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[G.R. No. 151135. July 2, 2004]

CONTEX CORPORATION, petitioner , vs. HON. COMMISSIONER OF INTERNA RE!EN"E, respondent .

# E C I S I O N

$"IS"M%ING, J .&

For review is the Decision[1] dated September 3, 2001, of the Court of Appeas, in CA!"#$# S% &o# '2(23, which

reversed and set aside the decision[2] dated )ctober 13, 2000, of the Court of *a+ Appeas C*A-# *he C*A had ordered

the Commissioner of .nterna $evenue C.$- to refund the sum of %'(3,0'1#/0 to petitioner as erroneous paid input

vaue!added ta+ A*- or in the aternative, to issue a ta+ credit certificate for said amount# %etitioner aso assais the

appeate courts $esoution,[3] dated December 1/, 2001, denin the motion for reconsideration#

%etitioner is a domestic corporation enaed in the business of manufacturin hospita te+ties and arments and

other hospita suppies for e+port# %etitioners pace of business is at the Subic a Freeport 4one SF4-# .t is du

reistered with the Subic a 5etropoitan Authorit S5A- as a Subic a Freeport 6nterprise, pursuant to the

provisions of $epubic Act &o# 7227#[8] As an S5A!reistered firm, petitioner is e+empt from a oca and nationa

interna revenue ta+es e+cept for the preferentia ta+ provided for in Section 12 c- [9] of $ep# Act &o# 7227# %etitione

aso reistered with the ureau of .nterna $evenue .$- as a non!A* ta+paer under Certificate of$eistration $D) Contro &o# /9!1(0!000133#

From :anuar 1, 1//7 to December 31, 1//(, petitioner purchased various suppies and materias necessar in

the conduct of its manufacturin business# *he suppiers of these oods shifted unto petitioner the 10; A* on the

purchased items, which ed the petitioner to pa input ta+es in the amounts of % 93/ ,811#(( and % 908,097#8/ for 1//7

and 1//(, respective#[']

Actin on the beief that it was e+empt from a nationa and oca ta+es, incudin A*, pursuant to $ep# Act &o#

7227, petitioner fied two appications for ta+ refund or ta+ credit of the A* it paid# 5r# 6diberto Caros, revenue

district officer of .$ $D) &o# 1/, denied the first appication etter, dated December 2/, 1//(#

<nfa=ed b the denia, petitioner on 5a 8, 1///, fied another appication for ta+ refund>credit, this time directwith Att# Aberto %aabao, the reiona director of .$ $evenue $eion &o# 8# *he second etter souht a refund or

issuance of a ta+ credit certificate in the amount of %1,10(,307#72, representin erroneous paid input A* for the

period :anuar 1, 1//7 to&ovember 30, 1//(#

?hen no response was forthcomin from the .$ $eiona Director, petitioner then eevated the matter to the

Court of *a+ Appeas, in a petition for review doc@eted as C*A Case &o# 9(/9# %etitioner stressed that Section 112A-[7] if read in reation to Section 10'A-2-a-[(] of the &ationa .nterna $evenue Code, as amended and Section 12b-[/] and c- of $ep# Act &o# 7227 woud show that it was not iabe in an wa for an vaue!added ta+#

.n opposin the caim for ta+ refund or ta+ credit, the .$ as@ed the C*A to app the rue that caims for

refund are strict construed aainst the ta+paer# Since petitioner faied to estabish both its riht to a ta+ refund or

ta+ credit and its compiance with the rues on ta+ refund as provided for in Sections 208[10]

and 22/[11]

of the *a+Code, its caim shoud be denied, accordin to the .$#

)n )ctober 13, 2000, the C*A decided C*A Case &o# 9(/9 as foows

?B6$6F)$6, in view of the foreoin, the %etition for $eview is hereb %A$*.A "$A&*6D# $espondent is hereb

)$D6$6D to $6F<&D or in the aternative to .SS<6 A *AE C$6D.* C6$*.F.CA*6 in favor of %etitioner the sum

of %'(3,0'1#/0, representin erroneous paid input A*#

S) )$D6$6D#[12]

http://sc.judiciary.gov.ph/jurisprudence/2004/jul2004/151135.htm#_ftn1





























.n rantin a partia refund, the C*A rued that petitioner misread Sections 10'A-2-a- and 112A- of the *a+

Code# *he ta+ court stressed that these provisions app on to those entities reistered as A* ta+paers whose

saes are =ero!rated# %etitioner does not fa under this cateor, since it is a non!A* ta+paer as evidenced b the

Certificate of $eistration$D) Contro &o# /9!1(0!000133 issued b $D) $osemarie $aasa of .$ $D) &o# 1( of the

Subic a Freeport 4one and thus it is e+empt from A*, pursuant to $ep# Act &o# 7227, said the C*A#

&onetheess, the C*A hed that the petitioner is e+empt from the imposition of input A* on its purchases of

suppies and materias# .t pointed out that under Section 12c- of $ep# Act &o# 7227 and the .mpementin $ues and

$euations of the ases Conversion and Deveopment Act of 1//2, a that petitioner is reuired to pa as a SF4

reistered enterprise is a 9; preferentia ta+#

*he C*A aso disaowed a refunds of input A* paid b the petitioner prior to :une 2/, 1//7 for bein barred b

the two!ear prescriptive period under Section 22/ of the *a+ Code#*he ta+ court aso imited the refund on to the

input A* paid b the petitioner on the suppies and materias direct used b the petitioner in the manufacture of its

oods# .t struc@ down a caims for input A* paid on maintenance, office suppies, freiht chares, and a materias

and suppies shipped or deivered to the petitioners 5a@ati and %asa Cit offices#

$espondent C.$ then fied a petition, doc@eted as CA!"#$# S% &o# '2(23, for review of the C*A decision b the

Court of Appeas# $espondent maintained that the e+emption of Conte+Corp# under $ep# Act &o# 7227 was imited

on to direct ta+es and not to indirect ta+es such as the input component of the A*# *he Commissioner pointed out

that from its ver nature, the vaue!added ta+ is a burden passed on b a A* reistered person to the end usersG

hence, the direct iabiit for the ta+ ies with the suppiers and not Conte+#

Findin merit in the C.$s aruments, the appeate court decided CA!"#$# S% &o# '2(23 in his favor, thus

?B6$6F)$6, premises considered, the appeaed decision is hereb $66$S6D A&D S6* AS.D6# Conte+s caim fo

refund of erroneous paid ta+es is D6&.6D accordin#

S) )$D6$6D#[13]

.n reversin the C*A, the Court of Appeas hed that the e+emption from duties and ta+es on the importation of

raw materias, capita, and euipment of SF4!reistered enterprises under $ep# Act &o# 7227 and its impementin

rues covers on the A* imposabe under Section 107 of the [*a+ Code], which is a direct iabiit of the importer,and in no wa incudes the vaue!added ta+ of the seer!e+porter the burden of which was passed on to the importer

as an additiona costs of the oods#[18] *his was because the e+emption ranted b $ep# Act &o# 7227 reates to the

act of importation and Section 107[19] of the *a+ Code specifica imposes the A* on importations# *he appeate

court appied the principe that ta+ e+emptions are strict construed aainst the ta+paer# *he Court of Appeas

pointed out that under the impementin rues of $ep# Act &o# 7227, the e+emption of SF4!reistered enterprises

from interna revenue ta+es is uaified as pertainin on to those for which the ma be direct iabe# .t then stated

that apparent, the eisative intent behind $ep# Act &o# 7227 was to rant e+emptions on to direct ta+es,

which SF4!reistered enterprise ma be iabe for and on in connection with their importation of raw materias,

capita, and euipment as we as the sae of their oods and services#

%etitioner time moved for reconsideration of the Court of Appeas decision, but the motion was denied#

Bence, the instant petition raisin as issues for our resoution the foowin

A# ?B6*B6$ )$ &)* *B6 6E65%*.)& F$)5 A )CA A&D &A*.)&A .&*6$&A $66&<6 *AE6S

%$).D6D .& $6%<.C AC* &)# 7227 C)6$S *B6 A<6 ADD6D *AE %A.D %6*.*.)&6$

A S<.C A F$66%)$* 6&*6$%$.S6 )& .*S %<$CBAS6S )F S<%%.6S A&D 5A*6$.AS#

# ?B6*B6$ )$ &)* *B6 C)<$* )F *AE A%%6AS C)$$6C* B6D *BA* %6*.*.)&6$ .S 6&*.*6D *) A

*AE C$6D.* )$ $6F<&D )F *B6 A* %A.D )& .*S %<$CBAS6S )F S<%%.6S A&D $A? 5A*6$.AS

F)$ *B6 6A$S 1//7 A&D 1//(#[1']











Simp stated, we sha resove now the issues concernin 1- the correctness of the findin of the Court of

Appeas that the A* e+emption embodied in $ep# Act &o# 7227 does not app to petitioner as a purchaserG and 2-

the entitement of the petitioner to a ta+ refund on its purchases of suppies and raw materias for 1//7 and 1//(#

)n the first issue, petitioner arues that the appeate courts restrictive interpretation of petitioners A*

e+emption as imited to those covered b Section 107 of the *a+ Code is erroneous and devoid of ea basis# .

contends that the provisions of $ep# Act &o# 7227 cear and unambiuous mandate that no oca and nationa

ta+es sha be imposed upon SF4!reistered firms and hence, said aw shoud overn the case# %etitioner cas ou

attention to reuations issued b both the S5A and .$ cear and cateorica providin that the ta+ e+emption

provided for b $ep# Act &o# 7227 incudes e+emption from the imposition of A* on purchases of suppies and

materias#

*he respondent ta@es the diametrica opposite view that whie $ep# Act &o# 7227 does rant ta+ e+emptions,

such rant is not a!encompassin but is imited on to those ta+es for which a SF4!reistered business ma be

direct iabe# Bence, SF4 ocators are not reieved from the indirect ta+es that ma be shifted to them b a A*!

reistered seer#

At this Huncture, it must be stressed that the A* is an indirect ta+# As such, the amount of ta+ paid on the oods,

properties or services bouht, transferred, or eased ma be shifted or passed on b the seer, transferor, or essor to

the buer, transferee or essee#[17] <ni@e a direct ta+, such as the income ta+, which primari ta+es an individuas

abiit to pa based on his income or net weath, an indirect ta+, such as the A*, is a ta+ on consumption of oods,

services, or certain transactions invovin the same# *he A*, thus, forms a substantia portion of consume

e+penditures#

Further, in indirect ta+ation, there is a need to distinuish between the iabiit for the ta+ and the burden of the

ta+# As earier pointed out, the amount of ta+ paid ma be shifted or passed on b the seer to the buer# ?hat is

transferred in such instances is not the iabiit for the ta+, but the ta+ burden# .n addin or incudin the A* due to

the sein price, the seer remains the person primari and ea iabe for the pament of the ta+# ?hat is

shifted on to the intermediate buer and utimate to the fina purchaser is the burden of the ta+# [1(]Stated

different, a seer who is direct and ea iabe for pament of an indirect ta+, such as the A* on oods or

services is not necessari the person who utimate bears the burden of the same ta+# .t is the fina purchaser o

consumer of such oods or services who, athouh not direct and ea iabe for the pament thereof

utimate bears the burden of the ta+#[1/]

6+emptions from A* are ranted b e+press provision of the *a+ Code or specia aws# <nder A*, the

transaction can have preferentia treatment in the foowin was

a- A* 6+emption# An e+emption means that the sae of oods or properties and>or services and the use or ease of

properties is not subHect to A* output ta+- and the seer is not aowed an ta+ credit on A* input ta+- previous

paid#[20] *his is a case wherein the A* is removed at the e+empt stae i#e#, at the point of the sae, barter or

e+chane of the oods or properties-#

*he person ma@in the e+empt sae of oods, properties or services sha not bi an output ta+ to his customers

because the said transaction is not subHect to A*# )n the other hand, a A*!reistered purchaser of A*!e+empt

oods>properties or services which are e+empt from A* is not entited to an input ta+ on such purchase despite the

issuance of a A* invoice or receipt#[21]

b- 4ero!rated Saes# *hese are saes b A*!reistered persons which are subHect to 0; rate, meanin the ta+

burden is not passed on to the purchaser# A =ero!rated sae b a A*!reistered person, which is a ta+abe transaction

for A* purposes, sha not resut in an output ta+# Bowever, the input ta+ on his purchases of oods, properties or

services reated to such =ero!rated sae sha be avaiabe as ta+ credit or refund in accordance with these reuations#[22]

<nder 4ero!ratin, a A* is removed from the =ero!rated oods, activit or firm# .n contrast, e+emption on

removes the A* at the e+empt stae, and it wi actua increase, rather than reduce the tota ta+es paid b the















e+empt firms business or non!retai customers# .t is for this reason that a sharp distinction must be made between

=ero!ratin and e+emption in desinatin a vaue!added ta+# [23]

Apropos, the petitioners caim to A* e+emption in the instant case for its purchases of suppies and raw

materias is founded main on Section 12 b- and c- of $ep# Act &o# 7227, which basica e+empts them from a

nationa and oca interna revenue ta+es, incudin A* and Section 8 A-a- of .$ $evenue $euations &o# 1!/9#[28]

)n this point, petitioner riht caims that it is indeed A*!6+empt and this fact is not controverted b the

respondent# .n fact, petitioner is reistered as a &)&!A* ta+paer per Certificate of $eistration[29] issued b the

.$# As such, it is e+empt from A* on a its saes and importations of oods and services#

%etitioners caim, however, for e+emption from A* for its purchases of suppies and raw materias is inconruous

with its caim that it is A*!6+empt, for on A*!$eistered entities can caim .nput A* Credit>$efund#

*he point of contention here is whether or not the petitioner ma caim a refund on the .nput A* erroneous

passed on to it b its suppiers#

?hie it is true that the petitioner shoud not have been iabe for the A* inadvertent passed on to it b its

suppier since such is a =ero!rated sae on the part of the suppier, the petitioner is not the proper part to caim such

A* refund#

Section 8#100!2 of .$s $evenue $euations 7!/9, as amended, or the Consolidated Value-Added Tax

Regulations provide

Sec# 8#100!2# 4ero!rated Saes# A =ero!rated sae b a A*!reistered person, which is a ta+abe transaction for A*

purposes, sha not resut in an output ta+# Bowever, the input ta+ on his purchases of oods, properties or services

reated to such =ero!rated sae sha be avaiabe as ta+ credit or refund in accordance with these reuations#

*he foowin saes b A*!reistered persons sha be subHect to 0;

a- 6+port Saes

6+port Saes sha mean

# # #

9- *hose considered e+port saes under Artices 23 and 77 of 6+ecutive )rder &o# 22', otherwise @nown as

the )mnibus .nvestments Code of 1/(7, and other specia aws, e## $epubic Act &o# 7227, otherwise

@nown as the ases Conversion and Deveopment Act of 1//2#

# # #

c- Saes to persons or entities whose e+emption under specia aws, e## $#A# &o# 7227 du reistered and

accredited enterprises with Subic a 5etropoitan Authorit S5A- and Car@ Deveopment Authorit

CDA-, $# A# &o# 7/1', %hiippine 6conomic 4one Authorit %64A-, or internationa areements, e## Asian

Deveopment an@ AD-, .nternationa $ice $esearch .nstitute .$$.-, etc# to which the %hiippines is a

sinator effective subHect such saes to =ero!rate#

Since the transaction is deemed a =ero!rated sae, petitioners suppier ma caim an .nput A* credit with no

correspondin )utput A* iabiit# Conruent, no )utput A* ma be passed on to the petitioner#

)n the second issue, it ma not be amiss to re!emphasi=e that the petitioner is reistered as a &)&!A* ta+pae

and thus, is e+empt from A*# As an e+empt A* ta+paer, it is not aowed an ta+ credit on A* input ta+-

previous paid# .n fine, even if we are to assume that e+emption from the burden of A* on petitioners purchases did









e+ist, petitioner is sti not entited to an ta+ credit or refund on the input ta+ previous paid as petitioner is an

e+empt A* ta+paer#

$ather, it is the petitioners suppiers who are the proper parties to caim the ta+ credit and accordin refund the

petitioner of the A* erroneous passed on to the atter#

Accordin, we find that the Court of Appeas did not commit an reversibe error of aw in hodin that

petitioners A* e+emption under $ep# Act &o# 7227 is imited to the A* on which it is direct iabe as a seer and

hence, it cannot caim an refund or e+emption for an input A* it paid, if an, on its purchases of raw materias and

suppies#

'HEREFORE, the petition is D6&.6D for ac@ of merit# *he Decision dated September 3, 2001, of the Court of

Appeas in CA!"#$# S% &o# '2(23, as we as its $esoution ofDecember 1/, 2001 are AFF.$56D# &o pronouncement

as to costs#

G.R. No. 1(3553 No)*+*- 12, 2012

#IAGEO PHIIPPINES, INC., %etitioner,

vs#

COMMISSIONER OF INTERNA RE!EN"E, $espondent#

D 6 C . S . ) &

PERAS%ERNA%E, J.:

efore the Court is a %etition for $eview under $ue 89 of the $ues of Court assaiin the Decision 1 of the Court of *a+

Appeas C*A- 6n anc dated :u 2, 200( in C*A 6 &o# 2'0#

*he petition see@s the proper interpretation of Section 130D-2 of the &ationa .nterna $evenue Code of 1//7 *a+

Code-, particuar, on the uestion of who ma caim the refund or ta+ credit of e+cise ta+es paid on oods actua

e+ported#

*he Factua Antecedents

%etitioner Diaeo %hiippines, .nc# Diaeo- is a domestic corporation orani=ed and e+istin under the aws of the

$epubic of %hiippines and is primari enaed in the business of importin, e+portin, manufacturin, mar@etin,

distributin, buin and sein, b whoesae, a @inds of beveraes and iuors and in deain in an materia, artice,

or thin reuired in connection with or incidenta to its principa business#3 .t is reistered with the ureau of .nterna

$evenue .$- as an e+cise ta+ ta+paer, with *a+ .dentification &o# 000!1'1!(7/!000#8

For the period&ovember 1, 2003 to December 31, 2008, Diaeo purchased raw acoho from its suppier for use in the

manufacture of its beverae and iuor products# *he suppier imported the raw acoho and paid the reated e+cise

ta+es thereon before the same were sod to the petitioner#9 *he purchase price for the raw acoho incuded, amon

others, the e+cise ta+es paid b the suppierin the tota amount of %12,007,92(#(3#'

Subseuent, Diaeo e+ported its oca manufactured iuor products to :apan, *aiwan, *ur@e and *haiand and

received the correspondin forein currenc proceeds of such e+port saes#7

?ithin two 2- ears from the time the suppier paid the subHect e+cise ta+es, Diaeo fied with the .$ are

*a+paerIs Audit and .nvestiation Division .. appications for ta+ refund>issuance of ta+ credit certificates

correspondin to the e+cise ta+es which its suppier paid but passed on to it as part of the purchase price of the

subHect raw acoho invo@in Section 130D- of the *a+ Code#

Bowever, due to the faiure of the respondent Commissioner of .nterna $evenue C.$- to act upon DiaeoIs caims,

the atter was constrained to time fie a petition for review before the C*A#(

http://www.lawphil.net/judjuris/juri2012/nov2012/gr_183553_2012.html#fnt1



















)n December 27, 2009, the C.$ fied its Answer assaiin DiaeoIs ac@ of ea personait to institute the caim for

refund because it was not the one that paid the aeed e+cise ta+es but its suppier#/ Subseuent, the C.$ fied a

motion to dismiss reiteratin the same issue#10

*he $uin of the Court of *a+ Appeas

)n :u 20, 200', the C*A Second Division issued a $esoution11dismissin the petition on the round that Diaeo is

not the rea part in interest to fie the caim for refund# Citin %hiippine Acetene Co#, .nc# v# Commissioner of

.nterna $evenue,12 the C*A Second Division rued that athouh an e+cise ta+ is an indirect ta+ which can be passed

on to the purchaser of oods, the iabiit therefor sti remains with the manufacturer or seer, hence, the riht to

caim refund is on avaiabe to it#13 Diaeo fied a motion for reconsideration which was subseuent denied in the

$esoution dated :anuar (, 2007#18

)n Februar 13, 2007, Diaeo fied a petition for review19 which the C*A6n ancin its Decision dated :u 2

200(dismissed,thereb affirmin the ruin of the C*A Second Division#1'

Citin $ue 3, Section 2,17 of the $ues of Court, the C*A 6n anc hed that the riht to a refund or ta+ credit of the

e+cise ta+es under Section 130D- of the *a+ Code is avaiabe on to persons enumerated in Sections 130A-

1-1( and 2-1/ of the same Code because the are the ones primari and ea iabe to pa such ta+es# As Diaeo

faied to prove that it had actua paid the caimed e+cise ta+es as manufacturer!e+porter, the C*A 6n anc i@ewise

did not find it as the proper part to caim a refund#Bence, the instant petition#

Diaeo caims to be a rea part in interest entited to recover the subHect refund or ta+ credit because it stands to be

benefited or inHured b the Hudment in this suit#20 .t contends that the ta+ priviee under Section 130D- appies to

ever e+porter provided the conditions therein set forth are compied with, name, 1- the oods are e+ported either

in their oriina state or as inredients or part of an manufactured oods or productsG 2- the e+porter submits proof

of e+portationG and 3- the e+porter i@ewise submits proof of receipt of the correspondin forein e+chane

pament#21.t arues that Section 130D- does not imit the rant of the ta+ priviee to manufacturers>producers!

e+porters on but to ever e+porter of oca manufactured>produced oods subHect on to the conditions

aforementioned#22

*he .ssue

*he soe issue to be resoved is whether Diaeo has the ea personait to fie acaim for refund or ta+ credit for the

e+cise ta+es paid b its suppier on the raw acoho it purchased and used in the manufacture of its e+ported oods#

$uin of the Court

*he petition is without merit#

6+cise ta+es parta@e of the nature o

indirect ta+es#

Diaeo bases its caim for refund on Section 130 of the *a+ Code which reads

Section 130#Fiin of $eturn and %ament of 6+cise *a+ on Domestic %roducts# J +++

A- %ersons iabe to Fie a $eturn, Fiin of $eturn on $emova and %ament of *a+#!

1- %ersons iabe to Fie a $eturn# J 6ver person iabe to pa e+cise ta+ imposed under this *ite sha fie a separate

return for each pace of production settin forth, amon others, the description and uantit or voume of products to

be removed, the appicabe ta+ base and the amount of ta+ due thereonG %rovided however, *hat in the case of

indienous petroeum, natura as or iuefied natura as, the e+cise ta+ sha be paid b the first buer, purchaser or

transferee for oca sae, barter or transfer, whie the e+cise ta+ on e+ported products sha be paid b the owner,

essee, concessionaire or operator of the minin caim#Shoud domestic products be removed from the pace of
































production without the pament of the ta+, the owner or person havin possession thereof sha be iabe for the ta+

due thereon#

+ + + +

D- Credit for 6+cise ta+ on "oods Actua 6+ported#! ?hen oods oca produced or manufactured are removed and

actua e+ported without returnin to the %hiippines, whether so e+ported in their oriina state or as inredients or

parts of an manufactured oods or products, an e+cise ta+ paid thereon sha be credited or refunded upon

submission of the proof of actua e+portation and upon receipt of the correspondin forein e+chane pament

%rovided, *hat the e+cise ta+ on minera products, e+cept coa and co@e, imposed under Section 191 sha not be

creditabe or refundabe even if the minera products are actua e+ported#

A readin of the foreoin provision, however, reveas that contrar to the position of Diaeo, the riht to caim a

refund or be credited with the e+cise ta+es beons to its suppier# *he phrase Kan e+cise ta+ paid thereon sha be

credited or refundedK reuires that the caimant be the same person who paid the e+cise ta+# .n Si@air Sinapore-

%te, td# v# Commissioner of .nterna $evenue, the Court has cateorica decared that K[t]he proper part to

uestion, or see@ a refund of, an indirect ta+ is the statutor ta+paer, the person on whom the ta+ is imposed b aw

and who paid the same even if he shifts the burden thereof to another#K23

6+cise ta+es imposed under *ite . of the *a+ Code are ta+es on propert28 which are imposed on Koods

manufactured or produced in the %hiippines for domestic saes or consumption or for an other disposition and to

thins imported#K29 *houh e+cise ta+es are paid b the manufacturer or producer before remova of domestic

products from the pace of production2' or b the owner or importer before the reease of imported artices from the

customshouse,27 the same parta@e of the nature of indirect ta+es when it is passed on to the subseuent purchaser#

.ndirect ta+esare defined asthose wherein the iabiit for the pament of the ta+ fas on one person but the burden

thereof can be shifted to another person# ?hen the seer passes on the ta+ to his buer, he, in effect, shifts the ta+

burden, not the iabiit to pa it, to the purchaser as part of the price of oods sod or services rendered# 2(

Accordin, when the e+cise ta+es paid b the suppier were passed on to Diaeo, what was shifted is not the ta+ per

se but anadditiona cost of the oods sod# *hus, the suppier remains the statutor ta+paer even if Diaeo, the

purchaser, actua shouders the burden of ta+#

*he statutor ta+paer is the prope

part to caim refund of indirect

ta+es#

As defined in Section 22&- of the *a+ Code, a ta+paer means an person subHect to ta+# 1âwphi1 Be is, therefore

the person ea iabe to fie a return and pa the ta+ as provided for in Section 130A-# As such, he is the person

entited to caim a refund#

$eevant isSection 208C- of the *a+ Code which provides

Section 208# Authorit of the Commissioner to Compromise, Abate, and $efund or Credit *a+es#! *he Commissioner

ma !

++++

C- Credit or refund ta+es erroneous or iea received or penaties imposed without authorit, refund the vaue of

interna revenue stamps when the are returned in ood condition b the purchaser, and, in his discretion, redeem or

chane unused stamps that have been rendered unfit for use and refined their vaue upon proof of destruction# &o

credit or refund of ta+es or penaties sha be aowed uness the ta+paer fies in writin with the Commissioner a

caim for credit or refund within two 2- ears after the pament of the ta+ or penat %rovided, however, that a

return fied showin an overpament sha be considered as a written caim for credit or refund# 6mphasis suppied-
















%ursuant to the foreoin, the person entited to caim a ta+ refund is the statutor ta+paer or the person iabe for or

subHect to ta+#2/ .n the present case, it is not disputed that the suppier of Diaeo imported the subHect raw acoho

hence, it was the one direct iabe and obiated to fie a return and pa the e+cise ta+es under the *a+ Code before

the oods or products are removed from the customs house# .t is, therefore, the statutor ta+paer as contempated

b aw and remains to be so, even if it shifts the burden of ta+ to Diaeo# Conseuent, the riht to caim a refund, if

ea aowed, beons to it and cannot be transferred to another, in this case Diaeo, without an cear provision of

aw aowin the same#

<ni@e the aw on aue Added *a+ which aows the subseuent purchaser under the ta+ credit method to refund or

credit input ta+es passed on to it b a suppier,30 no provision for e+cise ta+es e+ists rantin non!statutor ta+paer

i@e Diaeo to caim a refund or credit# .t shoud aso be stressed that when the e+cise ta+es were incuded in the

purchase price of the oods sod to Diaeo, the same was no oner in the nature of a ta+ but aread formed part of

the cost of the oods#

Fina, statutes rantin ta+ e+emptions are construed stricissimi Huris aainst the ta+paer and ibera in favor of

the ta+in authorit# A caim of ta+ e+emption must be cear shown and based on anuae in aw too pain to be

mista@en#31 <nfortunate, Diaeo faied to meet the burden of proof that it is covered b the e+emption ranted under

Section 130D- of the *a+ Code#

.n sum, Diaeo, not bein the part statutori iabe to pa e+cise ta+es and havin faied to prove that it is covered

b the e+emption ranted under Section 130D- of the *a+ Code, is not the proper part to caim a refund or credit of

the e+cise ta+es paid on the inredients of its e+ported oca produced iuor#

?B.6$6F)$6, the petition is D6&.6D and the assaied C*A 6n anc Decision in C*A 6 &o# 2'0 dated :u 2, 200( is

AFF.$56D#

S) )$D6$6D#

COMMISSIONER OF INTERNA RE!EN"E, petitioner, vs. THE ESTATE OF %ENIGNO P. TO#A, JR.

R*/-*** y S/*6l Co6+-6o- o-6 76/u6 6 M6-o u86 %6u6, respondents.

# E C I S I O N

#A!I#E, JR., C.J .&

*his Court is caed upon to determine in this case whether the ta+ pannin scheme adopted b a corporation

constitutes ta+ evasion that woud Hustif an assessment of deficienc income ta+#

*he petitioner see@s the reversa of the Decision [1] of the Court of Appeas of 31 :anuar 2001 in CA!"#$# S% &o

977// affirmin the 3 :anuar 2000 Decision [2] of the Court of *a+ Appeas C*A- in C#*#A# Case &o# 932(, [3] which

hed that the respondent 6state of enino %# *oda, :r# is not iabe for the deficienc income ta+ of Cibees .nsurance

Corporation C.C- in the amount of %7/,0//,///#22 for the ear 1/(/, and ordered the canceation and settin aside

of the assessment issued b Commissioner of .nterna $evenue iwawa in=ons!Chato on / :anuar 1//9#

*he case at bar stemmed from a &otice of Assessment sent to C.C b the Commissioner of .nterna $evenue fordeficienc income ta+ arisin from an aeed simuated sae of a 1'!store commercia buidin @nown as Cibees

uidin, situated on two parces of and on Aaa Avenue, 5a@ati Cit#

)n 2 5arch 1/(/, C.C authori=ed enino %# *oda, :r#, %resident and owner of //#//1; of its issued and

outstandin capita stoc@, to se the Cibees uidin and the two parces of and on which the buidin stands for an

amount of not ess than %/0 miion#[8]

)n 30 Auust 1/(/, *oda purported sod the propert for %100 miion to $afae A# Atonaa, who, in turn, sod

the same propert on the same da to $oa 5atch .nc# $5.- for %200 miion# *hese two transactions were

evidenced b Deeds of Absoute Sae notari=ed on the same da b the same notar pubic# [9]





http://sc.judiciary.gov.ph/jurisprudence/2004/sep2004/147188.htm#_ftn1
















For the sae of the propert to $5., Atonaa paid capita ains ta+ in the amount of %10 miion#[']

)n 1' Apri 1//0, C.C fied its corporate annua income ta+ return [7] for the ear 1/(/, decarin, amon other

thins, its ain from the sae of rea propert in the amount of%79,72(#021# After creditin withhodin ta+es

of %298,8/7#00, it paid %2',381,207[(] for its net ta+abe income of %79,/(7,729#

)n 12 :u 1//0, *oda sod his entire shares of stoc@s in C.C to e Bun *# Choa for %12#9 miion, as evidenced b

a Deed of Sae of Shares of Stoc@s#[/] *hree and a haf ears ater, or on 1' :anuar 1//8, *oda died#

)n 2/ 5arch 1//8, the ureau of .nterna $evenue .$- sent an assessment notice [10] and demand etter to the

C.C for deficienc income ta+ for the ear 1/(/ in the amount of%7/,0//,///#22#

*he new C.C as@ed for a reconsideration, assertin that the assessment shoud be directed aainst the od C.C,

and not aainst the new C.C, which is owned b an entire different set of stoc@hodersG moreover, *oda had

underta@en to hod the buer of his stoc@hodins and the C.C free from a ta+ iabiities for the fisca ears 1/(7!

1/(/#[11]

)n 27 :anuar 1//9, the 6state of enino %# *oda, :r#, represented b specia co!administrators orna Lapunan

and 5ario u=a autista, received a &otice of Assessment [12] dated / :anuar 1//9 from the Commissioner of .nterna

$evenue for deficienc income ta+ for the ear 1/(/ in the amount of %7/,0//,///#22, computed as foows

.ncome *a+ 1/(/

&et .ncome per return %79,/(7,729#00

Add Additiona ain on sae

of rea propert ta+abe under

ordinar corporate income

but were substituted with

individua capita ains

%2005 1005- 100,000,000#00

*ota &et *a+abe .ncome %179,/(7,729#00

per investiation

*a+ Due thereof at 39; % '1,9/9,703#79

ess %ament aread made

1# %er return %2',9/9,708#00

2# *hru Capita "ains

*a+ made b $#A#

Atonaa 10,000,000#00 3',9/9,708#00

aance of ta+ due % 28,///,///#79


















Add 90; Surchare 12,8//,///#((

29; Surchare ',28/,///#/8

*ota % 83,78/,///#97

Add .nterest 20; from

8>1'>/0!8>30>/8 #(0(- 39,38/,///#'9

*)*A A5*# D<6 M C)6C*.6 % 7/,0//,///#22

NNNNNNNNNNNN

*he 6state thereafter fied a etter of protest#[13]

.n the etter dated 1/ )ctober 1//9, [18] the Commissioner dismissed the protest, statin that a frauduent scheme

was deiberate perpetuated b the C.C who owned and controed b *oda b coverin up the additiona ain

of %100 miion, which resuted in the chane in the income structure of the proceeds of the sae of the two parces of

and and the buidin thereon to an individua capita ains, thus evadin the hiher corporate income ta+ rate of

39;#

)n 19 Februar 1//', the 6state fied a petition for review [19] with the C*A aein that the Commissioner erred

in hodin the 6state iabe for income ta+ deficiencG that the inference of fraud of the sae of the properties is

unreasonabe and unsupportedG and that the riht of the Commissioner to assess C.C had aread prescribed#

.n his Answer[1'] and Amended Answer,[17] the Commissioner arued that the two transactions actua constituted

a sine sae of the propert b C.C to $5., and that Atonaa was neither the buer of the propert from C.C nor the

seer of the same propert to $5.# *he additiona ain of %100 miion the difference between the second simuated

sae for %200 miion and the first simuated sae for %100 miion- reai=ed b C.C was ta+ed at the rate of on 9;

purported as capita ains ta+ of Atonaa, instead of at the rate of 39; as corporate income ta+ of C.C# *he income

ta+ return fied b C.C for 1/(/ with intent to evade pament of the ta+ was thus fase or frauduent# Since such

fasit or fraud was discovered b the .$ on on ( 5arch 1//1, the assessment issued on / :anuar 1//9 was wewithin the prescriptive period prescribed b Section 223 a- of the &ationa .nterna $evenue Code of 1/(', which

provides that ta+ ma be assessed within ten ears from the discover of the fasit or fraud# ?ith the sae bein

tainted with fraud, the separate corporate personait of C.C shoud be disrearded# *oda, bein the reistered owner

of the //#//1; shares of stoc@ of C.C and the beneficia owner of the remainin 0#00/; shares reistered in the

name of the individua directors of C.C, shoud be hed iabe for the deficienc income ta+, especia because the

ains reai=ed from the sae were withdrawn b him as cash advances or paid to him as cash dividends# Since he is

aread dead, his estate sha answer for his iabiit#

.n its decision[1(] of 3 :anuar 2000, the C*A hed that the Commissioner faied to prove that C.C committed fraud

to deprive the overnment of the ta+es due it# .t rued that even assumin that a pre!conceived scheme was adopted

b C.C, the same constituted mere ta+ avoidance, and not ta+ evasion# *here bein no proof of frauduent transaction,

the appicabe period for the .$ to assess C.C is that prescribed in Section 203 of the &.$C of 1/(', which is threeears after the ast da prescribed b aw for the fiin of the return# *hus, the overnments riht to assess C.C

prescribed on 19 Apri 1//3# *he assessment issued on / :anuar 1//9 was, therefore, no oner vaid# *he C*A aso

rued that the mere ownership b *oda of //#//1; of the capita stoc@ of C.C was not in itsef sufficient round for

piercin the separate corporate personait of C.C# Bence, the C*A decared that the 6state is not iabe for deficienc

income ta+ of %7/,0//,///#22 and, accordin, canceed and set aside the assessment issued b the Commissioner

on / :anuar 1//9#

.n its motion for reconsideration,[1/] the Commissioner insisted that the sae of the propert owned b C.C was

the resut of the connivance between *oda and Atonaa# She further aeed that the atter was a representative,

dumm, and a cose business associate of the former, havin hed his office in a propert owned b C.C and derived

his saar from a forein corporation Aerobin, .nc#- du owned b *oda for representation services rendered# *he


















C*A denied[20] the motion for reconsideration, promptin the Commissioner to fie a petition for review [21] with the

Court of Appeas#

.n its chaened Decision of 31 :anuar 2001, the Court of Appeas affirmed the decision of the C*A, reasonin

that the C*A, bein more advantaeous situated and havin the necessar e+pertise in matters of ta+ation, is better

situated to determine the correctness, propriet, and eait of the income ta+ assessments assaied b the *oda

6state#[22]

<nsatisfied with the decision of the Court of Appeas, the Commissioner fied the present petition invo@in the

foowin rounds

.# *B6 C)<$* )F A%%6AS 6$$6D .& B)D.&" *BA* $6S%)&D6&* C)55.**6D &) F$A<D ?.*B .&*6&*

*) 6AD6 *B6 *AE )& *B6 SA6 )F *B6 %$)%6$*.6S )F C.66S .&S<$A&C6 C)$%)$A*.)&#

..# *B6 C)<$* )F A%%6AS 6$$6D .& &)* D.S$6"A$D.&" *B6 S6%A$A*6 C)$%)$A*6 %6$S)&A.* )F

C.66S .&S<$A&C6 C)$%)$A*.)&#

...# *B6 C)<$* )F A%%6AS 6$$6D .& B)D.&" *BA* *B6 $."B* )F %6*.*.)&6$ *) ASS6SS

$6S%)&D6&* F)$ D6F.C.6&C .&C)56 *AE F)$ *B6 6A$ 1/(/ BAD %$6SC$.6D#

*he Commissioner reiterates her aruments in her previous peadins and insists that the sae b C.C of theCibees propert was in connivance with its dumm $afae Atonaa, who was financia incapabe of purchasin it

She further points out that the documents themseves prove the fact of fraud in that 1- the two saes were done

simutaneous on the same date, 30 Auust 1/(/G 2- the Deed of Absoute Sae between Atonaa and $5. was

notari=ed ahead of the aeed sae between C.C and Atonaa, with the former reistered in the &otaria $eister of

:ocen B# Arre=a %abeana as Doc# 91, %ae 20, oo@ ., Series of 1/(/G and the atter, as Doc# &o# 92, %ae 20, oo@

., Series of 1/(/, of the same &otar %ubicG 3- as ear as 8 5a 1/(/, C.C received %80 miion from $5., and not

from Atonaa# *he said amount was debited b $5. in its tria baance as of 30 :une 1/(/ as investment in Cibees

uidin# *he substantia portion of %80 miion was withdrawn b *oda throuh the decaration of cash dividends to a

its stoc@hoders#

For its part, respondent 6state asserts that the Commissioner faied to present the income ta+ return of Atonaa

to prove that the atter is financia incapabe of purchasin the Cibees propert#

*o resove the rounds raised b the Commissioner, the foowin uestions are pertinent

1# .s this a case of ta+ evasion or ta+ avoidanceO

2# Bas the period for assessment of deficienc income ta+ for the ear 1/(/ prescribedO and

3# Can respondent 6state be hed iabe for the deficienc income ta+ of C.C for the ear 1/(/, if anO

?e sha discuss these uestions in seriatim.

I : 6 6* o; 6< *)6o

o- 6< 6)o6*=

Tax avoidance and tax evasion are the two most common was used b ta+paers in escapin from ta+ation# *a+

avoidance is the ta+ savin device within the means sanctioned b aw# *his method shoud be used b the ta+paer in

ood faith and at arms enth# *a+ evasion, on the other hand, is a scheme used outside of those awfu means and

when avaied of, it usua subHects the ta+paer to further or additiona civi or crimina iabiities#[23]

*a+ evasion connotes the interation of three factors 1- the end to be achieved, i.e., the pament of ess than

that @nown b the ta+paer to be ea due, or the non!pament of ta+ when it is shown that a ta+ is dueG 2- an












accompanin state of mind which is described as bein evi, in bad faith, wifu,or deiberate and not accidentaG and

3- a course of action or faiure of action which is unawfu#[28]

A these factors are present in the instant case# .t is sinificant to note that as ear as 8 5a 1/(/, prior to the

purported sae of the Cibees propert b C.C to Atonaa on 30 Auust 1/(/, C.C received %80 miion from $5.[29] and not from Atonaa# *hat %80 miion was debited b $5. and refected in its tria baance [2'] as other inv

Cibees d# Aso, as of 31 :u 1/(/, another %80 miion was debited and refected in $5.s tria baance as other inv

Cibees d# *his woud show that the rea buer of the properties was $5., and not the intermediar Atonaa#

*he investiation conducted b the .$ discosed that Atonaa was a cose business associate and one of the

man trusted corporate e+ecutives of *oda# *his information was reveaed b 5r# o %rieto, the assistant accountant

of C.C and an od timer in the compan# [27] ut 5r# %rieto did not testif on this matter, hence, that information

remains to be hearsa and is thus inadmissibe in evidence# .t was not verified either, since the etter!reuest for

investiation of Atonaa was unserved,[2(] Atonaa havin eft for the <nited States of America in :anuar 1//0#

&evertheess, that Atonaa was a mere conduit finds support in the admission of respondent 6state that the sae to

him was part of the ta+ pannin scheme of C.C# *hat admission is borne b the records# .n its 5emorandum,

respondent 6state decared

%etitioner, however, caims there was a chane of structure of the proceeds of sae# Admitted one hundred percent#

ut isnt this precise the definition of ta+ panninO Chane the structure of the funds and pa a ower ta+# %recise,

Sec# 80 2- of the *a+ Code e+ists, aowin ta+ free transfers of propert for stoc@, chanin the structure of the

propert and the ta+ to be paid# As on as it is done ea, chanin the structure of a transaction to achieve a

ower ta+ is not aainst the aw# .t is absoute aowed#

*a+ pannin is b definition to reduce, if not eiminate atoether, a ta+# Sure petitioner [sic ] cannot be fauted

for >6? o -*u* :* 6< ;-o+ 35@ o 5@#[2/] [<nderscorin suppied]#

*he scheme resorted to b C.C in ma@in it appear that there were two saes of the subHect properties, i.e#, from

C.C to Atonaa, and then from Atonaa to $5. cannot be considered a eitimate ta+ pannin# Such scheme is

tainted with fraud#

raud in its enera sense, is deemed to comprise anthin cacuated to deceive, incudin a acts, omissions

and conceament invovin a breach of ea or euitabe dut, trust or confidence Hust reposed, resutin in the

damae to another, or b which an undue and unconscionabe advantae is ta@en of another#[30]

Bere, it is obvious that the obHective of the sae to Atonaa was to reduce the amount of ta+ to be paid especia

that the transfer from him to $5. woud then subHect the income to on 9; individua capita ains ta+, and not the

39; corporate income ta+# Atonaas soe purpose of acuirin and transferrin tite of the subHect properties on the

same da was to create a ta+ sheter# Atonaa never controed the propert and did not enHo the norma benefits

and burdens of ownership# *he sae to him was mere a ta+ po, a sham, and without business purpose and

economic substance# Doubtess, the e+ecution of the two saes was cacuated to misead the .$ with the end in view

of reducin the conseuent income ta+ iabiit#

.n a nutshe, the intermediar transaction, i.e#, the sae of Atonaa, which was prompted more on the mitiation

of ta+ iabiities than for eitimate business purposes constitutes one of ta+ evasion#[31]

"enera, a sae or e+chane of assets wi have an income ta+ incidence on when it is consummated# [32] *he

incidence of ta+ation depends upon the substance of a transaction# *he ta+ conseuences arisin from ains from a

sae of propert are not fina to be determined soe b the means empoed to transfer ea tite# $ather, the

transaction must be viewed as a whoe, and each step from the commencement of neotiations to the consummation

of the sae is reevant# A sae b one person cannot be transformed for ta+ purposes into a sae b another b usin

the atter as a conduit throuh which to pass tite# *o permit the true nature of the transaction to be disuised b

mere formaisms, which e+ist soe to ater ta+ iabiities, woud serious impair the effective administration of the

ta+ poicies of Conress#[33]
























*o aow a ta+paer to den ta+ iabiit on the round that the sae was made throuh another and distinct entit

when it is proved that the atter was mere a conduit is to sanction a circumvention of our ta+ aws# Bence, the sae

to Atonaa shoud be disrearded for income ta+ purposes#[38] *he two sae transactions shoud be treated as a sine

direct sae b C.C to $5.#

Accordin, the ta+ iabiit of C.C is overned b then Section 28 of the &.$C of 1/(', as amended now 27 A-

of the *a+ $eform Act of 1//7-, which stated as foows

S*. 24. R6* o; 6< o o-/o-6o. 6B T6< o o+* o-/o-6o. A ta+ is hereb imposed upon the

ta+abe net income received durin each ta+abe ear from a sources b ever corporation orani=ed in, or e+istin

under the aws of the %hiippines, and partnerships, no matter how created or orani=ed but not incudin enera

professiona partnerships, in accordance with the foowin

*went!five percent upon the amount b which the ta+abe net income does not e+ceed one hundred thousand pesosG

and

*hirt!five percent upon the amount b which the ta+abe net income e+ceeds one hundred thousand pesos#

C.C is therefore iabe to pa a 39; corporate ta+ for its ta+abe net income in 1/(/# *he 9; individua capita ains

ta+ provided for in Section 38 h- of the &.$C of 1/(' [39] now '; under Section 28 D- 1- of the *a+ $eform Act of

1//7- is inappicabe# Bence, the assessment for the deficienc income ta+ issued b the .$ must be uphed#

H6 :* /*-o o;

6*+* /-*-*=

&o# Section 2'/ of the &.$C of 1/(' now Section 222 of the *a+ $eform Act of 1//7- read

S*. 29. E<*/o 6 o /*-o o; l+6o o; 6*+* 6 oll*o o; 6<*. a- .n the case of a

fase or frauduent return with intent to evade ta+ or of faiure to fie a return, the ta+ ma be assessed, or a

proceedin in court after the coection of such ta+ ma be beun without assessment, at an time within ten ears

after the discover of the fasit, fraud or omission P-o)*, *hat in a fraud assessment which has become fina and

e+ecutor, the fact of fraud sha be Hudicia ta@en coni=ance of in the civi or crimina action for coection thereof #

%ut different, in cases of 1- frauduent returnsG 2- fase returns with intent to evade ta+G and 3- faiure to fie

a return, the period within which to assess ta+ is ten ears from discover of the fraud, fasification or omission, as

the case ma be#

.t is true that in a uer dated 28 Auust 1/(/, Atonaa, throuh his counse, as@ed the )pinion of the .$ on

the ta+ conseuence of the two sae transactions# [3'] *hus, the .$ was amp informed of the transactions even prior

to the e+ecution of the necessar documents to effect the transfer# Subseuent, the two saes were open made

with the e+ecution of pubic documents and the decaration of ta+es for 1/(/# Bowever, these circumstances do not

neate the e+istence of fraud# As earier discussed those two transactions were tainted with fraud# And even

assumin arguendo that there was no fraud, we find that the income ta+ return fied b C.C for the ear 1/(/ was

fase# .t did not refect the true or actua amount ained from the sae of the Cibees propert# )bvious, such wasdone with intent to evade or reduce ta+ iabiit#

As stated above, the prescriptive period to assess the correct ta+es in case of fase returns is ten ears from the

discover of the fasit# *he fase return was fied on 19 Apri 1//0, and the fasit thereof was caimed to have been

discovered on on ( 5arch 1//1#[37] *he assessment for the 1/(/ deficienc income ta+ of C.C was issued on /

:anuar 1//9# Cear, the issuance of the correct assessment for deficienc income ta+ was we within the

prescriptive period#

I -*/o* E6* l6l*












;o- :* 19(9 *;*y

o+* 6< o; C*l*

Iu-6* Co-/o-6o=

A corporation has a Huridica personait distinct and separate from the persons ownin or composin it# *hus, the

owners or stoc@hoders of a corporation ma not enera be made to answer for the iabiities of a corporation and

vice versa# *here are, however, certain instances in which persona iabiit ma arise# .t has been hed in a number of

cases that persona iabiit of a corporate director, trustee, or officer aon, abeit not necessari, with the corporation

ma vaid attach when

1# Be assents to the a- patent unawfu act of the corporation, b- bad faith or ross neience in

directin its affairs, or c- confict of interest, resutin in damaes to the corporation, its stoc@hoders, or

other personsG

2# Be consents to the issuance of watered down stoc@s or, havin @nowede thereof, does not forthwith fie

with the corporate secretar his written obHection theretoG

3# Be arees to hod himsef persona and soidari iabe with the corporationG or

8# Be is made, b specific provision of aw, to persona answer for his corporate action# [3(]

.t is worth notin that when the ate *oda sod his shares of stoc@ to e Bun *# Choa, he @nowin and vountari

hed himsef persona iabe for a the ta+ iabiities of C.C and the buer for the ears 1/(7, 1/((, and 1/(/#

%araraph of the Deed of Sae of Shares of Stoc@s specifica provides

# 6+cept for transactions occurrin in the ordinar course of business, Cibees has no iabiities or obiations

continent or otherwise, for ta+es, sums of mone or insurance caims other than those reported in its audited

financia statement as of December 31, 1/(/, attached hereto as Anne+ and made a part hereof# *he business of

Cibees has at a times been conducted in fu compiance with a appicabe aws, rues and reuations# SEER

u*-6D* 6 6?-** o :ol :* %"ER 6 C*l* ;-** ;-o+ 6y 6 6ll o+* 6< l6l* o;

C*l* ;o- :* ;6l y*6- 19(, 19(( 6 19(9.[3/]

[<nderscorin Suppied]#

?hen the ate *oda undertoo@ and areed to hod the <6$ and Cibees free from an a income ta+ iabiities of

Cibees for the fisca ears 1/(7, 1/((, and 1/(/, he thereb vountari hed himsef persona iabe therefor

$espondent estate cannot, therefore, den iabiit for C.Cs deficienc income ta+ for the ear 1/(/ b invo@in the

separate corporate personait of C.C, since its obiation arose from *odas contractua underta@in, as contained in

the !eed of "ale of "hares of "toc#.

'HEREFORE, in view of a the foreoin, the petition is hereb "$A&*6D# *he decision of the Court of Appeas

of 31 :anuar 2001 in CA!"#$# S% &o# 977// is $66$S6D and S6* AS.D6, and another one is hereb rendered

orderin respondent 6state of enino %# *oda :r# to pa %7/,0//,///#22 as deficienc income ta+ of Cibees .nsurance

Corporation for the ear 1/(/, pus ea interest from 1 5a 1//8 unti the amount is fu paid#

Costs aainst respondent#

SO OR#ERE#.

G.R. No. 9259 J6u6-y 2, 19((

#EPHER TRA#ES CORPORATION, 6 #EPHIN PACHECO, petitioners,

vs#

INTERME#IATE APPEATE CO"RT 6 H#RO PIPES PHIIPPINES, INC., respondents#







G"TIERRE, JR., J.:

*he petitioners uestion the decision of the .ntermediate Appeate Court which sustained the private respondentPs

contention that the deed of e+chane whereb Defin %acheco and %eaia %acheco conveed a parce of and to

Depher *rades Corporation in e+chane for 2,900 shares of stoc@ was actua a deed of sae which vioated a riht of

first refusa under a ease contract#

rief, the facts of the case are summari=ed as foows

.n 1/78, Defin %acheco and his sister, %eaia %acheco, were the owners of 27,1'/ suare meters of

rea estate .dentified as ot# &o# 10/9, 5ainta 6state, in the 5unicipait of %oo now aen=uea-,

%rovince of uacan now 5etro 5ania- which is covered b *ransfer Certificate of *ite &o# *!8280 of

the uacan and reistr#

)n Apri 3, 1/78, the said co!owners eased to Construction Components .nternationa .nc# the same

propert and providin that durin the e+istence or after the term of this ease the essor shoud he

decide to se the propert eased sha first offer the same to the essee and the etter has the priorit

to bu under simiar conditions 6+hibits A to A!9-

)n Auust 3, 1/78, essee Construction Components .nternationa, .nc# assined its rihts and

obiations under the contract of ease in favor of Bdro %ipes %hiippines, .nc# with the sined

conformit and consent of essors Defin %acheco and %eaia %acheco 6+hs# to !' incusive-

*he contract of ease, as we as the assinment of ease were annotated at he bac@ of the tite, as per

stipuation of the parties 6+hs# A to D!3 incusive-

)n :anuar 3, 1/7', a deed of e+chane was e+ecuted between essors Defin and %eaia %acheco

and defendant Depher *rades Corporation whereb the former conveed to the atter the eased

propert *C* &o#*!8280- toether with another parce of and aso ocated in 5ainta 6state,

aen=uea, 5etro 5ania *C* &o# 8273- for 2,900 shares of stoc@ of defendant corporation with a

tota vaue of %1,900,000#00 6+hs# C to C!9, incusive- pp# 88!89, $oo-

)n the round that it was not iven the first option to bu the eased propert pursuant to the proviso in the ease

areement, respondent Bdro %ipes %hiippines, .nc#, fied an amended compaint for reconveance of ot# &o# 10/9 in

its favor under conditions simiar to those whereb Depher *rades Corporation acuired the propert from %eaia

%acheco and Dephin %acheco#

After tria, the Court of First .nstance of uacan rued in favor of the paintiff# *he dispositive portion of the decision

reads

ACC)$D.&", the Hudment is hereb rendered decarin the vaid e+istence of the paintiffs

preferentia riht to acuire the subHect propert riht of first refusa- and orderin the defendants

and a persons derivin rihts therefrom to conve the said propert to paintiff who ma offer toacuire the same at the rate of %18#00 per suare meter, more or ess, for ot 10/9 whose area is

27,1'/ suare meters on# ?ithout pronouncement as to attornePs fees and costs# Appendi+ .G $ec#

pp# 28'! 287-# AppeantPs rief, pp# 1!2G p# 138, $oo-

*he ower courtPs decision was affirmed on appea b the .ntermediate Appeate Court#

*he defendants!appeants, now the petitioners, fied a petition for certiorari to review the appeate courtPs decision#

?e initia denied the petition but upon motion for reconsideration, we set aside the resoution denin the petition

and ave it due course#



*he petitioners aee that

*he denia of the petition wi wor@ reat inHustice to the petitioners, in that

1# $espondent Bdro %ipes %hiippines, .nc, Kprivate respondentK- wi acuire from petitioners a

parce of industrial and consistin of 27,1'/ suare meters or 2#7 hectares ocated riht after the

aen=uea, uacan e+it of the to e+presswa- for on $1%&s'. meter , or a tota of $()*,(++

athouh the prevaiin vaue thereof is appro+imate %300>s# meter or %(#1 5iionG

2# %rivate respondent is aowed to e+ercise its riht of first refusa even if there is no KsaeK or transfer

of actua ownership interests b petitioners to third partiesG and

3# Assumin arguendo that there has been a transfer of actua ownership interests, private respondent

wi acuire the and not under Ksimiar conditionsK b which it was transferred to petitioner Depher

*rades Corporation, as provided in the same contractua provision invo@ed b private respondent# pp#

291!292, $oo-

*he resoution of the case hines on whether or not the KDeed of 6+chaneK of the properties e+ecuted b the

%achecos on the one hand and the Depher *rades Corporation on the other was meant to be a contract of sae which,

in effect, preHudiced the private respondentPs riht of first refusa over the eased propert incuded in the Kdeed of

e+chane#K

6duardo &eria, a certified pubic accountant and son!in!aw of the ate %eaia %acheco testified that Depher *rades

Corporation is a fami corporationG that the corporation was orani=ed b the chidren of the two spouses spouses

%eaia %acheco and enHamin Bernande= and spouses Defin %acheco and %iar Anees- who owned in common the

parce of and eased to Bdro %ipes %hiippines in order to perpetuate their contro over the propert throuh the

corporation and to avoid ta+esG that in order to accompish this end, two pieces of rea estate, incudin ot &o# 10/9

which had been eased to Bdro %ipes %hiippines, were transferred to the corporationG that the eased propert was

transferred to the corporation b virtue of a deed of e+chane of propertG that in e+chane for these properties,

%eaia and Defin acuired 2,900 unissued no par vaue shares of stoc@ which are euivaent to a 99; maHorit in the

corporation because the other owners on owned 2,000 sharesG and that at the time of incorporation, he @new a

about the contract of ease of ot# &o# 10/9 to Bdro %ipes %hiippines# .n the petitionersP motion for reconsideration,

the refer to this scheme as Kestate pannin#K p# 292, $oo-

<nder this factua bac@drop, the petitioners contend that there was actua no transfer of ownership of the subHect

parce of and since the %achecos remained in contro of the propert# *hus, the petitioners aee KConsiderin that

the beneficia ownership and contro of petitioner corporation remained in the hands of the oriina co!owners, there

was no transfer of actua ownership interests over the and when the same was transferred to petitioner corporation in

e+chane for the atterPs shares of stoc@# *he transfer of ownership, if anthin, was mere in form but not in

substance# .n reait, petitioner corporation is a mere ater eo or conduit of the %acheco co!ownersG hence the

corporation and the co!owners shoud be deemed to be the same, there bein in substance and in effect an .dentit of

interest#K p# 298, $oo-

*he petitioners maintain that the %achecos did not se the propert# *he arue that there was no sae and that the

e+chaned the and for shares of stoc@s in their own corporation# KBence, such transfer is not within the etter, or even

spirit of the contract# *here is a sae when ownership is transferred for a price certain in mone or its euivaent Art#

18'(, Civi Code- whie there is a barter or e+chane when one thin is iven in consideration of another thin Art#

1'3(, Civi Code-#K pp# 298!299, $oo-

)n the other hand, the private respondent arues that Depher *rades Corporation is a corporate entit separate and

distinct from the %achecos# *hus, it contends that it cannot be said that Depher *rades Corporation is the %achecoPs

same ater eo or conduitG that petitioner Defin %acheco, havin treated Depher *rades Corporation as such a

separate and distinct corporate entit, is not a part who ma aee that this separate corporate e+istence shoud be

disrearded# .t maintains that there was actua transfer of ownership interests over the eased propert when the

same was transferred to Depher *rades Corporation in e+chane for the atterPs shares of stoc@#



?e rue for the petitioners#

After incorporation, one becomes a stoc@hoder of a corporation b subscription or b purchasin stoc@ direct from

the corporation or from individua owners thereof Samon, De+ter M Co# v# <nson, 87 %hi, '8/, citin oe v# Futon

[1/12], 233 %a#, '0/-# .n the case at bar, in e+chane for their properties, the %achecos acuired 2,900 oriina

unissued no par vaue shares of stoc@s of the Depher *rades Corporation# Conseuent, the %achecos became

stoc@hoders of the corporation b subscription K*he essence of the stoc@ subscription is an areement to ta@e and

pa for oriina unissued shares of a corporation, formed or to be formed#K $ohrich 283, cited in Abaani,

Commentaries and :urisprudence on the Commercia aws of the %hiippines, o# ..., 1/(0 6dition, p# 830- .t is

sinificant that the %achecos too@ no par vaue shares in e+chane for their properties#

A no!par vaue share does not purport to represent an stated proportionate interest in the capita

stoc@ measured b vaue, but on an aiuot part of the whoe number of such shares of the issuin

corporation# *he hoder of no!par shares ma see from the certificate itsef that he is on an aiuot

sharer in the assets of the corporation# ut this character of proportionate interest is not hidden

beneath a fase appearance of a iven sum in mone, as in the case of par vaue shares# *he capita

stoc@ of a corporation issuin on no!par vaue shares is not set forth b a stated amount of mone,

but instead is e+pressed to be divided into a stated number of shares, such as, 1,000 shares# *his

indicates that a sharehoder of 100 such shares is an aiuot sharer in the assets of the corporation, no

matter what vaue the ma have, to the e+tent of 100>1,000 or 1>10# *hus, b removin the par

vaue of shares, the attention of persons interested in the financia condition of a corporation is

focused upon the vaue of assets and the amount of its debts# Abaani, Commentaries and:urisprudence on the Commercia aws of the %hiippines, o# ..., 1/(0 6dition, p# 107-#

5oreover, there was no attempt to state the true or current mar@et vaue of the rea estate# and vaued at %300#00 a

suare meter was turned over to the famiPs corporation for on %18#00 a suare meter#

.t is to be stressed that b their ownership of the 2,900 no par shares of stoc@, the %achecos have contro of the

corporation# *heir euit capita is 99; as aainst 89; of the other stoc@hoders, who aso beon to the same fami

roup#

.n effect, the Depher *rades Corporation is a business conduit of the %achecos# ?hat the rea did was to invest

their properties and chane the nature of their ownership from unincorporated to incorporated form b orani=in

Depher *rades Corporation to ta@e contro of their properties and at the same time save on inheritance ta+es#

As e+pained b 6duardo &eria

+++ +++ +++

A**# .&SA&"A&

Q 5r# &eria, from the point of view of ta+ation, is there an benefit to the spouses

Bernande= and %acheco in connection with their e+ecution of a deed of e+chane on

the properties for no par vaue shares of the defendant corporationO

A es, sir#

C)<$*

Q ?hat do ou mean b Kpoint of viewKO

A *o ta@e advantae for both spouses and corporation in enterin in the deed of

e+chane#

A**# .&SA&"A&



Q ?hat do ou mean b Kpoint of viewKO- ?hat are these benefits to the spouses of

this deed of e+chaneO

A Continuous contro of the propert, ta+ e+emption benefits, and other inherent

benefits in a corporation#

Q ?hat are these advantaes to the said spouses from the point of view of ta+ation in

enterin in the deed of e+chaneO

A Bavin fufied the conditions in the income ta+ aw, providin for ta+ free e+chane

of propert, the were abe to e+ecute the deed of e+chane free from income ta+ and

acuire a corporation#

Q ?hat provision in the income ta+ aw are ou referrin toO

A . refer to Section 39 of the &ationa .nterna $evenue Code under par# C!sub!par# 2-

6+ceptions reardin the provision which . uote K&o ain or oss sha aso be

reconi=ed if a person e+chanes his propert for stoc@ in a corporation of which as a

resut of such e+chane said person aone or toether with others not e+ceedin four

persons ains contro of said corporation#K

Q Did ou e+pain to the spouses this benefit at the time ou e+ecuted the deed of

e+chaneO

A es, sir

Q ou aso, testified durin the ast hearin that the decision to have no par vaue

share in the defendant corporation was for the purpose of fe+ibiit# Can ou e+pain

fe+ibiit in connection with the ownership of the propert in uestionO

A *here is fe+ibiit in usin no par vaue shares as the vaue is determined b the

board of directors in increasin capitai=ation# *he board can fi+ the vaue of the shares

euivaent to the capita reuirements of the corporation#

Q &ow aso from the point of ta+ation, is there an fe+ibiit in the hodin b the

corporation of the propert in uestionO

A es, since a corporation does not die it can continue to hod on to the propert

indefinite for a period of at east 90 ears# )n the other hand, if the propert is hed

b the spouse the propert wi be tied up in succession proceedins and the

conseuentia paments of estate and inheritance ta+es when an owner dies#

Q &ow what advantae is this continuit in reation to ownership b a particuar person

of certain properties in respect to ta+ationO

A *he propert is not subHected to ta+es on succession as the corporation does not die

Q So the benefit ou are ta@in about are inheritance ta+esO

A es, sir# pp# 3!9, tsn#, December 19, 1/(1-

*he records do not point to anthin wron or obHectionabe about this Kestate panninK scheme resorted to b the

%achecos# K*he ea riht of a ta+paer to decrease the amount of what otherwise coud be his ta+es or atoethe

avoid them, b means which the aw permits, cannot be doubted#K idde M Co#, .nc# v# *he coector of .nterna

$evenue, 2 SC$A '32 citin "reor v# Beverin, 2/3 <#S# 8'9, 7 # ed# 9/'-#



*he KDeed of 6+chaneK of propert between the %achecos and Depher *rades Corporation cannot be considered a

contract of sae# *here was no transfer of actua ownership interests b the %achecos to a third part# *he %acheco

fami mere chaned their ownership from one form to another# *he ownership remained in the same hands# Bence,

the private respondent has no basis for its caim of a iht of first refusa under the ease contract#

?B6$6F)$6, the instant petition is hereb "$A&*6D, *he uestioned decision and resoution of the then .ntermediate

Appeate Court are $66$S6D and S6* AS.D6# *he amended compaint in Civi Case &o# ((9!!7/ of the then Court

of First .nstance of uacan is D.S5.SS6D# &o costs#

S) )$D6$6D#

G.R. No. 112 A/-l 4, 200

INTERNATIONA EXCHANGE %AN7, %etitioner,

vs#

COMMISSIONER OF INTERNA RE!EN"E, $espondent#

# E C I S I O N

CARPIO MORAES, J.:

.s a Savins Account!Fi+ed Savins Deposit FSD- evidenced b a passboo@ issued b .nternationa 6+chane an@

petitioner- subHect to documentar stamp ta+ DS*- for the ears 1//' and 1//7O

%etitioner, a ban@in institution du orani=ed and e+istin under the aws of the %hiippines, was on Apri 13, 1///

served etter of Authorit &o# 0000209391 b the Commissioner of .nterna $evenue respondent- directin the

e+amination b a KSpecia *eam created pursuant to $S) 7/7!/(K Specia *eam- of petitionerIs boo@s of accounts

and other accountin records for the ear 1//7 and Kunverified prior ears#K An e+amination of said documents was in

fact conducted#

%etitioner subseuent received on &ovember 1', 1/// a K&otice to *a+paerK 2 from the Assistant Commissioner

6nforcement Service of the ureau of .nterna $evenue, notifin it of the resuts of the e+amination conducted b the

Specia *eam reardin its ta+ iabiities, which amounted to %8'9,19(,11(#31 for 1//' and %17,033,311,/78#23 fo1//7, and reuestin it to appear for an informa conference to present its side#

etween &ovember3 and December8 1///, petitionerIs representatives met with the Specia *eam to discuss and>o

dispute portions of the Specia *eamIs audit findins# 6ventua, the parties resoved issues reatin to transactions

invovin pament of fina withhodin and ross receipts ta+es#9

)n :anuar ', 2000, petitioner was persona served with an undated %re!Assessment &otice ' %A&- assessin it o

deficienc on its purchases of securities from the an@o Sentra n %iipinas or "overnment Securities %urchased!

$everse $epurchase Areement $$%A- and its FSD for the ta+abe ears 1//' and 1//7, vi

Detais of Discrepancies

*a+abe ear 1//'-

IN#"STR ISS"ES

1# D)C<56&*A$ S*A5% *AE DS*- J )n "overnment Securities %urchased!$$%A and Savins Deposits ! SD

totain % 29,1(0,8/2#19#

"overnment Securities %urchased!$$% amountin to %3,9(8,0/(,013#39 is subHect to DS* under Section 1(0 of the

&.$C, as amended, since this fas under the cassification of Deposits Substitutes as defined b $$ 3!/7#

http://www.lawphil.net/judjuris/juri2007/apr2007/gr_171266_2007.html#fnt1














Savins Deposit!FSD amountin to %/,(89,8/7,(00#27 shoud be treated as time deposits considerin that its features

are ver much the same as time deposits interest ratesG terms-# .n substance, these are certificate[s] of deposits

subHect to Documentar Stamp *a+ under Section 1(0 of the &.$C which provides amon others that certificate[s] of

deposits bearin interest and others not paabe on siht or demand are subHect to DS*#7

Detais of Discrepancies

*a+abe ear 1//7-

IN#"STR ISS"ES

1# D)C<56&*A$ S*A5% *AE DS*- J )n "overnment Securities %urchased!$$%A and Savins Deposits!FSD

totain % 79,3(3,791#99#

"overnment Securities %urchased!$$% amountin to %12,1(0#827,(20#88 is subHect to DS* under Sec# 1(0 of the

&.$C, as amended, since this fas under the cassification of Deposit Substitutes as defined b $$ 3!/7#

Savins Deposits!FSD amountin to %2(,028,23/,'73#39 shoud be treated as time deposits considerin that its

features are ver much the same as time deposits interest ratesG terms-# .n substance, these are certificates of

deposit subHect to Documentar Stamp *a+ under Section 1(0 of the &.$C which provides amon others that

certificate[s] of deposit bearin interest and others not paabe on siht or demand are subHect to DS*#( <nderscorin

in the oriina-

*he %A& advised petitioner that in case it was not areeabe to the above!uoted findins, it ma Ksee the Assistant

Commissioner!6nforcement Service to carif issues arisin from the investiation and>or review,K and its faiure to do

so within 19 das from receipt of the %A& woud mean that it was areeabe#/

)n :anuar 12, 2000, petitioner received a Forma Assessment &otice10 FA&- for deficienc DS* on its $$%A and FSD,

incudin surchares, in the amounts of %29,1(0,8/2#19 for 1//' and %79,3(3,791#99 for 1//7, and an accompanin

demand etter11 reuestin pament thereof within 30 das#

Actin on the FA&, petitioner fied on Februar 11, 2000 a protest etter 12 aein that the assessments shoud be

reconsidered on the rounds that 1- the assessments are nu and void for havin been issued without an authorit

and due process, and were made beond the prescribed period for ma@in assessmentsG 2- there is no aw imposinDS* on $$%A, and assumin that DS* was paabe, it is the an@o Sentra n %iipinas which is iabe thereforG 3-

there is no aw imposin DS* on its FSDG and 8- assumin the deficienc assessments for DS* were proper, the

imposition of surchares was patent without ea authorit#

$espondent faied to act on the protest, promptin petitioner to fie a petition for review before the Court of *a+

Appeas C*A-#

Decision13 of )ctober 2', 2008, the First Division of the C*A C*A Division- disposed as foows

?B6$6F)$6, petitionerIs deficienc assessments pertainin to the reverse purchase areements in the amounts

of %',720,1(3#77 and %22,(3(,302#1' incusive of surchares, for the ears 1//' and 1//7, respective, are hereb

CA&C66D and ?.*BD$A?&# Bowever, the deficienc assessments pertainin to savins deposits!FSD are hereb<%B6D and petitioner is )$D6$6D to %A the respondent the amount of%71,009,797#77 representin deficienc

documentar stamp ta+ for the ears 1//' and 1//7# .n addition thereto, petitioner is )$D6$6D to %A respondent

20; deinuenc interest from Februar 12, 2000 unti fu paid pursuant to Section 28/ of the 1//7

&.$C#18 6mphasis and underscorin suppied-

%etitioner moved for reconsideration of the C*A Division decision# $espondent moved too for a partia review of the

decision#






















%etitioner arued that its FSD is not subHect to DS* since it was not one of the documents enumerated either under

the 1/77 *a+ Code *a+ Code- or the 1//7 &ationa .nterna $evenue Code &.$C-# $espondent on the other hand

arued that petitioner shoud be iabe not on for DS* on its FSD but aso on its $$%A#

For ac@ of merit, the C*A Division, b $esoution19 of Apri 20, 2009, denied petitionerIs motion for reconsideration

and respondentIs motion for partia reconsideration#

)n petitioner appeaed to the C*A 6n anc before which it proffered that its FSD cannot be considered a certificate

of deposit subHect to DS* under Section 1(0 of the *a+ Code for, uni@e a certificate of deposit which is a neotiabe

instrument, the passboo@ it issued for its FSD was not paabe to the order of the depositor or to some other person

as the deposit coud on be withdrawn b the depositor or b a du authori=ed representative#1'

%etitioner i@ewise proffered that the eisative deiberations on the bi that was to become $epubic Act &o# $#A#-

/28317 showed that the definition of certificates of deposit was amended to incude Kother evidences of deposits that

are either drawin interest sinificant hiher than the reuar savins deposit ta@in into consideration the si=e of

the deposit and the ris@s invoved or drawin interest and havin a specific maturit dateK in order to pu a revenue

oophoe caused b the term Kcertificates of depositK provided under the *a+ Code and the &.$C# 1(

Furthermore, petitioner arued that a Kdeposits [sic] evidenced b a passboo@ [which] have features a@in to a time

deposit,K such as petitionerIs FSD, is not subHect to DS* under the *a+ Code and the &.$C#1/

Fina, petitioner arued that the FA& for 1//' and 1//7 were issued in vioation of its riht to due process, the

havin been issued even before it coud respond to the %A&G and that the 1//' assessment is nu and void for havin

been issued beond the 3!ear prescriptive period#

Decision20 of :anuar 30, 200', the C*A 6n anc affirmed the decision of the C*A Division findin petitioner iabe

for pament of deficienc DS* for its FSD#

.n affirmin the C*A Division Decision, the C*A 6n anc hed that a time deposit is a tpe of a certificate of deposit

drawin interest, and petitionerIs FSD has the same nature and characteristics as those of a time depositG that the

reuirement of due process had been substantia compied withG and the 1//' assessment was not barred b

prescription because there was no reuirement for the fiin of a DS* return under the *a+ Code#

Bence, the present petition for review on certiorari, petitioner reiteratin the same rounds advanced before the C*A

6n anc#

*he issue, in the main, is whether petitionerIs FSD is subHect to DS* for the ears assessed#

*he appicabe provision is Section 1(0 of the *a+ Code, as amended b $#A# 7''0,21 which reads

Sec# 1(0# Stamp ta+ on a oan areements, promissor notes, bis of e+chane, drafts, instruments and securities

issued b the overnment or an of its instrumentaities, certificates of deposit bearin interest and others not

paabe on siht or demand# ! )n a oan areements sined abroad wherein the obHect of the contract is ocated or

used in the %hiippinesG bis of e+chane between points within the %hiippines-, drafts, instruments and securities

issued b the "overnment or an of its instrumentaities or *-;6* o; */o -6>? *-*, or orders forthe pament of an sum of mone otherwise than at siht or on demand, or on a promissor notes, whether

neotiabe or non!neotiabe, e+cept ban@ notes issued for circuation, and on each renewa of an such note, there

sha be coected a documentar stamp ta+ of *hirt centavos %0#30- on each two hundred pesos, or fractiona part

thereof, of the face vaue of an such areement, bi of e+chane, draft, certificate of deposit, or note %rovided, *hat

on one documentar stamp ta+ sha be imposed on either oan areement, or promissor notes issued to secure

such oan, whichever wi ied a hiher ta+ %rovided, however, *hat oan areements or promissor notes the

areate of which does not e+ceed *wo hundred fift thousand pesos %290,000- e+ecuted b an individua for his

purchase on instament for his persona use or that of his fami and not for business, resae, barter or hire of a

house, ot, motor vehice, appiance or furniture sha be e+empt from the pament of the documentar stamp ta+

provided under this section# 6mphasis and underscorin suppied-


















%etitioner posits that based on this CourtIs definition of a certificate of deposit in ar ast /an# and Trust Compan0 v.

uerimit , 22 vi

A certificate of deposit is defined as a written ac@nowedment b a ban@ or ban@er of the receipt of a sum of mone

on deposit which the ban@ or ban@er promises to pa to the depositor, to the order of the depositor, or to some other

person or his order, whereb the reation of debtor and creditor between the ban@ and the depositor is created# # # # 23

its FSD is not a certificate of deposit since there is nothin in the terms and conditions printed on the passboo@

evidencin it that can be construed to mean that the ban@ or ban@er ac@nowedes the receipt of a sum of mone on

deposit#28

%etitioner moreover posits that the FSD, uni@e a certificate of deposit, is not neotiabe or paabe to the order of

some other person or his order but is Kon withdrawabe b the depositor or his authori=ed representative#K29

%etitionerIs position does not ie#

As correct found b the C*A 6n anc, a passboo@ representin an interest earnin deposit account issued b a ban@

uaifies as a certificate of deposit drawin interest#2'

A document to be deemed a certificate of deposit reuires no specific form as on as there is some written

memorandum that the ban@ accepted a deposit of a sum of mone from a depositor#

27

?hat is important andcontroin is the nature or meanin conveed b the passboo@ and not the particuar abe or nomencature attached

to it, inasmuch as substance, not form, is paramount# 2(

Contrar to petitionerIs caim, not a certificates of deposit are neotiabe# A certificate of deposit ma or ma not be

neotiabe as athered from the use of the conHunction o-, instead of 6, in its definition# A certificate of deposit

ma be paabe to the depositor, to the order of the depositor, o- to some other person or his order#

.n an event, the neotiabe character of an and a documents under Section 1(0 is immateria for purposes of

imposin DS*#

)rders for the pament of sum of mone paabe at siht or on demand are of course e+picit e+empted from the

pament of DS*# *hus, a reuar savins account with a passboo@ which is withdrawabe at an time is not subHect toDS*, uni@e a time deposit which is paabe on a fi+ed maturit date#

As for petitionerIs arument that its FSD is simiar to a reuar savins deposit because it is evidenced b a

passboo@,2/ and that based on the eisative deiberations on the bi which was to become $#A# /283 which amended

Section 1(0 of the &.$C which is to a are e+tent the same as Section 1(0 of the *a+ Code, as amended b $#A#

7''0-, Conress admitted that deposits evidenced b passboo@s which have features a@in to time deposits are not

subHect to DS*,30 the same does not ie#

*he FSD, i@e a time deposit, provides for a hiher interest rate when the deposit is not withdrawn within the reuired

fi+ed periodG otherwise, it earns interest pertainin to a reuar savins deposit# Bavin a fi+ed term and the reduction

of interest rates in case of pre!termination are essentia features of a time deposit# *hus e+pains the C*A 6n anc

.t is we!setted that certificates of time deposit are subHect to the DS* and that a certificate of time deposit is but a

tpe of a certificate of deposit drawin interest# *hus, in resovin the issue before <s, it is necessar to determine

whether petitionerIs Savins Account!Fi+ed Savins Deposit SA!FSD- has the same nature and characteristics as a

time deposit# .n this reard, the findins of fact stated in the assaied Decision [of the C*A Division] are as foows

K.n this case, a depositor of a savins deposit!FSD is reuired to @eep the mone with the ban@ for at east thirt 30-

das in order to ied a hiher interest rate# )therwise, the deposit earns interest pertainin on to a reuar savins

deposit#
























*he same feature is present in a time deposit# A depositor is aowed to withdraw his time deposit even before its

maturit subHect to ban@ chares on its pre[!]termination and the depositor oses his entitement to earn the interest

rate correspondin to the time deposit# .nstead, he earns interest pertainin on to a reuar savins deposit# *hus,

petitionerIs arument that the savins deposit!FSD is withdrawabe antime as opposed to a time deposit which has a

maturit date, is not tenabe# .n both cases, the deposit ma be withdrawn antime but the depositor ets to earn a

ower rate of interest# *he on difference ies on the evidence of deposit, a savins deposit!FSD is evidenced b a

passboo@, whie a time deposit is evidenced b a certificate of time deposit#K

.n order for a depositor to earn the areed hiher interest rate in a SA!FSD, the amount of deposit must be

maintained for a fi+ed period# Such bein the case, ?e aree with the findin that the SA!FSD is a deposit account

with a fi+ed term# ?ithdrawa before the e+piration of said fi+ed term resuts in the reduction of the interest rate#

Bavin a fi+ed term and reduction of interest rate in case of pre!termination are essentiall0 the features of a time

deposit# Bence, this Court concurs with the concusion reached in the assaied Decision that petitionerIs SA!FSD and

time deposit are substantia the same# # # #31 .taics in the oriinaG underscorin suppied-

*he findins and concusions reached b the C*A which, b the ver nature of its function, is dedicated e+cusive to

the consideration of ta+ probems and has necessari deveoped an e+pertise on the subHect, and uness there has

been an abuse or improvident e+ercise of authorit,32 and none has been shown in the present case, deserves respect#

.t bears emphasis that DS* is evied on the e+ercise b persons of certain priviees conferred b aw for the creation,

revision, or termination of specific ea reationships throuh the e+ecution of specific instruments# 33 .t is an e+cise

upon the priviee, opportunit or faciit offered at e+chanes for the transaction of the business#38

?hie ta+ avoidance schemes and arranements are not prohibited, ta+ aws cannot be circumvented in order to

evade pament of Hust ta+es# 39 *o caim that time deposits evidenced b passboo@s shoud not be subHect to DS* is a

cear evasion of the rue on euait and uniformit in ta+ation that reuires the imposition of DS* on documents

evidencin transactions of the same @ind, in this particuar case, on a certificates of deposits drawin interest#3'

*he further amendment of Section 1(0 of the &.$C and its renumberin as Section 17/ b $#A# /283, which was

approved on Februar 17, 2008, vi

S6C# 9# Section 1(0 of the &ationa .nterna $evenue Code of 1//7, as amended, is hereb renumbered as Section

17/ and further amended to read as foows

S6C# 17/# Stamp *a+ on A Debt .nstruments# J )n ever oriina issue of debt instruments, there sha be coected a

documentar stamp ta+ of )ne peso %1#00- on each *wo hundred pesos %200-, or fractiona part thereof, of the

issue price of an such debt instruments %rovided, *hat for such debt instruments with terms of ess than one 1-

ear, the documentar stamp ta+ to be coected sha be of a proportiona amount in accordance with the ratio of its

term in number of das to three hundred si+t!five 3'9- das %rovided, further, *hat on one documentar stamp

ta+ sha be imposed on either oan areement, or promissor notes issued to secure such oan#

For purposes of this section, the term debt instrument sha mean instruments representin borrowin and endin

transactions incudin but not imited to debentures, certificates of indebtedness, due bis, bonds, oan areements,

incudin those sined abroad wherein the obHect of contract is ocated or used in the %hiippines, instruments and

securities issued b the overnment of an of its instrumentaities, deposit substitute debt instruments, certificates or

other evidences of deposits that are either drawin interest sinificant hiher than the reuar savins deposit ta@in

into consideration the si=e of the deposit and the ris@s invoved or drawin interest and havin a specific maturit

date, orders for pament of an sum of mone otherwise than at siht or on demand, promissor notes, whether

neotiabe or non!neotiabe, e+cept ban@ notes issued for circuation#K <nderscorin suppied-,

does not mean that as proffered, prior to its further amendment on said date, Section 1(0 of the *a+ Code and the

&.$C time deposits for which passboo@s were issued were e+empted from pament of DS*#

.f at a, the further amendment was intended to eiminate precise the scheme used b ban@s of issuin passboo@s

to Kcoa@K its time deposits as reuar savins deposits# *his is refected from the foowin e+chanes between 5r#
















5iue Andaa of the an@ers Association of the %hiippines and Senator $aph $ecto, Senate Chairman of the

Committee on ?as and 5eans, durin the deiberations on Senate i &o# 291( which eventua became $#A# /283

5$# 5."<6 A&DAA an@ers Association of the %hiippines-# :ust to carif# Savins deposit at the present

time is not subHect to DS*#

*B6 CBA.$5A&# *hatIs riht#

5$# A&DAA# *ime deposit is subHect# . aree with ou in principe that if we are oin to encourae deposits,

whether savins or timeR

*B6 CBA.$5A&# <h!huh#

5$# A&DAA# # #itIs uestionabe whether we shoud ta+ it with DS* at a, even the uestion of imposin fina

withhodin ta+ has been raised as an issue#

*B6 CBA.$5A&# .f . had it m wa, .I cut it b haf#

5$# A&DAA# eah, but . uess concernin the constraint of overnment revenue, even the industr itsef

riht now is not pushin in that direction, but in the on term, when most of us in this room are one, we

hope that DS* wi disappear from the face of this earth, no#

&ow, . thin@ the move of the D)F to e+pand the coverae of or to add that phrase, K)ther evidence of

indebtedness,K it Hust removed ambiuit# ?hen we testified earier in the Bouse on this ver same bu, we

did not interpose an obHections if on for the sa@e of avoidin further ambiuit in the impementation of

DS* on deposits# ecause of what has happened so far is, we donIt @now whether the e+aminer is onna

come in and sa, K*his savins deposit is not savins but itIs time deposit#K So, . thin@ what D)F has done is

to eiminate an confusion# *he said that a deposit that has a maturit# # #


5$# A&DAA# # # # which is time, in effect, reardess of what form it ta@es shoud be subHect to DS*#

*B6 CBA.$5A&# ?oud that incude savins deposit nowO

5$# A&DAA# So that if we coa@ed a deposit as savins deposit but it has ot a fi+ed maturit # # #


5$# A&DAA# # # that woud fa under the purview#37 <nderscorin suppied-

Fina, as the records show, contrar to petitionerIs caim, it had been afforded the opportunit to protest the

assessment notices as in fact it even reuested for a re!investiation which is, iven the nature of the present case,

the essence of due process#3(

?B6$6F)$6, the petition is D6&.6D#

S) )$D6$6D#

THIR# #I!ISION COMMISSIONER OF INTERNA RE!EN"E,%etitioner,

G.R. No. 129 %resent







! versus !

CA$%.) 5)$A6S, 2 #,Chairperson,$.)&,6$SA5.&,.A$A5A, :$#, andS6$6&), 22 #

HON. RA" M. GONAE, S*-*6-y o; Ju*, . M. CAM"S ENGINEERING

CORPORATION -*/-*** y "IS M.CAM"S 6 INO #. MEN#OAB,$espondents#

%romuated

)ctober 13, 2010

< < #ECISION !IARAMA, JR., J .&

*his is a petition for review on certiorari under $ue 89 of the 1//7 $ues of Civi %rocedure, as amended, assaiin

the Decision[1] dated )ctober 31, 200' and $esoution[2]dated 5arch ', 2007 of the Court of Appeas CA- in CA!"#$# S%

&o# /33(7 which affirmed the $esoution[3] dated December 13, 2009 of respondent Secretar of :ustice in .#S# &o# 2003!

778 for vioation of Sections 298 and 299 of the &ationa .nterna $evenue Code of 1//7 &.$C-#

*he facts as cued from the records

%ursuant to etter of Authorit A- &o# 0000/3'1 dated Auust 29, 2000 issued b then Commissioner of

.nterna $evenue petitioner- Da@ia # Fonacier, $evenue )fficers $emedios C# Advincua, :r#, Simpicio # Cabantac,

:r#, $icardo # Suba, :r# and Aureio Austin *# 4amora supervised b Section Chief Si+to C# D, :r# of the *a+ Fraud

Division *FD-, &ationa )ffice, conducted a fraud investiation for a interna revenue ta+es to ascertain>determine

the ta+ iabiities of respondent # 5# Camus 6nineerin Corporation 5C6C- for the ta+abe ears 1//7, 1//( and

1///#[4] *he audit and investiation aainst 5C6C was precipitated b the information provided b an informer that

5C6C had substantia underdecared income for the said period# For faiure to comp with the subpoena duces

tecum issued in connection with the ta+ fraud investiation, a crimina compaint was instituted b the ureau of .nterna

$evenue .$- aainst 5C6C on :anuar 1/, 2001 for vioation of Section 2'' of the &.$C .#S# &o# 00!/9' of the

)ffice of the Cit %rosecutor of Que=on Cit-#[5]

ased on data obtained from an informer and various cients of 5C6C,[] it was discovered that 5C6C fied

frauduent ta+ returns with substantia underdecarations of ta+abe income for the ears 1//7, 1//( and

1///# %etitioner thus assessed the compan of tota deficienc ta+es amountin to %830,/9(,009#/0 income ta+

!%31(,'0',3(0#1/ and vaue!added ta+ [A*] ! %112,391,'29#71- coverin the said period# *he %reiminar

Assessment &otice %A&- was received b 5C6C on Februar 22, 2001#[]

5C6Cs aeed underdecared income was summari=ed b petitioner as foows

*6- Io+*P*- ITR

Io+*P*- I)*?6o

"*l6-*

I

o+*

P*-*6?* o; "*-*l6-6o

1//7 /','3(,980#00 2(3,812,180#(8 1(',733,'00#(8 1/3#30;

1//( (',7/3,/13#00 23',('3,23'#(1 190,0'/,323#(1

172#/0;

1/// ((,2(7,7/2#00 291,907,/03#13 1'3,220,111#13 1(8#/0;[(]

http://sc.judiciary.gov.ph/jurisprudence/2010/october2010/177279.htm#_ftn1


















.n view of the above findins, assessment notices toether with a forma etter of demand dated Auust 7,

2002 were sent to 5C6C throuh persona service on )ctober 1, 2002# [9] Since the compan and its representatives

refused to receive the said notices and demand etter, the revenue officers resorted to constructive service [10] in

accordance with Section 3, $evenue $euations $$- &o# 12!//[11]#

)n 5a 21, 2003, petitioner, throuh then Commissioner "uiermo # %arano, :r#, referred to the Secretar of

:ustice for preiminar investiation its compaint aainst 5C6C, uis 5# Camus and ino D# 5endo=a, the atter two

were sued in their capacities as %resident and Comptroer, respective# *he case was doc@eted as .#S# &o# 2003!

778# .n the :oint Affidavit e+ecuted b the revenue officers who conducted the ta+ fraud investiation , it was aeed

that despite the receipt of the fina assessment notice and forma demand etter on )ctober 1, 2002, 5C6C faied and

refused to pa the deficienc ta+ assessment in the tota amount of %'30,1'8,'31#'1, incusive of increments, which

had become fina and e+ecutor as a resut of the said ta+paers faiure to fie a protest thereon within the thirt 30-!

da reementar period#[12]

Camus and 5endo=a fied a :oint Counter!Affidavit contendin that 5C6C cannot be hed iabe whatsoever

for the aeed ta+ deficienc which had become due and demandabe# Considerin that the compaint and its anne+es

a showed that the suit is a simpe civi action for coection and not a ta+ evasion case, the Department of :ustice

D):- is not the proper forum for .$s compaint# *he aso assai as invaid the assessment notices which bear no

seria numbers and shoud be shown to have been vaid served b an Affidavit of Constructive Service e+ecuted and

sworn to b the revenue officers who served the same# As stated in 5C6Cs etter!protest dated December 12

2002addressed to $evenue District )fficer $D)- Caveina S# &acar of $D &o# 80, Cubao, Que=on Cit, the compan

had aread underone a series of routine e+aminations for the ears 1//7, 1//( and 1///G under the &.$C, on one

e+amination of the boo@s of accounts is aowed per ta+abe ear#[13]

5C6C further averred that it had avaied of the ureaus *a+ Amnest %rorams 6conomic $ecover

Assistance %ament [6$A%] %roram and the ountar Assessment %roram [A%]- for 1//( and 1///G for 1//7, its

ta+ iabiit was terminated and cosed under etter of *ermination [14] dated :une 1, 1/// issued b petitioner and

sined b the Chief of the Assessment Division#[15] 5C6C caimed it made paments of income ta+, A* and

e+panded withhodin ta+ 6?*-, as foows

*AEA66A$

A5)<&* )F *AE6S%A.D

1//7 *ermination etter <nder etterof Authorit &o# 178'00Dated&ovember 8, 1//(

6?* ! % ',000#00A* ! 980,'09#02.* ! 3,000#00

1//( 6$A% %roram pursuantto $$ T2!//

?C ! 3(,808#99A* ! '1,'39#80

1/// A% %roram pursuant

to $$ T(!2001

.* ! (7(,8/9#2(

A* ! 1,328,317#00

[1]

5C6C arued that petitioner is now estopped from further ta@in an action aainst it and its corporate

officers concernin the ta+abe ears 1//7 to 1///# ?ith the rant of immunit from audit from the compans

avaiment of 6$A% and A%, which have a feature of a ta+ amnest, the eement of fraud is neated the moment the

ureau accepts the offer of compromise or pament of ta+es b the ta+paer# *he act of the revenue officers in findin

Hustification under Section '- of the &.$C est 6vidence )btainabe- is mispaced and unavaiin because the were

not abe to open the boo@s of the compan for the second time, after the routine e+amination, issuance of termination

etter and the avaiment of 6$A% and A%# 5C6C thus maintained that uness there is a prior determination of fraud




















supported b documents not et incorporated in the doc@et of the case, petitioner cannot Hust issue As without first

terminatin those previous issued# .t emphasi=ed the fact that the .$ officers who fied and sined the Affidavit!

Compaint in this case were the same ones who appeared as compainants in an earier case fied aainst Camus for

his aeed faiure to obe summons in vioation of Section 9 punishabe under Section 2'' of the &.$C of 1//7 .#S#

&o# 00!/9' of the )ffice of the Cit %rosecutor of Que=on Cit-# After preiminar investiation, said case was

dismissed for ac@ of probabe cause in a $esoution issued b the .nvestiatin %rosecutor on 5a 2, 2001#[1]

5C6C further asserted that it fied on Apri 20, 2001 a protest on the %A& issued b petitioner for havin no

basis in fact and aw# Bowever, unti now the said protest remains unresoved# As to the aeed informant who

purported suppied the confidentia information, 5C6C beieves that such person is fictitious and his true identit

and personait coud not be produced# Bence, this case is another form of harassment aainst the compan as what

had been found b the )ffice of the Cit %rosecutor of Que=on Cit in .#S# &o# 00!/9'# Said case and the present case

both have somethin to do with the audit>e+amination of 5C6C for ta+abe ears 1//7, 1//( and 1/// pursuant to

A &o# 0000/3'1#[1(]

.n the :oint $ep!Affidavit e+ecuted b the ureaus revenue officers, petitioner disareed with the contention

of 5C6C that the compaint fied is not crimina in nature, pointin out that 5C6C and its officers Camus and

5endo=a were bein chared for the crimina offenses defined and penai=ed under Sections 298 Attempt to 6vade or

Defeat *a+- and 299 ?ifu Faiure to %a *a+- of the &.$C# *his finds support in Section 209 of the same Code which

provides for administrative distraint, ev, fine, forfeiture, ien, etc#- and Hudicia crimina or civi action- remedies in

order to enforce coection of ta+es# oth remedies ma be pursued either independent or simutaneous#.n this

case, the .$ decided to simutaneous pursue both remedies and thus aside from this crimina action, the ureau

aso initiated administrative proceedins aainst 5C6C#[19]

)n the ac@ of contro number in the assessment notice, petitioner e+pained that such is a mere office

reuirement in the Assessment Service for the purpose of interna contro and monitorinG hence, the unnumbered

assessment notices shoud not be interpreted as irreuar or anomaous# %etitioner stressed that 5C6C aread ost

its riht to fie a protest etter after the apse of the thirt 30-!da reementar period# 5C6Cs protest!etter

dated December 12, 2002 to $D) Caveina S# &acar, $D &o# 80, Cubao,Que=on Cit was actua fied on

on December 1', 2002, which was disrearded b the petitioner for bein fied out of time# 6ven assumin for the

sa@e of arument that the assessment notices were invaid, petitioner contended that such coud not affect the

present crimina action,[20] citin the ruin in the andmar@ case of 3nga4 v. Cusi, 2r #[21]

As to the etter of *ermination sined b $uth ivian "# "andia of the Assessment Division, $evenue $eion

&o# 7, Que=on Cit, petitioner pointed out that 5C6C faied to mention that the undated Certification issued b $D)

%abo C# Cabreros, :r# of $D &o# 80, Cubao, Que=on Cit stated that the report of the 1//7 .nterna $evenue ta+es of

5C6C had aread been submitted for review and approva of hiher authorities# 5C6C aso cannot caim as e+cuse

from the reopenin of its boo@s of accounts the previous investiations and e+aminations# <nder Section 239 a-, an

e+ception was provided in the rue on once a ear audit e+amination in case of fraud, irreuarit or mista@es, as

determined b the Commissioner# %etitioner e+pained that the distinction between a $euar Audit 6+amination and

*a+ Fraud Audit 6+amination ies in the fact that the former is conducted b the district offices of the ureaus $eiona

)ffices, the authorit emanatin from the $eiona Director, whie the atter is conducted b the *FD of the &ationa

)ffice on when instances of fraud had been determined b the petitioner#[22]

%etitioner further asserted that 5C6Cs caim that it was ranted immunit from audit when it avaied of the

A% and 6$A% prorams is miseadin# 5C6C faied to state that its avaiment of 6$A% under $$ &o# 2!// is not a

rant of absoute immunit from audit and investiation, aside from the fact that said proram was on for income
















ta+ and did not cover A* and withhodin ta+ for the ta+abe ear 1//(# As for 5C6CS avaiment of A% in 1///

under $$ &o# (!2001 dated Auust 1, 2001 as amended b $$ &o# 10!2001 dated September 3, 2001, the compan

faied to state that it covers on income ta+ and A*, and did not incude withhodin ta+# Bowever, 5C6C is not

actua entited to the benefits of A% under Section 1 1#1 and 1#2- of $$ &o# 10!2001# As to the principe of

estoppe invo@ed b 5C6C, estoppe cear does not ie aainst the .$ as this invoved the e+ercise of an inherent

power b the overnment to coect ta+es#[23]

%etitioner aso pointed out that 5C6Cs assertion correatin this case with .#S# &o# 00!/9' is miseadin

because said case invoves another vioation and offense Sections 9 and 2'' of the &.$C-# Said case was fied b

petitioner due to the faiure of 5C6C to submit or present its boo@s of accounts and other accountin records for

e+amination despite the issuance of subpoena duces tecum aainst Camus in his capacit as %resident o

5C6C# ?hie indeed a $esoution was issued b Asst# Cit %rosecutor *itus C# oras on 5a 2, 2001 dismissin the

compaint, the same is sti on appea and pendin resoution b the D):# *he determination of probabe cause in said

case is confined to the issue of whether there was aread a vioation of the &.$C b Camus in not compin with the

subpoena duces tecum issued b the .$#[24]

%etitioner contended that precise the reason for the issuance to the *FD of A &o# 0000/3'1 b the

Commissioner is because the atter areed with the findins of the investiatin revenue officers that fraud e+ists in this

case# .n the conduct of their investiation, the revenue officers observed the proper procedure under $evenue

5emorandum )rder $5)- &o# 8/!2000 wherein it is reuired that before the issuance of a etter of Authorit aainst a

particuar ta+paer, a preiminar investiation shoud first be conducted to determine if a prima facie case for ta+ fraud

e+ists# As to the aeed unresoved protest fied on Apri 20, 2001 b 5C6C over the %A&, this has been disrearded

b the ureau for bein pro forma and havin been fied beond the 19!da reementar period# A subseuent etter

dated Apri 20, 2001 was fied with the *FD and sined b a certain :uan entian# Bowever, this was disrearded and

considered a mere scrap of paper since the said sinator had not shown an prior authori=ation to represent

5C6C# 6ven assumin said protest etter was vaid fied on behaf of the compan, the issuance of a Forma Demand

etter and Assessment &otice throuh constructive service on )ctober 1, 2002 is deemed an impied denia of the said

protest# ast, the detais reardin the informer bein confidentia, such information is entited to some deree ofprotection, incudin the identit of the informant aainst 5C6C#[25]

.n their :oint $eHoinder!Affidavit,[2] Camus and 5endo=a reiterated their arument that the identit of the

aeed informant is crucia to determine if he>she is uaified under Section 2(2 of the &.$C# 5oreover, there was no

assessment that has aread become fina, the vaidit of its issuance and service has been put in issue bein

anomaous, irreuar and oppressive# .t is contended that for crimina prosecution to proceed before assessment,

there must be a prima facie showin of a wifu attempt to evade ta+es# As to 5C6Cs avaiment of the A% and 6$A%

prorams, the certificate of immunit from audit issued to it b the .$ is pain and simpe, but petitioner is now

sain it has the riht to renee with impunit from its underta@in# *houh petitioner deems 5C6C not uaified to

avai of the benefits of A%, it must be noted that if it is true that at the time the petitioner fied .#S# &o# 00!/9'sometime in :anuar 2001 it had aread in its custod that Confidentia .nformation &o# 2/!2000 dated :u 7, 2000,

these revenue officers coud have riht fied the instant case and woud not resort to fiin said crimina compaint for

refusa to comp with a subpoena duces tecum.

)n September 22, 2003, the Chief State %rosecutor issued a $esoution [2] findin no sufficient evidence to

estabish probabe cause aainst respondents 5C6C, Camus and 5endo=a# .t was hed that since the paments were

made b 5C6C under 6$A% and A% pursuant to the provisions of $$ &os# 2!// and (!2001 which were offered to

ta+paers b the .$ itsef, the atter is now in estoppe to insist on the crimina prosecution of the respondent

ta+paer# *he vountar paments made thereunder are in the nature of a ta+ amnest# *he unnumbered assessment














notices were found hih irreuar and thus their vaidit is suspectG if the amounts indicated therein were coected,

it is uncertain how these wi be accounted for and if it woud o to the coffers of the overnment or esewhere# )n the

reuired prior determination of fraud, the Chief State %rosecutor decared that the )ffice of the Cit %rosecutor in .#S#

&o# 00!/9' has aread suare rued that 1- there was no prior determination of fraud, 2- there was indiscriminate

issuance of As, and 3- the compaint was more of harassment# .n view of such findins, an ensuin A is thus

defective and aowin the coection on the assaied assessment notices woud aread be in the conte+t of a fishin

e+pedition or witch!huntin# Conseuent, there is nothin to spea@ of reardin the finait of assessment notices in

the areate amount of %'30,1'8,'31#'1#

%etitioner fied a motion for reconsideration which was denied b the Chief State %rosecutor#[2(]

%etitioner appeaed to respondent Secretar of :ustice but the atter denied its petition for review under

$esoution dated December 13, 2009#[29]

*he Secretar of :ustice found that petitioners caim that there is et no finait as to 5C6Cs pament of its

1//7 ta+es since the audit report was sti pendin review b hiher authorities, is unsubstantiated and mispaced# .t

was noted that the *ermination etter issued b the Commissioner on :une 1, 1/// is e+picit that the matter is

considered cosed# As for ta+abe ear 1//(, respondent Secretar stated that the record shows that 5C6C paid A*

and withhodin ta+ in the amount of %'1,'39#80 and %3(,808#99, respective# *his eventua ave rise to the

issuance of a certificate of immunit from audit for 1//( b the )ffice of the Commissioner of .nterna $evenue# For

ta+abe ear 1///, respondent Secretar found that pursuant to earier A &o# 3('33 dated :u 8, 2000, 5C6Cs

1/// ta+ iabiities were sti pendin investiation for which reason 5C6C assaied the subseuent issuance of A &o#

0000/3'1 dated Auust 29, 2000 cain for a simiar investiation of its aeed 1/// ta+ deficiencies when no fina

determination has et been arrived on the earier A &o# 3('33#[30]

)n the aeation of fraud, respondent Secretar rued that petitioner faied to estabish the e+istence of the

foowin circumstances indicatin fraud in the settement of 5C6Cs ta+ iabiities 1- there must be intentiona and

substantia understatement of ta+ iabiit b the ta+paerG 2- there must be intentiona and substantia

overstatement of deductions or e+emptionsG and 3- recurrence of the foreoin circumstances# irst , petitione

miserab faied to e+pain wh the assessment notices were unnumberedG second,the caim that the ta+ fraud

investiation was precipitated b an aeed informant has not been corroborated nor was it cear estabished, hence

there is no other concusion but that the ureau enaed in a fishin e+peditionG and furthermore, petitioners course

of action is contrar to Section 239 of the &.$C aowin on once in a iven ta+abe ear such e+amination and

inspection of the ta+paers boo@s of accounts and other accountin records# *here was no convincin proof presented

b petitioner to show that the case of 5C6C fas under the e+ceptions provided in Section 239# $esponden

Secretar du considered the issuance of Certificate of .mmunit from Audit and etter of *ermination dated :une 1,

1/// issued to 5C6C#[31]

Anent the earier case fied aainst the same ta+paer .#S# &o# 00!/9'-, the Secretar of :ustice found

petitioner to have enaed in forum shoppin in view of the fact that whie there is sti pendin an appea from the

$esoution of the Cit %rosecutor of Que=on Cit in said case, petitioner hurried fied the instant case, which not on

invoved the same parties but aso simiar substantia issues the Hoint compaint!affidavit aso aeed the issuance of

A &o# 0000/3'1 dated Auust 29, 2000-# Cear, the evidence of litis pendentia is present# Fina, responden

Secretar noted that if indeed 5C6C committed fraud in the settement of its ta+ iabiities, then at the outset, it

shoud have been discovered b the aents of petitioner, and conseuent petitioner shoud not have issued the

etter of *ermination and the Certificate of .mmunit From Audit# %etitioner thus shoud have been more circumspect

in the issuance of said documents#[32]














.ts motion for reconsideration havin been denied, petitioner chaened the ruin of respondent

Secretar via a certiorari petition in the CA#

)n )ctober 31, 200', the CA rendered the assaied decision [33] denin the petition and concurred with the

findins and concusions of respondent Secretar# %etitioners motion for reconsideration was i@ewise denied b the

appeate court#[34] .t appears that entr of Hudment was issued b the CA statin that its )ctober 31, 200' Decision

attained finait on 5arch 29, 2007#[35] Bowever, the said entr of Hudment was set aside upon manifestation b the

petitioner that it has fied a petition for review before this Court subseuent to its receipt of the $esoution

dated 5arch ', 2007 denin petitioners motion for reconsideration on 5arch 20, 2007#[3]

*he petition is anchored on the foowin rounds

.#

*he Bonorabe Court of Appeas erroneous sustained the findins of the Secretar of :ustice whorave abused his discretion b dismissin the compaint based on rounds which are not eveneements of the offenses chared#

..#

*he Bonorabe Court of Appeas erroneous sustained the findins of the Secretar of :ustice whorave abused his discretion b dismissin petitioners evidence, contrar to aw#

...#

*he Bonorabe Court of Appeas erroneous sustained the findins of the Secretar of :ustice whorave abused his discretion b inuirin into the vaidit of a Fina Assessment &otice which hasbecome fina, e+ecutor and demandabe pursuant to Section 22( of the *a+ Code of 1//7 for faiureof private respondent to fie a protest aainst the same#[3]

*he core issue to be resoved is whether 5C6C and its corporate officers ma be prosecuted for vioation of

Sections 298 Attempt to 6vade or Defeat *a+- and 299 ?ifu Faiure to Supp Correct and Accurate .nformation

and %a *a+-#

%etitioner fied the crimina compaint aainst the private respondents for vioation of the foowin provisions

of the &.$C, as amended

S6C# 298# Attempt to vade or !efeat Tax. An person who >ll;ully 6*+/ 6y+6*- o *)6* o- *;*6 6y 6< imposed under this Code o- :* /6y+* :*-*o; sha, inaddition to other penaties provided b aw, upon conviction thereof, be punished b a fine of not essthan *hirt thousand pesos %30,000- but not more than )ne hundred thousand pesos %100,000-and suffer imprisonment of not ess than two 2- ears but not more than four 8-ears $rovided, *hat the conviction or acuitta obtained under this Section sha not be a bar to the

fiin of a civi suit for the coection of ta+es#

S6C# 299# ailure to ile Return, "uppl0 Correct and Accurate 5nformation, $a0 Tax, 6ithhold and Remit Tax and Refund xcess Taxes 6ithheld on Compensation. An person reuired under thisCode or b rues and reuations promuated thereunder to pa an ta+, ma@e a return, @eep anrecord, or supp an correct and accurate information, >:o >ll;ully ;6l o /6y u: 6<, ma@esuch return, @eep such record, or u//ly u: o--* 6 6u-6* ;o-+6o, or withhod orremit ta+es withhed, or refund e+cess ta+es withhed on compensations at the time or times reuiredb aw or rues and reuations sha, in addition to other penaties provided b aw, upon convictionthereof, be punished b a fine of not ess than *en thousand pesos %10,000- and suffer imprisonmentof not ess than one 1- ear but not more than ten 10- ears#

+ + + + 6mphasis suppied#-













$espondent Secretar concurred with the Chief State %rosecutors concusion that there is insufficient evidence

to estabish probabe cause to chare private respondents under the above provisions, based on the foowin

findins 1- the ta+ deficiencies of 5C6C for ta+abe ears 1//7, 1//( and 1/// have a been setted or terminated,

as in fact 5C6C was issued a Certificate of .mmunit and etter of *ermination, and avaied of the 6$A% and A%

proramsG 2- there was no prior determination of the e+istence of fraudG 3- the assessment notices are

unnumbered, hence irreuar and suspectG 8- the boo@s of accounts and other accountin records ma be subHect to

audit e+amination on once in a iven ta+abe ear and there is no proof that the case fas under the e+ceptions

provided in Section 239 of the &.$CG and 9- petitioner committed forum shoppin when it fied the instant case evenas the earier crimina compaint .#S# &o# 00!/9'- dismissed b the Cit %rosecutor of Que=on Cit was sti pendin

appea#

%etitioner arues that with the finait of the assessment due to faiure of the private respondents to chaene

the same in accordance with Section 22( of the &.$C, respondent Secretar has no Hurisdiction and authorit to

inuire into its vaidit# $espondent ta+paer is thereb aowed to do indirect what it cannot do direct to raise a

coatera attac@ on the assessment when even a direct chaene of the same is ea barred# *he rationae for

dismissin the compaint on the round of ac@ of contro number in the assessment notice i@ewise betras a ac@ of

awareness of ta+ aws and Hurisprudence, such circumstance not bein an eement of the offense# ?orse, the fina,

concusive and undisputabe evidence detaiin a crime under our ta+ation aws is swept under the ru so easi onmere conspirac theories imputed on persons who are not even the subHect of the compaint#

?e rant the petition#

*here is no dispute that prior to the fiin of the compaint with the D):, the report on the ta+ fraud

investiation conducted on 5C6C discosed that it made substantia underdecarations in its income ta+ returns for

1//7, 1//( and 1///# %ursuant to $$ &o# 12!//, [3(] a %A& was sent to and received b 5C6C on Februar 22, 2001

wherein it was notified of the proposed assessment of deficienc ta+es amountin to %830,/9(,009#/0 income ta+

! %31(,'0',3(0#1/ and A* ! %112,391,'29#71- coverin ta+abe ears 1//7, 1//( and 1///#[39] .n response to said

%A&, 5C6C sent a etter!protest to the *FD, which denied the same on Apri 12, 2001 for ac@ of ea and factua

basis and aso for havin been fied beond the 19!da reementar period#[40]

As mentioned in the %A&, the revenue officers were not iven the opportunit to e+amine 5C6Cs boo@s of

accounts and other accountin records because its officers faied to comp with the subpoena duces tecum earie

issued, to verif its aeed underdecarations of income reported b the ureaus informant under Section 2(2 of the

&.$C# Bence, a crimina compaint was fied b the ureau aainst private respondents for vioation of Section 2''

which provides

S6C# 2''# ailure to 74e0 "ummons. An person who, bein du summoned to appear totestif, or to appear and produce boo@s of accounts, records, memoranda, or other papers, or to

furnish information as reuired under the pertinent provisions of this Code, neects to appear or toproduce such boo@s of accounts, records, memoranda, or other papers, or to furnish such information,sha, upon conviction, be punished b a fine of not ess than Five thousand pesos %9,000- but notmore than *en thousand pesos %10,000- and suffer imprisonment of not ess than one 1- ear butnot more than two 2- ears#

.t is cear that .#S# &o# 00!/9' invoves a separate offense and hence litis pendentia is not present considerin tha

the outcome of .#S# &o# 00!/9' is not determinative of the issue as to whether probabe cause e+ists to chare the

private respondents with the crimes of attempt to evade or defeat ta+ and wifu faiure to supp correct and accurate

information and pa ta+ defined and penai=ed under Sections 298 and 299, respective# For the crime of ta+ evasion

in particuar, compiance b the ta+paer with such subpoena, if an had been issued, is irreevant# As we hed









in 3nga4 v. Cusi, 2r.,[41] [t]he crime is compete when the [ta+paer] has + + + @nowin and wifu fied [a]

frauduent [return] with intent to evade and defeat + + + the ta+# *hus, respondent Secretar erred in hodin that

petitioner committed forum shoppin when it fied the present crimina compaint durin the pendenc of its appea

from the Cit %rosecutors dismissa of .#S# &o# 00!/9' invovin the act of disobedience to the summons in the course

of the preiminar investiation on 5C6Cs correct ta+ iabiities for ta+abe ears 1//7, 1//( and 1///#

.n the Detais of Discrepancies attached as Anne+ of the %A&, [42] private respondents were aread notified that

inasmuch as the revenue officers were not iven the opportunit to e+amine 5C6Cs boo@s of accounts, accountin

records and other documents, said revenue officers athered information from third parties# Such procedure is

authori=ed under Section 9 of the &.$C, which provides

S6C# 9# $ower of the Commissioner to 74tain 5nformation, and to "ummon, xamine, and Ta#eTestimon0 of $ersons. .n ascertainin the correctness of an return, or in ma@in a return when nonehas been made, or in determinin the iabiit of an person for an interna revenue ta+, or incoectin an such iabiit, or in evauatin ta+ compiance, the Commissioner is authori=ed

A- *o e+amine an boo@, paper, record or other data which ma be reevant or materia to suchinuirG

- *o obtain on a reuar basis ;-o+ 6y /*-o o:*- :6 :* /*-o >:o* *-6l

-*)*u* 6< l6ly u* o 6u o- )*?6o, or from an office or officer of thenationa and oca overnments, overnment aencies and instrumentaities, incudin the /ang#o"entral ng $ilipinas and overnment!owned or !controed corporations, an information such as, butnot imited to, costs and voume of production, receipts or saes and ross incomes of ta+paers, andthe names, addresses, and financia statements of corporations, mutua fund companies, insurancecompanies, reiona operatin headuarters of mutinationa companies, Hoint accounts, associations, Hoint ventures or consortia and reistered partnerships, and their membersG

C- *o summon the person iabe for ta+ or reuired to fie a return, or an officer or empoeeof such person, or an person havin possession, custod, or care of the boo@s of accounts and otheraccountin records containin entries reatin to the business of the person iabe for ta+, or an otherperson, to appear before the Commissioner or his du authori=ed representative at a time and pacespecified in the summons and to produce such boo@s, papers, records, or other data, and to ivetestimonG

D- *o ta@e such testimon of the person concerned, under oath, as ma be reevant or materiato such inuirG + + +


%rivate respondents assertions reardin the uaifications of the informer of the ureau deserve scant

consideration# ?e have hed that the ac@ of consent of the ta+paer under investiation does not imp that the .$

obtained the information from third parties iea or that the information received is fase or maicious# &or does the

ac@ of consent precude the .$ from assessin deficienc ta+es on the ta+paer based on the documents# [43] .n the

same vein, herein private respondents cannot be aowed to escape crimina prosecution under Sections 298 and 299

of the &.$C b mere imputation of a fictitious or disuaified informant under Section 2(2 simp because other than

discosure of the officia reistr number of the third part informer, the ureau insisted on maintainin the

confidentiait of the identit and persona circumstances of said informer#

Subseuent, petitioner sent to 5C6C b constructive service aowed under Section 3 of $$ &o# 12!//, assessment

notice and forma demand informin the said ta+paer of the aw and the facts on which the assessment is made, as

reuired b Section 22( of the &.$C# $espondent Secretar, however, fu concurred with private respondents

contention that the assessment notices were invaid for bein unnumbered and the ta+ iabiities therein stated have

aread been setted and>or terminated#









?e do not aree#

A notice of assessment is

[A] decaration of deficienc ta+es issued to a [t]a+paer who fais to respond to a %re!Assessment&otice %A&- within the prescribed period of time, or whose rep to the %A& was found to be withoutmerit# *he &otice of Assessment sha inform the [t]a+paer of this fact, and that the report of investiation submitted b the $evenue )fficer conductin the audit sha be iven due course#

*he forma etter of demand cain for pament of the ta+paers deficienc ta+ or ta+es sha 6*:* ;6, :* l6>, -ul* 6 -*?ul6o o- u-/-u** o >:: :* 6*+* 6*,o:*->* :* ;o-+6l l**- o; *+6 6 :* o* o; 6*+* :6ll * )o#[44]

As it is, the formait of a contro number in the assessment notice is not a reuirement for its vaidit but rather the

contents thereof which shoud inform the ta+paer of the decaration of deficienc ta+ aainst said ta+paer# oth the

forma etter of demand and the notice of assessment sha be void if the former faied to state the fact, the aw, rues

and reuations or Hurisprudence on which the assessment is based, which is a mandator reuirement under Section

22( of the &.$C#

Section 22( of the &.$C provides that the ta+paer sha be informed in writin of the aw and the facts on

which the assessment is made# )therwise, the assessment is void# *o impement the provisions of Section 22( of the

&.$C, $$ &o# 12!// was enacted# Section 3#1#8 of the revenue reuation reads

3#1#8# ormal 8etter of !emand and Assessment 9otice. *he forma etter of demand andassessment notice sha be issued b the Commissioner or his du authori=ed representative# T:*l**- o; *+6 6ll? ;o- /6y+* o; :* 6</6y*- *;*y 6< o- 6<* :6ll 6* :*;6, :* l6>, -ul* 6 -*?ul6o, o- u-/-u** o >:: :* 6*+* 6*,o:*->*, :* ;o-+6l l**- o; *+6 6 6*+* o* :6ll * )o. *he same shabe sent to the ta+paer on b reistered mai or b persona deiver# + + +#[45]6mphasis suppied#-

*he Forma etter of Demand dated Auust 7, 2002 contains not on a detaied computation of 5C6Cs ta+deficiencies but aso detais of the specified discrepancies, e+painin the ea and factua bases of the assessment# .

aso reiterated that in the absence of accountin records and other documents necessar for the proper determination

of the compans interna revenue ta+ iabiities, the investiatin revenue officers resorted to the est 6vidence

)btainabe as provided in Section '- of the &.$C third part information- and in accordance with the procedure aid

down in $5C &o# 23!2000 dated &ovember 27, 2000# Anne+ A of the Forma etter of Demand thus stated

*hus, to verif the vaidit of the information previous provided b the informant, the assinedrevenue officers resorted to third part information# %ursuant to Section 9- of the &.$C of 1//7,access etters reuestin for information and the submission of certain documents i#e#, Certificate of .ncome *a+ ?ithhed at Source and>or Aphabetica ist showin the income paments made to #5#Camus 6nineerin Corporation for the ta+abe ears 1//7 to 1///- were sent to the various cients of

the subHect corporation, incudin but not imited to the foowin

1# Aaa and .nc#2# Fiinvest Aaban .nc#3# D#5# ConsunHi, .nc#8# S5 %rime Bodins, .nc#9# Aaban Commercia Corporation'# %hiam %roperties Corporation7# S5 .nvestments, .nc#(# Shoemart, .nc#/# %hiippine Securities Corporation10# 5a@ati Deveopment Corporation







F-o+ :* ou+* ?6:*-* 6 :* 66 o6* :*-*, :* u66lu*-*l6-6o 6 *;* u*- S*o 24(%B o; :* NIRC o; 199 y you- o-/o-6o

o; o+* :6 ** o;-+*# + + + +[4] 6mphasis suppied#-

.n the same etter, Assistant Commissioner %erciva *# Saa=ar informed private respondents that the estimated

ta+ iabiities arisin from 5C6Cs underdecaration amounted to %1(',773,'00#(8 in 1//7, %190,0'/,323#(1 in 1//(

and %1'3,220,111#13 in 1///# *hese fiures confirmed that the non!decaration b 5C6C for the ta+abe ears 1//7,

1//( and 1/// of an amount e+ceedin 30; income[4] decared in its return is considered a substantia

underdecaration of income, which constituted /-+6 ;6*evidence of fase or frauduent return under Section 28(-[4(] of the &.$C, as amended#[49]

)n the aeed settement of the assessed ta+ deficiencies b private respondents, respondent Secretar found the

atters caim as meritorious on the basis of the Certificate of .mmunit From Audit issued on December ', 1///

pursuant to $$ &o# 2!// and etter of *ermination dated :une 1, 1/// issued b $evenue $eion &o# 7 Chief of

Assessment Division $uth ivian "# "andia# %etitioner, however, carified that the certificate of immunit from audit

covered on income ta+ for the ear 1//7 and does not incude A* and withhodin ta+es, whie the etter of

*ermination invoved ta+ iabiities for ta+abe ear 1//7 6?*, A* and income ta+es- but which was submitted for

review of hiher authorities as per the Certification of $D &o# 80 District )fficer %abo C# Cabreros, :r#

[50]

For 1///private respondents supposed avaied of the A% pursuant to $$ &o# (!2001#

$$ &o# 2!// issued on Februar 7, 1/// e+pained in its %oic Statement that considerin the scarcit of financia and

human resources as we as the time constraints within which the ureau has to cean the ureaus bac@o of

unaudited ta+ returns in order to @eep updated and be focused with the most current accounts in preparation for the

fu impementation of a computeri=ed ta+ administration, the said revenue reuation was issued providin for last

priorit0 in audit and investigation of ta+ returns to accompish the said obHective without, however, compromisin the

revenue coection that woud have been enerated from audit and enforcement activities# *he proram named as

6conomic $ecover Assistance %ament 6$A%- %roram ranted immunit from audit and investiation of income ta+,

A* and percentae ta+ returns for 1//(# .t e+press e+cuded withhodin ta+ returns whether for income, A*, orpercentae ta+ purposes-# Since such immunit from audit and investiation does not precude the coection of

revenues enerated from audit and enforcement activities, it foows that the ureau is i@ewise not barred from

coectin an ta+ deficienc discovered as a resut of ta+ fraud investiations# $espondent Secretars opinion that $$

&o# 2!// contains the feature of a ta+ amnest is thus mispaced#

*a+ amnest is a enera pardon to ta+paers who want to start a cean ta+ sate# .t aso ives the overnment a

chance to coect uncoected ta+ from ta+ evaders without havin to o throuh the tedious process of a ta+ case#[51] 6ven assumin arguendo that the issuance of $$ &o# 2!// is in the nature of ta+ amnest, it bears notin that a

ta+ amnest, much i@e a ta+ e+emption, is never favored nor presumed in aw and if ranted b statute, the terms of

the amnest i@e that of a ta+ e+emption must be construed strict aainst the ta+paer and ibera in favor of theta+in authorit#[52]

For the same reason, the avaiment b 5C6C of A% under $$ &o# (!2001 as amended b $$ &o# 10!2001, throuh

pament supposed made in )ctober 2/, 2001 before the said proram ended on )ctober 31, 2001, did not amount

to settement of its assessed ta+ deficiencies for the period 1//7 to 1///, nor immunit from prosecution for fiin

frauduent return and attempt to evade or defeat ta+# As correct asserted b petitioner, from the e+press terms of

the aforesaid revenue reuations, 5C6C is not uaified to avai of the A% rantin ta+paers the priviee of last

priorit0 in the audit and investigation of a interna revenue ta+es for the ta+abe ear 2000 and a prior ears under

certain conditions, considerin that first, it was issued a %A& on e4ruar0 1:, ;**1, and second, it was the subHect of



















investiation as a resut of verified information fied b a *a+ .nformer under Section 2(2 of the &.$C du recorded in

the .$ )fficia $eistr as Confidentia .nformation C.- &o# 2/!2000[53] even prior to the issuance of the %A&#

Section 1 of $$ &o# (!2001 provides

SECTION 1. CO!ERAGE. + + +

An person, natura or Huridica, incudin estates and trusts, iabe to pa an of the above!

cited interna revenue ta+es for the above specified period>s who, due to inadvertence or otherwise,erroneous paid his interna revenue ta+ iabiities or faied to fie ta+ return>pa ta+es ma avai of the ountar Assessment %roram A%-, *<*/ :o* ;6ll? u*- 6y o; :* ;ollo>?6*&

1#1 T:o* o)*-* y 6 P-*l+6-y A*+* No* PANB, Fina Assessment &oticeFA&-, or Coection etter u* o o- *;o-* July 31, 2001 or

1#2 P*-o u*- )*?6o 6 6 -*ul o; )*-;* ;o-+6o ;l* y 6 T6<I;o-+*- u*- S*o 2(2 o; :* T6< Co* o; 199, uly /-o** 6 -*o-* :*%IR O;;6l R*?-y %ooD o o- *;o-* July 31, 2001

1#3 *a+ fraud cases aread fied and pendin in courts for adHudicationG and


5oreover, private respondents cannot invo@e 5C6Cs avaiment of A% to forecose an subseuent audit of its

account boo@s and other accountin records in view of the stron findin of underdecaration in 5C6Cs pament of

correct income ta+ iabiit b more than 30; as supported b the written report of the *FD detaiin the facts and the

aw on which such findin is based, pursuant to the ta+ fraud investiation authori=ed b petitioner under A &o#

0000/3'1# *his concusion finds support in Section 2 of $$ &o# (!2001 as amended b $$ &o# 10!2001 provides

SEC. 2. TAXPAERS %ENEFIT FROM A!AIMENT OF THE !AP. A ta+paer who has avaiedof the A% sha not be audited e+cept upon authori=ation and approva of the Commissioner of .nterna $evenue when there is stron evidence or findin of understatement in the pament of ta+paers correct ta+ iabiit b more than thirt percent 30;- as supported b a written report of the appropriate office detaiin the facts and the aw on which such findin is based %rovided,however, that an A% pament shoud be aowed as ta+ credit aainst the deficienc ta+ due, if an,in case the concerned ta+paer has been subHected to ta+ audit#

+ + + +

"iven the e+picit conditions for the rant of immunit from audit under $$ &o# 2!//, $$ &o# (!2001 and $$

&o# 10!2001, we hod that respondent Secretar rave erred in decarin that petitioner is now estopped from

assessin an ta+ deficienc aainst 5C6C after issuance of the aforementioned documents of immunit from

audit>investiation and settement of ta+ iabiities# .t is a+iomatic that the State can never be in estoppe, and this is

particuar true in matters invovin ta+ation# *he errors of certain administrative officers shoud never be aowed to

Heopardi=e the overnments financia position#[54]

$espondent Secretars other round for assaiin the course of action ta@en b petitioner in proceedin with

the audit and investiation of 5C6C !! the aeed vioation of the enera rue in Section 239 of the &.$C aowin

the e+amination and inspection of ta+paers boo@s of accounts and other accountin records on once in a ta+abe

ear !! is i@ewise untenabe# As correct pointed out b petitioner, the discover of substantia underdecarations of

income b 5C6C for ta+abe ears 1//7, 1//( and 1/// upon verified information provided b an informer under

Section 2(2 of the &.$C, as we as the necessit of obtainin information from third parties to ascertain the







correctness of the return fied or evauation of ta+ compiance in coectin ta+es as a resut of the disobedience to

the summons issued b the ureau aainst the private respondents-, are circumstances warrantin e+ception from

the enera rue in Section 239#[55]

As aread stated, the substantia underdecared income in the returns fied b 5C6C for 1//7, 1//( and

1/// in amounts euivaent to more than 30; the computation in the fina assessment notice showed

underdecarations of amost 200;- constitutes prima facie evidence of frauduent return under Section 28(- of the

&.$C# %rior to the issuance of the preiminar and fina notices of assessment, the revenue officers conducted a

preiminar investiation on the information and documents showin substantia understatement of 5C6Cs ta+

iabiities which were provided b the .nformer, foowin the procedure under $5) &o# 19!/9# [5] ased on the prima

facie findin of the e+istence of fraud, petitioner issued A &o# 0000/3'1 for the *FD to conduct a forma fraud

investiation of 5C6C#[5] Conseuent, respondent Secretars ruin that the fiin of crimina compaint for vioation

of Sections 298 and 299 of the &.$C cannot prosper because of ac@ of prior determination of the e+istence of fraud,

is bereft of factua basis and contradicted b the evidence on record#

*a+ assessments b ta+ e+aminers are presumed correct and made in ood faith, and a presumptions are in

favor of the correctness of a ta+ assessment uness proven otherwise# [5(] ?e have hed that a ta+paers faiure to fie

a petition for review with the Court of *a+ Appeas within the statutor period rendered the disputed assessment fina,

e+ecutor and demandabe, thereb precudin it from interposin the defenses of eait or vaidit of the

assessment and prescription of the "overnments riht to assess#[59].ndeed, an obHection aainst the assessment

shoud have been pursued foowin the avenue paved in Section 22/ now Section 22(- of the &.$C on protests on

assessments of interna revenue ta+es#[0]

$ecords bear out that the assessment notice and Forma etter of Demand dated Auust 7, 2002 were du

served on 5C6C on )ctober 1, 2002# %rivate respondents did not fie a motion for reconsideration of the said

assessment notice and forma demandG neither did the appea to the Court of *a+ Appeas# Section 22( of the

&.$C[1] provides the remed to dispute a ta+ assessment within a certain period of time# .t states that an assessment

ma be protested b fiin a reuest for reconsideration or reinvestiation within 30 das from receipt of the assessment

b the ta+paer# &o such administrative protest was fied b private respondents see@in reconsideration of the Auus

7, 2002 assessment notice and forma etter of demand# %rivate respondents cannot beated assai the said

assessment, which the aowed to apse into finait, b raisin issues as to its vaidit and correctness durin the

preiminar investiation after the .$ has referred the matter for prosecution under Sections 298 and 299 of the &.$C#

As we hed in <arcos 55 v. Court of Appeals[2]

.t is not the Department of :ustice which is the overnment aenc tas@ed to determine theamount of ta+es due upon the subHect estate, but the ureau of .nterna $evenue, whosedeterminations and assessments are presumed correct and made in ood faith# *he ta+paer has thedut of provin otherwise. I :* 6** o; /-oo; o; 6y --*?ul6-* :* /*-;o-+6* o; o;;6l u*, 6 6*+* >ll o * u-*. E)* 6 6*+* 6* o *+6* prima facie )6l 6 l6>;ul >:*-* o* o 6//*6- o :6)* ** 6--)* 6 6--6-lyo- 6/-ouly# *he burden of proof is upon the compainin part to show cear that theassessment is erroneous# Faiure to present proof of error in the assessment wi Hustif the Hudiciaaffirmance of said assessment# + + +#

Mo-*o)*-, :** o*o o :* 6*+* :oul :6)* ** -6*, o*-?:* 6+/l* -*+** 6;;o-* :* 6</6y*- y :* T6< Co*, >: :* %u-*6u o; I*-6lR*)*u* 6 :* Cou- o; T6< A//*6l, as described earier, and cannot be raised now via %etitionfor Certiorari, under the prete+t of rave abuse of discretion# *he course of action ta@en b thepetitioner refects his disreard or even repunance of the estabished institutions for overnance inthe scheme of a we!ordered societ# T:* u* 6< 6*+* :6)? *o+* ;6l,*<*uo-y 6 *;o-*6l*, :* 6+* 6 o lo?*- * o** y +*6 o; 6 ?u*



















/-o*. .n the main, Certiorari ma not be used as a substitute for a ost appea or remed# *his Hudicia poic becomes more pronounced in view of the absence of sufficient attac@ aainst theactuations of overnment# 6mphasis suppied#-

*he determination of probabe cause is part of the discretion ranted to the investiatin prosecutor and utimate,

the Secretar of :ustice# Bowever, this Court and the CA possess the power to review findins of prosecutors in

preiminar investiations# Athouh poic considerations ca for the widest atitude of deference to the prosecutors

findins, courts shoud never shir@ from e+ercisin their power, when the circumstances warrant, to determine

whether the prosecutors findins are supported b the facts, or b the aw# .n so doin, courts do not act as

prosecutors but as orans of the Hudiciar, e+ercisin their mandate under the Constitution, reevant statutes, and

remedia rues to sette cases and controversies# [3] Cear, the power of the Secretar of :ustice to review does not

precude this Court and the CA from intervenin and e+ercisin our own powers of review with respect to the D):s

findins, such as in the e+ceptiona case in which rave abuse of discretion is committed, as when a cear sufficienc

or insufficienc of evidence to support a findin of probabe cause is inored#[4]

'HEREFORE, the petition is GRANTE## *he Decision dated )ctober 31, 200' and $esoution dated 5arch ', 2007 o

the Court of Appeas in CA!"#$# S% &o# /33(7 are hereb RE!ERSE# and SET ASI#E# *he Secretar of :ustice is

hereb #IRECTE# to order the Chief State %rosecutor to fie before the $eiona *ria Court of Que=on Cit, &ationa

Capita :udicia $eion, the correspondin .nformation aainst # 5# Camus 6nineerin Corporation, represented b

its %resident uis 5# Camus and Comptroer ino D# 5endo=a, for ioation of Sections 298 and 299 of the &ationa

.nterna $evenue Code of 1//7#

&o costs#

SO OR#ERE#.G.R. No. 1(55 F*-u6-y 1, 200

FES ENERG, INC., %etitioner,

vs#

THE PRO!INCE OF %ATANGAS 6

THE OFFICE OF THE PRO!INCIA ASSESSOR OF %ATANGAS, $espondents#

+!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!+

G.R. No. 102( F*-u6-y 1, 200

NATIONA PO'ER CORPORATION, %etitioner,

vs#

OCA %OAR# OF ASSESSMENT APPEAS OF %ATANGAS, A"RO C. AN#AA, : 6/6y 6 :*

A*o- o; :* P-o)* o; %66?6, 6 :* PRO!INCE OF %ATANGAS -*/-*** y P-o)6lA*o-, $espondents#

D 6 C . S . ) &

CAEJO, SR., J.:

efore us are two consoidated cases doc@eted as "#$# &o# 1'(997 and "#$# &o# 170'2(, which were fied b

petitioners F6S 6ner, .nc# F6S- and &ationa %ower Corporation &%C-, respective# *he first is a petition for

review on certiorari assaiin the Auust 29, 2008 Decision 1 of the Court of Appeas CA- in CA!"#$# S% &o# '78/0 and

its $esoution2 dated :une 20, 2009G the second, aso a petition for review on certiorari, chaenes the Februar /,



http://www.lawphil.net/judjuris/juri2007/feb2007/gr_168557_2007.html#fnt1









2009 Decision3 and &ovember 23, 2009 $esoution8 of the CA in CA!"#$# S% &o# '78/1# oth petitions were dismissed

on the round of prescription#

*he pertinent facts are as foows

)n :anuar 1(, 1//3, &%C entered into a ease contract with %oar 6ner, .nc# over 3+30 5? diese enine power

bares moored at aaan a in Caaca, atanas# *he contract, denominated as an 6ner Conversion

Areement9 Areement-, was for a period of five ears# Artice 10 reads

10#1 $6S%)&S...*# &A%)C)$ sha be responsibe for the pament of a- a ta+es, import duties, fees, chares

and other evies imposed b the &ationa "overnment of the $epubic of the %hiippines or an aenc or

instrumentait thereof to which %)A$ ma be or become subHect to or in reation to the performance of their

obiations under this areement other than i- ta+es imposed or cacuated on the basis of the net income of %)A$

and %ersona .ncome *a+es of its empoees and ii- construction permit fees, environmenta permit fees and other

simiar fees and chares- and b- a rea estate ta+es and assessments, rates and other chares in respect of the

%ower ares#'

Subseuent, %oar 6ner, .nc# assined its rihts under the Areement to F6S# *he &%C initia opposed the

assinment of rihts, citin pararaph 17#2 of Artice 17 of the Areement#

)n Auust 7, 1//9, F6S received an assessment of rea propert ta+es on the power bares from %rovincia Assessor

auro C# Andaa of atanas Cit# *he assessed ta+, which i@ewise covered those due for 1//8, amounted

to %9',1(8,0((#80 per annum# F6S referred the matter to &%C, remindin it of its obiation under the Areement to

pa a rea estate ta+es# .t then ave &%C the fu power and authorit to represent it in an conference reardin the

rea propert assessment of the %rovincia Assessor#

.n a etter7 dated September 7, 1//9, &%C souht reconsideration of the %rovincia AssessorIs decision to assess rea

propert ta+es on the power bares# Bowever, the motion was denied on September 22, 1//9, and the %rovincia

Assessor advised &%C to pa the assessment#( *his prompted &%C to fie a petition with the oca oard of Assessment

Appeas AA- for the settin aside of the assessment and the decaration of the bares as non!ta+abe itemsG it aso

praed that shoud AA find the bares to be ta+abe, the %rovincia Assessor be directed to ma@e the necessar

corrections#/

.n its Answer to the petition, the %rovincia Assessor averred that the bares were rea propert for purposes of

ta+ation under Section 1//c- of $epubic Act $#A#- &o# 71'0#

efore the case was decided b the AA, &%C fied a 5anifestation, informin the AA that the Department of

Finance D)F- had rendered an opinion10 dated 5a 20, 1//', where it is cear stated that power bares are not rea

propert subHect to rea propert assessment#

)n Auust 2', 1//', the AA rendered a $esoution11 denin the petition# *he fao reads

?B6$6F)$6, the %etition is D6&.6D# F6S is hereb ordered to pa the rea estate ta+ in the amoun

of%9',1(8,0((#80, for the ear 1//8#

S) )$D6$6D#12

*he AA rued that the power pant faciities, whie the ma be cassified as movabe or persona propert, are

nevertheess considered rea propert for ta+ation purposes because the are instaed at a specific ocation with a

character of permanenc# *he AA aso pointed out that the owner of the baresJF6S, a private corporationJis the

one bein ta+ed, not &%C# A mere areement ma@in &%C responsibe for the pament of a rea estate ta+es and

assessments wi not Hustif the e+emption of F6SG such a priviee can on be ranted to &%C and cannot be

e+tended to F6S# Fina, the AA aso rued that the petition was fied out of time#

Arieved, F6S appeaed the AAIs ruin to the Centra oard of Assessment Appeas CAA-#
























)n Auust 2(, 1//', the %rovincia *reasurer of atanas Cit issued a &otice of ev and ?arrant b Distraint13ove

the power bares, see@in to coect rea propert ta+es amountin to %232,'02,129#/1 as of :u 31, 1//'# *he

notice and warrant was officia served to F6S on &ovember (, 1//'# .t then fied a 5otion to ift ev dated

&ovember 18, 1//', prain that the %rovincia Assessor be further restrained b the CAA from enforcin the

disputed assessment durin the pendenc of the appea#

)n &ovember 19, 1//', the CAA issued an )rder18 iftin the ev and distraint on the properties of F6S in order not

to preempt and render ineffectua, nuator and iusor an resoution or Hudment which the oard woud issue#

5eantime, the &%C fied a 5otion for .ntervention19 dated Auust 7, 1//( in the proceedins before the CAA# *his

was approved b the CAA in an )rder1' dated September 22, 1//(#

Durin the pendenc of the case, both F6S and &%C fied severa motions to admit bond to uarantee the pament of

rea propert ta+es assessed b the %rovincia Assessor in the event that the Hudment be unfavorabe to them-# *he

bonds were du approved b the CAA#

)n Apri ', 2000, the CAA rendered a Decision17 findin the power bares e+empt from rea propert ta+# *he

dispositive portion reads

?B6$6F)$6, the $esoution of the oca oard of Assessment Appeas of the %rovince of atanas is hereb reversed

$espondent!appeee %rovincia Assessor of the %rovince of atanas is hereb ordered to drop subHect propert under

A$%>*a+ Decaration &o# 01(!00/9( from the ist of *a+abe %roperties in the Assessment $o# *he %rovincia

*reasurer of atanas is hereb directed to act accordin#

S) )$D6$6D#1(

$uin in favor of F6S and &%C, the CAA reasoned that the power bares beon to &%CG since the are actua,

direct and e+cusive used b it, the power bares are covered b the e+emptions under Section 238c- of $#A# &o#

71'0#1/ As to the other Hurisdictiona issue, the CAA rued that prescription did not precude the &%C from pursuin

its caim for ta+ e+emption in accordance with Section 20' of $#A# &o# 71'0# *he %rovincia Assessor fied a motion for

reconsideration, which was opposed b F6S and &%C#

.n a compete vote face, the CAA issued a $esoution20

on :u 31, 2001 reversin its earier decision# *he fao of theresoution reads

?B6$6F)$6, premises considered, it is the resoution of this oard that

a- *he decision of the oard dated ' Apri 2000 is hereb reversed#

b- *he petition of F6S, as we as the intervention of &%C, is dismissed#

c- *he resoution of the oca oard of Assessment Appeas of atanas is hereb affirmed,

d- *he rea propert ta+ assessment on F6S b the %rovincia Assessor of atanas is i@ewise hereb

affirmed#

S) )$D6$6D#21

F6S and &%C fied separate motions for reconsideration, which were time opposed b the %rovincia Assessor# *he

CAA denied the said motions in a $esoution22 dated )ctober 1/, 2001#

Dissatisfied, F6S fied a petition for review before the CA doc@eted as CA!"#$# S% &o# '78/0# 5eanwhie, &%C fied a

separate petition, doc@eted as CA!"#$# S% &o# '78/1#
























)n :anuar 17, 2002, &%C fied a 5anifestation>5otion for Consoidation in CA!"#$# S% &o# '78/0 prain for the

consoidation of its petition with CA!"#$# S% &o# '78/1# .n a $esoution23 dated Februar 12, 2002, the appeate court

directed &%C to re!fie its motion for consoidation with CA!"#$# S% &o# '78/1, since it is the ponente of the atter

petition who shoud resove the reuest for reconsideration#

&%C faied to comp with the aforesaid resoution# )n Auust 29, 2008, the *wefth Division of the appeate court

rendered Hudment in CA!"#$# S% &o# '78/0 denin the petition on the round of prescription# *he decreta portion

of the decision reads

?B6$6F)$6, the petition for review is D6&.6D for ac@ of merit and the assaied $esoutions dated :u 31, 2001 and

)ctober 1/, 2001 of the Centra oard of Assessment Appeas are AFF.$56D#

S) )$D6$6D#28

)n September 20, 2008, F6S time fied a motion for reconsideration see@in the reversa of the appeate courtIs

decision in CA!"#$# S% &o# '78/0#

*hereafter, &%C fied a petition for review dated )ctober 1/, 2008 before this Court, doc@eted as "#$# &o# 1'9113,

assaiin the appeate courtIs decision in CA!"#$# S% &o# '78/0# *he petition was, however, denied in this CourtIs

$esoution29 of &ovember (, 2008, for &%CIs faiure to sufficient show that the CA committed an reversibe error in

the chaened decision# &%C fied a motion for reconsideration, which the Court denied with finait in a

$esoution2' dated :anuar 1/, 2009#

5eantime, the appeate court dismissed the petition in CA!"#$# S% &o# '78/1# .t hed that the riht to uestion the

assessment of the %rovincia Assessor had aread prescribed upon the faiure of F6S to appea the disputed

assessment to the AA within the period prescribed b aw# Since F6S had ost the riht to uestion the assessment

the riht of the %rovincia "overnment to coect the ta+ was aread absoute#

&%C fied a motion for reconsideration dated 5arch (, 2009, see@in reconsideration of the Februar 9, 2009 ruin of

the CA in CA!"#$# S% &o# '78/1# *he motion was denied in a $esoution27 dated &ovember 23, 2009#

*he motion for reconsideration fied b F6S in CA!"#$# S% &o# '78/0 had been earier denied for ac@ of merit in a

$esoution2(

dated :une 20, 2009#

)n Auust 3, 2009, F6S fied the petition doc@eted as "#$# &o# 1'(997 before this Court, raisin the foowin issues

A#

?hether power bares, which are foatin and movabe, are persona properties and therefore, not subHect to rea

propert ta+#

#

Assumin that the subHect power bares are rea properties, whether the are e+empt from rea estate ta+ under

Section 238 of the oca "overnment Code K"CK-#

C#

Assumin aruendo that the subHect power bares are subHect to rea estate ta+, whether or not it shoud be &%C

which shoud be made to pa the same under the aw#

D#

Assumin aruendo that the subHect power bares are rea properties, whether or not the same is subHect to

depreciation Hust i@e an other persona properties#















6#

?hether the riht of the petitioner to uestion the patent nu and void rea propert ta+ assessment on the

petitionerIs persona properties is imprescriptibe#2/

)n :anuar 13, 200', &%C fied its own petition for review before this Court "#$# &o# 170'2(-, indicatin the

foowin errors committed b the CA

.

*B6 C)<$* )F A%%6AS "$A6 6$$6D .& B)D.&" *BA* *B6 A%%6A *) *B6 AA ?AS F.6D )<* )F *.56#

..

*B6 C)<$* )F A%%6AS "$A6 6$$6D .& &)* B)D.&" *BA* *B6 %)?6$ A$"6S A$6 &)* S<:6C* *) $6A

%$)%6$* *AE6S#

...

*B6 C)<$* )F A%%6AS "$A6 6$$6D .& &)* B)D.&" *BA* *B6 ASS6SS56&* )& *B6 %)?6$ A$"6S ?AS

&)* 5AD6 .& ACC)$DA&C6 ?.*B A?#30

Considerin that the factua antecedents of both cases are simiar, the Court ordered the consoidation of the two

cases in a $esoution31 dated 5arch (, 200'#1awphi1.net

.n an earier $esoution dated Februar 1, 200', the Court had reuired the parties to submit their respective

5emoranda within 30 das from notice# Amost a ear passed but the parties had not submitted their respective

memoranda# Considerin that ta+esUthe ifebood of our economUare invoved in the present controvers, the Court

was prompted to dispense with the said peadins, with the end view of advancin the interests of Hustice and avoidin

further dea#

.n both petitions, F6S and &%C maintain that the appea before the AA was not time!barred# F6S arues that

when &%C moved to have the assessment reconsidered on September 7, 1//9, the runnin of the period to fie anappea with the AA was toed# For its part, &%C posits that the '0!da period for appeain to the AA shoud be

rec@oned from its receipt of the denia of its motion for reconsideration#

%etitionersI contentions are bereft of merit#

Section 22' of $#A# &o# 71'0, otherwise @nown as the oca "overnment Code of 1//1, provides

S6C*.)& 22'# oca oard of Assessment Appeas# J An owner or person havin ea interest in the propert who is

not satisfied with the action of the provincia, cit or municipa assessor in the assessment of his propert ma, within

si+t '0- das from the date of receipt of the written notice of assessment, appea to the oard of Assessment

Appeas of the province or cit b fiin a petition under oath in the form prescribed for the purpose, toether with

copies of the ta+ decarations and such affidavits or documents submitted in support of the appea#

?e note that the notice of assessment which the %rovincia Assessor sent to F6S on Auust 7, 1//9, contained the

foowin statement

.f ou are not satisfied with this assessment, ou ma, within si+t '0- das from the date of receipt hereof, appea

to the oard of Assessment Appeas of the province b fiin a petition under oath on the form prescribed for the

purpose, toether with copies of A$%>*a+ Decaration and such affidavits or documents submitted in support of the

appea#32











.nstead of appeain to the oard of Assessment Appeas as stated in the notice-, &%C opted to fie a motion for

reconsideration of the %rovincia AssessorIs decision, a remed not sanctioned b aw#

*he remed of appea to the AA is avaiabe from an adverse ruin or action of the provincia, cit or municipa

assessor in the assessment of the propert# .t foows then that the determination made b the respondent %rovincia

Assessor with reard to the ta+abiit of the subHect rea properties fas within its power to assess properties for

ta+ation purposes subHect to appea before the AA#33

?e fu aree with the rationai=ation of the CA in both CA!"#$# S% &o# '78/0 and CA!"#$# S% &o# '78/1# *he two

divisions of the appeate court cited the case of Caanta v# )ffice of the )mbudsman, 38 where we rued that under

Section 22' of $#A# &o 71'0,39 the ast action of the oca assessor on a particuar assessment sha be the notice of

assessmentG it is this ast action which ives the owner of the propert the riht to appea to the AA# *he procedure

i@ewise does not permit the propert owner the remed of fiin a motion for reconsideration before the oca

assessor# *he pertinent hodin of the Court in Caanta is as foows

+ + + [*]he same Code is eua cear that the arieved owners shoud have brouht their appeas before the AA#

<nfortunate, despite the advice to this effect contained in their respective notices of assessment, the owners chose

to brin their reuests for a review>readHustment before the cit assessor, a remed not sanctioned b the aw# *o

aow this procedure woud indeed invite corruption in the sstem of appraisa and assessment# .t convenient courts

a raft!prone situation where vaues of rea propert ma be initia set unreasonab hih, and then subseuent

reduced upon the reuest of a propert owner# .n the atter instance, ausions of a possibe covert, iicit trade!off

cannot be avoided, and in fact can convenient ta@e pace# Such occasion for mischief must be prevented and e+cised

from our sstem#3'

For its part, the appeate court decared in CA!"#$# S% &o# '78/1

+ + +# *he Court announces Benceforth, whenever the oca assessor sends a notice to the owner or awfu possessor

of rea propert of its revised assessed vaue, the former sha no oner have an Hurisdiction to entertain an reuest

for a review or readHustment# *he appropriate forum where the arieved part ma brin his appea is the AA as

provided b aw# .t foows ineuctab that the '0!da period for ma@in the appea to the AA runs without

interruption# *his is what ?e hed in S% '78/0 and reaffirm toda in S% '78/1#37

*o reiterate, if the ta+paer fais to appea in due course, the riht of the oca overnment to coect the ta+es due

with respect to the ta+paerIs propert becomes absoute upon the e+piration of the period to appea# 3( .t aso bears

stressin that the ta+paerIs faiure to uestion the assessment in the AA renders the assessment of the oca

assessor fina, e+ecutor and demandabe, thus, precudin the ta+paer from uestionin the correctness of the

assessment, or from invo@in an defense that woud reopen the uestion of its iabiit on the merits#3/

.n fine, the AA acted correct when it dismissed the petitionersI appea for havin been fied out of timeG the CAA

and the appeate court were i@ewise correct in affirmin the dismissa# 6ementar is the rue that the perfection of

an appea within the period therefor is both mandator and Hurisdictiona, and faiure in this reard renders the

decision fina and e+ecutor#80

.n the Comment fied b the %rovincia Assessor, it is asserted that the instant petition is barred b res HudicataG that

the fina and e+ecutor Hudment in "#$# &o# 1'9113 where there was a fina determination on the issue of

prescription-, effective precudes the caims hereinG and that the fiin of the instant petition after an adverse

Hudment in "#$# &o# 1'9113 constitutes forum shoppin#

F6S maintains that the arument of the %rovincia Assessor is compete mispaced since it was not a part to the

erroneous petition which the &%C fied in "#$# &o# 1'9113# .t avers that it did not participate in the aforesaid

proceedin, and the Supreme Court never acuired Hurisdiction over it# As to the issue of forum shoppin, petitioner

caims that no forum shoppin coud have been committed since the eements of itis pendentia or res Hudicata are not

present#

?e do not aree#



















$es Hudicata pervades ever orani=ed sstem of Hurisprudence and is founded upon two rounds embodied in various

ma+ims of common aw, name 1- pubic poic and necessit, which ma@es it to the interest of the

State that there shoud be an end to itiation J repubicae ut sit itiumG and 2- the hardship on the individua of

bein ve+ed twice for the same cause J nemo debet bis ve+ari et eadem causa# A confictin doctrine woud subHect

the pubic peace and uiet to the wi and dereiction of individuas and prefer the reaement of the itiious

disposition on the part of suitors to the preservation of the pubic tranuiit and happiness# 81 As we rued in Beirs of

*rinidad De eon da# de $o+as v# Court of Appeas82

+ + + An e+istin fina Hudment or decree J rendered upon the merits, without fraud or cousion, b a court of

competent Hurisdiction actin upon a matter within its authorit J is concusive on the rihts of the parties and their

privies# *his ruin hods in a other actions or suits, in the same or an other Hudicia tribuna of concurrent

Hurisdiction, touchin on the points or matters in issue in the first suit#

+ + +

Courts wi simp refuse to reopen what has been decided# *he wi not aow the same parties or their privies to

itiate anew a uestion once it has been considered and decided with finait# itiations must end and terminate

sometime and somewhere# *he effective and efficient administration of Hustice reuires that once a Hudment has

become fina, the prevaiin part shoud not be deprived of the fruits of the verdict b subseuent suits on the same

issues fied b the same parties#

*his is in accordance with the doctrine of res Hudicata which has the foowin eements 1- the former Hudment

must be finaG 2- the court which rendered it had Hurisdiction over the subHect matter and the partiesG 3- the

Hudment must be on the meritsG and 8- there must be between the first and the second actions, identit of parties,

subHect matter and causes of action# *he appication of the doctrine of res Hudicata does not reuire absoute identit

of parties but mere substantia identit of parties# *here is substantia identit of parties when there is communit of

interest or privit of interest between a part in the first and a part in the second case even if the first case did not

impead the atter#83

*o reca, F6S ave &%C the fu power and authorit to represent it in an proceedin reardin rea propert

assessment# *herefore, when petitioner &%C fied its petition for review doc@eted as "#$# &o# 1'9113, it did so not

on on its behaf but aso on behaf of F6S# 5oreover, the assaied decision in the earier petition for review fied in

this Court was the decision of the appeate court in CA!"#$# S% &o# '78/0, in which F6S was the petitioner# *hus, the

decision in "#$# &o# 1'911' is bindin on petitioner F6S under the principe of privit of interest# .n fine, F6S and

&%C are substantia Kidentica partiesK as to warrant the appication of res Hudicata# F6SIs arument that it is not

bound b the erroneous petition fied b &%C is thus unavaiin#

)n the issue of forum shoppin, we rue for the %rovincia Assessor# Forum shoppin e+ists when, as a resut of an

adverse Hudment in one forum, a part see@s another and possib favorabe Hudment in another forum other than

b appea or specia civi action or certiorari# *here is aso forum shoppin when a part institutes two or more actions

or proceedins rounded on the same cause, on the ambe that one or the other court woud ma@e a favorabe

disposition#88

%etitioner F6S aees that there is no forum shoppin since the eements of res Hudicata are not present in the cases

at barG however, as aread discussed, res Hudicata ma be proper appied herein# %etitioners enaed in forum

shoppin when the fied "#$# &os# 1'(997 and 170'2( after the petition for review in "#$# &o# 1'911'# .ndeed,

petitioners went from one court to another trin to et a favorabe decision from one of the tribunas which aowed

them to pursue their cases#

.t must be stressed that an important factor in determinin the e+istence of forum shoppin is the ve+ation caused to

the courts and the parties!itiants b the fiin of simiar cases to caim substantia the same reiefs# 89 *he rationae

aainst forum shoppin is that a part shoud not be aowed to pursue simutaneous remedies in two different fora#

Fiin mutipe petitions or compaints constitutes abuse of court processes, which tends to derade the administration

of Hustice, wrea@s havoc upon order Hudicia procedure, and adds to the conestion of the heavi burdened doc@ets

of the courts#8'
















*hus, there is forum shoppin when there e+ist a- identit of parties, or at east such parties as represent the same

interests in both actions, b- identit of rihts asserted and reief praed for, the reief bein founded on the same

facts, and c- the identit of the two precedin particuars is such that an Hudment rendered in the pendin case,

reardess of which part is successfu, woud amount to res Hudicata in the other#87

Bavin found that the eements of res Hudicata and forum shoppin are present in the consoidated cases, a discussion

of the other issues is no oner necessar# &evertheess, for the peace and contentment of petitioners, we sha shed

iht on the merits of the case#

As found b the appeate court, the CAA and AA power bares are rea propert and are thus subHect to rea

propert ta+# *his is aso the inevitabe concusion, considerin that "#$# &o# 1'9113 was dismissed for faiure to

sufficient show an reversibe error# *a+ assessments b ta+ e+aminers are presumed correct and made in ood

faith, with the ta+paer havin the burden of provin otherwise#8( esides, factua findins of administrative bodies

which have acuired e+pertise in their fied, are enera bindin and concusive upon the CourtG we wi not assume

to interfere with the sensibe e+ercise of the Hudment of men especia trained in appraisin propert# ?here the

Hudicia mind is eft in doubt, it is a sound poic to eave the assessment undisturbed# 8/ ?e find no reason to depart

from this rue in this case#

.n Consoidated 6dison Compan of &ew or@, .nc#, et a# v# *he Cit of &ew or@, et a#,90 a power compan brouht

an action to review propert ta+ assessment# )n the citIs motion to dismiss, the Supreme Court of &ew or@ hed

that the bares on which were mounted as turbine power pants desinated to enerate eectrica power, the fue oi

bares which suppied fue oi to the power pant bares, and the accessor euipment mounted on the bares were

subHect to rea propert ta+ation#

5oreover, Artice 819 /- of the &ew Civi Code provides that K[d]oc@s and structures which, thouh foatin, are

intended b their nature and obHect to remain at a fi+ed pace on a river, a@e, or coastK are considered immovabe

propert# *hus, power bares are cateori=ed as immovabe propert b destination, bein in the nature of machiner

and other impements intended b the owner for an industr or wor@ which ma be carried on in a buidin or on a

piece of and and which tend direct to meet the needs of said industr or wor@#91

%etitioners maintain nevertheess that the power bares are e+empt from rea estate ta+ under Section 238 c- of $#A#

&o# 71'0 because the are actua, direct and e+cusive used b petitioner &%C, a overnment! owned and

controed corporation enaed in the supp, eneration, and transmission of eectric power#

?e affirm the findins of the AA and CAA that the owner of the ta+abe properties is petitioner F6S, which in fine,

is the entit bein ta+ed b the oca overnment# As stipuated under Section 2#11, Artice 2 of the Areement

)?&6$SB.% )F %)?6$ A$"6S# %)A$ sha own the %ower ares and a the fi+tures, fittins, machiner and

euipment on the Site used in connection with the %ower ares which have been suppied b it at its own cost#

%)A$ sha operate, manae and maintain the %ower ares for the purpose of convertin Fue of &A%)C)$ into

eectricit#92

.t foows then that F6S cannot escape iabiit from the pament of reat ta+es b invo@in its e+emption in Section

238 c- of $#A# &o# 71'0, which reads

S6C*.)& 238# 6+emptions from $ea %ropert *a+# J *he foowin are e+empted from pament of the rea propert

ta+

+ + +

c- A machineries and euipment that are actua, direct and e+cusive used b oca water districts and

overnment!owned or controed corporations enaed in the supp and distribution of water and>or eneration and

transmission of eectric powerG + + +
















.ndeed, the aw states that the machiner must be actua, direct and e+cusive used b the overnment owned or

controed corporationG nevertheess, petitioner F6S sti cannot find soace in this provision because Section 9#9,

Artice 9 of the Areement provides

)%6$A*.)&# %)A$ underta@es that unti the end of the ease %eriod, subHect to the supp of the necessar Fue

pursuant to Artice ' and to the other provisions hereof, it wi operate the %ower ares to convert such Fue into

eectricit in accordance with %art A of Artice 7#93

.t is a basic rue that obiations arisin from a contract have the force of aw between the parties# &ot bein contrar

to aw, moras, ood customs, pubic order or pubic poic, the parties to the contract are bound b its terms and

conditions#98

*ime and aain, the Supreme Court has stated that ta+ation is the rue and e+emption is the e+ception# 99 *he aw

does not oo@ with favor on ta+ e+emptions and the entit that woud see@ to be thus privieed must Hustif it b

words too pain to be mista@en and too cateorica to be misinterpreted# 9' *hus, appin the rue of strict construction

of aws rantin ta+ e+emptions, and the rue that doubts shoud be resoved in favor of provincia corporations, we

hod that F6S is considered a ta+abe entit#

*he mere underta@in of petitioner &%C under Section 10#1 of the Areement, that it sha be responsibe for the

pament of a rea estate ta+es and assessments, does not Hustif the e+emption# *he priviee ranted to petitioner

&%C cannot be e+tended to F6S# *he covenant is between F6S and &%C and does not bind a third person not priv

thereto, in this case, the %rovince of atanas#

.t must be pointed out that the protracted and circuitous itiation has serious resuted in the oca overnmentIs

deprivation of revenues# *he power to ta+ is an incident of sovereint and is unimited in its manitude,

ac@nowedin in its ver nature no perimeter so that securit aainst its abuse is to be found on in the

responsibiit of the eisature which imposes the ta+ on the constituenc who are to pa for it# 97 *he riht of oca

overnment units to coect ta+es due must awas be uphed to avoid severe ta+ erosion# *his consideration is

consistent with the State poic to uarantee the autonom of oca overnments 9( and the obHective of the oca

"overnment Code that the enHo enuine and meaninfu oca autonom to empower them to achieve their fuest

deveopment as sef!reiant communities and ma@e them effective partners in the attainment of nationa oas# 9/

.n concusion, we reiterate that the power to ta+ is the most potent instrument to raise the needed revenues to

finance and support mriad activities of the oca overnment units for the deiver of basic services essentia to the

promotion of the enera wefare and the enhancement of peace, proress, and prosperit of the peope#'0

?B6$6F)$6, the %etitions are D6&.6D and the assaied Decisions and $esoutions AFF.$56D#

S) )$D6$6D#

THIR# #I!ISION

SAN RO$"E PO'ER CORPORATION, %etitioner,

! versus !

COMMISSIONER OF INTERNARE!EN"E, $espondent#

G.R. No. 1(0345 %resent C)$)&A, 2., Chairperson,CB.C)!&A4A$.), 6ASC), :$#,&ACB<$A, and%6$A*A, 22 # %romuated



















&ovember 29, 200/

+! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! !+

D 6 C . S . ) &

CB.C)!&A4A$.), 2 #

.n this %etition for $eview on Certiorari , under $ue 89 of the $evised $ues of Court, petitioner San $oue

%ower Corporation assais the Decision[1] of the Court of *a+ Appeas C*A- n /anc dated 20 September 2007 in C*A

6 &o# 28(, affirmin the Decision[2] dated 23 5arch 200' of the C*A Second Division in C*A Case &o# '/1', which

dismissed the caim of petitioner for the refund and>or issuance of a ta+ credit certificate in the amount of *wo

Bundred Fort!&ine 5iion *hree Bundred &inet!Seven *housand Si+ Bundred *went %esos and 1(>100

%28/,3/7,'20#1(- aeed representin unutii=ed input aue Added *a+ A*- for the period coverin :anuar to

December 2002#

$espondent, as the Commissioner of the ureau of .nterna $evenue .$-, is responsibe for the assessment

and coection of a nationa interna revenue ta+es, fees, and chares, incudin the aue Added *a+ A*-, imposed

b Section 10([3] of the &ationa .nterna $evenue Code &.$C- of 1//7# 5oreover, it is empowered to rant refunds

or issue ta+ credit certificates in accordance with Section 112 of the &.$C of 1//7 for unutii=ed input A* paid on

=ero!rated or effective =ero!rated saes and purchases of capita oods, to wit

S6C# 112# R*;u o- T6< C-* o; I/u T6<. ! A- =ero-rated or ffectivel0 =ero-rated "alesUAn A*!reistered person, whose saes are

=ero!rated or effective =ero!rated ma, within two 2- ears after the cose of the ta+abe uarterwhen the saes were made, app for the issuance of a ta+ credit certificate or refund of creditabeinput ta+ due or paid attributabe to such saes, e+cept transitiona input ta+, to the e+tent that suchinput ta+ has not been appied aainst output ta+ $rovided, however, *hat in the case of =ero!ratedsaes under Section 10'A-2-a-1-, 2- and - and Section 10( -1- and 2-, the acceptabe

forein currenc e+chane proceeds thereof had been du accounted for in accordance with the ruesand reuations of the /ang#o "entral ng $ilipinas S%- $rovided, further , *hat where the ta+paer isenaed in =ero!rated or effective =ero!rated sae and aso in ta+abe or e+empt sae of oods orproperties or services, and the amount of creditabe input ta+ due or paid cannot be direct andentire attributed to an one of the transactions, it sha be aocated proportionate on the basis of the voume of saes#

- Capital >oodsUA A*!reistered person ma app for the issuance of a ta+ credit

certificate or refund of input ta+es paid on capita oods imported or oca purchased, to the e+tentthe such input ta+es have not been appied aainst output ta+es# *he appication ma be made onwithin two 2- ears after the cose of the ta+abe uarter when the importation or purchase wasmade#

http://sc.judiciary.gov.ph/jurisprudence/2009/november2009/180345.htm#_ftn1








)n the other hand, petitioner is a domestic corporation orani=ed under the corporate aws of the $epubic of

the %hiippines# )n 18 )ctober 1//7, it was incorporated for the soe purpose of buidin and operatin the San

$oue 5utipurpose %roHect in San 5anue, %anasinan, which is an indivisibe proHect consistin of the power station,

the dam, spiwa, and other reated faciities#[8] .t is reistered with the oard of .nvestments ).- on a preferred

pioneer status to enae in the desin, construction, erection, assemb, as we as own, commission, and operate

eectric power!eneratin pants and reated activities, for which it was issued the Certificate of $eistration &o# /7!39' dated11 Februar 1//(#[9] As a seer of services, petitioner is reistered with the .$ as a A* ta+paer under

Certificate of $eistration &o# )C&!/(!00'!0073/8#[']

)n 11 )ctober 1//7, petitioner entered into a %ower %urchase Areement %%A- with the &ationa %ower

Corporation &%C- to deveop the hdro potentia of the owerAno $iver, and to be abe to enerate additiona power

and ener for the u=on %ower "rid, b deveopin and operatin the San $oue 5utipurpose %roHect# *he %%A

provides that petitioner sha be responsibe for the desin, construction, instaation, competion and testin and

commissionin of the %ower Station and it sha operate and maintain the same, subHect to the instructions of the

&%C# Durin the cooperation period of 29 ears commencin from the competion date of the %ower Station, the &%C

sha purchase a the eectricit enerated b the %ower %ant# [7]

ecause of the e+cusive nature of the %%A between petitioner and the &%C, petitioner appied for and was

ranted five Certificates of 4ero $ate b the .$, throuh the Chief $euator )perations 5onitorin Division, now

the Audit .nformation, *a+ 6+emption M .ncentive Division# ased on these certificates, the =ero!rated status of

petitioner commenced on 27 September 1//( and continued throuhout the ear 2002# [(]

For the period :anuar to December 2002, petitioner fied with the respondent its 5onth A* Decarationsand Quarter A* $eturns# .ts Quarter A* $eturns showed e+cess input A* paments on account of its

importation and domestic purchases of oods and services, as foows[/]

%eriod Covered Date Fied %articuars Amount

1st Quarter :anuar 1,2002to 5arch 31,2002-

Apri 20,2002

*a+ Due for the Quarter o+ 13C- % 2',287#27

.nput *a+ carried over from previoustr 22-

2/',128,82/#21

.nput A* on Domestic %urchases for theQtr

22D- /9,003,38(#/1

.nput A* on .mportation of "oods for

the Qtr

22F- 20,79(,''(#00

*ota Avaiabe .nput ta+ 23- 811,((',88'#12

A* $efund>*CC Caimed 28A- 173,/0/,839#''

&et Creditabe .nput *a+ 29- 237,/77,010#8'

A* paabe 6+cess .nput *a+- 2'- 237,/90,7'3#1/-

*a+ %aabe overpament- 2(- 237,/90,7'3#1/-

2nd Quarter Apri 1,2002 to

:u 28, 2002 *a+ Due for the Quartero+ 13C-

% ban@

.nput *a+ carried over from previous tr22-

237,/90,7'3#1/
















:une 30, 2002-


22D- '9,20',8//#(3

.nput A* on .mportation of "oods for theQtr

22F- 1(,8(9,79(#00

*ota Avaiabe .nput ta+ 23- 321,'83,021#02

A* $efund>*CC Caimed 28A- 237,/90,7'3#1/

&et Creditabe .nput *a+ 29- (3,'/2,297#(3

A* paabe 6+cess .nput *a+- 2'- (3,'/2,297#(3-*a+ %aabe overpament- 2(- (3,'/2,297#(3-

3rd Quarter :u 1, 2002 to September 30,2002-

)ctober 29,2002

*a+ Due for the Quartero+ 13C-

% ban@


1//,82(,027#87


22D- 2(,/28,020#7/


22F- 1,8'9,(79#00

*ota Avaiabe .nput ta+ 23- 22/,(17,/23#2'

A* $efund>*CC Caimed 28A- an@

&et Creditabe .nput *a+ 29- 22/,(17,/23#2'

A* paabe 6+cess .nput *a+- 2'- 22/,(17,/23#2'-

*a+ %aabe overpament- 2(- 22/,(17,/23#2'-

8th Quarter )ctober 1,2002to December 31,2002-

:anuar 23,2003

*a+ Due for the Quarter o+ 13C- % 38,//'#3'


118,0(2,193#'2


22D- 1(,1'',330#98


22F- 2,30(,(37#00

*ota Avaiabe .nput ta+ 23- 138,997,321#1'

A* $efund>*CC Caimed 28A- (3,'/2,297#(3

&et Creditabe .nput *a+ 29- 90,('9,0'3#33

A* paabe 6+cess .nput *a+- 2'- 90,(30,0''#/7-

*a+ %aabe overpament- 2(- 90,(30,0''#/7-

)n 1/ :une 2002, 29 )ctober 2002, 27 Februar 2003, and 2/ 5a 2003, petitioner fied with the .$ four

separate administrative caims for refund of <nutii=ed .nput A* paid for the period :anuar to 5arch 2002, Apri to

:une 2002, :u to September 2002, and )ctober to December 2002, respective# .n these etters addressed to the

.$, Caros 6chevarria 6chevarria-, the ice %resident and Director of Finance of petitioner, e+pained that petitionerIs

sae of power to &%C are subHect to A* at =ero percent rate, in accordance with Section 10(-3- of the &.$C#

[10] %etitioner souht to recover the tota amount of %290,29(,0/8#29, representin its unutii=ed e+cess A* on its

importation of capita and other ta+abe oods and services for the ear 2002, bro@en down as foows [11]

Qtr.nvoved

)utput *a+

.nput *a+

Domestic %urchases .mportations 6+cess .nput *a+

A- - C- D- N - V C- J







A-

1st % 2',287#27 %/9,003,38(#/1 %20,79(,''(#00 %119,739,7'/#(8

2nd ! '9,20',8//#(3 1(,8(9,79(#00 (3,'/2,297#(3

3rd ! 2(,/28,020#7/ 1,8'9,(79#00 30,3(/,(/9#7/

8th 38,//'#3' 1(,1'',330#98 2,30(,(37#00 20,880,171#1(

%'1,283#'3 %207,300,200#07 %83,01/,13(#00 %290,29(,0/8#88

%etitioner amended its Quarter A* $eturns, particuar the items on 1- .nput A* on Domestic %urchases

durin the first uarter of 2002G 2- .nput A* on Domestic %urchases for the fourth uarter of 2002G and 3- .nput

A* on .mportation of "oods for the fourth uarter of 2002# *he amendments read as foows[12]

%eriod Covered Date Fied %articuars Amount

1st Quarter :anuar 1,2002 to 5arch 31, 2002-

Apri 28,2003

*a+ Due for the Quarter o+ 13C- % 2',287#27


2/7,71/,2/'#29


22D- /9,12',/(1#'/

22F- 20,79(,''(#00*ota Avaiabe .nput ta+ 23- 813,'08,/89#/8

A* $efund>*CC Caimed 28A- 179,988,002#27

&et Creditabe .nput *a+ 29- 179,988,002#27

A* paabe 6+cess .nput *a+- 2'- 23(,0'0,/83#'7-

*a+ %aabe overpament- 2(- 23(,038,'/'#80-

2nd Quarter Apri 1, 2002 to :une 30, 2002-

Apri 28,2003

*a+ Due for the Quartero+ 13C-

% ban@


23(,038,'/'#80


22D- '9,20',8//#(3.nput A* on .mportation of "oods for theQtr

22F- 1(,8(9,79(#00

*ota Avaiabe .nput ta+ 23- 321,'83,021#02

A* $efund>*CC Caimed 28A- 237,/90,7'3#1/

&et Creditabe .nput *a+ 29- (3,'/2,297#(3

A* paabe 6+cess .nput *a+- 2'- (3,'/2,297#(3-

*a+ %aabe overpament- 2(- (3,'/2,297#(3-

3rd Quarter :u 1, 2002 to

September 30,2002-

)ctober 29,2002

*a+ Due for the Quartero+13C-

% ban@

.nput *a+ carried over from previous tr

22-

(3,'/2,297#(3


22D- 2(,/28,020#7/


22F- 1,8'9,(79#00

*ota Avaiabe .nput ta+ 23- 118,0(2,193#'2

A* $efund>*CC Caimed 28A- an@

&et Creditabe .nput *a+ 29- 118,0(2,193#'2

A* paabe 6+cess .nput *a+- 2'- 118,0(2,193#'2-

*a+ %aabe overpament- 2(- 118,0(2,193#'2-





8th Quarter )ctober 1,2002to December 31,2002-

:anuar 23,2003

*a+ Due for the Quarter o+ 13C- % 38,//'#3'


118,0(2,193#'2


22D- 17,/1(,09'#90


22F- 1,973,008#00

*ota Avaiabe .nput ta+ 23- 133,973,218#12

A* $efund>*CC Caimed 28A- (3,'/2,297#(3

&et Creditabe .nput *a+ 29- 8/,((0,/9'#2/

A* paabe 6+cess .nput *a+- 2'- 8/,(89,/9/#/3-

*a+ %aabe overpament- 2(- 8/,(89,/9/#/3-

)n 30 5a 2003 and 31 :u 2003, petitioner fied two etters with the .$ to amend its caims for ta+ refund

or credit for the first and fourth uarter of 2002, respective# %etitioner souht to recover a tota amoun

of %28/,3/7,'20#1( representin its unutii=ed e+cess A* on its importation and domestic purchases of oods and

services for the ear 2002, bro@en down as foows

[13]

Qtr.nvoved

Date Fied

)utput *a+

.nput *a+

Domestic%urchases

.mportations 6+cess .nput *a+

A- - C- D- N - V C- JA-

1st 30!5a!03 % 2',287#27 %/9,12',/(1#'/ %20,79(,''(#00 %119,(9/,802#82

2nd 29!)ct!02 ! '9,20',8//#(3 1(,1(9,79(#00 (3,'/2,297#(3

3rd 27!Feb!03 ! 2(,/28,/20#7/ 1,8'9,(79,00 30,3(/,(/9#7/

8th 31!:u!03 38,//'#3' 17,/1(,09'#90 1,973,008#00 1/,89',0'8#18

%'1,283#'3 %207,179,99(#(1 %82,2(3,309#00 %28/,3/7,'20#1(

$espondent faied to act on the reuest for ta+ refund or credit of petitioner, which prompted the atter to fie

on 9 Apri 2008, with the C*A in Division, a %etition for $eview, doc@eted as C*A Case &o# '/1' before it coud be

barred b the two!ear prescriptive period within which to fie its caim# %etitioner souht the refund of the amoun

of %28/,3/7,'20#1( representin its unutii=ed e+cess A* on its importation and oca purchases of various oods and

services for the ear 2002#[18]

Durin the proceedins before the C*A Second Division, petitioner presented the foowin documents, amon

other pieces of evidence 1- %etitionerIs Amended Quarter A* return for the 8 th Quarter of 2002 mar@ed as 6+hibit

WA,X showin the amount of %82,900,000#00 paid b &*C to petitioner for a the eectricit produced durin test runsG

2- the specia audit report, prepared b the C%A firm of %unonbaan and Arauo throuh a partner, Ane A# Auiar

Auiar-, and the attached schedues, mar@ed as 6+hibits W:!2X to W:!21XG 3- Saes .nvoices and )fficia $eceipts and

reated documents issued to petitioner for the ear 2002, mar@ed as 6+hibits W:!8!A1X to W:!8!2'9XG 8- Audited

Financia Statements of %etitioner for the ear 2002, with comparative fiures for 2001, mar@ed as 6+hibit WLXG and

9- the Affidavit of 6chevarria dated / Februar 2009, mar@ed as 6+hibit WX# [19]









Durin the hearins, the parties Hoint stipuated on the issues invoved

1# ?hether or not petitionerIs saes are subHect to vaue!added ta+es at effective =ero percent

0;- rateG 2# ?hether or not petitioner incurred input ta+es which are attributabe to its effective =ero!

rated transactionsG 3# ?hether or not petitionerIs importation and purchases of capita oods and reated services

are within the scope and meanin of Wcapita oodsX under $evenue $euations &o# 7!/9G 8# ?hether or not petitionerIs input ta+es are sufficient substantiated with A* invoices or

officia receiptsG 9# ?hether or not the A* input ta+es bein caimed for refund>ta+ credit b petitioner had-

been credited or utii=ed aainst an output ta+es or had- been carried forward to thesucceedin uarter or uartersG and

'# ?hether or not petitioner is entited to a refund of A* input ta+es it paid from :anuar 1,

2002 to December 31, 2002 in the tota amount of *wo Bundred Fort &ine 5iion *hreeBundred &inet Seven *housand Si+ Bundred *went and 1(>100 %esos %28/,3/7,'20#1(-#

Simp put, the issue is whether or not petitioner is entited to refund or ta+ credit in the amount

of %28/,3/7,'20#1( representin its unutii=ed input A* paid on importation and purchases of capita and other

ta+abe oods and services from :anuar 1 to December 31, 2002#

After a hearin on the merits, the C*A Second Division rendered a Decision[1'] dated 23 5arch 200' denin

petitionerIs caim for ta+ refund or credit# *he C*A noted that petitioner based its caim on creditabe input A* paid,

which is attributabe to 1- =ero!rated or effective =ero!rated sae, as provided under Section 112A- of the &.$C

and 2- purchases of capita oods, in accordance with Section 112- of the &.$C# *he court rued that in order fo

petitioner to be entited to the refund or issuance of a ta+ credit certificate on the basis of Section 112A- of the &.$C,

it must estabish that it had incurred =ero!rated saes or effective =ero!rated saes for the ta+abe ear 2002# Since

records show that petitioner did not ma@e an =ero!rated or effective!=ero rated saes for the ta+abe ear 2002, the

C*A reasoned that petitionerIs caim must be denied# %arenthetica, the court decared that the caim for ta+ refund

or credit based on Section 112- of the &.$C reuires petitioner to prove that it paid input A* on capita oods

purchased, based on the definition of capita oods provided under Section 8#112!1b- of $evenue $euations &o# 7!

/9Ui.e#, oods or properties which have an estimated usefu ife of reater than one ear, are treated as depreciabe

assets under Section 38F- of the &.$C, and are used direct or indirect in the production or sae of ta+abe oods

and services# *he C*A found that the evidence offered b petitionerUthe suppiersI invoices and officia receipts and

.mport 6ntries and .nterna $evenue Decarations and the audit report of the Court!commissioned .ndependent

Certified %ubic Accountant C%A- are insufficient to prove that the importations and domestic purchases were

cassified as capita oods and properties entered as part of the W%ropert, %ant and 6uipmentX account of the

petitioner# *he dispositive part of the said Decision reads

'HEREFORE, the instant %etition for $eview is #ENIE# for ac@ of merit#[17]







&ot satisfied with the foreoin Decision dated 23 5arch 200', petitioner fied a 5otion for $econsideration

which was denied b the C*A Second Division in a $esoution dated 8 :anuar 2007# [1(]

%etitioner fied an appea with the C*A n /anc , doc@eted as C*A 6 &o# 28(# *he C*A n /anc promuated

its Decision[1/] on 20 September 2007 denin petitionerIs appea# *he C*A n /anc reiterated the ruin of the

Division that petitionerIs caim based on Section 112A- of the &.$C shoud be denied since it did not present an

records of an =ero!rated or effective =ero!rated transactions# .t carified that since petitioner faied to prove tha

an sae of its eectricit had transpired, petitioner ma base its caim on on Section 112- of the &.$C, the

provision overnin the purchase of capita oods# *he court noted that the report of the Court!commissioned

auditin firm, %unonbaan M Arauo, deat specifica with the unutii=ed input ta+es paid or incurred b petitioner

on its oca and forein purchases of oods and services attributabe to its =ero!rated saes, and not to purchases of

capita oods# .t decided that petitioner faied to prove that the purchases evidenced b the invoices and receipts

which petitioner presented, were cassified as capita oods which formed part of its W%ropert, %ant and 6uipment,X

especia since petitioner faied to present its boo@s of account# *he dispositive part of the said Decision reads

'HEREFORE, premises considered, the instant petition is hereb #ISMISSE## Accordin,the assaied Decision and $esoution are hereb AFFIRME##[20]

*he C*A n /anc denied petitionerIs 5otion for $econsideration in a $esoution dated 22 )ctober 2007#[21]

Bence, the present %etition for $eview where the petitioner raises the foowin errors aeed committed b

the C*A n 4anc

.

*B6 C)<$* )F *AE A%%6AS 9 /A9C C)55.**6D S6$.)<S 6$$)$ A&D AC*6D ?.*B "$A6 A<S6)F D.SC$6*.)& *A&*A5)<&* *) ACL )$ 6EC6SS )F :<$.SD.C*.)& .& FA..&" )$ $6F<S.&" *)A%%$6C.A*6 *B6 )6$?B65.&" A&D <&C)&*$)6$*6D 6.D6&C6 S<5.**6D *B6%6*.*.)&6$, *B<S D6%$..&" %6*.*.)&6$ )F .*S %$)%6$* ?.*B)<* D<6 %$)C6SSG A&D .. *B6 C)<$* )F *AE A%%6AS C)55.**6D S6$.)<S 6$$)$ A&D AC*6D ?.*B "$A6 A<S6 )FD.SC$6*.)& A5)<&*.&" *) ACL )$ 6EC6SS )F :<$.SD.C*.)& .& $<.&" *BA* *B6 AS6&C6 )F46$)!$A*6D SA6S %6*.*.)&6$ D<$.&" *B6 6A$ C)6$6D *B6 CA.5 F)$ $6F<&D D)6S&)* 6&*.*6 %6*.*.)&6$ *) A $6F<&D )F .*S 6EC6SS A* .&%<* *AE6S A**$.<*A6 *) 46$)!$A*6D SA6S, C)&*$A$ *) %$).S.)&S )F A?#[22]

*he present %etition is meritorious#

*he main issue in this case is whether or not petitioner ma caim a ta+ refund or credit in the amount

of %28/,3/7,'20#1( for creditabe input ta+ attributabe to =ero!rated or effective =ero!rated saes pursuant to

Section 112A- of the &.$C or for input ta+es paid on capita oods as provided under Section 112- of the &.$C#














*o resove the issue, this Court must re!e+amine the facts and the evidence offered b the parties# .t is an

accepted doctrine that this Court is not a trier of facts# .t is not its function to review, e+amine and evauate or weih

the probative vaue of the evidence presented# Bowever, this rue does not app where the Hudment is premised on

a misapprehension of facts, or when the appeate court faied to notice certain reevant facts which if considered

woud Hustif a different concusion#[23]

After reviewin the records, this Court finds that petitionerIs caim for refund or credit is Hustified under

Section 112A- of the &.$C which states that

S6C# 112# R*;u o- T6< C-* o; I/u T6<.? A- =ero-rated or ffectivel0 =ero-rated "alesUAn A*!reistered person, whose saes are

=ero!rated or effective =ero!rated ma, within two 2- ears after the cose of the ta+abe uarterwhen the saes were made, app for the issuance of a ta+ credit certificate or refund of creditabeinput ta+ due or paid attributabe to such saes, e+cept transitiona input ta+, to the e+tent that suchinput ta+ has not been appied aainst output ta+ $rovided, however, *hat in the case of =ero!ratedsaes under Section 10'A-2-a-1-, 2- and - and Section 10(-1- and 2-, the acceptabeforein currenc e+chane proceeds thereof had been du accounted for in accordance with the rues

and reuations of the /ang#o "entral ng $ilipinas S%- $rovided, further , *hat where the ta+paer isenaed in =ero!rated or effective =ero!rated sae and aso in ta+abe or e+empt sae of oods orproperties or services, and the amount of creditabe input ta+ due or paid cannot be direct andentire attributed to an one of the transactions, it sha be aocated proportionate on the basis of the voume of saes#

*o caim refund or ta+ credit under Section 112A-, petitioner must comp with the foowin criteria 1- the

ta+paer is A* reisteredG 2- the ta+paer is enaed in =ero!rated or effective =ero!rated saesG 3- the input

ta+es are due or paidG 8- the input ta+es are not transitiona input ta+esG 9- the input ta+es have not been appied

aainst output ta+es durin and in the succeedin uartersG '- the input ta+es caimed are attributabe to =ero!rated

or effective =ero!rated saesG 7- for =ero!rated saes under Section 10'A-2-1- and 2-G 10'-G and 10(-1-

and 2-, the acceptabe forein currenc e+chane proceeds have been du accounted for in accordance with S%

rues and reuationsG (- where there are both =ero!rated or effective =ero!rated saes and ta+abe or e+empt saes,

and the input ta+es cannot be direct and entire attributabe to an of these saes, the input ta+es sha be

proportionate aocated on the basis of saes voumeG and /- the caim is fied within two ears after the cose of the

ta+abe uarter when such saes were made# [28]

ased on the evidence presented, petitioner compied with the abovementioned reuirements# First

petitioner had adeuate proved that it is a A* reistered ta+paer when it presented Certificate of $eistration &o#

)C&!/(!00'!0073/8, which it attached to its %etition for $eview dated 2/ 5arch 2008 fied before the C*A in

Division# Second, it is unuestioned that petitioner is enaed in providin eectricit for &%C, an activit which is

subHect to =ero rate, under Section 10(-3- of the &.$C# *hird, petitioner offered as evidence suppiersI A*

invoices or officia receipts, as we as .mport 6ntries and .nterna $evenue Decarations 6+hibits W:!8!A1X to W:!8!

2'9X-, which were e+amined in the audit conducted b Auiar, the Court!commissioned .ndependent

C%A# Sinificant, Auiar noted in his audit report 6+hibit W:!2X- that of the%28/,3/7,'20#1( caimed b petitioner

he identified items with incompete documentation and errors in computation with a tota amount







of %3,2'',00/#7(# ased on these findins, the remainin input A* of %28',131,'10#80 was proper documented

and recorded in the boo@s# *he said report reads

.n performin the procedures referred under the %rocedures %erformed section of this report, nomatters came to our attention that cause us to beieve that the amount of input A* appied for as ta+credit certificate>refund of %28/,3/7,'20#1( for the period :anuar 1, 2002 to December 31, 2002shoud be adHusted e+cept for input A* caimed with incompete documentation, those with variousand other e+ceptions on the supportin documents and those with errors in computation totain

%3,2'',00/#7(, as discussed in the Findins and $esuts of the Areed!<pon Audit %rocedures%erformed sections of this report# ?e have aso ascertained that the input A* caimed are properrecorded in the boo@s and, e+cept as specifica identified in the Findins and $esuts of the Areed!<pon Audit %rocedures %erformed sections of this report, are proper supported b oriina andappropriate suppiersI A* invoices and>or officia receipts#[29]

Fourth, the input ta+es caimed, which consisted of oca purchases and importations made in 2002, are not

transitiona input ta+es, which Section 111 of the &.$C defines as input ta+es aowed on the beinnin inventor of

oods, materias and suppies#[2'] Fifth, the audit report of Auiar affirms that the input A* bein caimed for ta+

refund or credit is net of the input A* that was aread offset aainst output A* amountin to %2',287#27 for the

first uarter of 2002 and %38,//'#3' for the fourth uarter of 2002, [27] as refected in the Quarter A* $eturns#[2(]

*he main dispute in this case is whether or not petitionerIs caim compied with the si+th reuirementUthe

e+istence of =ero!rated or effective =ero!rated saes, to which creditabe input ta+es ma be attributed# *he C*A in

Division and en 4anc denied petitionerIs caim soe on this round# *he ta+ courts based this concusion on the

audited report, mar@ed as 6+hibit W:!2,X statin that petitioner made no sae of eectricit to &%C in 2002

[2/] 5oreover, the affidavit of 6chevarria 6+hibit WX-, petitionerIs ice %resident and Director for Finance, contained

an admission that no commercia sae of eectricit had been made in favor of &%C in 2002 since the proHect was sti

under construction at that time#[30]

Bowever, upon coser e+amination of the records, it appears that on 2002, petitioner carried out a WsaeX of

eectricit to &%C# *he fourth uarter return for the ear 2002, which petitioner fied, reported a =ero!rated sae in the

amount of %82,900,000#00#[31] .n the Affidavit of 6chevarria dated / Februar 2009 6+hibit WX-, which was

uncontroverted b respondent, the affiant stated that athouh no commercia sae was made in 2002, petitioner

produced and transferred eectricit to &%C durin the testin period in e+chane for the amount of %82,900,000#00,

to wit[32]

A San $oue %ower Corporation has had no sae et durin 2002# *he %82,900,000#00 which waspaid to us b &apocor was somethin simiar to a more cost recover scheme# *he pre!areedamount woud be about eua to our costs for producin the eectricit durin the testin period andwe Hust refected this in our 8th uarter return as a =ero!rated sae# + + +#

*he Court is not unmindfu of the fact that the transaction described hereinabove was not a commercia

sae# .n rantin the ta+ benefit to A*!reistered =ero!rated or effective =ero!rated ta+paers, Section 112A- of

the &.$C does not imit the definition of WsaeX to commercia transactions in the norma course o

business# Conspicuous, Section 10'- of the &.$C, which deas with the imposition of the A*, does not imit the



















term WsaeX to commercia saes, rather it e+tends the term to transactions that are W**+*X sae, which are thus

enumerated

S6C 10'# !6lu*A* T6< o S6l* o; Goo o- P-o/*-*#

+ + + + - Transactions !eemed "ale#U*he foowin transactions sha be deemed sae

1B T-6;*-, u* o- ou+/o o :* ou-* o; u* o; ?oo o-

/-o/*-* o-?6lly ** ;o- 6l* o- ;o- u* :* ou-* o; u*

2- Distribution or transfer to

a- Sharehoders or investors as share in the profits of the A*!reistered personsG or

b- Creditors in pament of debtG

3- Consinment of oods if actua sae is not made within si+t '0- das foowinthe date such oods were consinedG and

8- $etirement from or cessation of business, with respect to inventories of ta+abeoods e+istin as of such retirement or cessation# )ur emphasis#-

After carefu e+aminin this provision, this Court finds it an euitabe construction of the aw that when the term

WsaeX is made to incude certain transactions for the purpose of imposin a ta+, these same transactions shoud be

incuded in the term WsaeX when considerin the avaiabiit of an e+emption or ta+ benefit from the same revenue

measures# .t is undisputed that durin the fourth uarter of 2002, petitioner transferred to &%C a the eectricit that

was produced durin the tria period# *he fact that it was not transferred throuh a commercia sae or in the norma

course of business does not defect from the fact that such transaction is deemed as a sae under the aw#

*he seventh reuirement reardin forein currenc e+chane proceeds is inappicabe where petitionerIs

=ero!rated sae of eectricit to &%C did not invove forein e+chane and consisted on of a sine transaction

wherein &%C paid petitioner %82,900,000#00 in e+chane for the eectricit transferred to it b petitioner# Simiar

the eihth reuirement is inappicabe to this case, where the on sae transaction consisted of an effective =ero!

rated sae and there are no e+empt or ta+abe saes that transpired, which wi reuire the proportionate aocation of

the creditabe input ta+ paid#

*he ast reuirement determines that the caim shoud be fied within two ears after the cose of the ta+abeuarter when such saes were made# *he sae of eectricit to &%C was reported at the fourth uarter of 2002, which

cosed on 31 December 2002# %etitioner had unti 30 December 2008 to fie its caim for refund or credit# For the

period :anuar to 5arch 2002, petitioner fied an amended reuest for refund or ta+ credit on 30 5a 2003G for the

period :u 2002 to September 2002, on 27 Februar 2003G and for the period )ctober 2002 to December 2002,

on 31 :u 2003#[33] .n these three uarters, petitioners seasonab fied its reuests for refund and ta+

credit# Bowever, for the period Apri 2002 to 5a 2002, the caim was fied premature on 29 )ctober 2002, before

the ast uarter had cosed on 31 December 2002#[38]








Despite this apse in procedure, this Court notes that petitioner was abe to positive show that it was abe to

accumuate e+cess input ta+es on various importations and oca purchases in the amount of %28',131,'10#80, which

were attributabe to a transfer of eectricit in favor of &%C# *he fact that it had fied its caim for refund or credit

durin the uarter when the transfer of eectricit had ta@en pace, instead of at the cose of the said uarter does not

ma@e petitioner an ess entited to its caim# "iven the specia circumstances of this case, wherein petitioner was

incorporated for the soe purpose of constructin or operatin a power pant that wi transfer a the eectricit it

enerates to &%C, there is no daner that petitioner woud tr to frauduent caim input ta+ paid on purchases that

wi be attributed to sae transactions that are not =ero!rated# Substantia Hustice, euit and fair pa are on the side

of the petitioner# *echnicaities and eaisms, however, e+ated, shoud not be misused b the overnment to @eep

mone not beonin to it, thereb enrichin itsef at the e+pense of its aw abidin citi=ens#

Substantia Hustice, euit and fair pa are on the side of petitioner# *echnicaities and

eaisms, however e+ated, shoud not be misused b the overnment to @eep mone not beoninto it, thereb enrichin itsef at the e+pense of its aw!abidin citi=ens# <nder the principe of solutioinde4iti provided in Art# 2198, Civi Code, the .$ received somethin Wwhen there [was] no riht todemand it,X and thus, it has the obiation to return it# Beavi miitatin aainst respondentCommissioner is the ancient principe that no one, not even the State, sha enrich onesef at the

e+pense of another# .ndeed, simpe Hustice reuires the speed refund of the wron hed ta+es#[39]

.t bears emphasis that effective =ero!ratin is not intended as a benefit to the person ea iabe to pa the

ta+, such as petitioner, but to reieve certain e+empt entities, such as the &%C, from the burden of indirect ta+ so as to

encourae the deveopment of particuar industries# efore, as we as after, the adoption of the A*, certain specia

aws were enacted for the benefit of various entities and internationa areements were entered into b

the %hiippines with forein overnments and institutions e+emptin sae of oods or supp of services from indirect

ta+es at the eve of their suppiers# 6ffective =ero!ratin was intended to reieve the e+empt entit from bein

burdened with the indirect ta+ which is or which wi be shifted to it had there been no e+emption# .n this casepetitioner is bein e+empted from pain A* on its purchases to reieve &%C of the burden of additiona costs that

petitioner ma shift to &%C b addin to the cost of the eectricit sod to the atter#[3']

Section 13 of $epubic Act &o# '3/9, otherwise @nown as the &%C Charter, further carifies that it is the

awma@ersI intention that &%C be made compete e+empt from a ta+es, both direct and indirect

Sec# 13# 9on-profit Character of the Corporation@ xemption from all Taxes, !uties, ees,

5mposts and 7ther Charges 40 >overnment and >overnmental 5nstrumentalities# ! *he corporationsha be non!profit and sha devote a its returns from its capita investment, as we as e+cessrevenues from its operation, for e+pansion# *o enabe the corporation to pa its indebtedness andobiations and in furtherance and effective impementation of the poic enunciated in Section 1 of this Act, the corporation is hereb decared e+empt

a- From the pament of a ta+es, duties, fees, imposts, chares, costs and service feesin an court or administrative proceedins in which it ma be a part, restrictions and duties to the$epubic of the %hiippines, its provinces, cities, municipaities, and other overnment aencies andinstrumentaitiesG

b- From a income ta+es, franchise ta+es, and reat ta+es to be paid to the &ationa"overnment, its provinces, cities, municipaities and other overnment aencies and instrumentaitiesG

c- From a import duties, compensatin ta+es and advanced saes ta+ and wharfaefees on import of forein oods, reuired for its operations and proHectsG and








d- From a ta+es, duties, fees, imposts, and a other chares imposed b the $epubic of

the %hiippines, its provinces, cities, municipaities and other overnment aencies andinstrumentaities, on a petroeum products used b the corporation in the eneration, transmission,utii=ation, and sae of eectric power#

*o imit the e+emption ranted to the &%C to direct ta+es, notwithstandin the enera and broad anuae of

the statute wi be to thwart the eisative intention in ivin e+emption from a forms of ta+es and impositions,

without distinuishin between those that are direct and those that are not#[37]

Conress ranted &%C a comprehensive ta+ e+emption because of the sinificant pubic interest invoved# *his

is enunciated in Section 1 of $epubic Act &o# '3/9

Section 1# !eclaration of $olic0 # Conress hereb decares that 1- the comprehensive

deveopment, utii=ation and conservation of %hiippine water resources for a beneficia uses,incudin power eneration, and 2- the tota eectrification of the %hiippines throuh the deveopmentof power from a sources to meet the needs of industria deveopment and dispersa and the needs of rura eectrification are primar obHectives of the nation which sha be pursued coordinate andsupported b a instrumentaities and aencies of overnment, incudin its financia institutions#

*he abiit of the &%C to provide sufficient and affordabe eectricit throuhout the countr reat affects our

industria and rura deveopment# 6rroneous and unHust deprivin industries that enerate eectrica power of ta+

benefits that the aw cear rants wi have an immediate effect on consumers of eectricit and on term effects on

our econom#

.n the same breath, we cannot ose siht of the fact that it is the decared poic of the State, e+pressed in

Section 2 of $epubic Act &o# /13', otherwise @nown as the 6%.$A aw, Wto ensure and accelerate the tota

electrification of the countr0 GX Wto enhance the inflow of private capital and 4roaden the ownership 4ase of the power

generation, transmission and distri4ution sectorsGX and Wto promote the utiliation of indigenous and new and

renewa4le energ0 resources in power generation in order to reduce dependence on imported energ0 #X Further

Section ' provides that W pursuant to the o4ective of lowering electricit0 rates to end-users, sales of generated power

40 generation companies shall 4e value-added tax ero-rated #

Section 79 of said aw succinct decares that W this Act shall, unless the context indicates otherwise, 4e

construed in favor of the esta4lishment, promotion, preservation of competition and power empowerment so that the

widest participation of the people, whether directl0 or indirectl0 is ensured #X

*he obHectives as set forth in the 6%.$A aw can on be achieved if overnment were to aow petitioner and

others simiar situated to obtain the input ta+ credits avaiabe under the aw# Denin petitioner such credits woud

o aainst the decared poicies of the 6%.$A aw#

*he eisative rant of ta+ reief whether in the 6%.$A aw or the *a+ Code- constitutes a soverein

commitment of "overnment to ta+paers that the atter can avai themseves of certain ta+ reiefs and incentives in





the course of their business activities here# Such a commitment is particuar vita to forein investors who have

been enticed to invest heavi in our countrIs infrastructure, and who have done so on the firm assurance that certain

ta+ reiefs and incentives can be avaied of in order to enabe them to achieve their proHected returns on these ver

on!term and heavi funded investments# ?hie the overnmentIs abiit to @eep its commitment is put in doubt

credit ratin turns to worseG the costs of borrowin becomes hiher and the harder it wi be to attract forein

investors# *he countrIs earnest efforts to move forward wi a be put to nauht#

Bavin decided that petitioner is entited to caim refund or ta+ credit under Section 112A- of the &.$C or on

the basis of effective =ero!rated saes in the amount of%28',131,'10#80, there is no more need to estabish its riht

to ma@e the same caim under Section 112- of the &.$C or on the basis of purchase of capita oods#

Fina, respondent contends that accordin to we!estabished doctrine, a ta+ refund, which is in the nature of

a ta+ e+emption, shoud be construed strictissimi urisaainst the ta+paer#[3(] Bowever, when the caim for refund

has cear ea basis and is sufficient supported b evidence, as in the present case, then the Court sha not hesitate

to rant the same#

[3/]

'HEREFORE, the instant %etition for $eview is GRANTE#. *he Decision of the Court of *a+ Appeas n

/anc dated 20 September 2007 in C*A 6 Case &o# 28(, affirmin the Decision dated 23 5arch 200' of the C*A

Second Division in C*A Case &o# '/1', is RE!ERSE#. $espondent Commissioner of .nterna $evenue is ordered to

refund, or in the aternative, to issue a ta+ credit certificate to petitioner San $oue %ower Corporation in the amount

of *wo Bundred Fort!Si+ 5iion )ne Bundred *hirt!)ne *housand Si+ Bundred *en %esos and 80>100

%28',131,'10#80-, representin unutii=ed input A* for the period 1 :anuar 2002 to 31 December 2002. &o costs#

SO OR#ERE#.

G.R. No. 143( Au?u 22, 2001

PHIIPPINE ONG #ISTANCE TEEPHONE COMPAN, INC., petitioner,

vs#

CIT OF #A!AO 6 A#EAI#A %. %ARCEONA, :*- 6/6y 6 :* Cy T-*6u-*- o; #6)6o,respondents#

MEN#OA, J .&

*his is a petition for review on certiorari under $ue 89 of the 1//7 $ues of Civi %rocedure of the resoution, 1 dated

:une 23, 2000, of the $eiona *ria Court, ranch 13, Davao Cit, affirmin the ta+ assessment of petitioner and thedenia of its caim for ta+ refund b the Cit *reasurer of Davao#

*he facts are as foows

)n :anuar 1///, petitioner %hiippine on Distance *eephone Co#, .nc# %D*- appied for a 5aorPs %ermit to

operate its Davao 5etro 6+chane# $espondent Cit of Davao withhed action on the appication pendin pament b

petitioner of the oca franchise ta+ in the amount of %3,'(1,/(9#72 for the first to the fourth uarter of 1///# 2 .n a

etter dated 5a 31, 1///, 3 petitioner protested the assessment of the oca franchise ta+ and reuested a refund of

the franchise ta+ paid b it for the ear 1//7 and the first to the third uarters of 1//(# %etitioner contended that it

was e+empt from the pament of franchise ta+ based on an opinion of the ureau of oca "overnment Finance

"F-, dated :une 2, 1//(, which reads as foows








%D*

Section 12 of $A 70(2 provides as foows

KS6C*.)& 12# *he rantee, its successors or assins sha be iabe to pa the same ta+es on their rea

estate, buidins, and persona propert, e+cusive of this franchise, as other persons or corporations

are now or hereafter ma be reuired b aw to pa# .n addition thereto, the rantee, its successors or

assins sha pa a franchise ta+ euivaent to three percent 3;- of a ross receipts of the

teephone or other teecommunications businesses transacted under this franchise b the rantee, its

successors or assins, and the said percentae sha be in ieu of a ta+es on this franchise or earnins

thereof # # #K

.t appears that $A 70(2 further amendin Act &o# 383' which ranted to %D* a franchise to insta, operate

and maintain a teephone sstem throuhout the %hiippine .sands was approved on Auust 3, 1//1# Section

12 of said franchise, i@ewise, contains the Kin ieu of a ta+esK proviso#

.n this connection, Section 23 of $A 7/29, uoted hereunder, which was approved on 5arch 1, 1//9, provides

for the euait of treatment in the teecommunications industr

KS6C*.)& 23# 'ualit0 of Treatment in the Telecommunications 5ndustr0 # U An advantae, favor

priviee, e+emption, or immunit ranted under e+istin franchises, or ma hereafter be ranted,

sha ipso facto 4ecome part of previousl0 granted telecommunications franchise and sha be accorded

immediate and unconditiona to the rantees of such franchises $rovided , however , *hat the

foreoin sha neither app to nor affect provisions of teecommunications franchises concernin

territor covered b the franchise, the ife span of the franchise, or the tpe of service authori=ed b

the franchise#K .taics suppied#-

)n the basis of the aforeuoted Section 23 of $A 7/29, %D* as a teecommunications franchise hoder

becomes automatica covered b the ta+ e+emption provisions of $A 7/29, which too@ effect on 5arch 1',

1//9#

Accordin, %D* sha be e+empt from the pament of franchise and business ta+es imposabe b "<s

under Sections 137 and 183 sic-, respective, of the "C, upon the effectivit of $A 7/29 on 5arch 1',1//9# Bowever, %D* sha be iabe to pa the franchise and business ta+es on its ross receipts reai=ed from

:anuar 1, 1//2 up to 5arch 19, 1//9, durin which period %D* was not enHoin the Kmost favored causeK

proviso of $A 7029 sic-#8

.n a etter dated September 27, 1///, respondent Adeaida # arceona, Cit *reasurer of Davao, denied the protest

and caim for ta+ refund of petitioner,9 citin the ea opinion of the Cit ea )fficer of Davao and Art# 10, Y1 of

)rdinance &o# 230, Series of 1//1, as amended b )rdinance &o# 91/, Series of 1//2, which provides

&otwithstandin an e+emption ranted b an aw or other specia aw, there is hereb imposed a ta+ on

businesses enHoin a franchise, at a rate of Sevent!five percent 79;- of one percent 1;- of the ross

annua receipts for the precedin caendar ear based on the income or receipts reai=ed within the territoria

Hurisdiction of Davao Cit#

'

%etitioner received respondent Cit *reasurerPs order of denia on )ctober 1, 1///# )n &ovember 3, 1///, it fied a

petition in the $eiona *ria Court of Davao see@in a reversa of respondent Cit *reasurerPs denia of petitionerPs

protest and the refund of the franchise ta+ paid b it for the ear 1//( in the amount of %2,9(0,(2/#23# *he petition

was fied pursuant to YY1/9 and 1/' of the oca "overnment Code $#A# &o# 71'0-# &o caim for refund of franchise

ta+es paid in 1//7 was made as the same had aread prescribed under Y1/' of the "C, which provides that caims

for the refund of ta+es paid under it must be made within two 2- ears from the date of pament of such ta+es# 7

*he tria court denied petitionerPs appea and affirmed the Cit *reasurerPs decision# .t rued that the "C withdrew a

ta+ e+emptions previous enHoed b a persons and authori=ed oca overnment units to impose a ta+ on

businesses enHoin a franchise notwithstandin the rant of ta+ e+emption to them# *he tria court i@ewise denied

http://www.lawphil.net/judjuris/juri2001/aug2001/gr_143867_2001.html#fnt4










petitionerPs caim for e+emption under $#A# &o# 7/29 for the foowin reasons 1- it is cear from the wordin of Y1/3

of the oca "overnment Code that Conress did not intend to e+empt an franchise hoder from the pament of oca

franchise and business ta+esG 2- the opinion of the 6+ecutive Director of the ureau of oca "overnment Finance to

the contrar is not bindin on respondentsG and 3- petitioner faied to present an proof that "obe and Smart were

enHoin oca franchise and business ta+ e+emptions#

Bence, this petition for review based on the foowin rounds

.# *B6 )?6$ C)<$* 6$$6D .& A%%.&" S6C*.)& 137 )F *B6 )CA ")6$&56&* C)D6, ?B.CB

A)?S A C.* *) .5%)S6 A F$A&CB.S6 *AE, A&D S6C*.)& 1/3 *B6$6)F, ?B.CB %$).D6S F)$

?.*BD$A?A )F *AE 6E65%*.)& %$..6"6S#

..# *B6 )?6$ C)<$* 6$$6D .& &)* B)D.&" *BA* <&D6$ %6*.*.)&6$PS F$A&CB.S6, AS .5%.C.*

A56&D6D A&D 6E%A&D6D S6C*.)& 23 )F $6%<.C AC* &)# 7/29 %<.C *66C)55<&.CA*.)&S

%).C AC*-, *AL.&" .&*) ACC)<&* *B6 F$A&CB.S6S )F ")6 *66C)5, .&C# A&D S5A$*

C)55<&.CA*.)&S, .&C#, ?B.CB ?6$6 6&AC*6D S<S6Q<6&* *) *B6 )CA ")6$&56&* C)D6, &)

F$A&CB.S6 A&D <S.&6SS *AE6S 5A 6 .5%)S6D )& %6*.*.)&6$ $6S%)&D6&* C.*#

...# *B6 )?6$ C)<$* 6$$6D .& &)* "..&" ?6."B* *) *B6 $<.&" )F *B6 <$6A< )F )CA

")6$&56&* F.&A&C6 *BA* %6*.*.)&6$ .S 6E65%* F$)5 *B6 %A56&* )F F$A&CB.S6 A&D <S.&6SS

*AE6S, A5)&" )*B6$S, .5%)SA6 )CA ")6$&56&* <&.*S <&D6$ *B6 )CA ")6$&56&*

C)D6#

irst # *he "C, which too@ effect on :anuar 1, 1//2, provides

S6C*.)& 137# ranchise Tax # U &otwithstandin an e+emption ranted b an aw or other specia aw, the

province ma impose a ta+ on businesses enHoin a franchise, at a rate not e+ceedin fift percent 90;- of

one percent 1;- of the ross annua receipts for the precedin caendar ear based on the incomin receipt,

or reai=ed, within its territoria Hurisdiction#

.n the case of a new started business, the ta+ sha not e+ceed one!twentieth 1>20- of one percent 1;- of

the capita investment# .n the succeedin caendar ear, reardess of when the business started to operate,

the ta+ sha be based on the ross receipts for the precedin caendar ear, or an fraction thereof, asprovided herein#(

S6C*.)& 1/3# 6ithdrawal of Tax xemption $rivileges# U <ness otherwise provided in this Code, ta+

e+emptions or incentives ranted to, or present enHoed b a persons, whether natura or Huridica,

incudin overnment!owned or !controed corporations, e+cept oca water districts, cooperatives du

reistered under $#A# '/3(, non!stoc@ and non!profit hospitas and educationa institutions, are hereb

withdrawn upon the effectivit of this Code#

*he tria court hed that, under these provisions, a e+emptions ranted to a persons, whether natura and Huridica,

incudin those which in the future miht be ranted, are withdrawn uness the aw rantin the e+emption e+press

states that the e+emption aso appies to oca ta+es# ?e disaree# Sec# 137 does not state that it covers future

e+emptions# .n $hilippine Airlines, 5nc. v. du,

/

where a provision of the *a+ Code enacted on :une 27, 1/'( $#A#9831- withdrew the e+emption enHoed b %A, it was hed that a subseuent amendment of %APs franchise

e+emptin it from a other ta+es e+cept that imposed b its franchise, aain entited %A to e+emption from the date

of the enactment of such amendment# *he *a+ Code provision withdrawin the ta+ e+emption was not construed as

prohibitin future rants of e+emptions from a ta+es#

.ndeed, the rant of ta+in powers to oca overnment units under the Constitution and the "C does not affect the

power of Conress to rant e+emptions to certain persons, pursuant to a decared nationa poic# *he ea effect of

the constitutiona rant to oca overnments simp means that in interpretin statutor provisions on municipa

ta+in powers, doubts must be resoved in favor of municipa corporations#10









*he uestion, therefore, is whether, after the withdrawa of its e+emption b virtue of Y137 of the "C, petitioner has

aain become entited to e+emption from oca franchise ta+# %etitioner answers in the affirmative and points to Y23 of

$#A# &o# 7/29, in reation to the franchises of "obe *eecom "obe- and Smart Communications, .nc# Smart-, which

aeed rant the atter e+emption from oca franchise ta+es#

*o bein with, ta+ e+emptions are hih disfavored# *he reason for this was e+pained b this Court in Asiatic

$etroleum Co. v. 8lanes,11 in which it was hed

# # # 6+emptions from ta+ation are hih disfavored, so much so that the ma amost be said to be odious to

the aw# Be who caims an e+emption must be abe to point to some positive provision of aw creatin the

riht# # # As was said b the Supreme Court of *ennessee in 5emphis vs# <# M %# an@ /1 *enn#, 98', 990-,

K*he riht of ta+ation is inherent in the State# .t is a preroative essentia to the perpetuit of the

overnmentG and he who caims an e+emption from the common burden must Hustif his caim b the cearest

rant of oranic or statute aw#K )ther utterances eua or more emphatic come readi to hand from the

hihest authorit# .n )hio ife .ns# and *rust Co# vs# Debot 1' Boward, 81'-, it was said b Chief :ustice

*ane, that the riht of ta+ation wi not be hed to have been surrendered, Kuness the intention to surrender

is manifested b words too pain to be mista@en#K .n the case of the Deaware $airoad *a+ 1( ?aace, 20',

22'-, the Supreme Court of the <nited States said that the surrender, when caimed, must be shown b cear,

unambiuous anuae, which wi admit of no reasonabe construction consistent with the reservation of the

power# .f a doubt arises as to the intent of the eisature, that doubt must be soved in favor of the State# .n

6rie $aiwa Compan vs# Commonweath of %ennsvania 21 ?aace, 8/2, 8//-, 5r# :ustice Bunt, spea@in

of e+emptions, observed that a State cannot strip itsef of the most essentia power of ta+ation b doubtfuwords# K.t cannot, b ambiuous anuae, be deprived of this hihest attribute of sovereint#K .n *ennessee

vs# ?hitworth 117 <#S#, 12/, 13'-, it was said K.n a cases of this @ind the uestion is as to the intent of the

eisature, the presumption awas bein aainst an surrender of the ta+in power#K .n Farrinton vs

*ennessee and Count of Sheb /9 <#S#, '7/, '('-, 5r# :ustice Swane said K# # # ?hen e+emption is

caimed, it must be shown indubitab to e+ist# At the outset, ever presumption is aainst it# A we!founded

doubt is fata to the caim# .t is on when the terms of the concession are too e+picit to admit fair of an

other construction that the proposition can be supported#K

*he ta+ e+emption must be e+pressed in the statute in cear anuae that eaves no doubt of the intention of the

eisature to rant such e+emption# And, even if it is ranted, the e+emption must be interpreted in strictissim

uris aainst the ta+paer and ibera in favor of the ta+in authorit#12

.n the present case, petitioner Hustifies its caim of ta+ e+emption b strained inferences# First, it cites $#A# &o# 7/29,

otherwise @nown as the %ubic *eecommunications %oic Act of the %hiippines, Y23 of which reads

S6C*.)& 23# 'ualit0 of Treatment in the Telecommunications 5ndustr0 # U An advantae, favor, priviee,

e+emption, or immunit ranted under e+istin franchises, or ma hereafter be ranted, sha ipso facto

become part of previous ranted teecommunications franchises and sha be accorded immediate and

unconditiona to the rantees of such franchises $rovided , however , *hat the foreoin sha neither app

to nor affect provisions of teecommunications franchises concernin territor covered b the franchise, the ife

span of the franchise, or the tpe of service authori=ed b the franchise#

%etitioner then caims that Smart and "obe enHo e+emption from the pament of the franchise ta+ b virtue of their

eisative franchises per opinion of the ureau of oca "overnment Finance of the Department of Finance# Fina, it

arues that because Smart and "obe are e+empt from the franchise ta+, it foows that it must i@ewise be e+empt

from the ta+ bein coected b the Cit of Davao because the rant of ta+ e+emption to Smart and "obe ipso

facto e+tended the same e+emption to it#

*he acceptance of petitionerPs theor woud resut in absurd conseuences# *o iustrate .n its franchise, "obe is

reuired to pa a franchise ta+ of on one and one!haf percentum 1Z;- of a ross receipts from its transactions

whie Smart is reuired to pa a ta+ of three percent 3;- on a ross receipts from business transacted# %etitionerPs

theor woud reuire that, to eve the pain fied, an Kadvantae, favor, priviee, e+emption, or immunitK ranted

to "obe must be e+tended to a teecommunications companies, incudin Smart# .f, ater, Conress aain rants a

franchise to another teecommunications compan imposin, sa, one percent 1;- franchise ta+, then a other








teecommunications franchises wi have to be adHusted to Keve the pain fiedK so to spea@# *his coud not have

been the intent of Conress in enactin Y23 of $ep# Act 7/29# %etitionerPs theor wi eave the "overnment with the

burden of havin to @eep trac@ of a ranted teecommunications franchises, est some companies be treated

uneua# .t is different if Conress enacts a aw specifica rantin uniform advantaes, favor, priviee, e+emption,

or immunit to a teecommunications entities#

*he fact is that the term Ke+emptionK in Y23 is too enera# A cardina rue in statutor construction is that eisative

intent must be ascertained from a consideration of the statute as a whoe and not mere of a particuar provision# For

ta@en in the abstract, a word or phrase miht easi conve a meanin which is different from the one actua

intended# A enera provision ma actua have a imited appication if read toether with other provisions# 13 Bence, a

consideration of the aw itsef in its entiret and the proceedins of both Bouses of Conress is in order#18

Art# . of $ep# Act &o# 7/29 contains the enera provisions, statin that the Act sha be @nown as the %ubic

*eecommunications %oic Act of the %hiippines, and a definition of terms#19 Art# .. provides for its poicies and

obHectives, which is to foster the improvement and e+pansion of teecommunications services in the countr throuh

1- the construction of teecommunications infrastructure and interconnection faciities, havin in mind the efficient

use of the radio freuenc spectrum and e+tension of basic services to areas not et servedG 2- fair, Hust, and

reasonabe rates and tariff charesG 3- stabe, transparent, and fair administrative processesG 8- reiance on private

enterprise for direct provision of teecommunications servicesG 9- dispersa of ownership of teecommunications

entities in compiance with the constitutiona mandate to democrati=e the ownership of pubic utiitiesG '-

encouraement of the estabishment of interconnection with other countries to provide access to internationa

communications hihwas and deveopment of a competitive e+port!oriented domestic teecommunicationsmanufacturin industrG and 7- deveopment of human resources s@is and capabiities to sustain the rowth and

deveopment of teecommunications#1'

Art# ... provides for its administration# *he operationa and administrative functions are deeated to the &ationa

*eecommunications Commission &*C-, whie poic!ma@in, research, and neotiations in internationa

teecommunications matters are eft with the Department of *ransportation and Communications# 17

Art# . cassifies the cateories of teecommunications entities as oca 6+chane )perator, .nter!6+chane Carrier

.nternationa Carrier, aue!Added Service %rovider, 5obie $adio Services, and $adio %ain Services#1( Art#

provides for the use of other services and faciities, such as customer premises euipment, which ma be used within

the premises of teecommunications subscribers subHect on to the reuirement that it is tpe!approved b the &*C,

and radio freuenc spectrum, the assinment of which sha be subHect to periodic review#1/

Art# ., entited Franchise, $ates and $evenue Determination, provides for the reuirement to obtain a franchise from

Conress and a Certificate of %ubic Convenience and &ecessit from the &*C before a teecommunications entit can

bein its operations# .t aso provides for the &*CPs residua power to reuate the rates or tariffs when ruinous

competition resuts or when a monopo or a carte or combination in restraint of free competition e+ists and the rates

or tariffs are distorted or unabe to function free and the pubic is adverse affected# *here is aso a provision

reatin to revenue sharin arranements between inter!connectin carriers#20

Art# .. provides for the rihts of teecommunications users#21

Art# ..., entited *eecommunications Deveopment, where Y23 is found, provides for pubic ownership of

teecommunications entities, privati=ation of e+istin faciities, and the euait of treatment provision# 22

Art# .E contains the Fina %rovisions#23

$#A# &o# 7/29 is thus a eisative enactment desined to set the nationa poic on teecommunications and provide

the structures to impement it to @eep up with the technooica advances in the industr and the needs of the pubic#

*he thrust of the aw is to promote radua the dereuation of the entr, pricin, and operations of a pubic

teecommunications entities and thus promote a eve pain fied in the teecommunications industr# 28*here is

nothin in the anuae of Y23 nor in the proceedins of both the Bouse of $epresentatives and the Senate in

enactin $#A# &o# 7/29 which shows that it contempates the rant of ta+ e+emptions to a teecommunications

entities, incudin those whose e+emptions had been withdrawn b the "C#



























?hat this Court said in Asiatic $etroleum Co. v. 8lanes29 appies mutatis mutandis to this case K?hen e+emption is

caimed, it must be shown indubitab to e+ist# At the outset, ever presumption is aainst it# A we!founded doubt is

fata to the caim# .t is on when the terms of the concession are too e+picit to admit fair of an other construction

that the proposition can be supported#K .n this case, the word Ke+emptionK in Y23 of $#A# &o# 7/29 coud contempate

e+emption from certain reuator or reportin reuirements, bearin in mind the poic of the aw# .t is noteworth

that, in hodin Smart and "obe e+empt from oca ta+es, the "F did not base its opinion on Y23 but on the fact

that the franchises ranted to them after the effectivit of the "C e+empted them from the pament of oca

franchise and business ta+es#

"econd # .n the case of petitioner, the "F opined that Y23 of $#A# &o# 7/29 amended the franchise of petitioner and

in effect restored its e+emptions from oca ta+es# %etitioner contends that courts shoud not set aside concusions

reached b the "F because its function is precise the stud of oca ta+ probems and it has necessari deveoped

an e+pertise on the subHect#

*o be sure, the "F is not an administrative aenc whose findins on uestions of fact are iven weiht and

deference in the courts# *he authorities cited b petitioner pertain to the Court of *a+ Appeas,2' a hih speciai=ed

court which performs Hudicia functions as it was created for the review of ta+ cases# 27 .n contrast, the "F was

created mere to provide consutative services and technica assistance to oca overnments and the enera pubic

on oca ta+ation, rea propert assessment, and other reated matters, amon others#2( *he uestion raised b

petitioner is a ea uestion, to wit, the interpretation of Y23 of $#A# &o# 7/29# *here is, therefore, no basis for

caimin e+pertise for the "F that administrative aencies are said to possess in their respective fieds#

%etitioner i@ewise arues that the "F enHos the presumption of reuarit in the performance of its dut# .t does

enHo this presumption, but this has nothin to do with the uestion in this case# *his case does not concern the

reuarit of performance of the "F in the e+ercise of its duties, but the correctness of its interpretation of a

provision of aw#

.n sum, it does not appear that, in approvin Y23 of $#A# &o# 7/29, Conress intended it to operate as a ban@et ta+

e+emption to a teecommunications entities# Appin the rue of strict construction of aws rantin ta+ e+emptions

and the rue that doubts shoud be resoved in favor of municipa corporations in interpretin statutor provisions on

municipa ta+in powers, we hod that Y23 of $#A# &o# 7/29 cannot be considered as havin amended petitionerPs

franchise so as to entite it to e+emption from the imposition of oca franchise ta+es# Conseuent, we hod that

petitioner is iabe to pa oca franchise ta+es in the amount of %3,'(1,/(9#72 for the period coverin the first to the

fourth uarter of 1/// and that it is not entited to a refund of ta+es paid b it for the period coverin the first to the

third uarter of 1//(#

?B6$6F)$6, the petition for review on certiorari is D6&.6D and the decision of the $eiona *ria Court, ranch 13,

Davao Cit is AFF.$56D#

S) )$D6$6D#

G.R. No. 192945 S*/*+*- 5, 2012

CIT OF IRIGA, %etitioner,

vs#

CAMARINES S"R III EECTRIC COOPERATI!E, INC. CAS"RECO IIIB, $espondent#

D 6 C . S . ) &

PERAS%ERNA%E, J.:

*he Court reiterates that a franchise ta+ is a ta+ evied on the e+ercise b an entit of the rihts or priviees ranted

to it b the overnment#1 .n the absence of a cear and subsistin ea provision rantin it ta+ e+emption, a

franchise hoder, thouh non!profit in nature, ma vaid be assessed franchise ta+ b a oca overnment unit#





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efore the Court is a petition fied under $ue 89 of the $evised $ues of Court see@in to set aside the Februar 11,

2010 Decision2 and :u 12, 2010 $esoution3 of the Court of Appeas CA-, which reversed the Februar 7, 2009

Decision of the $eiona *ria Court $*C- of .ria Cit, ranch 3' and rued that respondent Camarines Sur ... 6ectric

Cooperative, .nc# CAS<$6C) ...- is e+empt from pament of oca franchise ta+#

T:* F6

CAS<$6C) ... is an eectric cooperative du orani=ed and e+istin b virtue of %residentia Decree %D- 2'/, 8as

amended, and reistered with the &ationa 6ectrification Administration &6A-# .t is enaed in the business of

eectric power distribution to various end!users and consumers within the Cit of .ria and the municipaities of

&abua, ato, aao, uhi, ua and aatan of the %rovince of Camarines Sur, otherwise @nown as the K$inconada

area#K9

Sometime in 2003, petitioner Cit of .ria reuired CAS<$6C) ... to submit a report of its ross receipts for the

period 1//7!2002 to serve as the basis for the computation of franchise ta+es, fees and other chares# ' *he atte

compied7 and was subseuent assessed ta+es#

)n :anuar 7, 2008, petitioner made a fina demand on CAS<$6C) ... to pa the franchise ta+es due for the period

1//(!2003 and rea propert ta+es due for the period 1//9!2003#( CAS<$6C) ..., however, refused to pa said ta+es

on the round that it is an eectric cooperative provisiona reistered with the Cooperative Deveopment Authorit

CDA-,/ and therefore e+empt from the pament of oca ta+es#10

)n 5arch 19, 2008, petitioner fied a compaint for coection of oca ta+es aainst CAS<$6C) ... before the $*C,

citin its power to ta+ under the oca "overnment Code "C- and the $evenue Code of .ria Cit#11

.t aeed that as of December 31, 2003, CAS<$6C) ... s franchise and rea propert ta+es iabiit, incusive of‟

penaties, surchares and interest, amounted to Seventeen 5iion *hirt!Seven *housand &ine Bundred *hirt!Si+

%esos and 6iht!&ine Centavos % 17,037,/3'#(/- and &ine Bundred Si+teen *housand Five Bundred *hirt!Si+

%esos and Fift Centavos % /1',93'#90-, respective#12

.n its Answer, CAS<$6C) ... denied iabiit for the assessed ta+es, assertin that the computation of the petitioner

was erroneous because it incuded 1- ross receipts from service areas beond the atter s territoria HurisdictionG 2-‟

ta+es that had aread prescribedG and 3- ta+es durin the period when it was sti e+empt from oca overnment ta+b virtue of its then subsistin reistration with the CDA#13

Rul? o; :* T-6l Cou-

.n its Decision dated Februar 7, 2009, the $*C rued that the rea propert ta+es due for the ears 1//9!1/// had

aread prescribed in accordance with Section 1/818 of the "C# Bowever, it found CAS<$6C) ... iabe for franchise

ta+es for the ears 2000!2003 based on its ross receipts from .ria Cit and the $inconada area on the round that

the Ksitus of ta+ation is the pace where the priviee is e+ercised#K19 *he dispositive portion of the $*C Decision reads

'HEREFORE, in view of the foreoin, defendant is hereb made iabe to pa paintiff rea propert ta+es and

franchise ta+es on its receipts, incudin those from service area coverin &abua, ato, aao and uhi for the ears

2000 up to the present# *he reat ta+es for the ears 1//9 and 1/// is hereb decared prescribed# *he CitAssessor is hereb directed to ma@e the proper cassification of defendant s rea propert in accordance with‟

)rdinance issued b the Cit Counci#

S) )$D6$6D#1'

)n CAS<$6C) ... appeaed from the $*C Decision, uestionin its iabiit for franchise ta+es#

Rul? o; :* Cou- o; A//*6l


































.n its assaied Decision, the CA found CAS<$6C) ... to be a non!profit entit, not fain within the purview of

Kbusinesses enHoin a franchiseK pursuant to Section 137 of the "C# .t e+pained that CAS<$6C) ... s non!profit‟

nature is diametrica opposed to the concept of a Kbusiness,K which, as defined under Section 131 of the "C, is a

Ktrade or commercia activit reuar enaed in as a means of iveihood or with a view to profit#K Conseuent, it

reieved CAS<$6C) ... from iabiit to pa franchise ta+es#

%etitioner moved for reconsideration, which the CA denied in its :u 12, 2010 $esoution for bein fied a da ate,

hence, the instant petition#

Iu* %*;o-* :* Cou-

%etitioner raises two issues for resoution, which the Court restates as foows 1- whether or not an eectric

cooperative reistered under %D 2'/ but not under $A '/3(17 is iabe for the pament of oca franchise ta+esG and

2- whether or not the situs of ta+ation is the pace where the franchise hoder e+ercises its franchise reardess of the

pace where its services or products are deivered#

CAS<$6C) ..., on the other hand, raises the procedura issue that since the motion for reconsideration of the CA

Decision was fied out of time, the same had attained finait#

T:* Cou- Rul?

*he petition is meritorious#

efore devin into the substantive issues, the Court notes the procedura apses e+tant in the present case#

Proper Mode of Appeal from the

Decision of the Regional Trial

Court involving local taxes

$A /2(2,1( which too@ effect on Apri 23, 2008, e+panded the Hurisdiction of the Court of *a+ Appeas C*A- to incude,

amon others, the power to review b appea decisions, orders or resoutions of the $eiona *ria Courts in oca ta+

cases oriina decided or resoved b them in the e+ercise of their oriina or appeate Hurisdiction#1/

Considerin that $A /2(2 was aread in effect when the $*C rendered its decision on Februar 7, 2009, CAS<$6C)

... shoud have fied its appea, not with the CA, but with the C*A Division in accordance with the appicabe aw and

the rues of the C*A# $esort to the CA was, therefore, improper, renderin its decision nu and void for want of

Hurisdiction over the subHect matter# A void Hudment has no ea or bindin force or efficac for an purpose or at

an pace#20 Bence, the fact that petitionerPs motion for reconsideration from the CA Decision was beated fied is

inconseuentia, because a void and non!e+istent decision woud never have acuired finait#21

*he foreoin procedura apses woud have been sufficient to dismiss the instant petition outriht and decare the

decision of the $*C fina# Bowever, the substantia merits of the case compe us to dispense with these apses and

instead, e+ercise the Court s power of Hudicia review#‟

CA!R"C# $$$ is not exempt from pa%ment of franchise tax

%D 2'/, which too@ effect on Auust ', 1/73, ranted eectric cooperatives reistered with the &6A, i@e CAS<$6C)

..., severa ta+ priviees, one of which is e+emption from the pament of Ka nationa overnment, oca overnment

and municipa ta+es and fees, incudin franchise, fiin, recordation, icense or permit fees or ta+es#K22

)n 5arch 10, 1//0, Conress enacted into aw $A '/3(,23 otherwise @nown as the KCooperative Code of the

%hiippines,K and $A '/3/28 creatin the CDA# *he atter aw vested the power to reister cooperatives soe on the

CDA, whie the former provides that eectric cooperatives reistered with the &6A under %D 2'/ which opt not to

reister with the CDA sha not be entited to the benefits and priviees under the said aw#




















)n :anuar 1, 1//2, the "C too@ effect, and Section 1/3 thereof withdrew ta+ e+emptions or incentives previous

enHoed b Ka persons, whether natura or Huridica, incudin overnment!owned or controed corporations, e+cept

oca water districts, cooperatives du reistered under $#A# &o# '/3(, non!stoc@ and non!profit hospitas and

educationa institutions#K29

.n $hilippine Rural lectric Cooperatives Association, 5nc. B$58RCAD v. The "ecretar0, !epartment of 5nterior and

8ocal >overnment,2' the Court hed that the ta+ priviees ranted to eectric cooperatives reistered with &6A under

%D 2'/ were vaid withdrawn and on those reistered with the CDA under $A '/3( ma continue to enHo the ta+

priviees under the Cooperative Code#

*herefore, CAS<$6C) ... can no oner invo@e %D 2'/ to evade pament of oca ta+es# 5oreover, its provisiona

reistration with the CDA which ranted it e+emption for the pament of oca ta+es was e+tended on unti 5a 8,

1//2# *hereafter, it can no oner caim an e+emption from the pament of oca ta+es, incudin the subHect

franchise ta+#1âwphi1

.ndisputab, petitioner has the power to impose oca ta+es# *he power of the oca overnment units to impose and

coect ta+es is derived from the Constitution itsef which rants them Kthe power to create its own sources of

revenues and to ev ta+es, fees and chares subHect to such uideines and imitation as the Conress ma

provide#K27 *his e+picit constitutiona rant of power to ta+ is consistent with the basic poic of oca autonom and

decentrai=ation of overnance# ?ith this power, oca overnment units have the fisca mechanisms to raise the funds

needed to deiver basic services to their constituents and brea@ the cuture of dependence on the nationa

overnment# *hus, consistent with these obHectives, the "C was enacted rantin the oca overnment units, i@e

petitioner, the power to impose and coect franchise ta+, to wit

S6C# 137# Franchise *a+# ! &otwithstandin an e+emption ranted b an aw or other specia aw, the province ma

impose a ta+ on businesses enHoin a franchise, at a rate not e+ceedin fift percent 90;- of one percent 1;- of

the ross annua receipts for the precedin caendar ear based on the incomin receipt, or reai=ed, within its

territoria Hurisdiction# +++

S6C# 191# Scope of *a+in %owers# ! 6+cept as otherwise provided in this Code, the cit, ma ev the ta+es, fees, and

chares which the province or municipait ma impose %rovided, however, *hat the ta+es, fees and chares evied

and coected b hih urbani=ed and independent component cities sha accrue to them and distributed in

accordance with the provisions of this Code# *he rates of ta+es that the cit ma ev ma e+ceed the ma+imum rates

aowed for the province or municipait b not more than fift percent 90;- e+cept the rates of professiona and

amusement ta+es#

*a@in a different tac@, CAS<$6C) ... maintains that it is e+empt from pament of franchise ta+ because of its nature

as a non!profit cooperative, as contempated in %D 2'/,2( and insists that on entities enaed in business, and not

non!profit entities i@e itsef, are subHect to the said franchise ta+#

*he Court is not persuaded#

.n 9ational $ower Corporation v. Cit0 of Ca4anatuan,2/ the Court decared that Ka franchise ta+ is a ta+ on the

priviee of transactin business in the state and e+ercisin corporate franchises ranted b the state#K 30 .t is not

evied on the corporation simp for e+istin as a corporation, upon its propert or its income, but on its e+ercise of

the rihts or priviees ranted to it b the overnment# 31 K.t is within this conte+t that the phrase ta+ on businesses

enHoin a franchise in Section 137 of the "C shoud be interpreted and understood#K‟32

*hus, to be iabe for oca franchise ta+, the foowin reuisites shoud concur 1- that one has a KfranchiseK in the

sense of a secondar or specia franchiseG and 2- that it is e+ercisin its rihts or priviees under this franchise

within the territor of the pertinent oca overnment unit#33

*here is a confuence of these reuirements in the case at bar# virtue of %D 2'/, &6A ranted CAS<$6C) ... a

franchise to operate an eectric iht and power service for a period of fift 90- ears from :une ', 1/7/, 38 and it is

undisputed that CAS<$6C) ... operates within .ria Cit and the $inconada area# .t is, therefore, iabe to pa

franchise ta+ notwithstandin its non!profit nature#

























CA!R"C# $$$ is lia&le for

franchise tax on gross receipts

'ithin $riga Cit% and

Rinconada area

CAS<$6C) ... further arued that its iabiit to pa franchise ta+, if an, shoud be imited to ross receipts received

from the supp of the eectricit within the Cit of .ria and not those from the $inconada area#

Aain, the Court is not convinced#

.t shoud be stressed that what the petitioner see@s to coect from CAS<$6C) ... is a franchise ta+, which as defined,

is a ta+ on the e+ercise of a priviee# As Section 137 39 of the "C provides, franchise ta+ sha be based on ross

receipts precise because it is a ta+ on business, rather than on persons or propert#3' Since it parta@es of the nature

of an e+cise ta+>37 the situs of ta+ation is the pace where the priviee is e+ercised, in this case in the Cit of .ria,

where CAS<$6C) ... has its principa office and from where it operates, reardess of the pace where its services or

products are deivered# Bence, franchise ta+ covers a ross receipts from .ria Cit and the $inconada area#

'HEREFORE, the petition is GRANTE## *he assaied Decision dated Februar 11, 2010 and $esoution dated :u

12, 2010 of the Court of Appeas are hereb SET ASI#E and the Decision of the $eiona *ria Court ofria Cit,

ranch 3', is REINSTATE##

S) )$D6$6D#

G.R. No. 1(035 F*-u6-y 1, 2010

SO"TH AFRICAN AIR'AS, %etitioner,vs#COMMISSIONER OF INTERNA RE!EN"E, $espondent#

D 6 C . S . ) &

!EASCO, JR., J.:

*he Case

*his %etition for $eview on Certiorari under $ue 89 see@s the reversa of the :u 1/, 2007 Decision 1 and )ctober 302007 $esoution2 of the Court of *a+ Appeas C*A- 6n anc in C*A 6## Case &o# 210, entited South African Airwasv# Commissioner of .nterna $evenue# *he assaied decision affirmed the Decision dated 5a 10, 200'3 and $esoutiondated Auust 11, 200'8 rendered b the C*A First Division#

*he Facts

%etitioner South African Airwas is a forein corporation orani=ed and e+istin under and b virtue of the aws of the$epubic of South Africa# .ts principa office is ocated at Airwas %ar@, :ones $oad, :ohannesbur .nternationaAirport, South Africa# .n the %hiippines, it is an interna air carrier havin no andin rihts in the countr# %etitionerhas a enera saes aent in the %hiippines, Aerote imited Corporation Aerote-# Aerote ses passae documentsfor compensation or commission for petitionerIs off!ine fihts for the carriae of passeners and caro between portsor points outside the territoria Hurisdiction of the %hiippines# %etitioner is not reistered with the Securities and6+chane Commission as a corporation, branch office, or partnership# .t is not icensed to do business in the%hiippines#

For the ta+abe ear 2000, petitioner fied separate uarter and annua income ta+ returns for its off!ine fihts,summari=ed as foows

%eriod Date Fied 2#9; "ross



















%hi# iins

For %assener

1st Quarter2nd Quarter3rd Quarter8th Quarter

5a 30, 2000Auust 2/, 2000&ovember 2/, 2000Apri 1', 2000

%h%

222,931#29828,08'#/9822,8''#00893,1(2#/1

Sub!tota %h% 1,922,227#11

For Caro

1st Quarter2nd Quarter3rd Quarter8th Quarter

5a 30, 2000Auust 2/, 2000&ovember 2/, 2000Apri 1', 2000

%h%

(1,931#0090,1'/#'93',3(3#7837,898#((

Sub!tota %h% 209,93/#27

*)*A 1,727,7''#3(

*hereafter, on Februar 9, 2003, petitioner fied with the ureau of .nterna $evenue, $evenue District )ffice &o# 87, acaim for the refund of the amount of %h% 1,727,7''#3( as erroneous paid ta+ on "ross %hiippine iins "%- forthe ta+abe ear 2000# Such caim was unheeded# *hus, on Apri 18, 2003, petitioner fied a %etition for $eview withthe C*A for the refund of the abovementioned amount# *he case was doc@eted as C*A Case &o# ''9'#

)n 5a 10, 200', the C*A First Division issued a Decision denin the petition for ac@ of merit# *he C*A rued thatpetitioner is a resident forein corporation enaed in trade or business in the %hiippines# .t further rued thatpetitioner was not iabe to pa ta+ on its "% under Section 2(A-3-a- of the &ationa .nterna $evenue Code&.$C- of 1//7# *he C*A, however, stated that petitioner is iabe to pa a ta+ of 32; on its income derived from thesaes of passae documents in the %hiippines# )n this round, the C*A denied petitionerIs caim for a refund#

%etitionerIs 5otion for $econsideration of the above decision was denied b the C*A First Division in a $esoution datedAuust 11, 200'#

*hus, petitioner fied a %etition for $eview before the C*A 6n anc, reiteratin its caim for a refund of its ta+ pamenton its "%# *his was denied b the C*A in its assaied decision# A subseuent 5otion for $econsideration b petitionerwas aso denied in the assaied resoution of the C*A 6n anc#

Bence, petitioner went to us#

*he .ssues

?hether or not petitioner, as an off!ine internationa carrier sein passae documents throuh an independent saesaent in the %hiippines, is enaed in trade or business in the %hiippines subHect to the 32; income ta+ imposed bSection 2( A-1- of the 1//7 &.$C#

?hether or not the income derived b petitioner from the sae of passae documents coverin petitionerIs off!inefihts is %hiippine!source income subHect to %hiippine income ta+#

?hether or not petitioner is entited to a refund or a ta+ credit of erroneous paid ta+ on "ross %hiippine iins forthe ta+abe ear 2000 in the amount of %1,727,7''#3(#9

*he CourtIs $uin

*his petition must be denied#

%etitioner .s SubHect to .ncome *a+ at the $ate of 32; of .ts *a+abe .ncome

%reiminari, we emphasi=e that petitioner is caimin that it is e+empted from bein ta+ed for its sae of passaedocuments in the %hiippines# %etitioner, however, faied to sufficient prove such contention#





.n Commissioner of .nterna $evenue v# Acesite %hiippines- Bote Corporation, ' we hed, KSince an action for a ta+refund parta@es of the nature of an e+emption, which cannot be aowed uness ranted in the most e+picit andcateorica anuae, it is strict construed aainst the caimant who must dischare such burden convincin#K

%etitioner has faied to overcome such burden#

.n essence, petitioner cas upon this Court to determine the ea impication of the amendment to Sec# 2(A-3-a- ofthe 1//7 &.$C definin "%# .t is petitionerIs contention that, with the new definition of "%, it is no oner iabeunder Sec# 2(A-3-a-# Further, petitioner arues that because the 2 1>2; ta+ on "% is inappicabe to it, it isthereb e+cuded from the imposition of an income ta+#

Sec# 2(b-2- of the 1/3/ &.$C provided

2- $esident Corporations# J A corporation orani=ed, authori=ed, or e+istin under the aws of a forein countr,enaed in trade or business within the %hiippines, sha be ta+abe as provided in subsection a- of this section uponthe tota net income received in the precedin ta+abe ear from a sources within the %hiippines %rovided, however,that internationa carriers sha pa a ta+ of two and one!haf percent on their ross %hiippine biins#

*his provision was ater amended b Sec# 28-2- of the 1/77 &.$C, which defined "% as foows

K"ross %hiippine biinsK incude ross revenue reai=ed from upifts anwhere in the word b an internationacarrier doin business in the %hiippines of passae documents sod therein, whether for passener, e+cess baae or

mai, provided the caro or mai oriinates from the %hiippines#

.n the 1/(' and 1//3 &.$Cs, the definition of "% was further chaned to read

K"ross %hiippine iinsK means ross revenue reai=ed from upifts of passeners anwhere in the word and e+cessbaae, caro and mai oriinatin from the %hiippines, covered b passae documents sod in the %hiippines#

6ssentia, prior to the 1//7 &.$C, "% referred to revenues from upifts anwhere in the word, provided that thepassae documents were sod in the %hiippines# eisature departed from such concept in the 1//7 &.$C where "%is now defined under Sec# 2(A-3-a-

K"ross %hiippine iinsK refers to the amount of ross revenue derived from carriae of persons, e+cess baae,caro and mai oriinatin from the %hiippines in a continuous and uninterrupted fiht, irrespective of the pace of

sae or issue and the pace of pament of the tic@et or passae document#

&ow, it is the pace of sae that is irreevantG as on as the upifts of passeners and caro occur to or from the%hiippines, income is incuded in "%#

As correct pointed out b petitioner, inasmuch as it does not maintain fihts to or from the %hiippines, it is notta+abe under Sec# 2(A-3-a- of the 1//7 &.$C# *his much was aso found b the C*A# ut petitioner further positsthe view that due to the non!appicabiit of Sec# 2(A-3-a- to it, it is precuded from pain an other income ta+for its sae of passae documents in the %hiippines#

Such position is untenabe#

.n Commissioner of .nterna $evenue v# ritish )verseas Airwas Corporation ritish )verseas Airwas-, 7 which was

decided under simiar factua circumstances, this Court rued that off!ine air carriers havin enera saes aents inthe %hiippines are enaed in or doin business in the %hiippines and that their income from saes of passaedocuments here is income from within the %hiippines# *hus, in that case, we hed the off!ine air carrier iabe for the32; ta+ on its ta+abe income#

%etitioner arues, however, that because ritish )verseas Airwas was decided under the 1/3/ &.$C, it does not appto the instant case, which must be decided under the 1//7 &.$C# %etitioner aees that the 1/3/ &.$C ta+es residentforein corporations, such as itsef, on a income from sources within the %hiippines# %etitionerIs interpretation of Sec2(A-3-a- of the 1//7 &.$C is that, since it is an internationa carrier that does not maintain fihts to or from the%hiippines, thereb havin no "% as defined, it is e+empt from pain an income ta+ at a# .n other words, thee+istence of Sec# 2(A-3-a- accordin to petitioner precudes the appication of Sec# 2(A-1- to it#

.ts arument has no merit#







First, the difference cited b petitioner between the 1/3/ and 1//7 &.$Cs with reard to the ta+ation of off!ine aircarriers is more apparent than rea#

?e point out that Sec# 2(A-3-a- of the 1//7 &.$C does not, in an cateorica term, e+empt a internationa aircarriers from the coverae of Sec# 2(A-1- of the 1//7 &.$C# Certain, had eisatureIs intentions been tocompete e+cude a internationa air carriers from the appication of the enera rue under Sec# 2(A-1-, it woudhave used the appropriate anuae to do soG but the eisature did not# *hus, the oica interpretation of suchprovisions is that, if Sec# 2(A-3-a- is appicabe to a ta+paer, then the enera rue under Sec# 2(A-1- woud notapp# .f, however, Sec# 2(A-3-a- does not app, a resident forein corporation, whether an internationa air carrieror not, woud be iabe for the ta+ under Sec# 2(A-1-#

Cear, no difference e+ists between ritish )verseas Airwas and the instant case, wherein petitioner caims that theformer case does not app# *hus, ritish )verseas Airwas appies to the instant case# *he findins therein that anoff!ine air carrier is doin business in the %hiippines and that income from the sae of passae documents here is%hiippine!source income must be uphed#

%etitioner further reiterates its arument that the intention of Conress in amendin the definition of "% is to e+emptoff!ine air carriers from income ta+ b citin the pronouncements made b Senator :uan %once 6nrie durin thedeiberations on the provisions of the 1//7 &.$C# Such pronouncements, however, are not controin on this Court#?e said in 6spino v# Ceofe(

A cardina rue in the interpretation of statutes is that the meanin and intention of the aw!ma@in bod must besouht, first of a, in the words of the statute itsef, read and considered in their natura, ordinar, common!

accepted and most obvious sinifications, accordin to ood and approved usae and without resortin to forced orsubte construction# Courts, therefore, as a rue, cannot presume that the aw!ma@in bod does not @now themeanin of words and rues of rammar# Conseuent, the rammatica readin of a statute must be presumed toied its correct sense# + + + .t is aso a we!setted doctrine in this Hurisdiction that statements made b individuamembers of Conress in the consideration of a bi do not necessari refect the sense of that bod and are,conseuent, not controin in the interpretation of aw# 6mphasis suppied#-

5oreover, an e+amination of the subHect provisions of the aw woud show that petitionerIs interpretation of thoseprovisions is erroneous#

Sec# 2(A-1- and A-3-a- provides

S6C# 2(# $ates of .ncome *a+ on Forein Corporations# !

A- *a+ on $esident Forein Corporations# !

1- .n "enera# ! 6+cept as otherwise provided in this Code, a corporation orani=ed, authori=ed, or e+istinunder the aws of an forein countr, enaed in trade or business within the %hiippines, sha be subHect toan income ta+ euivaent to thirt!five percent 39;- of the ta+abe income derived in the precedin ta+abeear from a sources within the %hiippines provided, *hat effective :anuar 1, 1//(, the rate of income ta+sha be thirt!four percent 38;-G effective :anuar 1, 1///, the rate sha be thirt!three percent 33;-,and effective :anuar 1, 2000 and thereafter, the rate sha be thirt!two percent 32;-#

+ + + +

3- .nternationa Carrier# ! An internationa carrier doin business in the %hiippines sha pa a ta+ of two and

one!haf percent 2 1>2;- on its "ross %hiippine iinsI as defined hereunder

a- .nternationa Air Carrier# J "ross %hiippine iinsI refers to the amount of ross revenue derived fromcarriae of persons, e+cess baae, caro and mai oriinatin from the %hiippines in a continuous anduninterrupted fiht, irrespective of the pace of sae or issue and the pace of pament of the tic@et or passaedocument %rovided, *hat tic@ets revaidated, e+chaned and>or indorsed to another internationa airine formpart of the "ross %hiippine iins if the passener boards a pane in a port or point in the %hiippines%rovided, further, *hat for a fiht which oriinates from the %hiippines, but transshipment of passener ta@espace at an port outside the %hiippines on another airine, on the aiuot portion of the cost of the tic@etcorrespondin to the e fown from the %hiippines to the point of transshipment sha form part of "ross%hiippine iins#





Sec# 2(A-1- of the 1//7 &.$C is a enera rue that resident forein corporations are iabe for 32; ta+ on aincome from sources within the %hiippines# Sec# 2(A-3- is an e+ception to this enera rue#

An e+ception is defined as Kthat which woud otherwise be incuded in the provision from which it is e+cepted# .t is acause which e+empts somethin from the operation of a statue b e+press words#K/ Further, Kan e+ception need notbe introduced b the words e+ceptI or uness#I An e+ception wi be construed as such if it removes somethin fromthe operation of a provision of aw#K10

.n the instant case, the enera rue is that resident forein corporations sha be iabe for a 32; income ta+ on theirincome from within the %hiippines, e+cept for resident forein corporations that are internationa carriers that deriveincome Kfrom carriae of persons, e+cess baae, caro and mai oriinatin from the %hiippinesK which sha beta+ed at 2 1>2; of their "ross %hiippine iins# %etitioner, bein an internationa carrier with no fihts oriinatinfrom the %hiippines, does not fa under the e+ception# As such, petitioner must fa under the enera rue# *hisprincipe is embodied in the atin ma+im, e+ception firmat reuam in casibus non e+ceptis, which means, a thin notbein e+cepted must be rearded as comin within the purview of the enera rue#11

*o reiterate, the correct interpretation of the above provisions is that, if an internationa air carrier maintains fihts toand from the %hiippines, it sha be ta+ed at the rate of 2 1>2; of its "ross %hiippine iins, whie internationa aircarriers that do not have fihts to and from the %hiippines but nonetheess earn income from other activities in thecountr wi be ta+ed at the rate of 32; of such income#

As to the denia of petitionerIs caim for refund, the C*A denied the caim on the basis that petitioner is iabe forincome ta+ under Sec# 2(A-1- of the 1//7 &.$C# *hus, petitioner raises the issue of whether the e+istence of such

iabiit woud precude their caim for a refund of ta+ paid on the basis of Sec# 2(A-3-a-# .n answer to petitionerIsmotion for reconsideration, the C*A First Division rued in its $esoution dated Auust 11, 200', thus

)n the fourth arument, petitioner avers that a deficienc ta+ assessment does not, in an wa, disuaif a ta+paerfrom caimin a ta+ refund since a refund caim can proceed independent of a ta+ assessment and that theassessment cannot be offset b its caim for refund#

%etitionerIs arument is erroneous# %etitioner premises its arument on the e+istence of an assessment# .n theassaied Decision, this Court did not, in an wa, assess petitioner of an deficienc corporate income ta+# *he powerto ma@e assessments aainst ta+paers is oded with the respondent# For an assessment to be made, respondentmust observe the formaities provided in $evenue $euations &o# 12!//# *his Court mere pointed out that petitioneris iabe for the reuar corporate income ta+ b virtue of Section 2(A-3- of the *a+ Code# *hus, there is noassessment to spea@ of#12

%recise, petitioner uestions the offsettin of its pament of the ta+ under Sec# 2(A-3-a- with their iabiit underSec# 2(A-1-, considerin that there has not et been an assessment of their obiation under the atter provision#%etitioner arues that such offsettin is in the nature of ea compensation, which cannot be appied under thecircumstances present in this case#

Artice 127/ of the Civi Code contains the eements of ea compensation, to wit

Art# 127/# .n order that compensation ma be proper, it is necessar

1- *hat each one of the obiors be bound principa, and that he be at the same time a principa creditor ofthe otherG

2- *hat both debts consist in a sum of mone, or if the thins due are consumabe, the be of the same @ind,and aso of the same uait if the atter has been statedG

3- *hat the two debts be dueG

8- *hat the be iuidated and demandabeG

9- *hat over neither of them there be an retention or controvers, commenced b third persons andcommunicated in due time to the debtor#

And we rued in %hie+ 5inin Corporation v# Commissioner of .nterna $evenue,13 thus













.n severa instances prior to the instant case, we have aread made the pronouncement that ta+es cannot be subHectto compensation for the simpe reason that the overnment and the ta+paer are not creditors and debtors of eachother# *here is a materia distinction between a ta+ and debt# Debts are due to the "overnment in its corporatecapacit, whie ta+es are due to the "overnment in its soverein capacit# ?e find no coent reason to deviate fromthe aforementioned distinction#

%rescindin from this premise, in Francia v# .ntermediate Appeate Court, we cateorica hed that ta+es cannot besubHect to set!off or compensation, thus

?e have consistent rued that there can be no off!settin of ta+es aainst the caims that the ta+paer ma haveaainst the overnment# A person cannot refuse to pa a ta+ on the round that the overnment owes him an amounteua to or reater than the ta+ bein coected# *he coection of a ta+ cannot await the resuts of a awsuit aainstthe overnment#

*he ruin in Francia has been appied to the subseuent case of Cate+ %hiippines, .nc# v# Commission on Audit,which reiterated that

# # # a ta+paer ma not offset ta+es due from the caims that he ma have aainst the overnment# *a+es cannot bethe subHect of compensation because the overnment and ta+paer are not mutua creditors and debtors of eachother and a caim for ta+es is not such a debt, demand, contract or Hudment as is aowed to be set!off#

eri, petitionerIs arument is correct that the offsettin of its ta+ refund with its aeed ta+ deficienc is unavaiinunder Art# 127/ of the Civi Code#

Commissioner of .nterna $evenue v# Court of *a+ Appeas,18 however, ranted the offsettin of a ta+ refund with a ta+deficienc in this wise

Further, it is aso worth notin that the Court of *a+ Appeas erred in denin petitionerIs suppementa motion forreconsideration aein brinin to said courtIs attention the e+istence of the deficienc income and business ta+assessment aainst Cittrust# *he fact of such deficienc assessment is intimate reated to and ine+tricabintertwined with the riht of respondent ban@ to caim for a ta+ refund for the same ear# *o award such refunddespite the e+istence of that deficienc assessment is an absurdit and a poarit in conceptua effects# Berein privaterespondent cannot be entited to refund and at the same time be iabe for a ta+ deficienc assessment for the sameear#

*he rant of a refund is founded on the assumption that the ta+ return is vaid, that is, the facts stated therein are

true and correct# *he deficienc assessment, athouh not et fina, created a doubt as to and constitutes a chaeneaainst the truth and accurac of the facts stated in said return which, b itsef and without unuestionabe evidence,cannot be the basis for the rant of the refund#

Section (2, Chapter .E of the &ationa .nterna $evenue Code of 1/77, which was the appicabe aw when the caim ofCittrust was fied, provides that Kw-hen an assessment is made in case of an ist, statement, or return, which in theopinion of the Commissioner of .nterna $evenue was fase or frauduent or contained an understatement orundervauation, no ta+ coected under such assessment sha be recovered b an suits uness it is proved that thesaid ist, statement, or return was not fase nor frauduent and did not contain an understatement or undervauationGbut this provision sha not app to statements or returns made or to be made in ood faith reardin annuadepreciation of oi or as wes and mines#K

5oreover, to rant the refund without determination of the proper assessment and the ta+ due woud inevitab resut

in mutipicit of proceedins or suits# .f the deficienc assessment shoud subseuent be uphed, the "overnmentwi be forced to institute anew a proceedin for the recover of erroneous refunded ta+es which recourse must befied within the prescriptive period of ten ears after discover of the fasit, fraud or omission in the fase orfrauduent return invoved#*his woud necessari reuire and entai additiona efforts and e+penses on the part of the"overnment, impose a burden on and a drain of overnment funds, and impede or dea the coection of much!needed revenue for overnmenta operations#1avvphi1

*hus, to avoid mutipicit of suits and unnecessar difficuties or e+penses, it is both oica necessar and eaappropriate that the issue of the deficienc ta+ assessment aainst Cittrust be resoved Hoint with its caim for ta+refund, to determine once and for a in a sine proceedin the true and correct amount of ta+ due or refundabe#

.n fact, as the Court of *a+ Appeas itsef has heretofore conceded,it woud be on Hust and fair that the ta+paer andthe "overnment ai@e be iven eua opportunities to avai of remedies under the aw to defeat each otherIs caim and





to determine a matters of dispute between them in one sine case# .t is important to note that in determininwhether or not petitioner is entited to the refund of the amount paid, it woud [be] necessar to determine how muchthe "overnment is entited to coect as ta+es# *his woud necessari incude the determination of the correct iabiitof the ta+paer and, certain, a determination of this case woud constitute res Hudicata on both parties as to a thematters subHect thereof or necessari invoved therein# 6mphasis suppied#-

Sec# (2, Chapter .E of the 1/77 *a+ Code is now Sec# 72, Chapter E. of the 1//7 &.$C# *he above pronouncementsare, therefore, sti appicabe toda#

Bere, petitionerIs simiar ta+ refund caim assumes that the ta+ return that it fied was correct# "iven, however, thefindin of the C*A that petitioner, athouh not iabe under Sec# 2(A-3-a- of the 1//7 &.$C, is iabe under Sec2(A-1-, the correctness of the return fied b petitioner is now put in doubt# As such, we cannot rant the praer fora refund#

e that as it ma, this Court is unabe to affirm the assaied decision and resoution of the C*A 6n anc on the outrihtdenia of petitionerIs caim for a refund# 6ven thouh petitioner is not entited to a refund due to the uestion on thepropriet of petitionerIs ta+ return subHect of the instant controvers, it woud not be proper to den such caimwithout ma@in a determination of petitionerIs iabiit under Sec# 2(A-1-#

.t must be remembered that the ta+ under Sec# 2(A-3-a- is based on "%, whie Sec# 2(A-1- is based on ta+abeincome, that is, ross income ess deductions and e+emptions, if an# .t cannot be assumed that petitionerIs iabiitiesunder the two provisions woud be the same# *here is a need to ma@e a determination of petitionerIs iabiit underSec# 2(A-1- to estabish whether a ta+ refund is forthcomin or that a ta+ deficienc e+ists# *he assaied decision

fais to mention havin computed for the ta+ due under Sec# 2(A-1- and the records are bereft of an evidencesufficient to estabish petitionerIs ta+abe income# *here is a necessit to receive evidence to estabish such amountvis!\!vis the caim for refund# .t is on after such amount is estabished that a ta+ refund or deficienc ma becorrect pronounced#

?B6$6F)$6, the assaied :u 1/, 2007 Decision and )ctober 30, 2007 $esoution of the C*A 6n anc in C*A 6##Case &o# 210 are S6* AS.D6# *he instant case is $65A&D6D to the C*A 6n anc for further proceedins andappropriate action, more particuar, the reception of evidence for both parties and the correspondin disposition ofC*A 6## Case &o# 210 not otherwise inconsistent with our Hudment in this Decision#

S) )$D6$6D#

G.R. No. 49 Ju* 2(, 19((

ENGRACIO FRANCIA, petitioner,

vs#

INTERME#IATE APPEATE CO"RT 6 HO FERNAN#E, respondents#

G"TIERRE, JR., J.:

*he petitioner invo@es ea and euitabe rounds to reverse the uestioned decision of the .ntermediate Appeate

Court, to set aside the auction sae of his propert which too@ pace on December 9, 1/77, and to aow him to recover

a 203 suare meter ot which was, sod at pubic auction to Bo Fernande= and ordered tited in the atterPs name#

*he antecedent facts are as foows

6nracio Francia is the reistered owner of a residentia ot and a two!stor house buit upon it situated at arrio San

.sidro, now District of Sta# Cara, %asa Cit, 5etro 5ania# *he ot, with an area of about 32( suare meters, is

described and covered b *ransfer Certificate of *ite &o# 873/ 377/9- of the $eistr of Deeds of %asa Cit#

)n )ctober 19, 1/77, a 129 suare meter portion of FranciaPs propert was e+propriated b the $epubic of the

%hiippines for the sum of %8,11'#00 representin the estimated amount euivaent to the assessed vaue of the

aforesaid portion#



Since 1/'3 up to 1/77 incusive, Francia faied to pa his rea estate ta+es# *hus, on December 9, 1/77, his propert

was sod at pubic auction b the Cit *reasurer of %asa Cit pursuant to Section 73 of %residentia Decree &o# 8'8

@nown as the $ea %ropert *a+ Code in order to satisf a ta+ deinuenc of %2,800#00# Bo Fernande= was the hihest

bidder for the propert#

Francia was not present durin the auction sae since he was in .ian Cit at that time hepin his unce ship bananas#

)n 5arch 3, 1/7/, Francia received a notice of hearin of $C Case &o# 19/3!% K.n re %etition for 6ntr of &ew

Certificate of *iteK fied b Bo Fernande=, see@in the canceation of *C* &o# 873/ 377/9- and the issuance in his

name of a new certificate of tite# <pon verification throuh his awer, Francia discovered that a Fina i of Sae had

been issued in favor of Bo Fernande= b the Cit *reasurer on December 11, 1/7(# *he auction sae and the fina bi

of sae were both annotated at the bac@ of *C* &o# 873/ 377/9- b the $eister of Deeds#

)n 5arch 20, 1/7/, Francia fied a compaint to annu the auction sae# Be ater amended his compaint on :anuar

28, 1/(0#

)n Apri 23, 1/(1, the ower court rendered a decision, the dispositive portion of which reads

?B6$6F)$6, in view of the foreoin, Hudment is hereb rendered dismissin the amended

compaint and orderin

a- *he $eister of Deeds of %asa Cit to issue a new *ransfer Certificate of *ite in

favor of the defendant Bo Fernande= over the parce of and incudin the

improvements thereon, subHect to whatever encumbrances appearin at the bac@ of

*C* &o# 873/ 377/9- and orderin the same *C* &o# 873/ 377/9- canceed#

b- *he paintiff to pa defendant Bo Fernande= the sum of %1,000#00 as attornePs

fees# p# 30, $ecord on Appea-

*he .ntermediate Appeate Court affirmed the decision of the ower court in toto.

Bence, this petition for review#

Francia prefaced his aruments with the foowin assinments of rave errors of aw

.

$6S%)&D6&* .&*6$56D.A*6 A%%6A*6 C)<$* C)55.**6D A "$A6 6$$)$ )F A? .& &)* B)D.&"

%6*.*.)&6$PS )."A*.)& *) %A %2,800#00 F)$ S<%%)S6D *AE D6.&Q<6&C ?AS S6*!)FF *B6 A5)<&* )F

%8,11'#00 ?B.CB *B6 ")6$&56&* .S .&D6*6D *) *B6 F)$56$#

..

$6S%)&D6&* .&*6$56D.A*6 A%%6A*6 C)<$* C)55.**6D A "$A6 A&D S6$.)<S 6$$)$ .& &)* B)D.&" *BA*

%6*.*.)&6$ ?AS &)* %$)%6$ A&D D< &)*.F.6D *BA* A& A<C*.)& SA6 )F B.S %$)%6$* ?AS *) *AL6

%AC6 )& D6C656$ 9, 1/77 *) SA*.SF A& A6"6D *AE D6.&Q<6&C )F %2,800#00#

...

$6S%)&D6&* .&*6$56D.A*6 A%%6A*6 C)<$* F<$*B6$ C)55.**6D A S6$.)<S 6$$)$ A&D "$A6 A<S6 )F

D.SC$6*.)& .& &)* B)D.&" *BA* *B6 %$.C6 )F %2,800#00 %A.D $6S%)&*D6&* B) F6$&A&D64 ?AS

"$)SS .&AD6Q<A*6 AS *) SB)CL )&6PS C)&SC.6&C6 A5)<&*.&" *) F$A<D A&D A D6%$.A*.)& )F

%$)%6$* ?.*B)<* D<6 %$)C6SS )F A?, A&D C)&S6Q<6&*, *B6 A<C*.)& SA6 5AD6 *B6$6)F .S ).D# pp

10, 17, 20!21, $oo-



?e ave due course to the petition for a more thorouh inuir into the petitionerPs aeations that his propert was

sod at pubic auction without notice to him and that the price paid for the propert was shoc@in inadeuate,

amountin to fraud and deprivation without due process of aw#

A carefu review of the case, however, discoses that 5r# Francia brouht the probems raised in his petition upon

himsef# ?hie we commiserate with him at the oss of his propert, the aw and the facts miitate aainst the rant of

his petition# ?e are constrained to dismiss it#

Francia contends that his ta+ deinuenc of %2,800#00 has been e+tinuished b ea compensation# Be caims that

the overnment owed him %8,11'#00 when a portion of his and was e+propriated on )ctober 19, 1/77# Bence, his ta+

obiation had been set!off b operation of aw as of )ctober 19, 1/77#

*here is no ea basis for the contention# ea compensation, obiations of persons, who in their own riht are

reciproca debtors and creditors of each other, are e+tinuished Art# 127(, Civi Code-# *he circumstances of the

case do not satisf the reuirements provided b Artice 127/, to wit

1- that each one of the obiors be bound principa and that he be at the same time a principa

creditor of the otherG

+++ +++ +++

3- that the two debts be due#

+++ +++ +++

*his principa contention of the petitioner has no merit# ?e have consistent rued that there can be no off!settin of

ta+es aainst the caims that the ta+paer ma have aainst the overnment# A person cannot refuse to pa a ta+ on

the round that the overnment owes him an amount eua to or reater than the ta+ bein coected# *he coection

of a ta+ cannot await the resuts of a awsuit aainst the overnment#

.n the case of Repu4lic v. <am4ulao 8um4er Co# 8 SC$A '22-, this Court rued that .nterna $evenue *a+es can not

be the subHect of set!off or compensation# ?e stated that

A caim for ta+es is not such a debt, demand, contract or Hudment as is aowed to be set!off under

the statutes of set!off, which are construed uniform, in the iht of pubic poic, to e+cude the

remed in an action or an indebtedness of the state or municipait to one who is iabe to the state

or municipait for ta+es# &either are the a proper subHect of recoupment since the do not arise out

of the contract or transaction sued on# ### (0 C#:#S#, 7378-# K*he enera rue based on rounds of

pubic poic is we!setted that no set!off admissibe aainst demands for ta+es evied for enera or

oca overnmenta purposes# *he reason on which the enera rue is based, is that ta+es are not in

the nature of contracts between the part and part but row out of dut to, and are the positive acts

of the overnment to the ma@in and enforcin of which, the persona consent of individua ta+paers

is not reuired# ###K

?e stated that a ta+paer cannot refuse to pa his ta+ when caed upon b the coector because he has a caimaainst the overnmenta bod not incuded in the ta+ ev#

*his rue was reiterated in the case of Corders v. >onda 1( SC$A 331- where we stated that K### interna revenue

ta+es can not be the subHect of compensation $eason overnment and ta+paer are not mutua creditors and

debtors of each otherP under Artice 127( of the Civi Code and a Kcaim for ta+es is not such a debt, demand, contract

or Hudment as is aowed to be set!off#K

*here are other factors which compe us to rue aainst the petitioner# *he ta+ was due to the cit overnment whie

the e+propriation was effected b the nationa overnment# 5oreover, the amount of %8,11'#00 paid b the nationa

overnment for the 129 suare meter portion of his ot was deposited with the %hiippine &ationa an@ on before



the sae at pubic auction of his remainin propert# &otice of the deposit dated September 2(, 1/77 was received b

the petitioner on September 30, 1/77# *he petitioner admitted in his testimon that he @new about the %8,11'#00

deposited with the ban@ but he did not withdraw it# .t woud have been an eas matter to withdraw %2,800#00 from

the deposit so that he coud pa the ta+ obiation thus abortin the sae at pubic auction#

%etitioner had one ear within which to redeem his propert athouh, as we be shown ater, he caimed that he

poc@eted the notice of the auction sae without readin it#

%etitioner contends that Kthe auction sae in uestion was made without compin with the mandator provisions of

the statute overnin ta+ sae# &o evidence, ora or otherwise, was presented that the procedure outined b aw on

saes of propert for ta+ deinuenc was foowed# ### "ince defendant o ernande has the affirmative of this issue,

the 4urden of proof therefore rests upon him to show that plaintiff was dul0 and properl0 notified ### #%etition fo

$eview, $oo p# 1(G emphasis suppied-

?e aree with the petitionerPs caim that Bo Fernande=, the purchaser at the auction sae, has the burden of proof to

show that there was compiance with a the prescribed reuisites for a ta+ sae#

*he case of Valencia v. 2imene 11 %hi# 8/2- aid down the doctrine that

+++ +++ +++

### [D]ue process of aw to be foowed in ta+ proceedins must be estabished b proof and the genera

rule is that the purchaser of a tax title is 4ound to ta#e upon himself the 4urden of showing the

regularit0 of all proceedings leading up to the sale. emphasis suppied-

*here is no presumption of the reuarit of an administrative action which resuts in deprivin a ta+paer of his

propert throuh a ta+ sae# Camo v# $iosa oco, 2/ %hi# 837-G Denoa v# .nsuar "overnment, 1/ %hi# 2'1-# *his

is actua an e+ception to the rue that administrative proceedins are presumed to be reuar#

ut even if the burden of proof ies with the purchaser to show that a ea prereuisites have been compied with,

the petitioner can not, however, den that he did receive the notice for the auction sae# *he records sustain the ower

courtPs findin that

[*]he paintiff caimed that it was iea and irreuar# Be insisted that he was not proper notified of

the auction sae# Surprisin, however, he admitted in his testimon that he received the etter dated

&ovember 21, 1/77 6+hibit K.K- as shown b his sinature 6+hibit K.!AK- thereof# Be caimed further

that he was not present on December 9, 1/77 the date of the auction sae because he went to .ian

Cit# As on as there was substantia compiance with the reuirements of the notice, the vaidit of

the auction sae can not be assaied ### #

?e uote the foowin testimon of the petitioner on cross!e+amination, to wit

Q# 5 uestion to ou is this etter mar@ed as 6+hibit . for Bo Fernande= notified ou

that the propert in uestion sha be sod at pubic auction to the hihest bidder on

December 9, 1/77 pursuant to Sec# 78 of %D 8'8# ?i ou te the Court whether oureceived the oriina of this etterO

A# . Hust sined it because . was not abe to read the same# .t was Hust sent b mai

carrier#

Q# So ou admit that ou received the oriina of 6+hibit . and ou sined upon receipt

thereof but ou did not read the contents of itO

A# es, sir, as . was in a hurr#



Q# After ou received that oriina where did ou pace itO

A# . paced it in the usua pace where . pace m mais#

%etitioner, therefore, was notified about the auction sae# .t was neience on his part when he inored such notice#

his ver own admission that he received the notice, his now comin to court assaiin the vaidit of the auction

sae oses its force#

%etitionerPs third assinment of rave error i@ewise ac@s merit# As a enera rue, ross inadeuac of price is not

materia De eon v# Savador, 3' SC$A 9'7G %once de eon v# $ehabiitation Finance Corporation, 3' SC$A 2(/G

*oentino v# Acaoii, /1 %hi# /17 <nrep#-# See aso /arroo Vda. de >ordon v. Court of Appeals 10/ SC$A 3((- we

hed that Kaeed ross inadeuac of price is not materia when the aw ives the owner the riht to redeem as when

a sae is made at pubic auction, upon the theor that the esser the price, the easier it is for the owner to effect

redemption#K .n Velas'ue v. Coronel 9 SC$A /(9-, this Court hed

### [$]espondent treasurer now caims that the prices for which the ands were sod are unconscionabe

considerin the wide diverence between their assessed vaues and the amounts for which the had

been actua sod# Bowever, whie in ordinar saes for reasons of euit a transaction ma be

invaidated on the round of inadeuac of price, or when such inadeuac shoc@s onePs conscience as

to Hustif the courts to interfere, such does not foow when the aw ives to the owner the riht to

redeem, as when a sae is made at pubic auction, upon the theor that the esser the price the easier

it is for the owner to effect the redemption# And so it was apt said K?hen there is the riht to

redeem, inadeuac of price shoud not be materia, because the Hudment debtor ma reacuire the

propert or aso se his riht to redeem and thus recover the oss he caims to have suffered b

reason of the price obtained at the auction sae#K

*he reason behind the above ruins is we enunciated in the case of ilton et. ux. v. !e 8ong, et al. 1(( ?ash# 1'2

'1 %# 2d, 12/0-

.f mere inadeuac of price is hed to be a vaid obHection to a sae for ta+es, the coection of ta+es in

this manner woud be reat embarrassed, if not rendered atoether impracticabe# .n ac@ on *a+

*ites 2nd 6d#- 23(, the correct rue is stated as foows Kwhere and is sod for ta+es, the inadeuac

of the price iven is not a vaid obHection to the sae#K *his rue arises from necessit, for, if a fair price

for the and were essentia to the sae, it woud be useess to offer the propert# .ndeed, it is notorious

that the prices habitua paid b purchasers at ta+ saes are ross out of proportion to the vaue of

the and# $othchid ros# v# $oiner, 32 ?ash# 307, 73 %# 3'7, 3'/-#

.n this case now before us, we can apt use the anuae of <c>uire, et al. v. /ean, et al # 2'7 %# 999-

i@e most cases of this character there is here a certain eement of hardship from which we woud be

ad to reieve, but do so woud unsette on!estabished rues and ead to uncertaint and difficut in

the coection of ta+es which are the ife bood of the state# ?e are convinced that the present rues

are Hust, and that the brin hardship on to those who have invited it b their own neect#

?e are incined to beieve the petitionerPs caim that the vaue of the ot has reat appreciated in vaue# %recisebecause of the widenin of uendia Avenue in %asa Cit, which necessitated the e+propriation of adHoinin areas, rea

estate vaues have one up in the area# Bowever, the price uoted b the petitioner for a 203 suare meter ot

appears uite e+aerated# At an rate, the foreoin reasons which answer the petitionerPs caims ead us to den

the petition#

And fina, even if we are incined to ive reief to the petitioner on euitabe rounds, there are no stron

considerations of substantia Hustice in his favor# 5r# Francia faied to pa his ta+es for 18 ears from 1/'3 up to the

date of the auction sae# Be caims to have poc@eted the notice of sae without readin it which, if true, is sti an act

of ine+picabe neience# Be did not withdraw from the e+propriation pament deposited with the %hiippine &ationa

an@ an amount sufficient to pa for the bac@ ta+es# *he petitioner did not pa attention to another notice sent b the

Cit *reasurer on &ovember 3, 1/7(, durin the period of redemption, reardin his ta+ deinuenc# *here is



furthermore no showin of bad faith or cousion in the purchase of the propert b 5r# Fernande=# *he petitioner has

no standin to invo@e euit in his attempt to reain the propert b beated as@in for the annument of the sae#

?B6$6F)$6, .& .6? )F *B6 F)$6").&", the petition for review is D.S5.SS6D# *he decision of the respondent

court is affirmed#

S) )$D6$6D#

G.R. No. 1(994 Ju* 29, 193

MEECIO R. #OMINGO, 6 Co++o*- o; I*-6l R*)*u*, petitioner,

vs#

HON. ORENO C. GARITOS, : 6/6y 6 Ju?* o; :* Cou- o; F- I6* o; *y*,

6 SIMEONA 7. PRICE, 6 A+-6-< o; :* I*6* E6* o; :* l6* '6l*- So

P-*,respondents#

7ffice of the "olicitor >eneral and Att0. >. . <antolino for petitioner.

/enedicto and <artine for respondents.

A%RA#OR, J.:

*his is a petition for certiorari and mandamus aainst the :ude of the Court of First .nstance of ete, $on# oren=o

C# "aritos, presidin, see@in to annu certain orders of the court and for an order in this Court directin the

respondent court beow to e+ecute the Hudment in favor of the "overnment aainst the estate of ?ater Scott %rice

for interna revenue ta+es#

.t appears that in 5eecio $# Domino vs# Bon# :ude S# C# 5oscoso, "#$# &o# !18'78, :anuar 30, 1/'0, this Court

decared as fina and e+ecutor the order for the pament b the estate of the estate and inheritance ta+es, chares

and penaties, amountin to %80,09(#99, issued b the Court of First .nstance of ete in, specia proceedins &o# 18

entited K.n the matter of the .ntestate 6state of the ate ?ater Scott %rice#K .n order to enforce the caims aainst

the estate the fisca presented a petition dated :une 21, 1/'1, to the court beow for the e+ecution of the Hudment

*he petition was, however, denied b the court which hed that the e+ecution is not Hustifiabe as the "overnment is

indebted to the estate under administration in the amount of %2'2,200# *he orders of the court beow dated Auust20, 1/'0 and September 2(, 1/'0, respective, are as foows

Att# enedicto submitted a cop of the contract between 5rs# Simeona L# %rice, Administratri+ of the estate

of her ate husband ?ater Scott %rice and Director 4oio Castrio of the ureau of ands dated September 1/,

1/9' and ac@noweded before &otar %ubic Savador # 6suerra, ea adviser in 5aacaan to 6+ecutive

Secretar De eon dated December 18, 1/9', the note of Bis 6+ceenc, %res# Caros %# "arcia, to Director

Castrio dated Auust 2, 1/9(, directin the atter to pa to 5rs# %rice the sum of%3'(,180#00, and an e+tract

of pae 7'9 of $epubic Act &o# 2700 appropriatin the sum of %2'2#200#00 for the pament to the ete

Cadastra Surve, .nc#, represented b the administratri+ Simeona L# %rice, as directed in the above note of

the %resident# Considerin these facts, the Court orders that the pament of inheritance ta+es in the sum of

%80,09(#99 due the Coector of .nterna $evenue as ordered paid b this Court on :u 9, 1/'0 in accordance

with the order of the Supreme Court promuated :u 30, 1/'0 in "#$# &o# !18'78, be deducted from theamount of %2'2,200#00 due and paabe to the Administratri+ Simeona L# %rice, in this estate, the baance to

be paid b the "overnment to her without further dea# )rder of Auust 20, 1/'0-

*he Court has nothin further to add to its order dated Auust 20, 1/'0 and it orders that the pament of the

caim of the Coector of .nterna $evenue be deferred unti the "overnment sha have paid its accounts to the

administratri+ herein amountin to %2'2,200#00# .t ma not be amiss to repeat that it is on fair for the

"overnment, as a debtor, to its accounts to its citi=ens!creditors before it can insist in the prompt pament of

the atterPs account to it, specia ta@in into consideration that the amount due to the "overnment draws

interests whie the credit due to the present state does not accrue an interest# )rder of September 2(,

1/'0-



*he petition to set aside the above orders of the court beow and for the e+ecution of the caim of the "overnment

aainst the estate must be denied for ac@ of merit# *he ordinar procedure b which to sette caims of indebtedness

aainst the estate of a deceased person, as an inheritance ta+, is for the caimant to present a caim before the

probate court so that said court ma order the administrator to pa the amount thereof# *o such effect is the decision

of this Court in Aldami vs. 2udge of the Court of irst 5nstance of <indoro, "#$# &o# !23'0, Dec# 2/, 1/8/, thus

# # # a writ of e+ecution is not the proper procedure aowed b the $ues of Court for the pament of debts and

e+penses of administration# *he proper procedure is for the court to order the sae of persona estate or the

sae or mortae of rea propert of the deceased and a debts or e+penses of administrator and with the

written notice to a the heirs eatees and devisees residin in the %hiippines, accordin to $ue (/, section 3,

and $ue /0, section 2# And when sae or mortae of rea estate is to be made, the reuations contained in

$ue /0, section 7, shoud be compied with#1EwphF1.GHt

6+ecution ma issue on where the devisees, eatees or heirs have entered into possession of their

respective portions in the estate prior to settement and pament of the debts and e+penses of administration

and it is ater ascertained that there are such debts and e+penses to be paid, in which case Kthe court havin

Hurisdiction of the estate ma, b order for that purpose, after hearin, sette the amount of their severa

iabiities, and order how much and in what manner each person sha contribute, and ma issue execution i

circumstances reuireK $ue (/, section 'G see also $ue 78, Section 8G 6mphasis suppied#- And this is not

the instant case#

*he ea basis for such a procedure is the fact that in the testate or intestate proceedins to sette the estate of a

deceased person, the properties beonin to the estate are under the Hurisdiction of the court and such Hurisdiction

continues unti said properties have been distributed amon the heirs entited thereto# Durin the pendenc of the

proceedins a the estate is in custodia legis and the proper procedure is not to aow the sheriff, in case of the court

Hudment, to sei=e the properties but to as@ the court for an order to reuire the administrator to pa the amount due

from the estate and reuired to be paid#

Another round for denin the petition of the provincia fisca is the fact that the court havin Hurisdiction of the

estate had found that the caim of the estate aainst the "overnment has been reconi=ed and an amount of

%2'2,200 has aread been appropriated for the purpose b a correspondin aw $ep# Act &o# 2700-# <nder the

above circumstances, both the caim of the "overnment for inheritance ta+es and the caim of the intestate for

services rendered have aread become overdue and demandabe is we as fu iuidated# Compensation, therefore,

ta@es pace b operation of aw, in accordance with the provisions of Artices 127/ and 12/0 of the Civi Code, and

both debts are e+tinuished to the concurrent amount, thus

A$*# 1200# ?hen a the reuisites mentioned in artice 127/ are present, compensation ta@es effect b

operation of aw, and e+tinuished both debts to the concurrent amount, eventhouh the creditors and

debtors are not aware of the compensation#

.t is cear, therefore, that the petitioner has no cear riht to e+ecute the Hudment for ta+es aainst the estate of the

deceased ?ater Scott %rice# Furthermore, the petition for certiorari and mandamus is not the proper remed for the

petitioner# Appea is the remed#

*he petition is, therefore, dismissed, without costs#

$"EON CIT 6 THE CIT G.R. No. 140(TREAS"RER OF $"EON CIT,%etitioners,%resent&A$6S!SA&*.A"), 2.,

Chairperson,- versus - A<S*$.A!5A$*.&64,

CB.C)!&A4A$.),&ACB<$A, and



$66S, 22 #

A%SC%N %ROA#CASTING %romuatedCORPORATION,

$espondent# )ctober ', 200( + ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! + # E C I S I O N

REES, R.T., J .&

CA.5S for ta+ e+emption must be based on anuae in aw too pain to be mista@en# .t cannot be made out of

inference or impication#

*he principe is reevant in this petition for review on certiorari of the Decision[1] of the Court of Appeas CA- and

that[2] of the $eiona *ria Court $*C- orderin the refund and decarin invaid the imposition and coection of oca

franchise ta+ b the Cit *reasurer of Que=on Cit on AS!C& roadcastin Corporation AS!C&-#

T:* F6

%etitioner Cit "overnment of Que=on Cit is a oca overnment unit du orani=ed and e+istin b virtue of $epubic

Act $#A#- &o# 937, otherwise @nown as the $evised Charter of Que=on Cit# %etitioner Cit *reasurer of Que=on Cit is

primari responsibe for the imposition and coection of ta+es within the territoria Hurisdiction of Que=on Cit#

<nder Section 31, Artice 13 of the Que=on Cit $evenue Code of 1//3,[3] a franchise ta+ was imposed on

businesses operatin within its Hurisdiction# *he provision states

Section 31# 5mposition of Tax # An provision of specia aws or rant of ta+ e+emption to the

contrar notwithstandin, an person, corporation, partnership or association enHoin a franchisewhether issued b the nationa overnment or oca overnment and, doin business in Que=on Cit,sha pa a franchise ta+ at the rate of ten percent 10;- of one percent 1;- for 1//3!1//8, twentpercent 20;- of one percent 1;- for 1//9, and thirt percent 30;- of one percent 1;- for 1//'and the succeedin ears thereafter, of ross receipts and saes derived from the operation of thebusiness in Que=on Cit durin the precedin caendar ear#

)n 5a 3, 1//9, AS!C& was ranted the franchise to insta and operate radio and teevision broadcastin

stations in the %hiippines under $#A# &o# 7/''#[8] Section ( of $#A# &o# 7/'' provides the ta+ iabiities of AS!

C& which reads

Section (# Tax $rovisions# *he rantee, its successors or assins, sha be iabe to pa the

same ta+es on their rea estate, buidins and persona propert, e+cusive of this franchise, as otherpersons or corporations are now hereafter ma be reuired b aw to pa# .n addition thereto, therantee, its successors or assins, :6ll /6y 6 ;-6:* 6< *Ku)6l* o :-** /*-* 3@B o; 6ll ?-o -**/ o; :* -6oL*l*)o u* -66* u*- : ;-6:* y :*?-6**, u*o- o- 6?, 6 :* 6 /*-*6?* 6< :6ll * l*u o; 6ll 6<*o : ;-6:* o- *6-? :*-*o; %rovided that the rantee, its successors or assins shacontinue to be iabe for income ta+es under *ite .. of the &ationa .nterna $evenue Code pursuant to












Section 2 of 6+ecutive &o# 72 uness the atter enactment is amended or repeaed, in which case theamendment or repea sha be appicabe thereto# 6mphasis added-

AS!C& had been pain oca franchise ta+ imposed b Que=on Cit# Bowever, in view of the above provision

in $#A# &o# /7'' that it sha pa a franchise ta+ + + + in ieu of a ta+es, the corporation deveoped the opinion that it

is not iabe to pa the oca franchise ta+ imposed b Que=on Cit# Conseuent, AS!C& paid under protest the

oca franchise ta+ imposed b Que=on Cit on the dates, in the amounts and under the officia receipts as foows

)#$# &o# Date Amount %aid28'8278 07!1(!/9 % 1,8(/,/77#2(28(8'91 10!20!/9 1,8(/,/77#2(293'138 1!22!/' 2,((0,/79#'9(398/0' 1!23!/7 (,'21,870#(3008(79' 1!23!/7 2,731,139#(100'7392 8!03!/7 2,731,139#(1*ota %1/,/88,'72#''[9]

)n :anuar 2/, 1//7, AS!C& fied a written caim for refund for oca franchise ta+ paid to Que=on Cit for 1//' and

for the first uarter of 1//7 in the tota amount of Fourteen 5iion *wo Bundred *hirt!*hree *housand Five Bundred6iht!*wo and 2/>100 centavos %18,233,9(2#2/- bro@en down as foows

)#$# &o Date Amount %aid293'138 1!22!/' % 2,((0,/79#'9(398/0' 1!23!/7 (,'21,870#(3008(79' 1!23!/7 2,731,139#(1*ota %18,233,9(2#2/[']

.n a etter dated 5arch 3, 1//7 to the Que=on Cit *reasurer, AS!C& reiterated its caim for refund of oca franchise

ta+es paid#

)n :une 29, 1//7, for faiure to obtain an response from the Que=on Cit *reasurer, AS!C& fied a

compaint before the $*C in Que=on Cit see@in the decaration of nuit of the imposition of oca franchise ta+ b

the Cit "overnment of Que=on Cit for bein unconstitutiona# .t i@ewise praed for the refund of oca franchise ta+

in the amount of &ineteen 5iion &ine Bundred Fort!Four *housand Si+ Bundred Sevent!*wo and ''>100 centavos

%1/,/88,'72#''- bro@en down as foows

)#$# &o# Date Amount %aid

28'8278 7!1(!/9 % 1,8(/,/77#2(28(8'91 10!20!/9 1,8(/,/77#2(293'138 1!22!/' 2,((0,/79#'9(398/0' 1!23!/7 (,'21,870#(3008(79' 1!23!/7 2,731,139#(100'7392 8!03!/7 2,731,139#(1*ota %1/,/88,'72#''[7]

Que=on Cit arued that the in ieu of a ta+es provision in $#A# &o# /7'' coud not have been intended to

prevai over a constitutiona mandate which ensures the viabiit and sef!sufficienc of oca overnment

units# Further, that ta+es coectibe b and paabe to the oca overnment were distinct from ta+es coectibe b and









paabe to the nationa overnment, considerin that the Constitution specifica decared that the ta+es imposed b

oca overnment units sha accrue e+cusive to the oca overnments# ast, the Cit contended that the

e+emption caimed b AS!C& under $#A# &o# 7/'' was withdrawn b Conress when the oca "overnment Code

"C- was passed#[(] Section 1/3 of the "C provides

Section 1/3# 6ithdrawal of Tax xemption $rivileges# <ness otherwise provided in this

Code, 6< *<*+/o o- *)* ?-6* o, o- /-**ly *oy* y 6ll /*-o, >:*:*-

6u-6l o- u-6l, lu? ?o)*-+*o>* o- o-oll* o-/o-6o , e+cept ocawater districts, cooperatives du reistered under $#A# '/3(, non!stoc@ and non!profit hospitas andeducationa institutions, 6-* :*-*y >:-6> upon the effectivit of this Code# 6mphasis added-

)n Auust 13, 1//7, AS!C& fied a suppementa compaint addin to its caim for refund the oca franchise ta+

paid for the third uarter of 1//7 in the amount of *wo 5iion Seven Bundred *hirt!)ne *housand )ne Bundred

*hirt!Five and (1>100 centavos %2,731,139#(1- and of other amounts of oca franchise ta+ as ma have been and

wi be paid b AS!C& unti the resoution of the case#

Que=on Cit insisted that the caim for refund must fai because of the absence of a prior written caim for it#

RTC 6 CA #/oo

)n :anuar 20, 1///, the $*C rendered Hudment decarin as invaid the imposition on and coection from AS!

C& of oca franchise ta+ paid pursuant to Que=on Cit )rdinance &o# S%!/1, S!/3, after the enactment of $#A# &o

7/'', and ordered the refund of a paments made# *he dispositive portion of the $*C decision reads

?B6$6F)$6, Hudment is hereb rendered decarin the imposition on and coection from

paintiff AS!C& $)ADCAS*.&" C)$%)$A*.)& of oca franchise ta+es pursuant to Que=on Cit

)rdinance &o# S%!/1, S!/3 after the enactment of $epubic Act &o# 7/'' to be invaid, and,accordin, the Court hereb orders the defendants to refund a its paments made after theeffectivit of its eisative franchise on 5a 3, 1//9#

S) )$D6$6D#[/]

.n its decision, the $*C rued that the in ieu of a ta+es provision contained in Section ( of $#A# &o# 7/'' absoute

e+cused AS!C& from the pament of oca franchise ta+ imposed under Que=on Cit )rdinance &o# S%!/1, S!

/3# *he intent of the eisature to e+cuse AS!C& from pament of oca franchise ta+ coud be discerned from the

usae of the in ieu of a ta+es provision and from the absence of an uaification e+cept income ta+es# Bad Conress

intended to e+cude ta+es imposed from the e+emption, it woud have e+press mentioned so in a fashion simiar to

the proviso on income ta+es#

*he $*C aso based its ruin on the 1//0 case of $rovince of <isamis 7riental v. Caga0an lectric $ower and 8ight

Compan0, 5nc. BC$A8C7D#[10] .n said case, the e+emption of respondent eectric compan C6%AC) from pament of

provincia franchise ta+ was uphed on the round that the franchise of C6%AC) was a specia aw, whie the oca *a+

Code, on which the provincia ordinance imposin the oca franchise ta+ was based, was a enera aw# Further, it was









hed that whenever there is a confict between two aws, one specia and particuar and the other enera, the specia

aw must be ta@en as intended to constitute an e+ception to the enera act#

*he $*C noted that the eisative franchise of AS!C& was ranted ears after the effectivit of the

"C# *hus, it was unavoidabe to concude that Section ( of $#A# &o# 7/'' was an e+ception since the eisature

ouht to be presumed to have enacted it with the @nowede and awareness of the e+istence and prior enactment of

Section 137[11] of the "C#

.n addition, the $*C, aain citin the case of $rovince of <isamis 7riental v. Caga0an lectric $ower and 8ight

Compan0, 5nc. BC$A8C7D,[12] rued that the imposition of the oca franchise ta+ was an impairment of AS!C&s

contract with the overnment# *he imposition of another franchise on the corporation b the oca authorit woud

constitute an impairment of the formers charter, which is in the nature of a private contract between it and the

overnment#

As to the amounts to be refunded, the $*C reHected Que=on Cits position that a written caim for refund pursuant toSection 1/' of the "C was a condition sine 'ua non before fiin the case in court# *he $*C rued that athouh

Fourteen 5iion *wo Bundred *hirt!*hree *housand Five Bundred 6iht!*wo and 2/>100 centavos %18,233,9(2#2/-

was the on amount stated in the etter to the Que=on Cit *reasurer caimin refund, AS!C& shoud nonetheess

be aso refunded of a paments made after the effectivit of $#A# &o# 7/''# *he inaction of the Cit *reasurer on the

caim for refund of AS!C& ea rendered an further caims for refund on the part of paintiff absurd and futie in

reation to the succeedin paments#

*he Cit of Que=on and its *reasurer fied a motion for reconsideration which was subseuent denied b

the $*C# *hus, appea was made to the CA# )n September 1, 2008, the CA dismissed the petition of Que=on Cit and

its *reasurer# Accordin to the appeate court, the issues raised were pure ea uestions coni=abe on b the

Supreme Court# *he CA ratiocinated

For another, the issues which appeants submit for this Courts consideration are more of ea

uer necessitatin a ea opinion rather than a ca for adHudication on the matter in dispute#

+ + + + *he first issue has earier been cateori=ed in $rovince of <isamis 7riental v. Caga0an lectric

and $ower Co., 5nc. to be a ea one# *here is no more arument to this# *he ne+t issue athouh it ma need the ree+amination of the pertinent provisions of the oca

franchise and the eisative franchise iven to appeee, aso needs no evauation of facts#.t sufficesthat there ma be a confict which ma need to be reconcied, without reard to the factua bac@dropof the case#

*he ast issue deas with a ea uestion, because whether or not there is a prior written caim

for refund is no oner in dispute# $ather, the uestion revoves on whether the said reuirement mabe dispensed with, which obvious is not a factua issue#[13]

)n September 23, 2008, petitioner moved for reconsideration# *he motion was, however, denied b the CA in its

$esoution dated December 1', 2008# Bence, the present recourse#









Iu*

%etitioner submits the foowin issues for resoution

.#?hether or not the phrase in ieu of a ta+es indicated in the franchise of the respondent appeee

Section ( of $A 7/''- serves to e+empt it from the pament of the oca franchise ta+ imposed b thepetitioners!appeants# ..#?hether or not the petitioners!appeants raised factua and ea issues before the Bonorabe Court of Appeas#[18]

Ou- Rul?

*he second issue, bein procedura in nature, sha be deat with immediate# ut there are other resutant issues

in@ed to the first#

I. T:* +6l y :* CA o; /*o*- 6//*6l o-*- *6u* -6* /u-*ly l*?6l u*,

6+*ly&

1- ?hether appeee, whose franchise e+press provides that its pament of franchise ta+ sha be

in lieu of all taxes in this franchise or earnins thereof, is absoute e+cused from pain the

franchise ta+ imposed b appeantsG

2- ?hether appeants imposition of oca franchise ta+ is a vioation of appeees eisative franchiseG

and

3- ?hether one can do awa with the reuirement on prior written caim for refund#[19]

)bvious, these are pure ea uestions, coni=abe b this Court, to the e+cusion of a other courts# *here is a

uestion of aw when the doubt or difference arises as to what the aw is pertainin to a certain state of facts#[1']

Section 2, $ue 90 of the $ues of Court provides that an appea ta@en to the CA under $ue 81 raisin on

uestions of aw is erroneous and sha be dismissed, issues of pure aw not bein within its Hurisdiction

[17] Conseuent, the dismissa b the CA of petitioners appea was in order#

.n the recent case of "evilleno v. Carilo,[1(] this Court rued that the dismissa of the appea of petitioner was

vaid, considerin the issues raised there were pure uestions of aw, vi.














%etitioners interposed an appea to the Court of Appeas but it was dismissed for bein the wronmode of appea# *he appeate court hed that since the issue bein raised is whether the $*Chas Hurisdiction over the subHect matter of the case, which is a uestion of aw, the appea shoud havebeen eevated to the Supreme Court under $ue 89 of the 1//7 $ues of Civi %rocedure, asamended# Section 2, $ue 81 of the same $ues which overns appeas from Hudments and finaorders of the $*C to the Court of Appeas, provides

S6C# 2# <odes of appeal #a- 7rdinar0 appeal # *he appea to the Court of Appeas in cases decided b the

$eiona *ria Court in the e+ercise of its oriina Hurisdiction sha be ta@en

b fiin a notice of appea with the court which rendered the Hudment or finaorder appeaed from and servin a cop thereof upon the adverse part# &orecord on appea sha be reuired e+cept in specia proceedins and other casesof mutipe or separate appeas where the aw or these $ues so reuire# .n suchcases, the record on appea sha be fied and served in i@e manner#

b- $etition for review # *he appea to the Court of Appeas in cases decided b the

$eiona *ria Court in the e+ercise of its appeate Hurisdiction sha be b petitionfor review in accordance with $ue 82#

c- Appeal 40 certiorari # .n a cases where on uestions of aw are raised or

invoved, the appea sha be to the Supreme Court b petition for reviewon certiorari in accordance with $ue 89#

.n <acawili >old <ining and !evelopment Co., 5nc. v. Court of Appeals, we summari=ed therue on appeas as foows

1- .n a cases decided b the $*C in the e+ercise of its oriina Hurisdiction, appea

ma be made to the Court of Appeas b mere notice of appea where theappeant raises uestions of fact or mi+ed uestions of fact and awG

2- .n a cases decided b the $*C in the e+ercise of its oriina Hurisdiction where the

appeant raises on uestions of aw, the appea must be ta@en to the SupremeCourt on a petition for review on certiorari under $ue 89G

3- A appeas from Hudments rendered b the $*C in the e+ercise of its appeate

Hurisdiction, reardess of whether the appeant raises uestions of fact,uestions of aw, or mi+ed uestions of fact and aw, sha be brouht to the Court

of Appeas b fiin a petition for review under $ue 82#

.t is not disputed that the issue brouht b petitioners to the Court of Appeas invoves the Hurisdiction of the $*C over the subHect matter of the case# ?e have a on standin rue that a courts Hurisdiction over the subHect matter of an action is conferred on b the Constitution or bstatute# )therwise put, Hurisdiction of a court over the subHect matter of the action is a matter of aw# Conseuent, issues which dea with the Hurisdiction of a court over the subHect matter of a caseare pure uestions of aw# As petitioners appeal solel0 involves a 'uestion of law, the0 should havedirectl0 ta#en their appeal to this Court 40 filing a petition for review on certiorari under Rule %I, not an ordinar0 appeal with the Court of Appeals under Rule %1. Clearl0, the appellate court did not err inholding that petitioners pursued the wrong mode of appeal.

.ndeed, the Court of Appeas did not err in dismissin petitioners appea# Section 2, $ue 90 of the same $ues provides that an appeal from the RTC to the Court of Appeals raising onl0 'uestions of law shall 4e dismissed@ and that an appeal erroneousl0 ta#en to the Court of Appeals shall 4edismissed outright , + + +#[1/] 6mphasis added-

Bowever, to serve the demands of substantia Hustice and euit, the Court opts to rea+ procedura rues and

rue upon on the merits of the case# .n 7ng 8im "ing 2r. v. / 8easing and inance Corporation,[20] this Court stated







Courts have the preroative to rea+ procedura rues of even the most mandator character, mindfuof the dut to reconcie both the need to speedi put an end to itiation and the parties riht to dueprocess# .n numerous cases, this Court has aowed ibera construction of the rues when to do sowoud serve the demands of substantia Hustice and euit# .n Aguam v. Court of Appeals, the Courte+pained

*he court has the discretion to dismiss or not to dismiss an appeantsappea# .t is a power conferred on the court, not a dut# *he discretion must be asound one, to be e+ercised in accordance with the tenets of Hustice and fair pa,havin in mind the circumstances obtainin in each case# *echnicaities, however, mustbe avoided# *he aw abhors technicaities that impede the cause of Hustice# *he courts

primar dut is to render or dispense Hustice# A itiation is not a ame of technicaities# awsuits uni@e dues are not to be won b a rapiers thrust# *echnicait,when it deserts its proper office as an aid to Hustice and becomes its reat hindranceand chief enem, deserves scant consideration from courts# itiations must bedecided on their merits and not on technicait# 6ver part itiant must be affordedthe ampest opportunit for the proper and Hust determination of his cause, free fromthe unacceptabe pea of technicaities# *hus, dismissa of appeas pure on technicarounds is frowned upon where the poic of the court is to encourae hearins of appeas on their merits and the rues of procedure ouht not to be appied in a verriid, technica senseG rues of procedure are used on to hep secure, not overridesubstantia Hustice# .t is a far better and more prudent course of action for the court toe+cuse a technica apse and afford the parties a review of the case on appea to attainthe ends of Hustice rather than dispose of the case on technicait and cause a raveinHustice to the parties, ivin a fase impression of speed disposa of cases whie

actua resutin in more dea, if not a miscarriae of Hustice#[21]

II. T:* l*u o; 6ll 6<* /-o)o ;-6:* o* o *<*+/ A%SC%N ;-o+ /6y+* o;

lo6l ;-6:* 6<#

A# *he present controvers essentia bois down to a dispute between the inherent ta+in power of Conress and the

deeated authorit to ta+ of oca overnments under the 1/(7 Constitution and effected under the "C of 1//1#

*he power of the oca overnment of Que=on Cit to impose franchise ta+ is based on Section 191 in reation to

Section 137 of the "C, to wit

Section 137# ranchise Tax # 9otwithstanding an0 exemption granted 40 an0 law or other

special law, the province ma0 impose a tax on 4usinesses eno0ing a franchise , at the rate note+ceedin fift percent 90;- of one percent 1;- of the ross annua receipts for the precedincaendar ear based on the incomin receipt, or reai=ed within its territoria Hurisdiction# + + +

+ + + +

Section 191# "cope of Taxing $owers# xcept as otherwise provided in this Code, the cit0 ma0

lev0 the taxes, fees and charges which the province or municipalit0 ma0 impose %rovided, however,*hat the ta+es, fees and chares evied and coected b hih urbani=ed and component cities shaaccrue to them and distributed in accordance with the provisions of this Code#

*he rates of ta+es that the cit ma ev ma e+ceed the ma+imum rates aowed for the

province or municipait b not more than fift percent 90;- e+cept the rates of professiona andamusement ta+es# 6mphasis suppied-

Such ta+in power b the oca overnment, however, is imited in the sense that Conress can enac

eisation rantin e+emptions# *his principe was uphed in Cit0 >overnment of ueon Cit0, et al. v. /a0an

Telecommunications, 5nc.[22] Said this Court







*his thus raises the uestion of whether or not the Cits $evenue Code pursuant to which thecit treasurer of Que=on Cit evied rea propert ta+es aainst aantes rea properties ocated withinthe Cit effective withdrew the ta+ e+emption enHoed b aante under its franchise, as amended#

aante answers the poser in the neative aruin that once aain it is on iabe to pa the

same ta+es, as an other persons or corporations on a its rea or persona properties, e+cusive of itsfranchise#

/a0antels posture is well-ta#en. 6hile the s0stem of local government taxation has changed

with the onset of the 1:)J Constitution, the power of local government units to tax is still limited # Aswe e+pained in <actan Ce4u 5nternational Airport Authorit0

*he power to ta+ is primari vested in the ConressG however, in our Hurisdiction, it ma be e+ercised b oca eisative bodies, no oner mere be virtueof a vaid deeation as before, but pursuant to direct authorit conferred b Section 9,Artice E of the Constitution# <nder the atter, the e+ercise of the power ma besubHect to such uideines and imitations as the Conress ma provide which,however, must be consistent with the basic poic of oca autonom# + + + Cear then, whie a new sant on the subHect of oca ta+ation now prevais in the sense that

the former doctrine of oca overnment units deeated power to ta+ had been effective modifiedwith Artice E, Section 9 of the 1/(7 Constitution now in pace, the basic doctrine on oca ta+ation

remains essentia the same# or as the Court stressed in <actan, the power to tax is KstillL primaril0 vested in the Congress.

*his new perspective is best articuated b Fr# :oauin "# ernas, S#:#, himsef a Commissioner

of the 1/(' Constitutiona Commission which crafted the 1/(7 Constitution, thus

?hat is the effect of Section 9 on the fisca position of municipacorporationsO Section 9 does not chane the doctrine that municipa corporations donot possess inherent powers of ta+ation# ?hat it does is to confer municipacorporations a enera power to ev ta+es and otherwise create sources of revenue# *he no oner have to wait for a statutor rant of these powers# *he powerof the eisative authorit reative to the fisca powers of oca overnments has beenreduced to the authorit to impose imitations on municipa powers# 5oreover, theseimitations must be consistent with the basic poic of oca autonom# *he important

ea effect of Section 9 is thus to reverse the principe that doubts are resovedaainst municipa corporations# Benceforth, in interpretin statutor provisions onmunicipa fisca powers, doubts wi be resoved in favor of municipa corporations# .t isunderstood, however, that ta+es imposed b oca overnment must be for a pubicpurpose, uniform within a ocait, must not be confiscator, and must be within the Hurisdiction of the oca unit to pass# .n net effect, the controvers present before the Court invoves, at bottom, a cash between

the inherent ta+in power of the eisature, which necessari incudes the power to e+empt, and theoca overnments deeated power to ta+ under the aeis of the 1/(7 Constitution#

&ow to o bac@ to the Que=on Cit $evenue Code which imposed rea estate ta+es on a rea

properties within the cits territor and removed e+emptions theretofore previous ranted to, orpresent enHoed b a persons, whether natura or Huridica [+ + +] there can reall0 4e no dispute

that the power of the ueon Cit0 >overnment to tax is limited 40 "ection ;(; of the 8>C whiche+press provides that a province or cit or municipait within the 5etropoitan 5ania Area ma evan annua ad valorem ta+ on rea propert such as and, buidin, machiner, and other improvementnot hereinafter specifica e+empted# <nder this aw, the eisature hihihted its power tothereafter e+empt certain reaties from the ta+in power of oca overnment units# An interpretationdenin Conress such power to e+empt woud reduce the phrase not hereinafter specificae+empted as a pure Haron, without meanin whatsoever# &eedess to state, such absurd situation isunacceptabe#

For sure, in $hilippine 8ong !istance Telephone Compan0, 5nc. B$8!TD vs. Cit0 of !avao , this

Court has uphed the power of Conress to rant e+emptions over the power of oca overnment unitsto impose ta+es# *here, the Court wrote



5ndeed, the grant of taxing powers to local government units under theConstitution and the 8>C does not affect the power of Congress to grant exemptionsto certain persons, pursuant to a declared national polic0. *he ea effect of theconstitutiona rant to oca overnments simp means that in interpretin statutorprovisions on municipa ta+in powers, doubts must be resoved in favor of municipacorporations#[23] 6mphasis suppied-

.n the case under review, the %hiippine Conress enacted $#A# &o# 7/'' on 5arch 30, 1//9, subseuent to the

effectivit of the "C on :anuar 1, 1//2# <nder it, AS!C&was ranted the franchise to insta and operate radio and

teevision broadcastin stations in the %hiippines# i@ewise, Section ( imposed on AS!C& the dut of pain 3;

franchise ta+# .t bears stressin, however, that pament of the percentae franchise ta+ sha be in ieu of a ta+es on

the said franchise#[28]

Conress has the inherent power to ta+, which incudes the power to rant ta+ e+emptions# )n the other hand, the

power of Que=on Cit to ta+ is prescribed b Section 191 in reation to Section 137 of the "C which e+press

provides that notwithstandin an e+emption ranted b an aw or other specia aw, the Cit ma impose a franchise

ta+# .t must be noted that Section 137 of the "C does not prohibit rant of future e+emptions# As earier discussed

this Court in Cit0 >overnment of ueon Cit0 v. /a0an Telecommunications, 5nc. [29] sustained the power of Conress

to rant ta+ e+emptions over and above the power of the oca overnments deeated power to ta+#

# *he more pertinent issue now to consider is whether or not b passin $#A# &o# 7/'', which contains the in

ieu of a ta+es provision, Conress intended to e+emptAS!C& from oca franchise ta+#

%etitioners arue that the in ieu of a ta+es provision in AS!C&s franchise does not e+press e+empt it from

pament of oca franchise ta+# *he contend that a ta+ e+emption cannot be created b mere impication and that

one who caims ta+ e+emptions must be abe to Hustif his caim b cearest rant of oranic aw or statute#

*a+es are what civii=ed peope pa for civii=ed societ# *he are the ifebood of the nation# *hus, statutes

rantin ta+ e+emptions are construed stricissimi uris aainst the ta+paer and ibera in favor of the ta+in

authorit# A caim of ta+ e+emption must be cear shown and based on anuae in aw too pain to be

mista@en# )therwise stated, ta+ation is the rue, e+emption is the e+ception#[2'] *he burden of proof rests upon the

part caimin the e+emption to prove that it is in fact covered b the e+emption so caimed#[27]

*he basis for the rue on strict construction to statutor provisions rantin ta+ e+emptions or deductions is to

minimi=e differentia treatment and foster impartiait, fairness and euait of treatment amon ta+paers# [2(] Be who

caims an e+emption from his share of common burden must Hustif his caim that the eisature intended to e+empt

him b unmista@abe terms# For e+emptions from ta+ation are not favored in aw, nor are the presumed# *he must

be e+pressed in the cearest and most unambiuous anuae and not eft to mere impications# .t has been hed that

e+emptions are never presumed, the burden is on the caimant to estabish cear his riht to e+emption and cannot

be made out of inference or impications but must be aid beond reasonabe doubt# .n other words, since ta+ation is

the rue and e+emption the e+ception, the intention to ma@e an e+emption ouht to be e+pressed in cear and

unambiuous terms#[2/]

















Section ( of $#A# &o# 7/'' imposes on AS!C& a franchise ta+ euivaent to three 3- percent of a ross

receipts of the radio>teevision business transacted under the franchise and the franchise ta+ sha be in ieu of a

ta+es on the franchise or earnins thereof#

*he in ieu of a ta+es provision in the franchise of AS!C& does not e+press provide what @ind of

ta+es AS!C& is e+empted from# .t is not cear whether the e+emption woud incude both oca, whether municipa,

cit or provincia, and nationa ta+# ?hat is cear is that AS!C& sha be iabe to pa three 3- percent franchise ta+

and income ta+es under *ite .. of the &.$C# ut whether the in ieu of a ta+es provision woud incude e+emption

from oca ta+ is not uneuivoca#

As adverted to earier, the riht to e+emption from oca franchise ta+ must be cear estabished and cannot

be made out of inference or impications but must be aid beond reasonabe doubt# eri, the uncertaint in the in

ieu of a ta+es provision shoud be construed aainst AS!C&# AS!C& has the burden to prove that it is in fact

covered b the e+emption so caimed# AS!C& miserab faied in this reard#

AS!C& cites the cases Carcar lectric M 5ce $lant v. Collector of 5nternal Revenue,[30] <anila Railroad v.

Raffert0 ,[31] $hilippine Railwa0 Co. v. Collector of 5nternal Revenue ,[32] and Visa0an lectric Co. v. !avid [33] to suppor

its caim that that the in ieu of a ta+es cause incudes e+emption from a ta+es#

Bowever, a review of the foreoin case aw reveas that the rantees respective franchises e+press e+empt

them from municipa and provincia ta+es# Said the Court in<anila Railroad v. Raffert0 [38]

)n the 7th da of :u 1/0', b an Act of the %hiippine eisature, a specia charter wasranted to the 5ania $airoad Compan# Subsection 12 of Section 1 of said Act &o# 1910- providesthat

.n consideration of the premises and of the rantin of this concession or

franchise, there sha be paid b the rantee to the %hiippine "overnment, annua,for the period of thirt 30- ears from the date hereof, an amount eua to one!haf 1>2- of one per cent of the ross earnins of the rantee in respect of the inescovered hereb for the precedin earG after said period of thirt 30- ears, and forthe fift 90- ears thereafter, the amount so to be paid annua sha be an amounteua to one and one!haf 1- per cent of such ross earnins for the precedin earGand after such period of eiht (0- ears, the percentae and amount so to be paidannua b the rantee sha be fi+ed b the %hiippine "overnment#

Such annua paments, when prompt and fu made b the rantee, sha bein ieu of a ta+es of ever name and nature municipa, provincia or centra upon itscapita stoc@, franchises, riht of wa, earnins, and a other propert owned oroperated b the rantee under this concession or franchise#[39] <nderscorin suppied-

.n the case under review, AS!C&s franchise did not embod an e+emption simiar to those in Carcar , <anila

Railroad , $hilippine Railwa0 , and Visa0an lectric # *oo, the franchise faied to specif the ta+in authorit from whose

Hurisdiction the ta+in power is withhed, whether municipa, provincia, or nationa# .n fine, since AS!C&faied to

Hustif its caim for e+emption from oca franchise ta+, b a rant e+pressed in terms too pain to be mista@en its

caim for e+emption for oca franchise ta+ must fai#
















C# *he in ieu of a ta+es cause in the franchise of AS!C& has become functus officio with the aboition of

the franchise ta+ on broadcastin companies with ear ross receipts e+ceedin *en 5iion %esos#

.n its decision dated :anuar 20, 1///, the $*C hed that pursuant to the in ieu of a ta+es provision

contained in Section ( of $#A# &o# 7/'', AS!C& is e+empt from the pament of the oca franchise

ta+# *he $*C further pronounced that AS!C& sha instead be iabe to pa a franchise ta+ of 3; of a ross receipts

in ieu of a other ta+es#

)n this score, the $*C ruin is fawed# .n @eepin with the aws that have been passed since the rant

of AS!C&s franchise, the corporation shoud now be subHect to A*, instead of the 3; franchise ta+#

At the time of the enactment of its franchise on 5a 3, 1//9, AS!C& was subHect to 3; franchise ta+ underSection 117b- of the 1/77 &ationa .nterna $evenue Code &.$C-, as amended, vi.

S6C*.)& 117# Tax on franchises# An provision of enera or specia aws to the contrar

notwithstandin, there sha be evied, assessed and coected in respect to a franchise, upon theross receipts from the business covered b the aw rantin the franchise, a ta+ in accordance withthe schedue prescribed hereunder

a- )n eectric utiities, cit as, and water suppies *wo 2;- percentb- 7n telephone and&or telegraph s0stems, radio and&or 4roadcasting stations Three

B(ND percent c- )n other franchises Five 9;- percent# 6mphasis suppied-

)n :anuar 1, 1//', $#A# &o# 771', otherwise @nown as the 6+panded aue Added *a+ aw,

[3']

too@ effecand subHected to A* those services rendered b radio and>or broadcastin stations# Section 3 of $#A# &o# 771'

provides

Section 3# Section 102 of the &ationa .nterna $evenue Code, as amended is hereb further

amended to read as foows

S6C# 102# Value-added tax on sale of services and use or lease of properties #a- Rate and 4ase of tax # *here sha be evied, assessed and coected, as value-added tax e'uivalent to 1*N of gross receipts derived from the sae or e+chane of services, incudin the use or ease of properties#

*he phrase sae or e+chane of services means the performance of a @inds of

services in the %hiippines, for others for a fee, remuneration or consideration,incudin those performed or rendered b construction and service contractorsG + ++ services of franchise grantees of telephone and telegraph, radio and television4roadcasting and all other franchise grantees e+cept those under Section 117 of thisCodeG + + + 6mphasis suppied-

&otab, under the same aw, teephone and>or teeraph sstems, broadcastin stations and other franchise

rantees were omitted from the ist of entities subHect to franchise ta+# *he impression was that these entities were

subHect to 10; A* but not to franchise ta+# )n the franchise ta+ on eectric, as and water utiities

remained#Section 12 of $#A# &o# 771' provides





Section 12# Section 117 of the &ationa .nterna $evenue Code, as amended, is hereb further

amended to read as foows

S6C# 117# Tax on ranchises# An provision of enera or specia aw to thecontrar notwithstandin there shall 4e levied, assessed and collected in respect to all franchises on electric, gas and water utilities a tax of two percent B;ND on the grossreceipts derived from the business covered b the aw rantin the franchise#6mphasis added-

Subseuent, $#A# &o# (281[37] too@ effect on :anuar 1, 1//7[3(] containin more amendments to the &.$C

$adio and>or teevision companies whose annua ross receipts o o *<** %10,000,000#00 were ranted the

option to choose between pain 3; nationa franchise ta+ or 10; A*# Section / of $#A# &o# (281 provides

S6C*.)& /# Section 12 of $epubic Act &o# 771' is hereb amended to read as foows

Sec# 12# Section 117 of the &ationa .nterna $evenue Code, as amended, ishereb further amended to read as foows

Sec# 117# Tax on franchise# An provision of enera or specia aw to the

contrar, notwithstandin, there shall 4e levied, assessed and collected in respect toallfranchises on radio and&or television 4roadcasting companies whose annual grossreceipts of the preceding 0ear does not exceed Ten million

pesos B$1*,***,***.**D, su4ect to "ection 1*JBdD of this Code , a tax of three percent B(ND and on eectric, as and water utiities, a ta+ of two percent 2;- on theross receipts derived from the business covered b the aw rantin the franchise%rovided, however, That radio and television 4roadcasting companies referred to inthis section, shall have an option to 4e registered as a value-added tax pa0er and pa0 the tax due thereon %rovided, further, *hat once the option is e+ercised, it sha notbe revo@ed# 6mphasis suppied-

)n the other hand, radio and>or teevision companies with ear ross receipts *<**? %10,000,000#00 were

subHect to 10; A*, pursuant to Section 102 of the &.$C#

)n :anuar 1, 1//(, $#A# &o# (828[3/] was passed confirmin the 10; A* iabiit of radio and>or teevision

companies with ear ross receipts e+ceedin %10,000,000#00#

$#A# &o# /337 was subseuent enacted and became effective on :u 1, 2009# *he said aw further amended the

&.$C b increasin the rate of A* to 12;# *he effectivit of the imposition of the 12; A* was ater moved

from :anuar 1, 200' to Februar 1, 200'#

.n consonance with the above surve of pertinent aws on the matter, AS!C& is subHect to the pament of

A*# .t does not have the option to choose between the pament of franchise ta+ or A* since it is a broadcastin

compan with ear ross receipts e+ceedin *en 5iion %esos %10,000,000#00-#

A* is a percentae ta+ imposed on an person whether or not a franchise rantee, who in the course of trade

or business, ses, barters, e+chanes, eases, oods or properties, renders services# .t is aso evied on ever

importation of oods whether or not in the course of trade or business# *he ta+ base of the A* is imited on to the











vaue added to such oods, properties, or services b the seer, transferor or essor# Further, the A* is an indirect ta+

and can be passed on to the buer#

*he franchise ta+, on the other hand, is a percentae ta+ imposed on on franchise hoders# .t is imposed

under Section 11/ of the *a+ Code and is a direct iabiit of the franchise rantee#

*he cause in ieu of a ta+es does not pertain to A* or an other ta+# .t cannot app when what is paid is a

ta+ other than a franchise ta+# Since the franchise ta+ on the broadcastin companies with ear ross receipts

e+ceedin ten miion pesos has been aboished, the in ieu of a ta+es cause has now become functus officio

rendered inoperative#

.n sum, AS!C&s caims for e+emption must fai on twin rounds# First, the in ieu of a ta+es cause in its

franchise faied to specif the ta+es the compan is souht to be e+empted from# &either did it particuari=e the Hurisdiction from which the ta+in power is withhed# Second, the cause has become functus officio because as the aw

now stands, AS!C& is no oner subHect to a franchise ta+# .t is now iabe for A*#

'HEREFORE, the petition is GRANTE# and the appeaed Decision RE!ERSE# AN# SET ASI#E# *he petition in the

tria court for refund of oca franchise ta+ is#ISMISSE##

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