,
since failure to comply with it would lead to the distraint and levy of respondent's properties, as indicated therein.

We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice of
delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the
delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR
indicating its protest, stating the reasons therefor, and submitting such proof as may be necessary. That letter is
considered as the taxpayer's request for reconsideration of the delinquent assessment. After the request is filed and
received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That
decision is appealable to the Court of Tax Appeals for review.

Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal
revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional
evidence. However, the CIR's position regarding the disputed assessment must be indicated in the final decision. It
is this decision that is properly appealable to the CTA for review.

Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had delinquent taxes
due; and it subsequently filed its motion for reconsideration on March 23, 1990. In support of its request for
reconsideration, it sent to the CIR additional documents on April 18, 1990. The next communication respondent
received was already the Final Notice Before Seizure dated November 10, 1994.

In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner's
decision disposing of the request for reconsideration filed by respondent, who received no other response to its
request. Not only was the Notice the only response received; its content and tenor supported the theory that it was
the CIR's final act regarding the request for reconsideration. The very title expressly indicated that it was
a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given "this LAST
OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy. How then could it have
been made to believe that its request for reconsideration was still pending determination, despite the actual threat of
seizure of its properties?

Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may
nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180
days after submission thereof. We quote:

"Sec. 228. Protesting an Assessment. – x x x

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise the decision shall become final, executory and demandable."10

In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on
March 23, 1990, without any action on the part of the CIR.

Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a
decision on a disputed or protested assessment. In Commissioner of Internal Revenue v. Ayala Securities
Corporation, this Court held:

"The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the
reconsideration or [respondent corporation's] x x x protest o[f] the assessment made by the petitioner,
considering that the said letter [was] in itself a reiteration of the demand by the Bureau of Internal Revenue
for the settlement of the assessment already made, and for the immediate payment of the sum of
P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly
is a clear indication of the firm stand of petitioner against the reconsideration of the disputed assessment, in
view of the continued refusal of the respondent corporation to execute the waiver of the period of limitation
upon the assessment in question.

This being so, the said letter amount[ed] to a decision on a disputed or protested assessment and, there, the
court a quo did not err in taking cognizance of this case."11
Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals12 and again in CIR v. Union Shipping Corp.,13 we
ruled:

"x x x. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the
commissioner on the petitioner's several requests for reconsideration and recomputation. In this letter the
commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave
warning that in the event it failed to pay, the said commissioner would be constrained to enforce the
collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the
statement regarding the resort to legal remedies, unmistakably indicate[d] the final nature of the
determination made by the commissioner of the petitioner's deficiency franchise tax liability."

As in CIR v. Union Shipping,14 petitioner failed to rule on the Motion for Reconsideration filed by private respondent,
but simply continued to demand payment of the latter's alleged tax delinquency. Thus, the Court reiterated the
dictum that the BIR should always indicate to the taxpayer in clear and unequivocal language what constitutes final
action on a disputed assessment. The object of this policy is to avoid repeated requests for reconsideration by the
taxpayer, thereby delaying the finality of the assessment and, consequently, the collection of the taxes due.
Furthermore, the taxpayer would not be groping in the dark, speculating as to which communication or action of the
BIR may be the decision appealable to the tax court.15

In the instant case, the second notice received by private respondent verily indicated its nature – that it was final.
Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration.

Commissioner v. Algue16 is not in point here. In that case, the Warrant of Distraint and Levy, issued to the taxpayer
without any categorical ruling on its request for reconsideration, was not deemed equivalent to a denial of the
request. Because such request could not in fact be found in its records, the BIR cannot be presumed to have taken
it into consideration. The request was considered only when the taxpayer gave a copy of it, duly stamp-received by
the BIR. Hence, the Warrant was deemed premature. 1âw phi1.nêt

In the present case, petitioner does not deny receipt of private respondent's protest letter. As a matter of fact, it
categorically relates the following in its "Statement of Relevant Facts":17

"3. On March 23, 1990, respondent ICC wrote the CIR requesting for a reconsideration of the assessment
on the ground that there was an error committed in the computation of interest and that there were expenses
which were disallowed (Ibid., pp. 296-311).

"4. On April 2, 1990, respondent ICC sent the CIR additional documents in support of its
protest/reconsideration. The letter was received by the BIR on April 18, 1990. Respondent ICC further
executed a Waiver of Statute of Limitation (dated April 17, 1990) whereby it consented to the BIR to assess
and collect any taxes that may be discovered in the process of reinvestigation, until April 3, 1991 (Ibid., pp.
296-311). A copy of the waiver is hereto attached as Annex 'C'."

Having admitted as a fact private respondent's request for reconsideration, petitioner must have passed upon it prior
to the issuance of the Final Notice Before Seizure.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.

SO ORDERED.
G.R. No. 198756

BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING CORPORATION, METROPOLITAN BANK &
TRUST COMPANY, PHILIPPINE BANK OF COMMUNICATIONS, PHILIPPINE NATIONAL BANK, PHILIPPINE
VETERANS BANK, AND PLANTERS DEVELOPMENT BANK, Petitioners
vs.
RIZAL COMMERCIAL BANKING CORPORATION AND RCBC CAPITAL CORPORATION, Petitioners-
Intervenors

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

CAUCUS OF DEVELOPMENT NGO NETWORKS, Petitioner-Intevenor,

vs.
REVENUE, SECRETARY OF FINANCE, DEPARTMENT OF FINANCE, THE NATIONAL TREASURER, AND
BUREAU OF TREASURY, Respondents.

RESOLUTION

LEONEN, J.:

This resolves separate motions for reconsideration and clarification filed by the Office of the Solicitor General 1 and
petitioners-intervenors Rizal Commercial Banking Corporation and RCBC Capital Corporation2 of our Decision dated
January 13, 2015, which: (1) granted the Petition and Petitions-in-Intervention and nullified Bureau of Internal
Revenue (BIR) Ruling Nos. 370-2011 and DA 378-2011; and (2) reprimanded the Bureau of Treasury for its
continued retention of the amount corresponding to the 20% final withholding tax that it withheld on October 18,
2011, and ordered it to release the withheld amount to the bondholders.

In the notice to all Government Securities Eligible Dealers (GSEDs) entitled Public Offering of Treasury
Bonds3 (Public Offering) dated October 9, 2001, the Bureau of Treasury announced that "P30.0 [billion] worth of 10-
year Zero[-]Coupon Bonds [would] be auctioned on October 16, 2001[.]"4 It stated that "the issue being limited to 19
lenders and while taxable shall not be subject to the 20% final withholding [tax]."5

On October 12, 2001, the Bureau of Treasury released a memo on the Formula for the Zero-Coupon Bond. 6 The
memo stated in part that the formula, in determining the purchase price and settlement amount, "is only applicable
to the zeroes that are not subject to the 20% final withholding due to the 19 buyer/lender limit."7

On October 15, 2001, one (1) day before the auction date, the Bureau of Treasury issued the Auction Guidelines for
the 10-year Zero-Coupon Treasury Bond to be Issued on October 16, 2001 (Auction Guidelines).8 The Auction
Guidelines reiterated that the Bonds to be auctioned are "[n]ot subject to 20% withholding tax as the issue will be
limited to a maximum of 19 lenders in the primary market (pursuant to BIR Revenue Regulation No. 020 2001 )."9

At the auction held on October 16, 2001, Rizal Commercial Banking Corporation (RCBC) participated on behalf of
Caucus of Development NGO Networks (CODE-NGO) and won the bid. 10 Accordingly, on October 18, 2001, the
Bureau of Treasury issued P35 billion worth of Bonds at yield-tomaturity of 12.75% to RCBC for approximately
P10.17 billion, 11 resulting in a discount of approximately P24.83 billion.

Likewise, on October 16, 2001, RCBC Capital entered into an underwriting agreement12 with CODE-NGO, where
RCBC Capital was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe
Bonds. 13 RCBC Capital agreed to underwrite14 on a firm basis the offering, distribution, and sale of the P3 5 billion
Bonds at the price of Pll,995,513,716.51. 15 In Section 7(r) of the underwriting agreement, CODE-NGO represented
that "[a]ll income derived from the Bonds, inclusive of premium on redemption and gains on the trading of the same,
are exempt from all forms of taxation as confirmed by [the] Bureau of Internal Revenue . . . letter rulings dated 31
May 2001 and 16 August 2001, respectively." 16

RCBC Capital sold and distributed the Government Bonds for an issue price of Pll,995,513,716.51. 17 Banco de Oro,
et al. purchased the PEACe Bonds on different dates. 18

On October 7, 2011, barely 11 days before maturity of the PEACe Bonds, the Commissioner of Internal Revenue
issued BIR Ruling No. 370- 201119 declaring that the PEACe Bonds, being deposit substitutes, were subject to 20%
final withholding tax. 20 Under this ruling, the Secretary of Finance directed the Bureau of Treasury to withhold a 20%
final tax from the face value of the PEACe Bonds upon their payment at maturity on October 18, 2011.21

On October 17, 2011, replying to an urgent query from the Bureau of Treasury, the Bureau of Internal Revenue
issued BIR Ruling No. DA 378-201122 clarifying that the final withholding tax due on the discount or interest earned
on the PEACe Bonds should "be imposed and withheld not only on RCBC/CODE NGO but also [on] 'all subsequent
holders of the Bonds. "'23

On October 17, 2011, petitioners filed before this Court a Petition for Certiorari, Prohibition, and/or Mandamus (with
urgent application for a temporary restraining order and/or writ of preliminary injunction).24
On October 18, 2011, this Court issued a temporary restraining order25 "enjoining the implementation of BIR Ruling
No. 370-2011 against the [PEACe Bonds,] ... subject to the condition that the 20% final withholding tax on interest
income therefrom shall be withheld by the petitioner banks and placed in escrow pending resolution of [the]
petition."26

RCBC and RCBC Capital, as well as CODE-NGO separately moved for leave of court to intervene and to admit the
Petition-in-Intervention. The Motions were granted by this Court. 27

Meanwhile, on November 9, 2011, petitioners filed their Manifestation with Urgent Ex Parte Motion to Direct
Respondents to Comply with the TR0.28

On November 15, 2011, this Court directed respondents to: "(1) show cause why they failed to comply with the
October 18, 2011 resolution; and (2) comply with the Court's resolution in order that petitioners may place the
corresponding funds in escrow pending resolution of the petition. " 29

On December 6, 2011, this Court noted respondents' compliance. 30

On November 27, 2012, petitioners filed their Manifestation with Urgent Reiterative Motion [To Direct Respondents
to Comply with the Temporary Restraining Order]. 31

On December 4, 2012, this Court noted petitioners' Manifestation with Urgent Reiterative Motion and required
respondents to comment. 32 Respondents filed their Comment, 33 to which petitioners filed their Reply. 34

On January 13, 2015, this Court promulgated the Decision35 granting the Petition and the Petitions-in-Intervention.
Applying Section 22(Y) of the National Internal Revenue Code, we held that the number of lenders/investors at
every transaction is determinative of whether a debt instrument is a deposit substitute subject to 20% final
withholding tax. When at any transaction, funds are simultaneously obtained from 20 or more lenders/investors,
there is deemed to be a public borrowing and the bonds at that point in time are deemed deposit substitutes.
Consequently, the seller is required to withhold the 20% final withholding tax on the imputed interest income from
the bonds. We further declared void BIR Rulings Nos. 370-2011 and DA 378-2011 for having disregarded the 20-
lender rule provided in Section 22(Y). The Decision disposed as follows:

WHEREFORE, the petition for review and petitions-in- intervention are GRANTED. BIR Ruling Nos. 370-2011 and
DA 378- 2011 are NULLIFIED.

Furthermore, respondent Bureau of Treasury is REPRIMANDED for its continued retention of the amount
corresponding to the 20% final withholding tax despite this court's directive in the temporary restraining order and in
the resolution dated November 15, 2011 to deliver the amounts to the banks to be placed in escrow pending
resolution of this case.

Respondent Bureau of Treasury is hereby ORDERED to immediately release and pay to the bondholders the
amount corresponding to the 20% final withholding tax that it withheld on October 18, 2011. 36

On March 13, 2015, respondents filed by registered mail their Motion for Reconsideration and Clarification. 37

On March 16, 2015, petitioners-intervenors RCBC and RCBC Capital moved for clarification and/or partial
reconsideration.38

On July 6, 2015, petitioners Banco de Oro, et al. filed their

Consolidated Comment39 on respondents' Motion for Reconsideration and Clarification and petitioners-intervenors
RCBC and RCBC Capital Corporation's Motion for Clarification and/or Partial Reconsideration.

On October 29, 2015, petitioners Banco de Oro, et al. filed their Urgent Reiterative Motion [to Direct Respondents to
Comply with the Temporary Restraining Order].40

The issues raised in the motions revolve around the following:

First, the proper interpretation and application of the 20-lender rule under Section 22(Y) of the National Internal
Revenue Code, particularly in relation to issuances of government debt instruments;

Second, whether the seller in the secondary market can be the proper withholding agent of the final withholding tax
due on the yield or interest income derived from government debt instruments considered as deposit substitutes;

Third, assuming the PEACe Bonds are considered "deposit substitutes," whether government or the Bureau of
Internal Revenue is estopped from imposing and/or collecting the 20% final withholding tax from the face value of
these Bonds. Further:
(a) Will the imposition of the 20% final withholding tax violate the non-impairment clause of the Constitution?

(b) Will it constitute a deprivation of property without due process of law?

Lastly, whether the respondent Bureau of Treasury is liable to pay 6% legal interest.

Before going into the substance of the motions for reconsideration, we find it necessary to clarify on the procedural
aspects of this case. This is with special emphasis on the jurisdiction of the Court of Tax Appeals in view of the
previous conflicting rulings of this Court.

Earlier, respondents questioned the propriety of petitioners' direct resort to this Court. They argued that petitioners
should have challenged first the 2011 Bureau of Internal Revenue rulings before the Secretary of Finance,
consistent with the doctrine on exhaustion of administrative remedies.

In the assailed Decision, we agreed that interpretative rulings of the Bureau of Internal Revenue are reviewable by
the Secretary of Finance under Section 441 of the National Internal Revenue Code. However, we held that because
of the special circumstances availing in this case-namely: the question involved is purely legal; the urgency of
judicial intervention given the impending maturity of the PEA Ce Bonds; and the futility of an appeal to the Secretary
of Finance as the latter appeared to have adopted the challenged Bureau of Internal Revenue rulings-there was no
need for petitioners to exhaust all administrative remedies before seeking judicial relief.

We also stated that:

[T]he jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax
Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the
implementation of the 1997 National Internal Revenue Code on the taxability of the _interest income from zero-
coupon bonds issued by the government.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282,
such rulings of the Commissioner of Internal Revenue are appealable to that court, thus:

SEC. 7. Jurisdiction. -The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau of Internal Revenue;

....

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the
Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or
ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

....

SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters arising under the
National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained,
except as ·herein provided, until and unless an appeal has been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.

In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court emphasized the jurisdiction of
the Court of Tax Appeals over rulings of the Bureau of Internal Revenue, thus:

While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed that the
jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not
to the RTC.

The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner
implementing the Tax Code on the taxability of pawnshops.

....
Such revenue orders were issued pursuant to petitioner's powers under Section 245 of the Tax Code, which states:

"SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. - The Secretary of Finance,
upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective
enforcement of the provisions of this Code.

The authority of the Secretary of Finance to determine articles similar or analogous to those subject to a rate of
sales tax under certain category enumerated in Section 163 and 165 of this Code shall be without prejudice to the
power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation
of the provisions of internal revenue laws, including ruling on the classification of articles of sales and similar
purposes."

....

The Court, in Rodriguez etc. vs. Blaquera, etc., ruled:

"Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but merely an attempt
to nullify General Circular No. V-148, which does not adjudicate or settle any controversy, and that, accordingly, this
case is not within the jurisdiction of the Court of Tax Appeals.

We find no merit in this pretense. General Circular No. V-148 directs the officers charged with the collection of taxes
and license fees to adhere strictly to the interpretation given by the defendant to the statutory provisions above
mentioned, as set forth in the Circular. The same incorporates, therefore, a decision of the Collector of Internal
Revenue (now Commissioner of Internal Revenue) on the manner of enforcement of the said statute, the
administration of which is entrusted by law to the Bureau of Internal Revenue. As such, it comes within the purview
of Republic Act No. 1125, Section 7 of which provides that the Court of Tax Appeals 'shall exercise exclusive
appellate jurisdiction to review by appeal . . . decisions of the Collector of Internal Revenue in . . . matters arising
under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal
Revenue. "[['42]]

In Commissioner of Internal Revenue v. Leal, 43 the Commissioner issued Revenue Memorandum Order (RMO) No.
15-91 imposing 5% lending investors tax on pawnshops, and Revenue Memorandum Circular (RMC) No. 43-91
subjecting the pawn ticket to documentary stamp tax.44 Leal, a pawnshop owner and operator, asked for
reconsideration of the revenue orders, but it was denied by the Commissioner in BIR Ruling No. 221-91.45 Thus, Leal
filed before the Regional Trial Court a petition for prohibition seeking to prohibit the Commissioner from
implementing the revenue orders. 46 This Court held that Leal should have filed her petition for prohibition before the
Court of Tax Appeals, not the Regional Trial Court, because "the questioned RMO No. 15-91 and RMC No. 43-91
are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of
pawnshops."47 This Court held that such rulings in connection with the implementation of internal revenue laws are
appealable to the Court of Tax Appeals under Republic Act No. 1125, as amended.48

Likewise, in Asia International Auctioneers, Inc. v. Hon. Parayno, Jr., 49 this Court upheld the jurisdiction of the Court
of Tax Appeals over the Regional Trial Courts, on the issue of the validity of revenue memorandum circulars.50 It
explained that "the assailed revenue regulations and revenue memorandum circulars [were] actually rulings or
opinions of the [Commissioner of Internal Revenue] on the tax treatment of motor vehicles sold at public auction
within the [Subic Special Economic Zone] to implement Section 12 of [Republic Act] No. 7227." This Court further
held that the taxpayers' invocation of this Court's intervention was premature for its failure to first ask the
Commissioner of Internal Revenue for reconsideration of the assailed revenue regulations and revenue
memorandum circulars.

However, a few months after the promulgation of Asia International Auctioneers, British American Tobacco v.
Camacho51 pointed out that although Section 7 of Republic Act No. 1125, as amended, confers on the Court of Tax
Appeals jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a
law or rule is challenged. Thus:

The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No.
9282. Section 7 thereof states, in pertinent part:

....

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include
cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-
legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a
specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a
law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority
of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power
includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable, and to determin whether or not there has been a grave abuse of dicretion amounting to lack or
execss of jurisdiction on the part of any branch or instrumentality of the Government.

In Drilon v. Lim, it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this
authority being embraced in the general definition of the judicial power to determine what are the valid and binding
laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts
jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the
accused in a criminal action has the right to question in his defense the constitutionality of a law he is charged with
violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover,
Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and
orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.

The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section
145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited
the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of
whether the assailed law and its implementing rules and regulations contravene the Constitution is within the
jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts. Petitioner, therefore, properly filed the subject case before the RTC. 52 (Citations
omitted)

British American Tobacco involved the validity of: (1) Section 145 of Republic Act No. 8424; (2) Republic Act No.
9334, which further amended Section 145 of the National Internal Revenue Code on January 1, 2005; (3) Revenue
Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) RMO No. 6- 2003.53

A similar ruling was made in Commissioner of Customs v. Hypermix Feeds Corporation. 54 Central to the case was
Customs Memorandum Order (CMO) No. 27-2003 issued by the Commissioner of Customs. This issuance provided
for the classification of wheat for tariff purposes. In anticipation of the implementation of the CMO, Hypermix filed a
Petition for Declaratory Relief before the Regional Trial Court. Hypermix claimed that said CMO was issued without
observing the provisions of the Revised Administrative Code; was confiscatory; and violated the equal protection
clause of the 1987 Constitution. 55 The Commissioner of Customs moved to dismiss on the ground of lack of
jurisdiction. 56 On the issue regarding declaratory relief, this Court ruled that the petition filed by Hypermix had
complied with all the requisites for an action of declaratory relief to prosper. Moreover:

Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the
regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine
in an appropriate action the validity of the acts of the political departments. 57

We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc. The Court of Tax Appeals
has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other
administrative issuances of the Commissioner of Internal Revenue.

Article VIII, Section 1 of the 1987 Constitution provides the general definition of judicial power:

ARTICLE VIII
JUDICIAL DEPARTMENT

Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established
by law.

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government. (Emphasis supplied)

Based on this constitutional provision, this Court recognized, for the first time, in The City of Manila v. Hon. Grecia-
Cuerdo,58 the Court of Tax Appeals' jurisdiction over petitions for certiorari assailing interlocutory orders issued by
the Regional Trial Court in a local tax case. Thus:

[W]hile there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987
Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate
jurisdiction of the tax court. It, thus, fo1lows that the CTA, by constitutional mandate, is vested with jurisdiction to
issue writs of certiorari in these cases. 59 (Emphasis in the original)

This Court further explained that the Court of Tax Appeals' authority to issue writs of certiorari is inherent in the
exercise of its appellate jurisdiction.

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to
make all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal.
It carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The
court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the
efficient and proper exercise of that jurisdiction. For this purpose, it may, when necessary, prohibit or restrain the
performance of any act which might interfere with the proper exercise of its rightful jurisdiction in cases pending
before it.

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have
powers which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as
powers which are inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice
and to suppress any abuses of its process and to defeat any attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all
the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction,
in addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the
ordinary and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as
well as to the due administration of justice; or are directly appropriate, convenient and suitable to the execution of
their granted powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the
litigants.

Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate
its jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual
incidental powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every
regularly constituted court has power to do all things that are reasonably necessary for the administration of justice
within the scope of its jurisdiction and for the enforcement of its judgments and mandates." Hence, demands,
matters or questions ancillary or incidental to, or growing out of, the main action, and coming within the above
principles, may be taken cognizance of by the court and determined, since such jurisdiction is in aid of its authority
over the principal matter, even though the court may thus be called on to consider and decide matters which, as
original causes of action, would not be within its cognizance.60 (Citations omitted)

Judicial power likewise authorizes lower courts to determine the constitutionality or validity of a law or regulation in
the first instance.61 This is contemplated in the Constitution when it speaks of appellate review of final judgments of
inferior courts in cases where such constitutionality is in issue.62

On, June 16, 1954, Republic Act No. 1125 created the Court of Tax Appeals not as another superior administrative
agency as was its predecessor-the former Board of Tax Appeals-but as a part of the judicial system63 with exclusive
jurisdiction to act on appeals from:

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in relation
thereto; or other matters arising under the Customs Law or other law or part of law administered by the Bureau of
Customs; and

(3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the assessment and taxation of
real property or other matters arising under the Assessment Law, including rules and regulations relative thereto.

Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over all matters involving assessments
that were previously cognizable by the Regional Trial Courts (then courts of first instance).64
In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of Tax Appeals and elevated
its rank to the level of a collegiate court with special jurisdiction. Section 1 specifically provides that the Court of Tax
Appeals is of the same level as the Court of Appeals and possesses "all the inherent powers of a Court of Justice."65

Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to resolve all tax-related issues:

Section 7. Jurisdiction - The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by
them in the exercise of their original or appellate jurisdiction;

4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or
other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;

6) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions
of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and
Customs Code;

7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and
the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and
countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard
measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said
duties.

The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or
regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund.
It is only in the lawful exercise of its power to pass upon all matters brought before it, as sanctioned by Section 7 of
Republic Act No. 1125, as amended.

This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of cases directly
challenging the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders,
revenue memorandum circulars, rulings).

Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes, appeals from the decisions
of quasi-judicial agencies66 (Commissioner of Internal Revenue, Commissioner of Customs, Secretary of Finance,
Central Board of Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be brought
exclusively to the Court of Tax Appeals.

In other words, within the judicial system, the law intends the Court of Tax Appeals to have exclusive jurisdiction to
resolve all tax problems. Petitions for writs of certiorari against the acts and omissions of the said quasi-judicial
agencies should, thus, be filed before the Court of Tax Appeals. 67

Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 12968 provides an exception to the original
jurisdiction of the Regional Trial Courts over actions questioning the constitutionality or validity of tax laws or
regulations. Except for local tax cases, actions directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance may be filed directly before the Court of Tax Appeals.

Furthermore, with respect to administrative issuances (revenue orders, revenue memorandum circulars, or rulings),
these are issued by the Commissioner under its power to make rulings or opinions in connection

with the implementation of the provisions of internal revenue laws. Tax rulings, on the other hand, are official
positions of the Bureau on inquiries of taxpayers who request clarification on certain provisions of the National
Internal Revenue Code, other tax laws, or their implementing regulations.69 Hence, the determination of the validity
of these issuances clearly falls within the exclusive appellate jurisdiction of the Court of Tax Appeals under Section
7(1) of Republic Act No. 1125, as amended, subject to prior review by the Secretary of Finance, as required under
Republic Act No. 8424.70

We now proceed to the substantive aspects.

II

Respondents contend that the 20-lender rule should not strictly apply to issuances of government debt instruments,
which by nature, are borrowings from the public. 71 Applying the rule otherwise leads to an absurd result.72 They point
out that in BIR Ruling No. 007-0473 dated July 16, 2004 (the precursor of BIR Ruling Nos. 370-2011 and DA 378-
2011), the Bureau of Treasury's admitted intent to make the government securities freely tradable to an unlimited
number of lenders/investors in the secondary market was considered in place of an actual head count of
lenders/investors due to the limitations brought about by the absolute confidentiality of investments in government
bonds under Section 2 of Republic Act No. 1405, otherwise known as the Bank Secrecy Law. 74

Considering that the PEACe Bonds were intended to be freely tradable in the secondary market to 20 or more
lenders/investors, respondents contend. that they, like other similarly situated government securities-awarded to 19
or less GSEDs in the primary market but freely tradable to 20 or more lenders/investors in the secondary market-
should be treated as deposit substitutes subject to the 20% final withholding tax. 75

Petitioners and petitioners-intervenors RCBC and RCBC Capital counter that Section 22(Y) of the National Internal
Revenue Code applies to all types of securities, including those issued by government. They add that under this
provision, it is the actual number of lenders at any one time that is material in determining whether an issuance is to
be considered a deposit substitute and not the intended distribution plan of the issuer.

Moreover, petitioners and petitioners-intervenors RCBC and RCBC Capital argue that the real intent behind the
issuance of the PEACe Bonds, as reflected by the representations and assurances of government in various
issuances and rulings, was to limit the issuance to 19 lenders and below. Hence, they contend that government
cannot now take an inconsistent position.

We find respondents' proposition to consider the intended public distribution of government securities-in this case,
the PEACe Bonds-in place of an actual head count to be untenable.

The general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws
and the provisions of a taxing act are not to be extended by implication. 76

The definition of deposit substitutes in Section 22(Y) specifically defined "public" to mean "twenty (20) or more
individual or corporate lenders at any one time."77 The qualifying phrase for public introduced78 by the National
Internal Revenue Code shows that a change in the meaning of the provision was intended, and this Court should
construe the provision as to give effect to the amendment.79 Hence, in light of Section 22(Y), the reckoning of
whether there are 20 or more individuals or corporate lenders is crucial in determining the tax treatment of the yield
from the debt instrument. In other words, if there are 20 or more lenders, the debt instrument is considered a deposit
substitute and subject to 20% final withholding tax.

II.A

The definition of deposit substitutes under the National Internal Revenue Code was lifted from Section 95 of
Republic Act No. 7653, otherwise known as the New Central Bank Act:

SEC. 95. Definition of Deposit Substitutes. The term "deposit substitutes" is defined as an alternative form of
obtaining funds from the public. other than deposits. through the issuance. endorsement, or acceptance of debt
instruments for the borrower's own account, for the purpose ofrelending or purchasing of receivables and other
obligations. These instruments may include, but need not be limited to, bankers' acceptances, promissory notes,
participations, certificates of assignment and similar instruments with recourse, and repurchase agreements. The
Monetary Board shall determine what specific instruments shall be considered as deposit substitutes for the
purposes of Section 94 of this Act: Provided, however, That deposit substitutes of commercial, industrial and other
nonfinancial companies issued for the limited purpose of financing their own needs or the needs of their agents or
dealers shall not be covered by the provisions of Section 94 of this Act. (Emphasis supplied)

Banks are entities engaged in the lending of funds obtained from the public in the form of deposits. 80 Deposits of
money in banks and similar institutions are considered simple loans. 81 Hence, the relationship between a depositor
and a bank is that of creditor and debtor. The ownership of the amount deposited is transmitted to the bank upon the
perfection of the contract and it can make use of the amount deposited for its own transactions and other banking
operations. Although the bank has the obligation to return the amount deposited, it has no obligation to return or
deliver the same money that was deposited.82
The definition of deposit substitutes in the banking laws was brought about by an observation that banks and non-
bank financial intermediaries have increasingly resorted to issuing a variety of debt instruments, other than bank
deposits, to obtain funds from the public. The definition also laid down the groundwork for the supervision by the
Central Bank of quasi-banking functions.83

As defined in the banking sector, the term "public" refers to 20 or more lenders. 84 "What controls is the actual
number of persons or entities to whom the products or instruments are issued. If there are at least twenty (20)
lenders or creditors, then the funds are considered obtained from the public."85

If a bank or non-bank financial intermediary sells debt instruments to 20 or more lenders/placers at any one time,
irrespective of outstanding amounts, for the purpose of releI].ding or purchasing of receivables or obligations, it is
considered to be performing a quasi-banking function and consequently subject to the appropriate regulations of the
Bangko Sentral ng Pilipinas (BSP).

11.B

Under the National Internal Revenue Code, however, deposit substitutes include not only the issuances and sales of
banks and quasi-banks for relending or purchasing receivables and other similar obligations, but also debt
instruments issued by commercial, industrial, and other nonfinancial companies to finance their own needs or the
needs of their agents or dealers. This can be deduced from a reading together of Section 22(X) and (Y):

Section 22. Definitions - When used in this Title:

....

(X) The term 'quasi-banking activities' means borrowing funds from twenty (20) or more personal or corporate
lenders at any one time, through the issuance, endorsement, or acceptance of debt instruments of any kind other
than deposits for the borrower's own account, or through the issuance of certificates of assignment or similar
instruments, with recourse, or of repurchase agreements for purposes of re-lending or purchasing receivables and
other similar obligations: Provided, however, That commerciali industrial and other non-financial companies, which
borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their
agents or dealers, shall not be considered as performing quasi-banking functions.

(Y) The term 'deposit substitutes' shall mean an alternative form of

obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or
corporate lenders at any one time), other than deposits, through the issuance, endorsement, or acceptance of
debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and
other obligations, or financing their own needs or the needs of their agent or dealer. (Emphasis supplied)

For internal re.venue tax purposes, therefore, even debt instruments issued and sold to 20 or more
lenders/investors by commercial or industrial companies to finance their own needs are considered deposit
substitutes, taxable as such.

11.C

The interest income on bank deposits was subjected for the first time to the withholding tax system under
Presidential Decree No. 1156,86 which was promulgated in 1977. The whereas clauses spell the reasons for the law:

[I]nterest on bank deposit is one of the items includible in gross income .... [M]any bank depositors fail to declare
interest income in their income tax returns. . . . [I]n order to maximize the collection of the income tax on interest on
bank deposits, it is necessary to apply the withholdings system on this type of fixed or determinable income.

In the same year, Presidential Decree No. 115487 was also promulgated. It imposed a 35% transaction tax (final tax)
on interest income from every commercial paper issued in the primary market, regardless of whether they are
issued to the public or not. 88 Commercial paper was defined as "an instrument evidencing indebtedness of any
person or entity, including banks and non-banks performing quasi-banking functions, which is issued, endorsed,
sold, transferred or in any manner conveyed to another person or entity, either with or without recourse and
irrespective of maturity." The imposition of a final tax on commercial papers was "aimed primarily to improve the
administrative provisions of the National Internal Revenue Code to ensure the collection on the tax on interest on
commercial papers used as principal instruments issued in the primary market."89 It was reported that "the [Bureau of
Internal Revenue had] no means of enforcing strictly the taxation on interest income earned in the money market
transactions. " 90

These presidential decrees, as well as other new internal revenue laws and various laws and decrees that have so
far amended the provisions of the 1939 National Internal Revenue Code were consolidated and codified into the
1977 National Internal Revenue Code.91
In 1980, Presidential Decree No. 173992 was promulgated, which further amended certain provisions of the 1977
National Internal Revenue Code and repealed Section 210 (the provision embodying the percentage tax on
commercial paper transactions). The Decree imposed a final tax of 20% on interests from yields on deposit
substitutes issued to the public.93 The tax was required to be withheld by banks and non-bank financial
intermediaries and paid to the Bureau of Internal Revenue in accordance with Section 54 of the 1977 National
Internal Revenue Code. Presidential Decree No. 1739, as amended by Presidential Decree No. 1959 in 1984 (which
added the definition of deposit substitutes) was subsequently incorporated in the National Internal Revenue Code.

These developments in the National Internal Revenue Code reflect the rationale for the application of the
withholding system to yield from deposit substitutes, which is essentially to maximize and expedite the collection of
income taxes by requiring its payment at the source, 94 as with the case of the interest on bank deposits. When
banks sell deposit substitutes to the public, the final withholding tax is imposed on the interest income because it
would be difficult to collect from the public. Thus, the incipient scheme in the final withholding tax is to achieve an
effective administration in capturing the interest-income windfall from deposit substitutes as a source of revenue.

It must be emphasized, however, that withholding tax is merely a method of collecting income tax in advance. The
perceived tax is collected at the source of income payment to ensure collection. Consequently, those subjected to
the final withholding tax are no longer subject to the regular income tax.

III

Respondents maintain that the phrase "at any one time" must be given its ordinary meaning, i.e. "at any given time"
or "during any particular point or moment in the day."95 They submit that the correct interpretation of Section 22(Y)
does .not look at any specific transaction concerning the security; instead, it considers the existing number of
lenders/investors of such security at any moment in time, whether in the primary or secondary market.96 Hence,
when during the lifetime of the security, there was any one instance where twenty or more individual or corporate
lenders held the security, the borrowing becomes "public" in character and is ipso facto subject to 20% final
withholding tax.97

Respondents further submit that Section 10.1(k) of the Securities Regulation Code and its Implementing Rules and
Regulations may be applied by analogy, such that if at any time, (a) the lenders/investors number 20 or more; or (b)
should the issuer merely offer the securities publicly or to 20 or more lenders/investors, these securities should be
deemed deposit substitutes.98

On the other hand, petitioners-intervenors RCBC and RCBC Capital insist that the phrase "at any one time" only
refers to transactions made in the primary market. According to them, the PEACe Bonds are not deposit substitutes
1âw phi1

since CODE-NGO, through petitioner-intervenor RCBC, is the sole lender in the primary market, and all subsequent
transactions in the secondary market merely pertain to a sale and/or assignment of credit and not borrowings from
the public.99

Similarly, petitioners contend that for a government security, such as the PEACe Bonds, to be considered as deposit
substitutes, it is an indispensable requirement that there is "borrowing" between the issuer and the lender/investor in
the primary market and between the transferee and the transferor in the secondary market. Petitioners submit that in
the secondary market, the transferee/buyer must have recourse to the selling investor as required by Section 22(Y)
of the National Internal Revenue Code so that a borrowing "for the borrower's (transferor's) own account" is created
between the buyer and the seller. Should the transferees in the secondary market who have recourse to the
transferor reach 20 or more, the transaction will be subjected to a-final withholding tax. 100

Petitioners and petitioners-intervenors RCBC and RCBC Capital contend that respondents' proposed application of
Section 10.l(k) of the Securities Regulation Code and its Implementing Rules is misplaced because: (1) the National
Internal Revenue Code clearly provides the conditions when a security issuance should qualify as a deposit
substitute subject to the 20% final withholding tax; and (2) the two laws govern different matters.

III.A

Generally, a corporation may obtain funds for capital expenditures by floating either shares of stock (equity) or
bonds (debt) in the capital market. Shares of stock or equity securities represent ownership, interest, or participation
in the issuer-corporation. On the other hand, bonds or debt securities are evidences of indebtedness of the issuer-
corporation.

New securities are issued and sold to the investing public for the first time in the primary market. Transactions in the
primary market involve an actual transfer of funds from the investor to the issuer of the new security. The transfer of
funds is evidenced by a security, which becomes a financial asset in the hands of the buyer/investor.

New issues are usually sold through a registered underwriter, which may be an investment house or bank registered
as an underwriter of securities.101 An underwriter helps the issuer find buyers for its securities. In some cases, the
underwriter buys the whole issue from the issuer and resells this to other security dealers and the public. 102 When a
group of underwriters pool together their resources to underwrite an issue, they are called the "underwriting
syndicate."103
On the other hand, secondary markets refer to the trading of outstanding or already-issued securities. In any
secondary market trade, the cash proceeds normal_ly go to the selling investor rather than to the issuer.

To illustrate: A decides to issue bonds to raise capital funds. X buys and is issued A bonds. The proceeds of the
sale go to A, the issuer. The sale between A and Xis a primary market transaction.

Before maturity, X trades its A bonds to Y. The A bonds sold by X are not X's indebtedness. The cash paid for the
bonds no longer go to A, but remains with X, the s_elling investor/holder. The transfer of A bonds from X to Y is
considered a secondary market transaction. Any difference between the purchase price of the assets (A bonds) and
the sale price is a trading gain subject to a different tax treatment, as will be explained later.

When Y trades its A bonds to Z, the sale is still considered a secondary market transaction. In other words, the
trades from X to Y, Y to Z, and Z to subsequent holders/investors are considered secondary market transactions. If
Z holds on to the bonds and the bonds mature, Z will receive from A the face value of the bonds.

A bond is similar to a bank deposit in the sense that the investor lends money to the issuer and the issuer pays
interest on the invested amount. However, unlike bank deposits, bonds are marketable securities. The market
mechanism provides quick mobility of money and securities. 104 Thus, bondholders can sell their bonds before they
mature to other investors, in tum converting their· financial assets to cash. In contrast, deposits, in the form of
savings accounts for instance, can only be redeemed by the issuing bank.

111.B

An investor in bonds may derive two (2) types of income:

First, the interest or the amount paid by the borrower to the lender/investor for the use of the lender’s money.105 For
interest-bearing bonds, interest is normally earned at the coupon date. In zero-coupon bonds, the discount is an
interest amortized up to maturity.

Second, the gain, if any, that is earned when the bonds are traded before maturity date or when redeemed at
maturity.

The 20% final withholding tax imposed on interest income or yield from deposit substitute does not apply to the
gains derived from trading, retirement, or redemption of the instrument.

It must be stressed that interest income, derived by individuals from long-term deposits or placements made with
banks in the form of deposit substitutes, is exempt from income tax. Consequently, it is likewise exempt from the
final withholding tax under Sections 24(B)(l) and 25(A)(2) of the National Internal Revenue Code. However, when it
is pre-terminated by the individual investor, graduated rates of 5%, 12%, or 20%, depending on the remaining
maturity of the instrument, will apply on the entire income, to be deducted and withheld by the depository bank.

With respect to gains derived from long-term debt instruments, Section 32(B)(7)(g) of the National Internal Revenue
Code provides:

Sec. 32. Gross Income. –

(B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt
from taxation under this title:

....

(7) Miscellaneous Items. -

....

(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the sale or
exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five
(5) years.

Thus, trading gains, or gains realized from the sale or transfer of bonds (i.e., those with a maturity of more than five
years) in the secondary market, are exempt from income tax. These "gains" refer to the difference between the
selling price of the bonds in the secondary market and the price at which the bonds were purchased by the seller.
For discounted instruments such as the zero-coupon bonds, the trading gain is the excess of the selling price over
the book value or accreted value (original issue price plus accumulated discount from the time of purchase up to the
time of sale) of the instruments.106
Section 32(B)(7)(g) also includes gains realized by the last holder of the bonds when the bonds are redeemed at
maturity, which is the difference between the proceeds from the retirement of the bonds and the price at which the
last holder acquired the bonds.

On the other hand, gains realized from the trading of short-term bonds (i.e., those with a maturity of less than five
years) in the secondary market are subject to regular income tax rates (ranging from 5% to 32% for individuals, and
30% for corporations) under Section 32107 of the National Internal Revenue Code.

111.C

The Secretary of Finance, through the Bureau of Treasury, 108 is authorized under Section 1 of Republic Act No. 245,
as amended, to issue evidences of indebtedness such as treasury bills and bonds to meet public expenditures or to
provide for the purchase, redemption, or refunding of any obligations.

These treasury bills and bonds are issued and sold by the Bureau of Treasury to lenders/investors through a
network of licensed dealers (called Government Securities Eligible Dealers or GSEDs ). 109 GSEDs are classified into
primary and ordinary dealers. 110 A primary dealer enjoys certain privileges such as eligibility to participate in the
competitive bidding of regular issues, eligibility to participate in the issuance of special issues such as zero-coupon
treasury bonds, and access to tap facility window. 111 On the other hand, ordinary dealers are only allowed to
participate in the noncompetitive bidding. 112 Moreover, primary dealers are required to meet the following
obligations:

a. Must submit at least one competitive bid in each scheduled auction.

b. Must have total awards of at least 2% of the total amount of bills or bonds awarded within a particular quarter.
This requirement does not cover special issues.

c. Must be active in the trading of GS [government securities] in the secondary market. 113

A primary dealer who fails to comply with its obligations will be dropped from the roster of primary dealers and
classified as an ordinary dealer.

The auction method is the main channel used for originating government securities. 114 Under this method, the
Bureau of Treasury issues a public notice offering treasury bills and bonds for sale and inviting tenders. 115 The
GSEDs tender their bids electronically; 116 after the cut-off time, the Auction Committee deliberates on the bids and
decide on the award. 117

The Auction Committee then downloads the awarded securities to the winning bidders' Principal Securities Account
in the Registry of Scrip less Securities (RoSS). The RoSS, an electronic book-entry system established by the
Bureau of Treasury, is the official Registry of ownership of or interest in government securities. 118 All government
securities floated/originated by the National Government under its scripless policy, as well as subsequent transfers
of the same in the secondary market, are recorded in the RoSS in the Principal Securities Account of the GSED. 119

A GSED is required to open and maintain Client Securities Accounts in the name of its respective clients for
segregating government securities acquired by such clients from the GSED' s own securities holdings. A GSED may
also lump all government securities sold to clients in one account, provided ·that the GSED maintains complete
records of ownership/other titles of its clients in the GSED's own books. 120

Thus, primary issues of treasury bills and bonds are supposed to be issued only to GSEDs. By participating in
auctions, the GSED acts as a channel between the Bureau of Treasury and investors in the primary market. The
winning GSED bidder acquires the privilege to on-sell government securities to other financial institutions or final
investors who need not be GSEDs. 121 Further, nothing in the law or the rules of the Bureau of Treasury prevents the
GSED from entering into contract with another entity to further distribute government securities.

In effecting a sale or distribution of government securities, a GSED acts in a certain sense as the "agent" of the
Bureau of Treasury. In Doles v. Angeles, 122 the basis of an agency is representation. 123 The question of whether an
agency has been created may be established by direct or circumstantial evidence. 124 For an agency to arise, it is not
necessary that the princi~al personally encounter the third person with whom the agent interacts. 125 The law
contemplates impersonal dealings where the principal need not personally know or meet the third person with whom
the agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the facility
of the agent. 126 It was also stressed that the manner in which the parties designate the relationship is not
controlling. 127 If an act done by one person on behalf of another is in its essential nature one of agency, the former is
the agent of the latter, notwithstanding he or she is not caled.128

Through the use of GSEDs, particularly primary dealers, government is able to ensure the absorption of newly
issued securities and promote activity in the government securities market. The primary dealer system allows
government to access potential investors in the market by taking advantage of the GSEDs' distribution capacity. The
sale transactions executed by the GSED are indirectly for the benefit of the issuer. An investor who purchases
bonds from the GSED becomes an indirect lender to government. The financial asset in the hand of the investor
represents a claim to future cash, which the borrower-government must pay at maturity date. 129

Accordingly, the existence of 20 or more lenders should be reckoned at the time when the successful GSED-bidder
distributes (either by itself or through an underwriter) the government securities to final holders. When the GSED
sells the · government securities to 20 or more investors, the government securities are deemed to be in the nature
of a deposit substitute, taxable as such.

On the other hand, trading of bonds between two (2) investors in the secondary market involves a purchase or sale
transaction. The transferee of the bonds becomes the new owner, who is entitled to recover the face value of the
bonds from the issuer at maturity date. Any profit realized from the purchase or sale transaction is in the nature of a
trading gain subject to a different tax treatment, as explained above.

Respondents contend that the literal application of the "20 or more lenders at any one time" to government
securities would lead to: (1) impossibility of tax enforcement due to limitations imposed by the Bank Secrecy Law;
(2) possible uncertainties130; and (3) loopholes.131These concerns, however, are not sufficient justification for us to
deviate from the text of the law.132 Determining the wisdom, policy, or expediency of a statute is outside the realm of
judicial power.133 These are matters that should be addressed to the legislature. Any other interpretation looking into
the purported effects of the law would be tantamount to judicial legislation.

IV

Section 57 prescribes the withholding tax on interest or yield on deposit substitutes, among others, and the person
obligated to withhold the same. Section 57 reads:

Section 57. Withholding of Tax at Source. -

(A) Withholding of Final Tax on Certain Incomes. - Subject to rules and regulations, the Secretary of Finance
may promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax return by certain
income payees, the tax imposed or prescribed by Sections 24(B)(l), 24(B)(2), 24(C), 24(D)(l); 25(A)(2), 25(A)(3),
25(B), 25(C), 25(D), 25(E); 27(D)(l), 27(D)(2), 27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b),
28(A)(7)(c), 28(B)(l), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c), 33 and 282 of the Code on
specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and
subject to the same conditions as provided in Section 58 of this Code.

Likewise, Section 2.57 of Revenue Regulations No. 2-98 (implementing the National Internal Revenue Code relative
to the Withholding on Income subject to the Expanded Withholding Tax and Final Withholding Tax) states that the
liability for payment of the tax rests primarily on the payor as a withholding agent. Section 2.57 reads:

Sec. 2.57. WITHHOLDING OF TAX AT SOURCE. -

(A) Final Withholding Tax - Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final payment of the income tax due from the payee of said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his
failure to withhold the tax or in case of under withhp;ding the deficiency tax shall be collected from the
payor/witholding agent[.] (Emphasis supplied)

From these provisions, it is the payor-borrower who primarily has the duty to withhold and remit the 20% final tax on
interest income or yield from deposit substitutes.

This does not mean, however, that only the payor-borrower can be constituted as withholding agent. Under Section
59 of the National Internal Revenue Code, any person who has control, receipt, custody, or disposal of the income
may be constituted as withholding agent:

SEC. 59. Tax on Profits Collectible from Owner or Other Persons. - The tax imposed under this Title upon
gains, profits, and income not falling under the foregoing and not returned and paid by virtue of the foregoing or as
otherwise provided by law shall be assessed by personal return under rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner. The intent and purpose of the Title is that all
gains, profits and income of a taxable class, as defined in this Title, shall be charged and assessed with the
corresponding tax prescribed by this Title, and said tax shall be paid by the owners of such gains, profits and
income, or the proper person having the receipt, custody, control or disposal of the same. For purposes of this Title,
ownership of such gains, profits and income or liability to pay the tax shall be determined as of the year for which a
return is required to be rendered. (Emphasis supplied)

The intent and purpose of the National Internal Revenue Code provisions on withholding taxes is also explicitly
stated, i.e., that all gains, profits, and income "re charged and assessed with the corresponding tax" 134 and said tax
paid by "the owners of such gains, profits and income, or the proper person having the receipt, custody, control or
disposal of the same." 135
The obligation to deduct and withhold tax at source arises at the time an income subject to withholding is paid or
payable, whichever comes first. 136 In interest-bearing bonds, the interest is taxed at every instance that interest is
paid (and income is earned) on the bond. However, in a zerocoupon bond, it is expected that no periodic interest
payments will be made. Rather, the investor will be paid the principal and interest (discount) together when the bond
reaches maturity.

As explained by respondents, "the discount is the imputed interest earned on the security, and since paymnet is
made at maturity, there is an accreted interest that causes the price of a zero coupon instrument to accordingly
increase with time, all things being constant." 137

In a 10-year zero-coupon bond, for instance, the discount (or interest) is not earned in the first period, i.e., the value
of the instrument does not equal par at the end of the first period. The total discount is earned over the life of the
instrument. Nonetheless, the total discount is considered earned on the year of sale based on current value. 138

In view of this, the successful GSED-bidder, as agent of the Bureau of Treasury, has the primary responsibility to
withhold the 20% final withholding tax on the interest valued at present value, when its sale and distribution of the
government securities constitutes a deposit substitute transaction. The 20% final tax is deducted by the buyer from
the discount of the bonds and included in the remittance of the purchase price.

The final tax withheld by the withholding agent is considered as a "full and final payment of the income tax due from
the payee on the said income [and the] payee is not required to file an income tax return for the particular
income." 139 Section 10 of Department of Finance Department Order No. 020-10140 in relation to the National Internal
Revenue Code also provides that no other tax shall be collected on subsequent trading of the securities that have
been subjected to the final tax.

In this case, the PEACe Bonds were awarded to petitionersintervenors RCBC/CODE-NGO as the winning bidder in
the primary auction. At the same time, CODE-NGO got RCBC Capital as underwriter, to distribute and sell the
bonds to the public.

The Underwriting Agreement141 and RCBC Term Sheet142 for the sale of the PEACe bonds show that the settlement
dates for the issuance by the Bureau of Treasury of the Bonds to petitioners-intervenors RCBC/CODENGO and the
distribution by petitioner-intervenor RCBC Capital of the PEA Ce Bonds to various investors fall on the same day,
October 18, 2001.

This implies that petitioner-intervenor RCBC Capital was authorized to perform a book-building process, 143 a
customary method of initial distribution of securities by underwriters, where it could collate orders for the securities
ahead of the auction or before the securities were actually issued. Through this activity, the underwriter obtains
information about market conditions and preferences ahead of the auction of the government securities.

The reckoning of the phrase "20 or more lenders" should be at the time when petitioner-intervenor RCBC Capital
sold the PEACe bonds to investors. Should the number of investors to whom petitioner-intervenor RCBC Capital
distributed the PEACe bonds, therefore, be found to be 20 or more, the PEACe Bonds are considered deposit
substitutes subject to the 20% final withholding tax. Petitioner-intervenors RCBC/CODE-NGO and RCBC Capital, as
well as the final bondholders who have recourse to government upon maturity, are liable to pay the 20% final
withholding tax.

We note that although the originally intended negotiated sale of the bonds by government to CODE-NGO did not
materialize, CODE-NGO, a private entity-still through the participation of petitioners-intervenors RCBC and RCBC
Capital-ended up as the winning bidder for the government securities and was able to use for its projects the profit
earned from the sale of the government securities to final investors.

Giving unwarranted benefits, advantage, or preference to a party and causing undue injury to government expose
the perpetrators or responsible parties to liability under Section 3(e) of Republic Act No. 3019. Nonetheless, this is
not the proper venue to determine and settle any such liability.

VI

Petitioners-intervenors RCBC and RCBC Capital contend that they cannot be held liable for the 20% final
withholding should have been made, their obligation was not clear since BIR Ruling Nos. 370-2011 and DA 378-
2011 stated that the 20% final withholding tax does not apply to PEACe Bonds. 144 Second, to punish them under the
circumstances (i.e., when they secured the PEACe Bonds from the Bureau of Treasury and sold the Bonds to the
lenders/investors, they had no obligation to remit the 20% final withholding tax) would violate due process of law and
the constitutional proscription on ex facto law.145

Petitioner-intervenor RCBC Capital further posits that it cannot be held liable for the 20% final withholding tax even
as a taxpayer because it never earned interest income from the PEACe Bonds, and any income earned is deemed
in the nature of an underwriting fee. 146 Petitionersintervenors RCBC and RCBC Capital instead argue that the
liability falls on the Bureau of Treasury and CODE-NGO, as withholding agent and taxpayer, respectively,
considering their explicit representation that the PEACe Bonds are exempt from the final withholding tax. 147

Petitioners-intervenors RCBC and RCBC Capital add that the Bureau of Internal Revenue is barred from assessing
and collecting the 20% final withholding tax, assuming it was due, on the ground of prescription. 148 They contend
that the three (3)-year prescriptive period under Section 203, rather than the 10-year assessment period under
Section 222, is applicable because they were compliant with the requirement of filing monthly returns that reflect the
final withholding taxes due or remitted for the relevant period. No false or fraudulent return was made because they
relied on the 2001 BIR Rulings and on the representations made by the Bureau of Treasury and CODE-NGO that
the PEACe Bonds were not subject to the 20% final withholding tax. 149

Finally, petitioners-intervenors RCBC and RCBC Capital argue that this Court's interpretation of the phrase "at any
one time" cannot be applied to the PEACe Bonds and should be given prospective application only because it would
cause prejudice to them, among others. They cite Section 246 of the National Internal Revenue Code on non-
retroactivity of rulings, as well as Commissioner of Internal Revenue v. San Roque Power Corporation, 150 which held
that taxpayers may rely upon a rule or ruling issued by the Commissioner from the time it was issued up to its
reversal by the Commissioner or the court. According to them, the retroactive application of the court's decision
would impair their vested rights, violate the constitutional prohibition on non-impairment of contracts, and constitute
a substantial breach of obligation on the part of govemment. 151 In addition, the imposition of the 20% final
withholding tax on the PEA Ce Bonds would allegedly have pernicious effects on the integrity of existing securities
that is I contrary to the state policies of stabilizing the financial system and of developing the capital markets. 152

CODE-NGO likewise contends that it merely relied in good faith on the 2001 BIR Rulings confirming that the PEA
Ce Bonds were not subject to the 20% final withholding tax. 153 Therefore, it should not be prejudiced if the BIR
Rulings are found to be erroneous and reversed by the Commissioner or this court.154 CODE-NGO argues that this
Court's Decision construing the phrase "at any one time" to determine the phrase "20 or more lenders" to include
both the primary and secondary market should be applied prospectively. 155

Assuming it is liable for the 20% final withholding tax, CODE-NGO argues that the collection of the final tax was
barred by prescription.156 CODE-NGO points out that under Section 203 of the National Internal Revenue Code,
internal revenue taxes such as the final tax, should be assessed within three (3) years after the last day prescribed
by law for the filing of the return. 157 It further argues that Section 222(a) on exceptions to the prescribed period. for
tax assessment and collection does not apply. 158 It claims that there is no fraud or intent to evade taxes as it relied in
good faith on the assurances of the Bureau of Internal Revenue and Bureau of Treasury the PEACe Bonds are not
subject to the 20% final withholding tax. 159 We find merit on the claim of petitioners-intervenors RCBC, RCBC
Capital, and CODE-NGO for prospective application of our Decision.

The phrase "at any one time" is ambiguous in the context of the financial market. Hence, petitioner-intervenor RCBC
and the rest of the investors relied on the opinions of the Bureau of Internal Revenue in BIR Ruling Nos. 020-2001,
035-2001 160 dated August 16, 2001, and DA-175- 01161 dated September 29, 2001 to vested their rights in the
exemption from the final withholding tax. In sum, these rulings pronounced that to determine whether the financial
assets, i.e., debt instruments and securities, are deposit substitutes, the "20 or more individual or corporate lenders"
rule must apply. Moreover, the determination of the phrase "at any one time" to determine the "20 or more lenders"
is to be determined at the time of the original issuance. This being the case, the PEACe Bonds were not to be
treated as deposit substitutes.

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals,162 the Commissioner demanded from petitioner deficiency
withholding income tax on film rentals remitted to foreign corporations for the years 1965 to 1968. The assessment
was made under Revised Memo Circular No. 4-71 issued in 1971, which used gross income as tax basis for the
required withholding tax, instead of one-half of the film rentals as provided under General Circular No. V-334. In
setting aside the assessment, this Court ruled that in the interest of justice and fair play, rulings or circulars
promulgated by the Commissioner of Internal Revenue have no retroactive application where applying them would
prove prejudicial to taxpayers who relied in good faith on previous issuances of the Commissioner. This Court
further held that Section 24(b) of then National Internal Revenue Code sought to be implemented by General
Circular No. V-334 was neither too plain nor simple to understand and was capable of different interpretations. Thus:

The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha[ d] been determined that
the tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic
principle of income taxation ... and that a mere return of capital or investment is not income .... " "A part of the
receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of investment."
The circular thus fixed the return of capital at 50% to simplify the administrative chore of determining the portion of
the rentals covering the return of capital.

Were the "gross income" base clear from Sec. 24(b), perhaps, the ratiocination of the Tax Court could be
upheld. It should be noted, however, that said Section was not too plain and simple to understand. The fact
that the issuance of the General Circular in question was rendered necessary leads to no other conclusion
than that it was not easy of comprehension and could be subjected to different interpretations.
In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular No. V-334, was
just one in a series of enactments regarding Sec. 24(b) of the Tax Code. Republic Act No. 3825 came next on June
22, 1963 without changing the basis but merely adding a proviso (in bold letters).

(b) Tax on foreign corporation. - (1) Non-resident corporations. - There shall be levied, collected, and paid for each
taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign
corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as
interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits and income, a tax equal to thirty per centum of such
amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL NOT INCLUDE REINSURANCE PREMIUMS."
(double emphasis ours)

Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and inserting some
words (also in bold letters).

"(b) Tax on foreign corporations. - (1) Nonresident corporations. - There shall be levied, collected and paid for each
taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign
corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as
interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable annual or periodical OR CASUAL gains, profits and income, AND CAP IT AL GAINS, a
tax equal to thirty per centum of such amount."

The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It
provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by
Congress of a prior executive construction." Note should be taken of the fact that this case involves not a mere
opinion of the Commissioner or ruling rendered on a mere query, but a Circular formally issued to "all internal
revenue officials" by the then Commissioner of Internal Revenue.

It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of Revenue
Memorandum Circular No. 4-71, that Sec. 24(b2 was amended to refer specifically to 35% of the "gross
income."163 (Emphasis supplied)

San Roque has held that the 120-day and the 30-day periods under Section 112 of the National Internal Revenue
Code are mandatory and jurisdictional. Nevertheless, San Roque provided an exception to the rule, such that
judicial claims filed by taxpayers who relied on BIR Ruling No. DA-489-03-from its issuance on December 10, 2003
until its reversal by this Court in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. 164 on
October 6, 2010-are shielded from the vice of prematurity. The BIR Ruling declared that the "taxpayer-claimant
need not wait for the lapse of the 120-day period before it could seek judicial relief with the C[ourt] [of] T[ax]
A[ppeals] by way of Petition for Review." The Court reasoned that:

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 Aichi 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 ....

....

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.165 (Emphasis supplied)

The previous interpretations given to an ambiguous law by the Commissioner of Internal Revenue, who is charged
to carry out its provisions, are entitled to great weight, and taxpayers who relied on the same should not be
prejudiced in their rights. 166 Hence, this Court's construction should be prospective; otherwise, there will be a
violation of due process for failure to accord persons, especially the parties affected by it, fair notice of the special
burdens imposed on them.

VII

Urgent Reiterative Motion [to Direct Respondents to Comply with the

Temporary Restraining Order]

Petitioners Banco de Oro, et al. allege that the temporary restraining order issued by this Court on October 18, 2011
continues to be effective under Rule 58, Section 5 of the Rules of Court and the Decision dated January 13, 2015.
Thus, considering respondents' refusal to comply with their obligation under the temporary restraining order,
petitioners ask this Court to issue a resolution directing respondents, particularly the Bureau of Treasury, "to comply
with its order by immediately releasing to the petitioners during the pendency of the case the 20% final withholding
tax" so that the monies may be placed in escrow pending resolution of the case.167

We recall that in its previous pleadings, respondents remain firm in its stance that the October 18, 2011 temporary
restraining order could no longer be implemented because the acts sought to be enjoined were already fait
accompli. 168 They allege that the amount withheld was already remitted by the Bureau of Treasury to the Bureau of
Internal Revenue. Hence, it became part of the General Fund, which required legislative appropriation before it
could validly be disbursed. 169 Moreover, they argue that since the amount in question pertains to taxes alleged to be
erroneously withheld and collected by government, the proper recourse was for the taxpayers to file an application
for tax refund before the Commissioner of Internal Revenue under Section 204 of the National Internal Revenue
Code. 170

In our January 13, 2015 Decision, we rejected respondents' defense of fait accompli. We held that the amount
withheld were yet to be remitted to the Bureau of Internal Revenue, and the evidence Gournal entry voucher)
submitted by respondents was insufficient to prove the fact of remittance. Thus:

The temporary restraining order enjoins the entire implementation of the 2011 BIR Ruling that constitutes both
the withholding and remittance of the 20% final withholding tax to the Bureau of Internal Revenue. Even though the
Bureau of Treasury had already withheld the 20% final withholding tax when they received the temporary restraining
order, it had yet to remit the monies it withheld to the Bureau of Internal Revenue, a remittance which"was due only
on November 10, 2011. The act enjoined by the temporary restraining order had not yet been fully satisfied and was
still continuing.

Under DOF-DBM Joint Circular No. 1-2000A dated July 31, 2001 which prescribes to national government agencies
such as the Bureau of Treasury the procedure for the remittance of all taxes they withheld to the Bureau of Internal
Revenue, a national agency shall file before the Bureau of Internal Revenue a Tax Remittance Advice (TRA)
supported by withholding tax returns on or before the 1 oth day of the following month after the said taxes had been
withheld. The Bureau of Internal Revenue shall transmit an original copy of the TRA to the Bureau of Treasury,
which shall be the basis in recording the remittance of the tax collection. The Bureau of Internal Revenue will then
record the amount of taxes reflected in the TRA as tax collection in the Journal of Tax Remittance by government
agencies based on its copies of the TRA. Respondents did not submit any withholding tax return or TRA to prove
that the 20% final withholding tax was indeed remitted by the Bureau of Treasury to the Bureau oflnternal Revenue
on October 18, 2011.

Respondent Bureau of Treasury's Journal Entry Voucher No. 11-10- 10395 dated October 18, 2011 submitted to
this court shows:

Account Debit Amount Credit

Code Amount
Bonds Payable-UT, Dom-Zero 35,000,000,000.00
442-360
Coupon I/Bonds (Peace Bonds)-
10 yr Sinking Fund-Cash (BSF) 198-001 30,033,792,203.59
Due to BIR 412-002 4,966,207,796.41
To record redemption of 10yr
Zero coupon (Peace Bond) net
of the 20% final withholding tax
pursuant to BIR Ruling No. 378-
2011, value date, October 18,
2011 per BTr letter authority and
BSP Bank Statements.
The foregoing journal entry, however, does not prove that the amount of P4,966,207, 796.41, representing the 20%
final withholding tax on the PEACe Bonds, was disbursed by it and remitted to the Bureau of Internal Revenue on
October 18, 2011. The entries merely show that the monies corresponding to 20% final withholding tax was set
aside for remittance to the Bureau of Internal Revenue. 171

Respondents did not submit any withholding tax return or tax remittance advice to prove that the 20% final
withholding tax was, indeed, remitted by the Bureau of Treasury to the Bureau of Internal Revenue on October 18,
2011, and consequently became part of the general fund of the government. The corresponding journal entry in the
books of both the Bureau of Treasury and Bureau of Internal Revenue showing the transfer of the withheld funds to
the Bureau of Internal Revenue was likewise not submitted to this Court. The burden of proof lies on them to show
their claim of remittance. Until now, respondents have failed to submit sufficient supporting evidence to prove their
claim.

In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation, 172 this Court
upheld the right of a withholding agent to file a claim for refund of the withheld taxes of its foreign parent company.
This Court, citing Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, 173 ruled that inasmuch
as it is an agent of government for the withholding of the proper amount of tax, it is also an agent of its foreign
parent company with respect to the filing of the necessary income tax return and with respect to actual payment of
the tax to the government. Thus:

The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on
Income]." It thus becomes important to note that under Section 53(c) of the NIRC, the withholding agent who is
"required to deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against
any claims and demands which the stockholder might wish to make in

questioning the amount of payments effected by the withholding agent in accordance with the provisions of the
NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that
should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for
deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less
than the amount that should have been withheld under law.

A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The
terms "liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed
conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any
reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal
interest, to bring a suit for refund of taxes he believes were illegally collected from him.

In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding
agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an
ordinary government agent:

The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax
as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus,
the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the
collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income
tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent,
therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for
the tax he is duty bound to withhold; whereas the Commissioner and his deputies are not made liable by law.

If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the
dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax
to the government, such authority may reasonably be held to include the authority to file a claim for refund and to
bring an action for recovery of such claim. This implied authority is especially warranted where, as in the instant
case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times,
under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal
to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund.

....

We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer"
within the meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund and the suit to
recover such claim.174 (Emphasis supplied, citations omitted)

In Commissioner of Internal Revenue v. Smart Communication, Inc.;175

[W]hile the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless
has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return
what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer
from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund. 176

Since respondents have not sufficiently shown the actual remittance of the 20% final withholding taxes withheld from
the proceeds of the PEACe bonds to the Bureau of Internal Revenue, there was no legal impediment for the Bureau
of Treasury (as agent of petitioners) to release the monies to petitioners to be placed in escrow, pending resolution
of the motions for reconsideration filed in this case by respondents and petitioners-intervenors RCBC and RCBC
Capital.

Moreover, Sections 204 and 229 of the National Internal Revenue Code are not applicable since the Bureau of
Treasury's act of withholding the 20% final withholding tax was done after the Petition was filed.

Petitioners also urge177 us to hold respondents liable for 6% legal interest reckoned from October 19, 2011 until they
fully pay the amount corresponding to the 20% final withholding tax. This Court has previously granted interest in
cases where patent arbitrariness on the part of the revenue authorities has been shown, or where the collection of
tax was illegal.178

In Philex Mining Corp. v. Commissioner of Internal Revenue: 179

[T]he rule is that no interest on refund of tax can be awarded unless authorized by law or the collection of the tax
was attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration where
there is room for two opinions, however much it may be believed that an erroneous conclusion was
reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions.180 (Emphasis supplied,
citations omitted)

Here, the Bureau of Treasury made no effort to release the amount of ₱4,966,207,796.41, corresponding to the 20%
final withholding tax, when it could have done so.

In the Court's temporary restraining order dated October 18, 2011,181 which respondent received on October 19,
2011, we "enjoin[ed] the implementation of BIR Ruling No. 370-2011 against the [PEACe Bonds,] ... subject to the
condition that the 20% final withholding tax on interest income there.from shall be withheld by the petitioner banks
and placed in escrow pending resolution of [the} petition." 182

Subsequently, in our November 15, 2011 Resolution, we directed respondents to "show cause why they failed to
comply with the [temporary restraining order]; and [to] comply with the [temporary restraining order] in order that
petitioners may place the corresponding funds in escrow pending resolution of the petition."183

Respondent did not heed our orders.

In our Decision dated January 13, 2015, we reprimanded the Bureau of Treasury for its continued retention of the
amount corresponding to the 20% final withholding tax, in wanton disregard of the orders of this Court.

We further ordered the Bureau of Treasury to immediately release and pay the bondholders the amount
corresponding to the 20% final withholding tax that it withheld on October 18, 2011.

However, respondent remained obstinate in its refusal to release the monies and exhibited.utter disregard and
defiance of this Court.

As early as October 19, 2011, petitioners could have deposited the amount of ₱4,966,207, 796.41 in escrow and
earned interest, had respondent Bureau of Treasury complied with the temporary restraining order and

released the funds. It was inequitable for the Bureau of Treasury to have withheld the potential earnings of the funds
in escrow from petitioners.

Due to the Bureau of Treasury's unjustified refusal to release the funds to be deposited in escrow, in utter disregard
of the orders of the Court, it is held liable to pay legal interest of 6% per annum 184 on the amount of ₱4,966,207,
796.41 representing the 20% final withholding tax on the PEACe Bonds.

WHEREFORE, respondents' Motion for Reconsideration and Clarification is DENIED, and petitioners-intervenors
RCBC and RCBC Capital Corporation's Motion for Clarification and/or Partial Reconsideration is PARTLY
GRANTED.

Respondent Bureau of Treasury is hereby ORDERED to immediately release and pay the bondholders the amount
of P4,966,207, 796.41, representing the 20% final withholding tax on the PEACe Bonds, with legal interest of
6% per annum from October 19, 2011 until full payment. SO ORDERED.
G.R. No. 179343 January 21, 2010

FISHWEALTH CANNING CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO MORALES, J.:

The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000,1 ordered the
examination of the internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The
investigation disclosed that petitioner was liable in the amount of ₱2,395,826.88 representing income tax, value
added tax (VAT), withholding tax deficiencies and other miscellaneous deficiencies. Petitioner eventually settled
these obligations on August 30, 2000.2

On August 25, 2000, respondent reinvestigated petitioner’s books of accounts and other records of internal revenue
taxes covering the same period for the purpose of which it issued a subpoena duces tecum requiring petitioner to
submit its records and books of accounts. Petitioner requested the cancellation of the subpoena on the ground that
the same set of documents had previously been examined.

As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint against petitioner for
violation of Sections 5 (c) and 266 of the 1997 Internal Revenue Code, which complaint was dismissed for
insufficiency of evidence.3

Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies
totaling ₱67,597,336.75 for the taxable year 1999,4 which assessment petitioner contested by letter of September
23, 2003.5

Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner
received on August 4, 2005, denying its letter of protest, apprising it of its income tax and VAT liabilities in the
amounts of "₱15,396,905.24 and ₱63,688,434.40 [sic], respectively, for the taxable year 1999,"6 and requesting the
immediate payment thereof, "inclusive of penalties incident to delinquency." Respondent added that if petitioner
disagreed, it may appeal to the Court of Tax Appeals (CTA) "within thirty (30) days from date of receipt hereof,
otherwise our said deficiency income and value-added taxes assessments shall become final, executory, and
demandable."7

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration dated August
31, 2005.8

By a Preliminary Collection Letter dated September 6, 2005, respondent demanded payment of petitioner’s tax
liabilities,9 drawing petitioner to file on October 20, 2005 a Petition for Review10 before the CTA.
In his Answer,11 respondent argued, among other things, that the petition was filed out of time which argument the
First Division of the CTA upheld and accordingly dismissed the petition.12

Petitioner filed a Motion for Reconsideration13 which was denied.14 The Resolution denying its motion for
reconsideration was received by petitioner on October 31, 2006.15

On November 21, 2006, petitioner filed a petition for review before the CTA En Banc16 which, by Decision17 of July
5, 2007, held that the petition before the First Division, as well as that before it, was filed out of time.

Hence, the present petition,18 petitioner arguing that the CTA En Banc erred in holding that the petition it filed
before the CTA First Division as well as that filed before it (CTA En Banc) was filed out of time.

The petition is bereft of merit.

Section 228 of the 1997 Tax Code provides that an assessment

x x x may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of
Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and demandable. (underscoring
supplied)1avvphi1

In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed Assessment dated
August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted
Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to the CTA.

Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to
file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out
of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to
appeal to the CTA.

On petitioner’s final contention that it has a meritorious case in view of the dismissal of the above-mentioned
criminal case filed against it for violation of the 1997 Internal Revenue Code,19 the same fails. For the criminal
complaint was instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.20

WHEREFORE, the petition is DISMISSED.

Costs against petitioner.

SO ORDERED.
G.R. No. 209830 June 17, 2015

MITSUBISHI MOTORS PHILIPPINES CORPORATION, Petitioner,

vs.
BUREAU OF CUSTOMS, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Resolutions dated June 7, 20132 and November 4, 20133 of
the Court of Appeals (CA) in CA-G.R. CV No. 99594, which referred the records of the instant case to the Court of
Tax Appeals (CTA) for proper disposition of the appeal taken by respondent Bureau of Customs (respondent).

The Facts

The instant case arose from a collection suit4 for unpaid taxes and customs duties in the aggregate amount of
₱46,844,385.00 filed by respondent against petitioner Mitsubishi Motors Philippines Corporation (petitioner) before
the Regional Trial Court of Manila, Branch 17 (RTC),

docketed as Civil Case No. 02-103763 (collection case).

Respondent alleged that from 1997 to1998, petitioner was able to secure tax credit certificates (TCCs) from various
transportation companies; after which, it made several importations and utilized said TCCs for the payment of
various customs duties and taxes in the aggregate amount of ₱46,844,385.00.5 Believing the authenticity of the
TCCs, respondent allowed petitioner to use the same for the settlement of such customs duties and taxes. However,
a post-audit investigation of the Department of Finance revealed that the TCCs were fraudulently secured with the
use of fake commercial and bank documents, and thus, respondent deemed that petitioner never settled its taxes
and customs duties pertaining to the aforesaid importations.6 Thereafter, respondent demanded that petitioner pay
its unsettled tax and customs duties, but to no avail. Hence, it was constrained to file the instant complaint.7

In its defense,8 petitioner maintained, inter alia, that it acquired the TCCs from their original holders in good faith and
that they were authentic, and thus, their remittance to respondent should be considered as proper settlement of the
taxes and customs duties it incurred in connection with the aforementioned importations.9

Initially, the RTC dismissed10 the collection case due to the continuous absences of respondent’s counsel during
trial.11 On appeal to the CA,12 and eventually the Court,13 the said case was reinstated and trial on the merits
continued before the RTC.14

After respondent’s presentation of evidence, petitioner filed a Demurrer to Plaintiff’s Evidence15 on February 10,
2012, essentially contending that respondent failed to prove by clear and convincing evidence that the TCCs were
fraudulently procured,16 and thus, prayed for the dismissal of the complaint.17 In turn, respondent filed an
Opposition18 dated March 7, 2012 refuting petitioner’s contentions.

The RTC Ruling

In an Order19 dated April 10, 2012, the RTC granted petitioner’s Demurrer to Plaintiff’s Evidence, and accordingly,
dismissed respondent’s collection case on the ground of insufficiency of evidence.20 It found that respondent had not
shown any proof or substantial evidence of fraud or conspiracy on the part of petitioner in the procurement of the
TCCs.21 In this connection, the RTC opined that fraud is never presumed and must be established by clear and
convincing evidence, which petitioner failed to do, thus, necessitating the dismissal of the complaint.22

Respondent moved for reconsideration,23 which was, however, denied in an Order24 dated August 3, 2012.
Dissatisfied, it appealed25 to the CA.

The CA Ruling

In a Resolution 26dated June 7, 2013, the CA referred the records of the collection case to the CTA for proper
disposition of the appeal taken by respondent. While the CA admitted that it had no jurisdiction to take cognizance
1âw phi1

of respondent’s appeal, as jurisdiction is properly lodged with the CTA, it nevertheless opted to relax procedural
rules in not dismissing the appeal outright.27 Instead, the CA deemed it appropriate to simply refer the matter to the
CTA, considering that the government stands to lose the amount of ₱46,844,385.00 in taxes and customs duties
which can then be used for various public works and projects.28

Aggrieved, petitioner filed a motion for reconsideration29 on June 23, 2013, arguing that since the CA does not have
jurisdiction over respondent’s appeal, it cannot perform any action on it except to order its dismissal.30 The said
motion was, however, denied in a Resolution31 dated November 4, 2013, hence, this petition.
 The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA correctly referred the records of the collection
case to the CTA for proper disposition of the appeal taken by respondent.

The Court's Ruling

The petition is meritorious.

Jurisdiction is defined as the power and authority of a court to hear, try, and decide a case.32 In order for the court or
an adjudicative body to have authority to dispose of the case on the merits, it must acquire, among others,
jurisdiction over the subject matter.33 It is axiomatic that jurisdiction over the subject matter is the power to hear and
determine the general class to which the proceedings in question belong; it is conferred by law and not by the
consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists.34 Thus, when a
court has no jurisdiction over the subject matter, the only power it has is to dismiss the action.35

Guided by the foregoing considerations and as will be explained hereunder, the Court finds that the CA erred in
referring the records of the collection case to the CTA for proper disposition of the appeal taken by respondent.

Section 7 of Republic Act No. (RA) 1125,36 as amended by RA 9282,37 reads:

Sec. 7. Jurisdiction. – The CTA shall exercise:

xxxx

c. Jurisdiction over tax collection cases as herein provided:

xxxx

2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases
originally decided by them in their respective territorial jurisdiction.

xxxx

Similarly, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, as amended,38 states:

Sec. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions shall exercise:

xxxx

c. Exclusive jurisdiction over tax collections cases, to wit:

xxxx

2. Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
collection cases originally decided by them within their respective territorial jurisdiction.

Verily, the foregoing provisions explicitly provide that the CTA has exclusive appellate jurisdiction over tax collection
cases originally decided by the RTC.

In the instant case, the CA has no jurisdiction over respondent’s appeal; hence, it cannot perform any action on the
same except to order its dismissal pursuant to Section 2, Rule 5039 of the Rules of Court. Therefore, the act of the
CA in referring respondent’s wrongful appeal before it to the CTA under the guise of furthering the interests of
substantial justice is blatantly erroneous, and thus, stands to be corrected. In Anderson v. Ho,40 the Court held that
the invocation of substantial justice is not a magic wand that would readily dispel the application of procedural
rules,41 viz.:

x x x procedural rules are designed to facilitate the adjudication of cases. Courts and litigants alike are enjoined to
abide strictly by the rules. While in certain instances, we allow a relaxation in the application of the rules, we never
1âwphi1

intend to forge a weapon for erring litigants to violate the rules with impunity. The liberal interpretation and
application of rules apply only in proper cases of demonstrable merit and under justifiable causes and
circumstances. While it is true that litigation is not a game of technicalities, it is equally true that every case must be
prosecuted in accordance with the prescribed procedure to ensure an orderly and speedy administration of justice.
Party litigants and their counsels are well advised to abide by rather than flaunt, procedural rules for these rules
illumine the path of the law and rationalize the pursuit of justice.42 (Emphasis and underscoring supplied)
Finally, in view of respondent’s availment of a wrong mode of appeal via notice of appeal stating that it was
elevating the case to the CA – instead of appealing by way of a petition for review to the CTA within thirty (30) days
from receipt of a copy of the RTC’s August 3, 2012 Order, as required by Section 11 of RA 1125, as amended by
Section 9 of RA 928243 – the Court is constrained to deem the RTC's dismissal of respondent's collection case
against petitioner final and executory. It is settled that the perfection of an appeal in the manner and within the
period set by law is not only mandatory, but jurisdictional as well, and that failure to perfect an appeal within the
period fixed by law renders the judgment appealed from final and executory.44 The Court's pronouncement in Team
Pacific Corporation v. Daza45 is instructive on this matter, to wit:46

Although appeal is an essential part of our judicial process, it has been held, time and again, that the right thereto is
not a natural right or a part of due process but is merely a statutory privilege. Thus, the perfection of an appeal in the
manner and within the period prescribed by law is not only mandatory but also jurisdictional and failure of a party to
conform to the rules regarding appeal will render the judgment final and executory. Once a decision attains finality, it
becomes the law of the case irrespective of whether the decision is erroneous or not and no court - not even the
Supreme Court - has the power to revise, review, change or alter the same. The basic rule of finality of judgment is
grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error, the
judgment of courts and the award of quasi-judicial agencies must become final at some definite date fixed by law.

WHEREFORE, the petition is GRANTED. Accordingly, the Resolutions dated June 7, 2013 and November 4, 2013
of the Court of Appeals (CA) in CA-G.R. CV No. 99594 are hereby REVERSED and SET ASIDE. Accordingly, a
new one is entered DISMISSING the appeal of respondent Bureau of Customs to the Court of Appeals.

SO ORDERED.

G.R. No. 183868 November 22, 2010

COMMISSIONER OF CUSTOMS, Petitioner,

vs.
MARINA SALES, INC., Respondent.

DECISION

MENDOZA, J.:

In this petition for review on certiorari1 under Rule 45, the Commissioner of Customs (Commissioner), represented
by the Office of the Solicitor General (OSG), assails the April 11, 2008 Resolution2 of the Court of Tax Appeals En
Banc (CTA-En Banc), in C.T.A. E.B. No. 333, dismissing his petition for review for his failure to file a motion for
reconsideration before the Court of Tax Appeals Division (CTA-Division).

Respondent Marina Sales, Inc. (Marina) is engaged in the manufacture of Sunquick juice concentrates. It was
appointed by CO-RO Food A/S of Denmark, maker of Sunquick Juice Concentrates, to be its manufacturing arm in
the Philippines. As such, Marina usually imports raw materials into the country for the purpose. In the past, the
Bureau of Customs (BOC) assessed said type of importations under Tariff Heading H.S. 2106.90 10 with a 1%
import duty rate.3

On March 6, 2003, Marina’s importation, labeled as Import Entry No. C-33771-03, arrived at the Manila International
Container Port (MICP) on board the vessel APL Iris V-111. Said Import Entry No. C-33771-03 consisted of a 1’ x 20’
container STC with a total of 80 drums: (a) 56 drums of 225 kilograms Sunquick Orange Concentrate; and (b) 24
drums of 225 kilograms of Sunquick Lemon Concentrate.4 It was supported by the following documents: (a) Bill of
Lading No. APLU 800452452 dated February 2, 2003;5 and (b) CO-RO Food A/S of Denmark Invoice No. 1619409
dated January 27, 2003.6

Marina computed and paid the duties under Tariff Harmonized System Heading H.S. 2106.90 10 at 1% import duty
rate.

This time, however, the BOC examiners contested the tariff classification of Marina’s Import Entry No. C-33771-03
under Tariff Heading H.S. 2106.90 10. The BOC examiners recommended to the Collector of Customs, acting as
Chairman of the Valuation and Classification Review Committee (VCRC) of the BOC, to reclassify Marina’s
importation as Tariff Heading H.S. 2106.90 50 (covering composite concentrates for simple dilution with water to
make beverages) with a corresponding 7% import duty rate.

The withheld importation being necessary to its business operations, Marina requested the District Collector of the
BOC to release Import Entry No. C-33771-03 under its Tentative Release System.7 Marina undertook to pay the
reclassified rate of duty should it be finally determined that such reclassification was correct. The District Collector
granted the request.

On April 15, 2003, the VCRC directed Marina to appear in a deliberation on May 15, 2003 and to explain why its
shipment under Import Entry No. C-33771-03 should not be classified under Tariff Heading H.S. 2106.90 50 with
import duty rate of 7%.8

On May 15, 2003, Marina, through its Product Manager Rowena T. Solidum and Customs Broker Juvenal A.
Llaneza, attended the VCRC deliberation and submitted its explanation,9 dated May 13, 2003, along with samples of
the importation under Import Entry No. C-33771-03.

On May 21, 2003, another importation of Marina arrived at the MICP designated as Import Entry No. C-67560-03. It
consisted of another 1’ x 20’ container STC with a total of 80 drums: (a) 55 drums of 225 kilograms of Sunquick
Orange Concentrate; (b) 1 drum of 225 kilograms of Sunquick Tropical Fruit Concentrate; (c) 17 drums of 225
kilograms of Sunquick Lemon Concentrate; (d) 3 drums of 225 kilograms of Sunquick Ice Lemon Concentrate; and
(e) 4 drums of 225 kilograms Sunquick Peach Orange Concentrate. The said importation was accompanied by the
following documents: (a) Bill of Lading No. KKLUCPH060291 dated April 17, 2003;10 and (b) CO-RO Foods A/S
Denmark Invoice No. 1619746 dated April 15, 2003.11

Again, the BOC examiners disputed the tariff classification of Import Entry No. C-67560-03 and recommended to the
VCRC that the importation be classified at Tariff Heading H.S. 2106.90 50 with the corresponding 7% duty rate.

In order for Import Entry No. C-67560-03 to be released, Marina once again signed an undertaking under the
Tentative Release System.12

In a letter dated July 7, 2003, the VCRC scheduled another deliberation requiring Marina to explain why Import
Entry No. C-67560-03 should not be classified under Tariff Heading H.S. 2106.90 50 at the import duty rate of 7%.13

On July 17, 2003, Marina again attended the VCRC deliberation and submitted its explanation14 dated July 17, 2003
together with samples in support of its claim that the imported goods under Import Entry No. C-67560-03 should not
be reclassified under Tariff Heading H.S. 2106.90 50.

Thereafter, the classification cases for Import Entry No. C-33771-03 and Import Entry No. C-67560-03 were
consolidated.

On September 11, 2003, as reflected in its 1st Indorsement, the VCRC reclassified Import Entry No. C-33771-03
and Import Entry No. C-67560-03 under Tariff Heading H.S. 2106.90 50 at 7% import duty rate.15

On October 7, 2003, Marina appealed before the Commissioner challenging VCRC’s reclassification.16

In its 1st Indorsement of November 13, 2003,17 the VCRC modified its earlier ruling and classified Marina’s Import
Entry No. C-33771-03 and Import Entry No. C-67560-03 under Tariff Heading H.S. 2009 19 00 at 7% duty rate, H.S.
2009.80 00 at 7% duty rate and H.S. 2009.90 00 at 10% duty rate.

Apparently not in conformity, Marina interposed a petition for review before the CTA on February 3, 2004, which was
docketed as CTA Case No. 6859.

On October 31, 2007, the CTA Second Division ruled in favor of Marina18 holding that its classification under Tariff
Heading H.S. 2106.90 10 was the most appropriate and descriptive of the disputed importations.19 It opined that
Marina’s importations were raw materials used for the manufacture of its Sunquick products, not ready-to-drink juice
concentrates as argued by the Commissioner.20 Thus, the decretal portion of the CTA - Second Division reads:

WHEREFORE, finding merit in petitioner’s Petition for Review, the same is hereby GRANTED. Accordingly, the
Resolution/Decision dated November 13, 2003 of the Valuation and Classification Review Committee of the Bureau
of Customs is hereby SET ASIDE and petitioner’s importation covered by Import Entry Nos. C-33771-03 and C-
67560-03 are reclassified under Tariff Harmonized System Heading H.S. 2106.90 10 with an import duty rate of 1%.

SO ORDERED.

The Commissioner disagreed and elevated the case to the CTA-En Banc via a petition for review.21

In its Resolution of April 11, 2008, the CTA En Banc dismissed the petition. The pertinent portions of the decision
including the fallo read:

A careful scrutiny of the record of this case showed that petitioner failed to file before the Second Division the
required Motion for Reconsideration before elevating his case to the CTA En Banc.

Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule, to wit:
 RULE 8
PROCEDURE IN CIVIL CASES

SECTION 1. Review of Cases in the Court en banc.- In cases falling under the exclusive appellate jurisdiction of the
Court en banc, the petition for review of a decision or resolution of the Court in Division must be preceded by the
filing of a timely motion for reconsideration or new trial with the Division.

In statutory construction, the use of the word "must" indicates that the requirement is mandatory. Furthermore, the
word "must" connote an imperative act or operates to simply impose a duty which may be enforced. It is true the
word "must" is sometimes construed as "may" – permissive – but this is only when the context requires it. Where the
context plainly shows the provision to be mandatory, the word "must" is a command and cannot be construed as
permissive, but must be given the signification which it imparts.

It is worthy to note that the Supreme Court ruled that a Motion for Reconsideration is mandatory as a precondition to
the filing of a Petition for Review under Rule 43 of the Rules of Court.

WHEREFORE, applying by analogy the above ruling of the Supreme Court and taking into consideration the
mandatory provision provided by Section 1 of Rule 8 of the Revised Rules of the Court of Tax Appeals and
considering further that petitioner did not file a Motion for Reconsideration with the Second Division before elevating
the case to the Court En Banc, which eventually deprived the Second Division of an opportunity to amend, modify,
reverse or correct its mistake or error, if there be, petitioner’s Petition for Review is hereby DISMISSED.

SO ORDERED.22

The Commissioner sought reconsideration of the disputed decision, but the CTA En Banc issued a denial in its July
14, 2008 Resolution.23

Hence, this petition.

In his Memorandum,24 the Commissioner submits the following issues for resolution:

A.

WHETHER THE DISMISSAL BY THE COURT OF TAX APPEALS’ EN BANC OF PETITIONER’S

PETITION BASED ON MERE TECHNICALITY WILL RESULT IN INJUSTICE AND UNFAIRNESS TO
PETITIONER.

B.

WHETHER THE CHALLENGED DECISION OF THE COURT OF TAX APPEALS’ SECOND DIVISION
HOLDING THAT RESPONDENT’S IMPORTATION ARE COVERED BY IMPORT ENTRY NOS. C-33771-
03 AND C-67560-03 ARE CLASSIFIED UNDER TARIFF HARMONIZED SYSTEM HEADING H.S. 2106.90
10 WITH AN IMPORT DUTY RATE OF ONE PERCENT (1%) IS NOT CORRECT.25

The Commissioner argues that the dismissal of his petition before the CTA-En Banc is inconsistent with the principle
of the liberal application of the rules of procedure.26 He points out that due to the dismissal of the petition, the
government would only be collecting 1% import duty rate from Marina instead of 7%.27 This, if sanctioned, would
result in grave injustice and unfairness to the government.28

The Commissioner also contends that the testimony of Marina’s expert witness, Aurora Kimura, pertaining to
Sunquick Lemon compound shows that it could be classified as "heavy syrup"29 falling under the category of H.S.
2190.90 50 with a 7% import duty rate.30

The Court finds no merit in the petition.

On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed to comply with the
mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals31 requiring that "the
petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division." The word "must" clearly indicates the mandatory -- not
merely directory -- nature of a requirement."32

The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case
falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration
or moved for a new trial with the concerned CTA division. Procedural rules are not to be trifled with or be excused
simply because their non-compliance may have resulted in prejudicing a party’s substantive rights.33 Rules are
meant to be followed. They may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an
injustice not commensurate to his careless non-observance of the prescribed rules.34
At any rate, even if the Court accords liberality, the position of the Commissioner has no merit. After examining the
records of the case, the Court is of the view that the import duty rate of 1%, as determined by the CTA Second
Division, is correct.

The table shows the different classification of Tariff import duties relevant to the case at bar:

IMPORT
TARIFF HEADING COVERAGE
DUTY RATE
H.S. 2106.90 10 1% Covers flavouring materials, nes., of kind used in food and drink
industries; other food preparations to be used as raw material in
preparing composite concentrates for making beverages
H.S. 2106.90 50 7% Covers composite concentrate for simple dilution with water to make
beverages
H.S. 2009. 19 00 7% Covers orange juice, not frozen
H.S. 2009.80 00 7% Covers juice of any other single fruit or vegetable
H.S. 2009.90 00 10% Covers mixtures of juices

The Commissioner insists that Marina’s two importations should be classified under Tariff Heading H.S. 2106.90 50
with an import duty rate of 7% because the concentrates are ready for consumption by mere dilution with water.

The Court is not persuaded.

As extensively discussed by the CTA Second Division, to fit into the category listed under the Tariff Harmonized
System Headings calling for a higher import duty rate of 7%, the imported articles must not lose its original
character. In this case, however, the laboratory analysis of Marina’s samples yielded a different result.35 The report
supported Marina’s position that the subject importations are not yet ready for human consumption. Moreover,
Marina’s plant manager, Rebecca Maronilla, testified that the juice compounds could not be taken in their raw form
because they are highly concentrated and must be mixed with other additives before they could be marketed as
Sunquick juice products. If taken in their unprocessed form, the concentrates without the mixed additives would
produce a sour taste.36 In other words, the concentrates, to be consumable, must have to lose their original
character. To quote the CTA Second Division:

Verily, to fall under the assailed Tariff Harmonized System Headings, petitioner’s (herein respondent) articles of
importation, as fruit juices/mixtures, should not have lost its original character, in spite of the addition of certain
"standardizing agents/constituents." Contrary thereto, We find the subject importations categorized as "non-alcoholic
composite concentrates" to have apparently lost their original character due to the addition of ingredients in such
quantity that the concentrated fruit juice mixture only comprises a small percentage of the entire compound.

This was clearly explained by the VCRC in its subsequent Resolution/Decision ("1st Indorsement") issued on
February 17, 2005 pertaining to subsequent similar importations of petitioner, effectively correcting its findings in the
assailed Resolution/Decision dated November 13, 2003 concerning the same party-importer, issues and articles of
importation,37 to wit:

SUB-GROUP OBSERVATIONS/FINDINGS:

The classification issue was divided into two regimes. The era under the old Harmonized Commodity Description
and Coding System, while the other is the latest revised edition, the Asean Harmonized Tariff Nomenclature.

The previous committee resolution was promulgated technically not on the merit of the case but failure on the part of
the importer to submit their position paper/arguments within the prescriptive period given by the committee.

Importer submitted samples of subject shipment for laboratory analysis to Philippine Customs laboratory to validate
the veracity of product information given by the supplier and to determine the correct tariff classification.

xxx xxx xxx

Based on the report of the Laboratory Analysis, compound is made up to water 57.9%, Invert Sugar 34.34%, Citric
Acid 2.94%, Vitamin C (Ascorbic Acid) 105 mg.

Since the item is compound which is composed of water, sugar, concentrated juice, flavourings, citric acid,
stabilizer, preservatives, vitamins C and colouring to produce beverage ready to drink. Consequently the
concentrated citrus juice has lost its original character due to the fact that it comprises only 12% of the total
compound.38

Items (fruit juices) classifiable under HS 2009 are fruit juices generally obtained by pressing fresh, healthy and ripe
fruit. Per item 4 of the Explanatory Notes to the Harmonized Commodity Description and Coding System apparently
subject article has lost its original character as concentrated fruit juice drink to the compounding ingredients which
reduces the fruit juices to 12% of the total compound.

In view of the foregoing subject article is classifiable under Tariff Heading H.S. 2106.90 10 at 1% for entries filed
under the old regime. For those filed under the new regime tariff heading AHTN 2106.90 51 at 1% where the item
are specifically provided.

RESOLUTION: To apply sub-group recommendation which is to adopt H.S. 2106.90 10 at 1% for entries filed under
the old regime and for those filed under the new regime, AHTN 2106.90 51 at 1% where the item are specifically
provided.39

To "manufacture" is to "make or fabricate raw materials by hand, art or machinery, and work into forms convenient
for use."40 Stated differently, it is to transform by any process into another form suitable for its intended use. Marina,
as the manufacturing arm of CO-RO Food A/S of Denmark, transforms said juice compounds, being raw materials,
into a substance suitable for human consumption. This is evident from the "Commissioner’s Report"41 of Executive
Clerk of Court II, CTA, Jesus P. Inocando, Jr., who conducted an ocular inspection of Marina’s manufacturing plant
in Taguig City. Pertinent excerpts of the "Commissioner’s Report" are herein reproduced:
1avv phi 1

On our ocular inspection of the manufacturing plant of petitioner, Ms. Solidum and Mr. Domingo showed us the
sample of the imported compounds (raw materials), showed to us the step by step manufacturing process of
petitioner and even showed us the bottling and packaging of the finished product.

Per observation of the undersigned, the imported compounds (raw materials) are very sticky, the plant is clean and
that the personnel of petitioner in the plant strictly following the manufacturing process as presented in Annex A and
Annex B of this report.

Upon questioning by the counsel for respondent, Mr. Domingo said that while the imported compounds (raw
materials) can be mixed with water and may be drinkable, he is not sure if the same is suitable for human
consumption. None of us dared to taste the sample of imported compounds (raw materials) diluted in water. The
imported compounds (raw materials) mixed with water produces bubbles on top of the mixture, not like the one that
has gone through the manufacturing process. Counsel for respondent requested for the marking of Label of
Sunquick Lemon (840 ml.), [Annex C], as Exhibit 1 for the respondent.42

Contrary to the Commissioner’s assertions, empirical evidence shows that the subject importations would have to
undergo a laborious method, as shown by its manufacturing flowchart43 and manufacturing process,44 to achieve
their marketable juice consistency. Accordingly, the 1% tariff import duty rate under Tariff Heading H.S. 2106.90 10
was correctly applied to the subject importations.

In any case, the VCRC in its 1st Indorsement45 of February 17, 2005 (a subsequent proceeding involving the same
type of importation) rectified the disputed tariff reclassification rate. Thus, in Marina’s succeeding importations, the
VCRC already adopted the 1% import duty rate as paid by Marina in the past.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. Nos. 203054-55 July 29, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
COURT OF TAX APPEALS and CBK POWER COMPANY LIMITED, Respondents.

DECISION

PERALTA, J.:

Before us is a petition for certiorari under Rule 65 which seeks to annul and set aside the Resolutions of the Court of
Tax Appeals (CTA) dated December 23, 2011,1 April 19, 2012,2 and June 13, 20123 issued in CTA Case Nos. 8246
and 8302.

Private respondent CBK Power Company Limited is a special purpose entity engaged in all aspects of (1) design,
financing, construction, testing, commissioning, operation, maintenance, management, and ownership of Kalayaan
II pumped storage hydroelectric power plant, the new Caliraya Spillway in Laguna; and (2) the rehabilitation,
expansion, commissioning, operation, maintenance and management of the Caliraya, Botocan, and Kalayaan I
hydroelectric power plants and their related facilities in Laguna. Petitioner is the duly appointed Commissioner of
Internal Revenue vested with authority to act as such, inter alia, the power to decide, approve and grant refunds or
tax credit of erroneously or illegally collected internal revenue taxes as provided by law.

On March 30, 2011, private respondent filed with the CTA a judicial claim for the issuance of a tax credit certificate
in the amount of Seventeen Million Seven Hundred Eighty-Four Thousand Nine Hundred Sixty-Eight and 91/100
Pesos (₱17,784,968.91), representing unutilized input taxes on its local purchases and importations of goods other
than capital goods, local purchases of services, payment of services rendered by non-residents, including unutilized
amortized input taxes on capital goods exceeding one million for the period of January 1, 2009 to March 31, 2009,
all attributable to zero rated sales for the same period, pursuant to Section 112 (A) of the 1997 Tax Code. The case
was docketed as CTA Case No. 8246.

On May 30, 2011, petitioner received summons requiring it to answer. Petitioner through counsel, Atty. Christopher
C. Sandico, complied and filed the Answer. On June 29, 2011, petitioner received a notice of pre-trial conference set
on July 21, 2011. Petitioner filed its pre-trial brief.

Earlier, on June 28, 2011, private respondent filed another judicial claim for the issuance of a tax credit certificate in
the amount of Thirty-One Million Six Hundred Eighty Thousand Two Hundred Ninety and 87 II 00 Pesos
(₱31,680,290.87), representing unutilized input taxes on its local purchases and importations of goods other than
capital goods, local purchases of services, including unutilized amortized input taxes on capital goods exceeding
one million for the period of April 1, 2009 to June 30, 2009, all attributable to the zero rated sales for the same
period. The case was docketed as CTA Case No. 8302.

Subsequently, private respondent filed a motion for consolidation and postponement of the pre-trial conference
scheduled for CTA Case No. 8246.

On July 19, 2011 petitioner received summons requiring it to answer the petition for review on CTA Case No. 8302.
Petitioner's lawyer, Atty. Leo D. Mauricio, filed his Answer. The pre-trial conference for CTA Case No. 8302 was set
on September 29, 2011. Thus, private respondent filed a motion for consolidation and postponement of the pre-trial
conference for CTA Case No. 8302.

In a Resolution4 dated October 14, 2011, the CTA granted the motion for consolidation and set the pre-trial
conference on November 3, 2011. Atty. Mauricio failed to appear at the scheduled pre-trial conference as he was on
leave for health reasons from October to December 2011. The pretrial was reset to December 1, 2011. Petitioner's
counsel, Atty. Sandico, who was then assigned to handle the consolidated cases, filed his consolidated pre-trial brief
on November 15, 2011. However, on the December 1, 2011 pre-trial conference, Atty. Sandico failed to appear,
thus private respondent moved that petitioner be declared in default.

On December 23, 2011, the CTA issued the first assailed Resolution, the dispositive portion of which reads:

WHEREFORE, petitioner is hereby allowed to present its evidence ex parte. Let the ex-parte presentation of
evidence for the petitioner to be set on January 26, 2012, at 1:30 p.m. Atty. Danilo B. Fernando is hereby appointed
Court Commissioner to receive the evidence for the petitioner.5

On January 6, 2012, petitioner filed a Motion to Lift Order of Default6 alleging that the failure to attend the pre-trial
conference on November 3, 2011 was due to confusion in office procedure in relation to the consolidation of CTA
Case No. 8246 with CTA Case No. 8302 since the latter was being handled by a different lawyer; that when the pre-
trial conference was reset to December 1, 2011, petitioner's counsel, Atty. Sandico, had to attend the hearing of
another case in the CTA's First Division also at 9:00 a.m., hence, he unintentionally missed the pre-trial conference
of the consolidated cases. Private respondent was ordered to file its comment on the motion to lift order of default
but failed to do so.

On April 19, 2012, the CTA issued the second assailed Resolution denying the motion to lift order of default, stating
among others:

Section 5 of Rule 18 of the Revised Rules of Court, provides:

Sec. 5. Effect of failure to appear. -The failure of the plaintiff to appear when so required pursuant to the next
preceding section shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless otherwise
ordered by the court. A similar failure on the part of the defendant shall be cause to allow the plaintiff to present his
evidence ex parte and the court to render judgment on the basis thereof.

While the respondent elaborated on the confusion and negligence leading to the failure to appear at the pre-trial
conference, the rule on this matter is clear.
In view of the foregoing, respondent's "Motion to Lift Order of Default" is hereby DENIED.7 Petitioner filed a motion
for reconsideration on April 27, 2012. The CTA directed private respondent to file its Comment thereto but failed to
do so.

In a Resolution dated June 13, 2012, the CTA denied the motion for reconsideration.

Petitioner files the instant petition for certiorari raising the following grounds for the allowance of the petition.

(A) THERE IS NO PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW
BUT THE FILING OF A PETITION FOR CERTIORARI UNDER RULE 65; (B) PUBLIC RESPONDENT
GRAVELY ABUSED ITS DISCRETION WHEN IT DECLARED PETITIONER IN DEFAULT WHEN
CLEARLY PETITIONER'S COUNSEL HAS BEEN ACTIVELY DEFENDING HER CAUSE; [and]

(C) PUBLIC RESPONDENT GRAVELY ABUSED ITS DISCRETION WHEN IT DECLARED PETITIONER IN
DEFAULT AS THERE WAS NO INTENTION ON THE PART OF PETITIONER TO DEFY OR REFUSE THE
ORDER OF THE PUBLIC RESPONDENT.8

We first address the procedural issue raised by private respondent in its Comment. Private respondent claims that
petitioner chose an erroneous remedy when it filed a petition for certiorari with us since the proper remedy on any
adverse resolution of any division of the CTA is an appeal by way of a petition for review with the CTA en bane; that
it is provided under Section 2 (a)(l) of Rule 4 of the Revised Rules of the Court of Tax Appeals (RRCTA) that the
Court en bane shall exercise exclusive appellate jurisdiction to review by appeal the decision or resolutions on
motions for reconsideration or new trial of the Court in division in the exercise of its exclusive appellate jurisdiction
over cases arising from administrative agencies such as the Bureau of Internal Revenue.

We are not persuaded.

In Santos v. People, et al.9 where petitioner argues that a resolution of a CTA Division denying a motion to quash,
an interlocutory order, is a proper subject of an appeal to the CTA en bane under Section 18 of Republic Act No.
1125, as amended, we ruled in the negative and disposed the argument as follows:

Petitioner is invoking a very narrow and literal reading of Section 18 of Republic Act No. 1125, as amended.

Indeed, the filing of a petition for review with the CTA en bane from a decision, resolution, or order of a CTA Division
is a remedy newly made available in proceedings before the CTA, necessarily adopted to conform to and address
the changes in the CTA.

There was no need for such rule under Republic Act No. 1125, prior to its amendment, since the CTA then was
composed only of one Presiding Judge and two Associate Judges. Any two Judges constituted a quorum and the
concurrence of two Judges was necessary to promulgate any decision thereof.

The amendments introduced by Republic Act No. 9282 to Republic Act No. 1125 elevated the rank of the CTA to a
collegiate court, with the same rank as the Court of Appeals, and increased the number of its members to one
Presiding Justice and five Associate Justices. The CTA is now allowed to sit en bane or in two Divisions with each
Division consisting of three Justices. Four Justices shall constitute a quorum for sessions en bane, and the
affirmative votes of four members of the Court en bane are necessary for the rendition of a decision or resolution;
while two Justices shall constitute a quorum for sessions of a Division and the affirmative votes of two members of
the Division shall be necessary for the rendition of a decision or resolution.

In A.M. No. 05-11-07-CTA, the Revised CTA Rules, this Court delineated the jurisdiction of the CTA en bane and in
Divisions. Section 2, Rule 4 of the Revised CTA Rules recognizes the exclusive appellate jurisdiction of the CTA en
bane to review by appeal the following decisions, resolutions, or orders of the CTA Division:

SEC. 2. Cases within the jurisdiction of the Court en bane.-The Court en bane shall exercise exclusive appellate
jurisdiction to review by appeal the following:

(a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the
exercise of its exclusive appellate jurisdiction over:

(1) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of Customs,
Department of Finance, Department of Trade and Industry, Department of Agriculture;

(2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction;
and

(3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original
jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where
the principal amount of taxes and penalties claimed is less than one million pesos;
 xxxx

(f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the
exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of
the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the
Bureau of Internal Revenue or Bureau of Customs.

(g) Decisions, resolutions or order on motions for reconsideration or new trial of the Court in Division in the
exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding
subparagraph; x x x.

Although the filing of a petition for review with the CTA en bane from a decision, resolution, or order of the CTA
Division, was newly made available to the CTA, such mode of appeal has long been available in Philippine courts of
general jurisdiction. Hence, the Revised CTA Rules no longer elaborated on it but merely referred to existing rules of
procedure on petitions for review and appeals, to wit:

RULE 7

PROCEDURE IN THE COURT OF TAX APPEALS

SEC. 1. Applicability of the Rules of the Court of Appeals. - The procedure in the Court en bane or in Divisions in
original and in appealed cases shall be the same as those in petitions for review and appeals before the Court of
Appeals pursuant to the applicable provisions of Rules 42, 43, 44 and 46 of the Rules of Court, except as otherwise
provided for in these Rules.

RULE 8

PROCEDURE IN CIVIL CASES

xxx xxx xxx

SEC. 4. Where to appeal; mode of appeal. –

xxx xxx xxx

(b) An appeal from a decision or resolution of the Court in Division on a motion for reconsideration or new trial shall
be taken to the Court by petition for review as provided in Rule 4 3 of the Rules of Court. The Court en bane shall
act on the appeal.

xxx xxx xxx

RULE 9

PROCEDURE IN CRIMINAL CASES

SEC. l. Review of cases in the Court. - The review of criminal cases in the Court en bane or in Division shall be
governed by the applicable provisions of Rule 124 of the Rules of Co mi.

xxx xxx xxx

SEC. 9. Appeal; period to appeal. –

xxx xxx xxx

(b) An appeal to the Court en bane in criminal cases decided by the Court in Division shall be taken by filing a
petition for review as provided in Rule 43 of the Rules of Court within fifteen days from receipt of a copy of the
decision or resolution appealed from. The Court may, for good cause, extend the time for filing of the petition for
review for an additional period not exceeding fifteen days.

Given the foregoing, the petition for review to be filed with the CTA en bane as the mode for appealing a decision,
resolution, or order of the CTA Division, under Section 18 of Republic Act No. 1125, as amended, is not a totally
new remedy, unique to the CTA, with a special application or use therein. To the contrary, the CTA merely adopts
the procedure for petitions for review and appeals long established and practiced in other Philippine courts.
Accordingly, doctrines, principles, rules, and precedents laid down in jurisprudence by this Court as regards
petitions for review and appeals in courts of general jurisdiction should likewise bind the CTA, and it cannot depart
therefrom.

xxxx
According to Section 1, Rule 41 of the Revised Rules of Court, governing appeals from the Regional Trial Courts
(RTCs) to the Court of Appeals, an appeal may be taken only from a judgment or final order that completely
disposes of the case or of a matter therein when declared by the Rules to be appealable. Said provision, thus,
explicitly states that no appeal may be taken from an interlocutory order.10

It is, therefore, clear that the CTA en bane has jurisdiction over final order or judgment but not over interlocutory
orders issued by the CTA in division. In Denso (Phils.), Inc. v. Intermediate Appellate Court,11 we expounded on the
differences between a "final judgment" and an "interlocutory order," to wit:

x x x A "final" judgment or order is one that finally disposes of a case, leaving nothing more to be done by the Court
in respect thereto, e.g., an adjudication on the merits which, on the basis of the evidence presented at the trial,
declares categorically what the rights and obligations of the parties are and which party is in the right; or a judgment
or order that dismisses an action on the ground, for instance, of res judicata or prescription. Once rendered, the task
of the Court is ended, as far as deciding the controversy or determining the rights and liabilities of the litigants is
concerned. Nothing more remains to be done by the Court except to await the parties' next move x x x and
ultimately, of course, to cause the execution of the judgment once it becomes "final" or, to use the established and
more distinctive term, "final and executory."

xxx xxx xxx

Conversely, an order that does not finally dispose of the case, and does not end the Court's task of adjudicating the
parties' contentions and determining their rights and liabilities as regards each other, but obviously indicates that
other things remain to be done by the Court, is "interlocutory," e.g., an order denying a motion to dismiss under Rule
16 of the Rules x x x. Unlike a "final" judgment or order, which is appealable, as above pointed out, an
"interlocutory" order may not be questioned on appeal except only as part of an appeal that may eventually be taken
from the final judgment rendered in the case.12

Given the differences between a final judgment and an interlocutory order, there is no doubt that the CTA Order
dated December 23, 2011 granting private respondent's motion to declare petitioner as in default and allowing
respondent to present its evidence ex parte, is an interlocutory order as it did not finally dispose of the case on the
merits but will proceed for the reception of the former's evidence to determine its entitlement to its judicial claim for
tax credit certificates. Even the CTA's subsequent orders denying petitioner's motion to lift order of default and
denying reconsideration thereof are all interlocutory orders since they pertain to the order of default.

Since the CTA Orders are merely interlocutory, no appeal can be taken therefrom. Section 1, Rule 41 of the 1997
Rules of Civil Procedure, as amended, which applies suppletorily to proceedings before the Court of Tax Appeals,
provides:

Section 1. Subject of appeal. - An appeal may be taken from a judgment or final order that completely disposes of
the case, or of a paiticular matter therein when declared by these Rules to be appealable.

No appeal may be taken from:

xxxx

(c) An interlocutory order

In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.

Hence, petitioner's filing of the instant petition for certiorari assailing the interlocutory orders issued by the CTA is in
conformity with the above-quoted provision. 1âwphi 1

As to the merit of the petition, petitioner argues that the order declaring it as in default and allowing the ex-parte
presentation of private respondent's evidence was excessive as it has no intention of defying the scheduled pre-trial
conferences.

In Calalang v. Court of Appeals,13 we held that unless a party's conduct is so negligent, irresponsible, contumacious,
or dilatory as to provide substantial grounds for dismissal for non-appearance, the courts should consider lesser
sanctions which would still amount into achieving the desired end. We apply the same criteria on a defendant who
fails to appear at a pre-trial conference.

In this case, there is no showing that petitioner intentionally disregarded the CTA's authority. CTA Case Nos. 8246
and 8302 were filed on different dates and were handled by different lawyers, i.e., Atty. Sandico and Atty. Mauricio,
respectively. The cases were later on consolidated per private respondent's motion and the pre-trial was set on
November 3, 2011 but petitioner's counsel, Atty. Mauricio, was not able to attend for health reasons; and Atty.
Sandico to whom the consolidated cases were later on assigned was not able to attend the pre-trial on time on
December 1, 2011 as he was attending another case in another division of the CTA. We find nothing to show that
petitioner had acted with the deliberate intention of delaying the proceedings as petitioner had timely filed its pre-trial
brief for the consolidated cases.

Also, after petitioner's receipt of the default Order dated December 23, 2011, petitioner, on January 6, 2012,
immediately filed a Motion to lift the order of default, i.e., 20 days before the scheduled ex-parte presentation of
private respondent's evidence on January 26, 2012. The CTA should have been persuaded to reconsider its earlier
1avv phi 1

order of default as its lifting would not in any way prejudice or deprive private respondent of any substantive right,
especially so considering that the latter did not file any opposition or comment to petitioner's motion to lift order of
default or to the motion for reconsideration of the denial thereof.

It is not to say, however, that adherence to the Rules could be dispensed with lightly, but that, rather, exigencies and
situations might occasionally demand flexibility in their application.14 It is within the CTA's sound judicial discretion to
give party-litigants every opportunity to properly present their conflicting claims on the merits of the controversy
without resorting to technicalities.15 It should always be predicated on the consideration that more than the mere
convenience of the courts or of the parties of the case, the ends of justice and fairness would be served thereby.
Courts should be liberal in setting aside orders of default, for default judgments are frowned upon, and unless it
clearly appears that the reopening of the case is intended for delay, it is best that trial courts give both parties every
chance to fight their case fairly and in the open, without resort to technicality.16

Moreover, Section 2, Rule 1 of the RRCTA expressly provides that:

SEC. 2. Liberal construction.- The Rules shall be liberally construed in order to promote their objective of securing a
just, speedy, and inexpensive determination of every action and proceeding before the Court. (RCTA, Rule I, sec.
2a)

It appears, however, that the CTA proceeded with the ex-parte reception of private respondent's evidence and had
already rendered its decision on the merits on June 10, 2014 ordering petitioner to issue a tax certificate in favor of
private respondent in the reduced amount of ₱22, 126,419.93 representing unutilized input VAT incurred in relation
to its zero rated sales of electricity to the NPC for the first and second quarters of 2009. Petitioner filed a motion for
reconsideration which the CTA had also denied. Petitioner then filed a petition for review ad cautelam with the CTA
En Banc which is now pending before it.

Considering our foregoing discussions, we find a need to give petitioner the opportunity to properly present her
claims on the merits of the case without resorting to technicalities. WHEREFORE, the petition for certiorari is
GRANTED. The Resolutions dated December 23, 2011, April 19, 2012 and June 13, 2012 issued by the Court of
Tax Appeals in CTA Case Nos. 8246 and 8302 are hereby SET ASIDE. The consolidated cases are hereby
REMANDED to the CTA Third Division to give petitioner the chance to present evidence, rebuttal and sur rebuttal
evidence, if needed.

SO ORDERED.