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G.R. No. 184145 December 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.

DASH ENGINEERING PHILIPPINES, INC., Respondent.

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of

Civil Procedure, assailing the July 17, 2008 Decision1 and the August 12, 2008 Resolution

2 of the

Court of Tax Appeals(CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243)

entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the

Securities and Exchange Commission, authorized to do business in the Philippines and listed with the

Philippine Economic Zone Authority as an ecozone IT export enterprise.3 It is also a VAT-registered

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

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from

January 1, 2003 to June 30, 2003.5 On August 9, 2004, it filed a claim for tax credit or refund in the

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

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

respondent was compelled to file a petition for review with the CTA on May 5, 2005.7

On October 4, 2007, the Second Division of the CTA rendered its Decision8 partially granting

respondents claim for refund or issuance of a tax credit certificate in the reduced amount of P

1,147,683.78. On the matter of the timeliness of the filing of the judicial claim, the Tax Court found

that respondents claims for refund for the first and second quarters of 2003 were filed within the

two-year prescriptive period which is counted from the date of filing of the return and payment of

the tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of

2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition

for review with the CTA on April 26, 20059 was within the prescriptive period.

10 Petitioner moved for

reconsideration but the same was denied in a Resolution dated January 3, 2008.11

Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed to

show that (1) its purchases of goods and services were made in the course of its trade and business,

(2) the said purchases were properly supported by VAT invoices and/or official receipts and other

documents, and (3) that the claimed input VAT payments were directly attributable to its zero-rated

sales. Petitioner also averred that the petition for review was filed out of time.12

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

Division, ruling that the judicial claim was filed on time because the use of the word "may" in Section

112(D) (now subparagraph C) of the National Internal Revenue Code (NIRC) indicates that judicial

recourse within thirty (30) days after the lapse of the 120-day period is only directory and permissive

and not mandatory and jurisdictional, as long as the petition was filed within the two-year

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prescriptive period. The Tax Court further reiterated that the two-year prescriptive period applies to

both the administrative and judicial claims. Petitioners motion for reconsideration was denied in the

August 12, 2008 Resolution of the CTA.14

Hence, this petition.

The Issues

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

I

The Court of Tax Appeals En Banc erred in holding that respondents judicial claim for refund was

filed within the prescriptive period provided under the Tax Code.

II

The Court of Tax Appeals En Banc erred in partially granting respondents claim for refund despite

the failure of the latter to substantiate its claim by sufficient documentary proof.15

The Courts Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent

failed to comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the

NIRC, citing the case ofCommissioner of Internal Revenue v. Aichi16 where the Court categorically

held that compliance with the prescribed periods in Section 112 is mandatory and jurisdictional.

Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within

which the CIR should act on the claim expired on December 7, 2004 without any action on the part

of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or until January 6,

2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5,

2005.17

Petitioner further posits that the 30-day period within which to file an appeal with the CTA is

jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its

jurisdiction to entertain the same.18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in keeping

with the two-year prescriptive period provided for in Sections 204(c) and 229 of the NIRC.19

DEPI

interprets Section 112, in relation to Section 229, to mean that the 120-day period is the time given

to the CIR to decide the case. The taxpayer, on the other hand, has the option of either appealing to

the CTA the denial by the CIR of the claim for refund within thirty (30) days from receipt of such

denial and within the two-year prescriptive period, or appealing an unacted claim to the CTA anytime

after the expiration of the 120-day period given to the CIR to resolve the administrative claim for as

long as the judicial claim is made within the two-year prescriptive period.20

Following respondents

reasoning, its filing of the judicial claim on April 26, 2005 was filed on time because it was made after

the lapse of the 120-day period and within the two-year period referred to in Section 229.

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The petition is meritorious.

Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims

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

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

Commissioner may

x x x

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,

refund the value of internal revenue stamps when they are returned in good condition by the

purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for

use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall

be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund

within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed

showing an overpayment shall be considered as a written claim for credit or refund.

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be

maintained in any court for the recovery of any national internal revenue tax hereafter alleged to

have been erroneously or illegally assessed or collected, or of any penalty claimed to have been

collected without authority, or of any sum alleged to have been excessively or in any manner

wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but

such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid

under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the

date of payment of the tax or penalty regardless of any supervening cause that may arise after

payment xxx. (Emphases supplied)

This Court has previously made a pronouncement as to the inapplicability of Section 229 of the NIRC

to claims for excess input VAT. In the recently decided case of Commissioner of Internal Revenue v.

San Roque Power Corporation,21 the Court made a lengthy disquisition on the nature of excess input

VAT, clarifying that "input VAT is not excessively collected as understood under Section 229 because

at the time the input VAT is collected the amount paid is correct and proper."22

Hence, respondent

cannot advance its position by referring to Section 229 because Section 112 is the more specific and

appropriate provision of law for claims for excess input VAT.

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

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

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(A) Zero-rated or Effectively Zero-rated Sales. Any VATregistered person, whose sales are zero-

rated or effectively zerorated may, within two (2) years after the close of the taxable quarter when

the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax

due or paid attributable to such sales, except transitional input tax, to the extent that such input tax

has not been applied against output tax

x x x

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A)

applies only to the filing of administrative claims with the CIR and not to the filing of judicial claims

with the CTA. In other words, for as long as the administrative claim is filed with the CIR within the

two-year prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the

CTA need not fall in the same two-year period.

At any rate, respondents compliance with the two-year prescriptive period under Section 112(A) is

not an issue. What is being questioned in this case is DEPIs failure to observe the requisite 120+30-

day period as mandated by Section 112(C) of the NIRC.

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

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

Sec. 112. Refunds or Tax Credits of Input Tax

x x x

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the

Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within

one hundred twenty (120) days from the date of submission of complete documents in support of

the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the

Commissioner to act on the application within the period prescribed above, the taxpayer affected

may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration

of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of

Tax Appeals. (emphasis supplied)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the

abovequoted provision is indeed mandatory and jurisdictional, as affirmed in this Courts ruling

in San Roque, where the CourtEn Banc settled the controversy surrounding the application of the

120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the

120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took into account the

issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled

taxpayers by explicity stating that taxpayers may file a petition for review with the CTA even before

the expiration of the 120-day period given to the CIR to decide the administrative claim for refund.

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Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive

the CTA of jurisdiction to hear the case, such a strict application will be made from the effectivity of

the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from

December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation

of Aichi), during which taxpayers need not wait for the lapse of the 120+30- day period before filing

their judicial claim for refund.

The case at bench, however, does not involve the issue of premature filing of the petition for review

with the CTA. Rather, this petition seeks the denial of DEPIs claim for refund for having been filed

late or after the expiration of the 30-day period from the denial by the CIR or failure of the CIR to

make a decision within 120 days from the submission of the documents in support of respondents

administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the

120+30-day period. In denying the taxpayers claim for refund, this Court explained that:

Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late

filing.1wphi1 Philex did not file any petition with the CTA within the 120-day period. Philex did not

also file any petition with the CTA within 30 days after the expiration of the 120-day period. Philex

filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse

of the 120-day period. In any event, whether governed by jurisprudence before, during or after

the Atlas case, Philexs judicial claim will have to be rejected because of late filing. Whether the two-

year prescriptive period is counted from the date of payment of the output VAT following

the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input

VAT were made following the Mirant and Aichi doctrines, Philexs judicial claim was indisputably filed

late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the

Commissioner on Philexs claim during the 120-day period is, by express provision of law, "deemed a

denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its

judicial claim with the CTA. Philexs failure to do so rendered the "deemed a denial" decision of the

Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a

denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The

exercise of such statutory privilege requires strict compliance with the conditions attached by the

statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the

consequences.23

(Emphases supplied)

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for

having been filed late. Although respondent filed its administrative claim with the BIR on August 9,

2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply

with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the

inaction of the CIR for 120 days after the submission of the documents in support of the claim, the

taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days

granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days

therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only

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sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite having

had ample time to file the same, almost four months after the period allowed by law. As a

consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the claim.

The Court has held time and again that taxes are the lifeblood of the government and, consequently,

tax laws must be faithfully and strictly implemented as they are not intended to be liberally

construed.24

Hence, We are left with no other recourse but to deny respondent's judicial claim for

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

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008

Resolution of the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are

hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit through

its petition for review before the CTA is DENIED.

G.R. No. 169234 October 2, 2013

CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,

vs.

CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON. CESAR S.

GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE BOARD OF TAX

(ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B. TANO, IN HER CAPACITY AS THE

CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.

A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to

assess real property tax. Such claim questions the correctness of the assessment and compliance with

the Q applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code (LGC) of

1991, particularly as to requirement of payment under protest, is mandatory.

Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July

2005 Decision1of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the

Resolutions dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment

Appeals (CBAA) in CBAA Case No. L-37 remanding the case to the Local Board of Assessment

Appeals (LBAA) of Baguio City for further proceedings.

The facts

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

In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp

John Hay Development Corporation about the issuance against it of thirty-six (36) Owners Copy of

Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering

various buildings of petitioner and two (2) parcels of land owned by the Bases Conversion

Development Authority (BCDA) in the John Hay Special Economic Zone (JHSEZ), Baguio City, which

were leased out to petitioner.

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In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal

basis due to the City Assessors failure to identify the specific properties and its corresponding

assessed values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs (with

an additional ARP on another building bringing the total number of ARPs to thirty-seven [37])

against the buildings of petitioner located within the JHSEZ were issued on the basis of the approved

building permits obtained from the City Engineers Office of Baguio City and pursuant to Sections

201 to 206 of RA No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA) of

Baguio City an appeal under Section 2262 of the LGC of 1991 challenging the validity and propriety

of the issuances of the City Assessor. The appeal was docketed as Tax Appeal Case No. 2002-003.

Petitioner claimed that there was no legal basis for the issuance of the assessments because it was

allegedly exempted from paying taxes, national and local, including real property taxes, pursuant to

RA No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.3

The Ruling of the BTAA

In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,

5 Rule V of the Rules of Procedure

Before the LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment

under protest of the subject real property taxes before the hearing of its appeal. Subsequently, the

BTAA dismissed petitioners Motion for Reconsideration in the 20 September 2002 Resolution6 for

lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal

docketed as CBAA Case No. L-37.

The Ruling of the CBAA

The CBAA denied petitioners appeal in a Resolution dated 23 May 2003,7 set aside the BTAAs order

of deferment of hearing, and remanded the case to the LBAA of Baguio City for further proceedings

subject to a full and up-to-date payment of the realty taxes on subject properties as assessed by the

respondent City Assessor of Baguio City, either in cash or in bond.

Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by the

LBAA was merely in compliance with the mandate of the law. The governing provision in this case is

Section 231, not Section 226, of RA No. 7160 which provides that "appeal on assessments of real

property made under the provisions of this Code shall, in no case, suspend the collection of the

corresponding realty taxes on the property involved as assessed by the provincial or city assessor,

without prejudice to subsequent adjustment depending upon the final outcome of the appeal." In

addition, as to the issue raised pertaining to the propriety of the subject assessments issued against

petitioner, allegedly claimed to be a tax-exemptentity, the CBAA expressed that it has yet to acquire

jurisdiction over it since the same has not been resolved by the LBAA.

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

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

CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by Section

9 of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the following

issues for its consideration: (1) whether or not respondent City Assessor of the City of Baguio has

legal basis to issue against petitioner the subject assessments with serial nos. 01-07040-008887 to

01-07040-008922for real property taxation of the buildings of the petitioner, a tax-exemptentity, or

land owned by the BCDA under lease to the petitioner; and (2)whether or not the CBAA, in its

Resolutions dated 23 May 2003 and 8September 2004, has legal basis to order the remand of the

case to the LBAA of Baguio City for further proceedings subject to a full and up-to- date payment, in

cash or bond, of the realty taxes on the subject properties as assessed by the City Assessor of the

City of Baguio.10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005,11

the CTA En Banc found that petitioner has indeed failed

to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the petition and

affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA for further

proceedings subject to compliance with said Section, in relation to Section 7, Rule V of the Rules of

Procedure before the LBAA.

Moreover, adopting the CBAAs position, the court a quo ruled that it could not resolve the issue on

whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity

considering that the LBAA has not decided the case on the merits. To do otherwise would not only

be procedurally wrong but legally wrong. It therefore concluded that before a protest may be

entertained, the tax should have been paid first without prejudice to subsequent adjustment

depending upon the final outcome of the appeal and that the tax or portion thereof paid under

protest, shall be held in trust by the treasurer concerned.

Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks

to set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax issued

against it by respondent City Assessor of Baguio City.12

The Issue

The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of

merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the

case to the LBAA of Baguio City for further proceedings subject to a full and up-to-date payment of

realty taxes, either in cash or in bond, on the subject properties assessed by the City Assessor of

Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be

Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-

exemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the payment of

the real property taxes subject of this petition.13

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Our Ruling

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

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

, categorically provides:

SEC. 252. Payment Under Protest. (a) No protest shall be entertained unless the taxpayer first pays

the tax. There shall be annotated on the tax receipts the words "paid under protest." The protest in

writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer

or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall

decide the protest within sixty (60) days from receipt.

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

concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or

portion of the tax protested shall be refunded to the protestant, or applied as tax credit

against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period

prescribed in subparagraph (a), the tax payer may avail of the remedies as provided for in

Chapter 3, Title Two, Book II of this Code. (Emphasis and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the

LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to

the procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on

the payment of real property taxes, follow:

SEC. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the

property who is not satisfied with the action of the provincial, city or municipal assessor in the

assessment of his property may, within sixty (60) days from the date of receipt of the written notice

of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition

under oath in the form prescribed for the purpose, together with copies of the tax declarations and

such affidavits or documents submitted in support of the appeal.

SEC. 229. Action by the Local Board of Assessment Appeals. (a)The Board shall decide the appeal

within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after

hearing, shall render its decision based on substantial evidence or such relevant evidence on record

as a reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon

witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena

and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the

purpose of ascertaining the facts without necessarily adhering to technical rules applicable in

judicial proceedings.

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(c) The secretary of the Board shall furnish the owner of the property or the person having

legal interest therein and the provincial or city assessor with a copy of the decision of the

Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall

be his duty to notify the owner of the property or the person having legal interest therein of

such fact using the form prescribed for the purpose. The owner of the property or the person

having legal interest therein or the assessor who is not satisfied with the decision of the

Board may, within thirty (30) days after receipt of the decision of said Board, appeal to the

Central Board of Assessment Appeals, as here in provided. The decision of the Central Board

shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real Property Tax. Appeal on assessments of real

property made under the provisions of this Code shall, in no case, suspend the collection of the

corresponding realty taxes on the property involved as assessed by the provincial or city assessor,

without prejudice to subsequent adjustment depending upon the final outcome of the appeal.

(Emphasis supplied)

The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative

remedies available to a taxpayer or real property owner who does not agree with the assessment of

the real property tax sought to be collected.

The language of the law is clear. No interpretation is needed. The elementary rule in statutory

construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal

meaning and applied without attempted interpretation. Verba legis non est recedendum. From the

words of a statute there should be no departure.15

To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning

the assessment should first pay the tax due before his protest can be entertained. As a matter of fact,

the words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such

payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from

said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within

sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless

the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the

property not satisfied with the action of the provincial, city, or municipal assessor in the assessment

of his property may file an appeal with the LBAA of the province or city concerned, as provided in

Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he

may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which

exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and

resolutions of the Local Boards involving contested assessments of real properties, claims for tax

refund and/or tax credits, or overpayments of taxes.16

Significantly, in Dr. Olivares v. Mayor Marquez,17

this Court had the occasion to extensively discuss

the subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct

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recourse before the courts on issue of the correctness of assessment of real estate taxes. The

pertinent articulations follow:

x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the

correctness of the assessments made by the local assessor of Paraaque on petitioners properties.

The allegations in the said petition purportedly questioning the assessors authority to assess and

collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In

fact, there is nothing in the said petition that supports their claim regarding the assessors alleged

lack of authority. What petitioners raise are the following:

(1) some of the taxes being collected have already prescribed and may no longer be

collected as provided in Section 194 of the Local Government Code of 1991; (2) some

properties have been doubly taxed/assessed; (3) some properties being taxed are no longer

existent;

(4)some properties are exempt from taxation as they are being used exclusively for

educational purposes; and (5) some errors are made in the assessment and collection of

taxes due on petitioners properties, and that respondents committed grave abuse of

discretion in making the "improper, excessive and unlawful the collection of taxes against the

petitioners."

Moreover, these arguments essentially involve questions of fact. Hence, the petition should have

been brought, at the very first instance, to the LBAA.

Under the doctrine of primacy of administrative remedies, an error in the assessment must be

administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack

of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to

a later adjustment pending the outcome of the appeal.

Even assuming that the assessors authority is indeed an issue, it must be pointed out that in order

for the court a quo to resolve the petition, the issues of the correctness of the tax assessment and

collection must also necessarily be dealt with.

x x x x

In the present case, the authority of the assessor is not being questioned. Despite petitioners

protestations, the petition filed before the court a quo primarily involves the correctness of the

assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition

and mandamus. The court a quo is therefore precluded from entertaining the petition, and it

appropriately dismissed the petition.18

(Emphasis and underlining supplied)

By analogy, the rationale of the mandatory compliance with the requirement of "payment under

protest" similarly provided under Section 64of the Real Property Tax Code (RPTC)19

was earlier

emphasized in Meralcov. Barlis,20

wherein the Court held:

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We find the petitioners arguments to be without merit. The trial court has no jurisdiction to entertain

a Petition for Prohibition absent petitioners payment under protest, of the tax assessed as required

by Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non before

the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no

jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under

protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation

and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state

or, in this case, the local government unit, shall be crippled in dispensing the needed services to the

people, and its machinery gravely disabled.

x x x x

There is no merit in petitioners argument that the trial court could take cognizance of the petition as

it only questions the validity of the issuance of the warrants of garnishment on its bank deposits and

not the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC was

in truth assailing the validity of the tax assessment and collection. To resolve the petition, it would

not only be the question of validity of the warrants of garnishments that would have to be tackled,

but in addition the issues of tax assessment and collection would necessarily have to be dealt with

too. As the warrants of garnishment were issued to collect back taxes from petitioner, the petition for

prohibition would be for no other reason than to forestall the collection of back taxes on the basis of

tax assessment arguments. This, petitioner cannot do without first resorting to the proper

administrative remedies, or as previously discussed, by paying under protest the tax assessed, to

allow the court to assume jurisdiction over the petition.

x x x x

It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first

opportunity - upon receipt of the3 September 1986 notices of assessment signed by Municipal

Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative

remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the

assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate

jurisdiction of the Central Board of Assessment Appeals(CBAA).

Under the doctrine of primacy of administrative remedies, an error in the assessment must be

administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack

of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to

a later adjustment pending the outcome of the appeal. The failure to appeal within the statutory

period shall render the assessment final and unappealable.

Petitioner having failed to exhaust the administrative remedies available to it, the assessment

attained finality and collection would be in order. (Emphasis and underscoring supplied)

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From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment

under protest" is a condition sine qua non before a protest or an appeal questioning the correctness

of an assessment of real property tax may be entertained.

Moreover, a claim for exemption from payment of real property taxes does not actually question the

assessors authority to assess and collect such taxes, but pertains to the reasonableness or

correctness of the assessment by the local assessor, a question of fact which should be resolved, at

the very first instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160 or the LGC

of 1991which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. Every person by or for whom real

property is declared, who shall claim tax exemption for such property under this Title shall file with

the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of

real property sufficient documentary evidence in support of such claim including corporate charters,

title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage

deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be

listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,

the same shall be dropped from the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and proved as tax-exempt shall be

included in the assessment roll, the above-quoted provision implies that the local assessor has the

authority to assess the property for realty taxes, and any subsequent claim for exemption shall be

allowed only when sufficient proof has been adduced supporting the claim.21

Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be

paid under protest if the exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002

issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to

01-07040-008922) attached thereto, it filed its protest through a letter dated 3 April 2002seeking

clarification as to the legal basis of said assessments, without payment of the assessed real property

taxes. Afterwards, respondent City Assessor replied thereto in a letter dated 11 April 2002 which

explained the legal basis of the subject assessments and even included an additional ARP against

another real property of petitioner. Subsequently, petitioner then filed before the BTAA its appeal

questioning the validity and propriety of the subject ARPs.

Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the

"action" referred to in Section 226 which speaks of the local assessors act of denying the protest

filed pursuant to Section252. However, applying the above-cited jurisprudence in the present case, it

is evident that petitioners failure to comply with the mandatory requirement of payment under

protest in accordance with Section 252 of the LGC of 1991 was fatal to its appeal. Notwithstanding

such failure to comply therewith, the BTAA elected not to immediately dismiss the case but instead

took cognizance of petitioners appeal subject to the condition that payment of the real property tax

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should first be made before proceeding with the hearing of its appeal, as provided for under Section

7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply recognized the

importance of the requirement of "payment under protest" before an appeal may be entertained,

pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension of

collection of the realty tax pending appeal.

Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner

contends that the requirement of paying the tax under protest is not applicable when the person

being assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer" within the

meaning of the law. In support thereto, petitioner alleges that it is exempted from paying taxes,

including real property taxes, since it is entitled to the tax incentives and exemptions under the

provisions of RA No. 7227 and Presidential Proclamation No. 420, Series of 1994,22

as stated in and

confirmed by the lease agreement it entered into with the BCDA.23

This Court is not persuaded.

First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that

every person by or for whom real property is declared, who shall claim exemption from payment of

real property taxes imposed against said property, shall file with the provincial, city or municipal

assessor sufficient documentary evidence in support of such claim. Clearly, the burden of proving

exemption from local taxation is upon whom the subject real property is declared; thus, said person

shall be considered by law as the taxpayer thereof. Failure to do so, said property shall be listed as

taxable in the assessment roll.

In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in

the letters dated 21 March 200224

and 11April 2002,25

about the subject ARPs covering various

buildings owned by petitioner and parcels of land (leased out to petitioner) all located within the

JHSEZ, Baguio City. The subject letters expressed that the assessments were based on the approved

building permits obtained from the City Engineers Office of Baguio City and pursuant to Sections

201 to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom the subject real properties

were declared.

Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of

fact, it expressly admitted ownership of the various buildings subject of the assessment and

thereafter focused on the argument of its exemption under RA No. 7227. But petitioner did not

present any documentary evidence to establish that the subject properties being tax exempt have

already been dropped from the assessment roll, in accordance with Section 206. Consequently, the

City Assessor acted in accordance with her mandate and in the regular performance of her official

function when the subject ARPs were issued against petitioner herein, being the owner of the

buildings, and therefore considered as the person with the obligation to shoulder tax liability thereof,

if any, as contemplated by law.

It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same

for taxation purposes. As discussed above, the duty to declare the true value of real property for

taxation purposes is imposed upon the owner, or administrator, or their duly authorized

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representatives. They are thus considered the taxpayers. Hence, when these persons fail or refuse to

make a declaration of the true value of their real property within the prescribed period, the provincial

or city assessor shall declare the property in the name of the defaulting owner and assess the

property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or

defaulting administrator, or defaulting authorized representative, liable to pay back taxes. For that

reason, since petitioner herein is the declared owner of the subject buildings being assessed for real

property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of

paying the subject tax in the present case; and accordingly, in questioning the reasonableness or

correctness of the assessment of real property tax, petitioner is mandated by law to comply with the

requirement of payment under protest of the tax assessed, particularly Section 252 of RA No. 7160 or

the LGC of 1991.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the

exception. The law does not look with favor on tax exemptions and the entity that would seek to be

thus privileged must justify it by words too plain to be mistaken and too categorical to be

misinterpreted.26

Thus applying the rule of strict construction of laws granting tax exemptions, and

the rule that doubts should be resolved in favor of provincial corporations, this Court holds that

petitioner is considered a taxable entity in this case.

Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on

whether or not it is entitled to exemption from paying taxes, national and local, including real

property taxes, is a matter which would be better resolved, at the very instance, before the LBAA, for

the following grounds: (a) petitioners reliance on its entitlement for exemption under the provisions

of RA No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed by Section

18,27

Article XVI of the Lease Agreement dated 19 October 1996 it entered with the BCDA. However,

it appears from the records that said Lease Agreement has yet to be presented nor formally offered

before any administrative or judicial body for scrutiny; (b) the subject provision of the Lease

Agreement declared a condition that in order to be allegedly exempted from the payment of taxes,

petitioner should have first paid and remitted 5% of the gross income earned by it within ninety (90)

days from the close of the calendar year through the JPDC. Unfortunately, petitioner has neither

established nor presented any evidence to show that it has indeed paid and remitted 5% of said

gross income tax; (c) the right to appeal is a privilege of statutory origin, meaning a right granted

only by the law, and not a constitutional right, natural or inherent. Therefore, it follows that petitioner

may avail of such opportunity only upon strict compliance with the procedures and rules prescribed

by the law itself, i.e. RA No. 7160 or the LGC of 1991; and (d) at any rate, petitioners position of

exemption is weakened by its own admission and recognition of this Courts previous ruling that the

tax incentives granted in RA No. 7227 are exclusive only to the Subic Special Economic and Free Port

Zone; and thus, the extension of the same to the JHSEZ (as provided in the second sentence of

Section 3 of Presidential Proclamation No. 420)28

finds no support therein and therefore declared

null and void and of no legal force and effect.29

Hence, petitioner needs more than mere arguments

and/or allegations contained in its pleadings to establish and prove its exemption, making prior

proceedings before the LBAA a necessity.

With the above-enumerated reasons, it is obvious that in order for a complete determination of

petitioners alleged exemption from payment of real property tax under RA No. 7160 or the LGC of

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1991, there are factual issues needed to be confirmed. Hence, being a question of fact, petitioner

cannot do without first resorting to the proper administrative remedies, or as previously discussed,

by paying under protest the tax assessed in compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be

paid before any protest thereon may be considered. It is without a doubt that such requirement of

"payment under protest" is a condition sine qua non before an appeal may be entertained. Thus,

remanding the case to the LBAA for further proceedings subject to a full and up-to-date payment,

either in cash or surety, of realty tax on the subject properties was proper.

To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior

payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the

lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like

action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing

the needed services to the people, and its machinery gravely disabled.30

The right of local

government units to collect taxes due must always be upheld to avoid severe erosion. This

consideration is consistent with the State policy to guarantee the autonomy of local governments

and the objective of RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local

autonomy to empower them to achieve their fullest development as self-reliant communities and

make them effective partners in the attainment of national goals.31

All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether

full or partial, does not question the authority of local assessor to assess real property tax, but merely

raises a question of the reasonableness or correctness of such assessment, which requires

compliance with Section 252 of the LGC of 1991. Such argument which may involve a question of

fact should be resolved at the first instance by the LBAA.

The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the CBAA's

position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground of

exemption since the LBAA has not decided the case on the merits. This is in compliance with the

procedural steps prescribed in the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En

Bane in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment

Appeals of Baguio City for further proceedings. No costs.

G.R. No. 197117 April 10, 2013

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil

Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation

(petitioner), assailing the March l, 2011 Decision2 and the May 27, 2011 Resolution

3 of the Court of

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Tax Appeals (CTA) En Bane, in CTA E.B. No. 563, which affirmed the May 21, 2009 Decision of the

CTA-Second Division.

The Facts:

Petitioner is a non-lire insurance corporation and considered as a "Large Taxpayer under Revenue

Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994."4 After

submitting its corporate income tax return for taxable year ending December 31, 1997, petitioner

received a Letter of Authority, dated October 30, 1998, from respondent Commissioner of Internal

Revenue (CIR) to allow it to examine their books of account and other accounting records for 1997

and other unverified prior years.

On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income,

withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes

for taxable year 1997.

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

During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for

Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99; ST-VAT-97-

0222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA Second

Division granted the said motion in a Resolution,5 dated March 31, 2008.

Consequently, on May 21, 2009, the CTA Second Division partially granted the petition.6 It directed

petitioner to pay CIR a reduced tax liability of P1,994,390.86. The dispositive portion reads:

WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby

PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding tax

on compensation, expanded withholding tax and final tax in the reduced amount of P1,994,390.86,

computed as follows:

Basic

Tax

Surcharges Interest Total

Deficiency

Withholding

Tax on

Compensation

P774,200.55 P193,550.14 P312.227.34 P1,279,978.03

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ST-WC-97-0221-99

Deficiency

Expanded

Withholding

Tax ST-EWT-97-0218-

99

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

Deficiency

Final

Withholding

Tax ST-FT-97-0219-99

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

TOTALS

P1,206,316.41 P301,579.11 P486,495.34 P1,994,390.86

Petitioners Motion for Partial Reconsideration7 was likewise denied by the CTA Second Division in its

October 29, 2009 Resolution.8

Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc.9

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

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on

the P500,000.00 Directors Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales,

Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was already

subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that Section 5 of Revenue

Regulation No. 12-86 expressly identified a director to be an employee.

As to transportation, subsistence and lodging, and representation expenses, the expenses would not

be subject to withholding tax only if the same were reimbursement for actual expenses of the

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company. In the present case, the CTA En Banc declared that petitioner failed to prove that they were

so.

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

the commissions earned totaling P905,428.36, came from reinsurance activities and should not be

subject to withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost

and service/contractors and purchases.

As to deficiency final withholding taxes, "petitioner failed to present proof of remittance to establish

that it had remitted the final tax on dividends paid as well as the payments for services rendered by

the Malaysian entity."11

As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal

Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty

(30) days from receipt of the demand letter, thus, delinquency interest accrued from such non-

payment.

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

2011 Resolution.12

Hence, this petition.13

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

a. deficiency withholding taxes on compensation on directors bonuses under Assessment No. ST-

WC-97-0021-99;

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

representation expense; commission expense; direct loss expense; occupancy cost; and

service/contractor and purchases under Assessment No. ST-EWT-97-0218-99;

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

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

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

The Court finds no merit in the petition.

For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation

No. 12-86,14

to wit:

An individual, performing services for a corporation, whether as an officer and director or merely as a

director whose duties are confined to attendance at and participation in the meetings of the Board

of Directors, is an employee.

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The non-inclusion of the names of some of petitioners directors in the companys Alpha List does

not ipso facto create a presumption that they are not employees of the corporation, because the

imposition of withholding tax on compensation hinges upon the nature of work performed by such

individuals in the company. Moreover, contrary to petitioners attestations, Revenue Regulation No.

2-98,15

specifically, Section 2.57.2. A (9) thereof,16

cannot be applied to this case as the latter is a later

regulation while the accounting books examined were for taxable year 1997.

As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and

representation expense, commission expense, direct loss expense, occupancy cost, service/contractor

and purchases, the Court finds no cogent reason to deviate from the findings of the CTA En Banc. As

correctly observed by the CTA Second Division and the CTA En Banc, petitioner was not able to

sufficiently establish that the transportation expenses reflected in their books were reimbursement

from actual transportation expenses incurred by its employees in connection with their duties as the

only document presented was a Schedule of Transportation

Expenses without pertinent supporting documents. Without said documents, such as but not limited

to, receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether

the amounts reflected in the schedule of expenses were disbursed for transportation.

With regard to commission expense, no additional documentary evidence, like the reinsurance

agreements contracts, was presented to support petitioners allegation that the expenditure

originated from reinsurance activities that gave rise to reinsurance commissions, not subject to

withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the correct

total occupancy cost that should be subjected to withholding tax, hence, petitioner is liable for the

deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated that

it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to

present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CTA

Second Division and En Bane, however, stipulations cannot defeat the right of the State to collect the

correct taxes due on an individual or juridical person because taxes are the lifeblood of our nation so

its collection should be actively pursued without unnecessary impediment.

As to the deficiency final withholding tax assessments for payments of dividends and

computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine & Fire

Insurance Co. Ltd. (Matsui),17

the Court agrees with CIR that petitioner failed to present evidence to

show the supposed remittance to Matsui.

The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997

NIRC to be proper, because failure to pay the deficiency tax assessed within the time prescribed for

its payment justifies the imposition of interest at the rate of twenty percent (20%) per annum, which

interest shall be assessed and collected from the date prescribed for its payment until full payment is

made.

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It is worthy to note that tax revenue statutes are not generally intended to be liberally

construed.18

Moreover, the CTA being a highly specialized court particularly created for the purpose

of reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great

respect and are generally upheld by this Court, unless there is a clear showing of a reversible error or

an improvident exercise of authority.19

Absent such errors, the challenged decision should be

maintained.

WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011 Resolution of

the Court of Tax Appeals En Bane, in CTA E.B. No. 563, are AFFIRMED.

G.R. No. 187485 February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.

SAN ROQUE POWER CORPORATION, Respondent.

G.R. No. 187485 is a petitiOn for review1 assailing the Decision

2 promulgated on 25 March 2009 as

well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB)

in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11

July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in

CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal Revenue

(Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power Corporation

(San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods and services

for the taxable year 2001.

G.R. No. 196113 is a petition for review6 assailing the Decision

7 promulgated on 8 December 2010 as

well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its

Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution

10of

the CTA Second Division and granted the CIRs petition for review in CTA Case No. 7574. The CTA EB

dismissed, for having been prematurely filed, Taganito Mining Corporations (Taganito) judicial claim

for P8,365,664.38 tax refund or credit.

G.R. No. 197156 is a petition for review11

assailing the Decision12

promulgated on 3 December 2010

as well as the Resolution13

promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA

EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA

Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription, Philex

Mining Corporations (Philex) judicial claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved14

to consolidate G.R. No. 197156 with

G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was

assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and

196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation

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The Facts

The CTA EBs narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act

upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue

("BIR") National Office Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of

the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was

incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate

power-generating plants and related facilities pursuant to and under contract with the Government

of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any

governmentowned or controlled corporation, or other entity engaged in the development, supply, or

distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is

likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in

the design, construction, erection, assembly, as well as to own, commission, and operate electric

power-generating plants and related activities, for which it was issued Certificate of Registration No.

97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the

National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and

generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-

Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San

Roque] shall be responsible for the design, construction, installation, completion, testing and

commissioning of the Power Station and shall operate and maintain the same, subject to NPC

instructions. During the cooperation period of twenty-five (25) years commencing from the

completion date of the Power Station, NPC will take and pay for all electricity available from the

Power Station.

On the construction and development of the San Roque Multi- Purpose Project which comprises of

the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount

of 559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the

same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of

559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year

2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001

since it increased its unutilized input VAT to the amount of 560,200,283.14. Consequently, [San

Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate

amount of 560,200,283.14.

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[CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with

the Court [of Tax Appeals] in Division on April 10, 2003.

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

The Court of Tax Appeals Ruling: Division

The CTA Second Division initially denied San Roques claim. In its Decision16 dated 8 March 2006, it

cited the following as bases for the denial of San Roques claim: lack of recorded zero-rated or

effectively zero-rated sales; failure to submit documents specifically identifying the purchased

goods/services related to the claimed input VAT which were included in its Property, Plant and

Equipment account; and failure to prove that the related construction costs were capitalized in its

books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following

requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17

to be entitled to a tax refund or

credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-

registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT

invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on

capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-

year prescriptive period both in the administrative and judicial levels.

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

requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint

Stipulation of Facts, Records, p. 157). It was also established that the instant claim of 560,200,823.14

is already net of the 11,509.09 output tax declared by [San Roque] in its amended VAT return for

the first quarter of 2001. Moreover, the entire amount of 560,200,823.14 was deducted by [San

Roque] from the total available input tax reflected in its amended VAT returns for the last two

quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means that

the claimed input taxes of 560,200,823.14 did not form part of the excess input taxes of

83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the succeeding

quarters. Further, [San Roques] claim for refund/tax credit certificate of excess input VAT was filed

within the two-year prescriptive period reckoned from the dates of filing of the corresponding

quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,

2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N").

These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the

other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10,

2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth quarters of 2001,

respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters

on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April

10, 2003. Counting from the respective dates when [San Roque] originally filed its VAT returns for the

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first, second, third and fourth quarters of 2001, the administrative claims for refund (original and

amended) and the Petition for Review fall within the two-year prescriptive period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November

2007 Amended Decision,19

the CTA Second Division found legal basis to partially grant San Roques

claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of

San Roque in the amount of 483,797,599.65, which represents San Roques unutilized input VAT on

its purchases of capital goods and services for the taxable year 2001. The CTA based the adjustment

in the amount on the findings of the independent certified public accountant. The following reasons

were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related

purchases are in the nature of capital goods; and the purchases pertain to capital goods. Moreover,

the reduction of claims was based on the following: the difference between San Roques claim and

that appearing on its books; the official receipts covering the claimed input VAT on purchases of

local services are not within the period of the claim; and the amount of VAT cannot be determined

from the submitted official receipts and invoices. The CTA Second Division denied San Roques claim

for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-

rated sales because San Roque had no record of such sales for the four quarters of 2001.

The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY

GRANTED and this Courts Decision promulgated on March 8, 2006 in the instant case is hereby

MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT

CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million

Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos

(483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for

the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second

Division issued a Resolution dated 11 July 2008 which denied the CIRs motion for lack of merit.

The Court of Tax Appeals Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques

claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007

Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and

resolution.

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The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue

Memorandum Circular No. 49-03,22

as its bases for ruling that San Roques judicial claim was not

prematurely filed. The pertinent portions of the Decision state:

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

It is true that Section 112(D) of the abovementioned provision applies to the present case. However,

what the petitioner failed to consider is Section 112(A) of the same provision. The respondent is also

covered by the two (2) year prescriptive period. We have repeatedly held that the claim for refund

with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the two-

year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development

Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a

claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of

the tax due. If the said period is about to expire but the BIR has not yet acted on the application for

refund, the taxpayer may interpose a petition for review with this Court within the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now

Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit

or proceeding must be started in the Court of Tax Appeals before the end of the two-year period

without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The

Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the

taxpayer need not wait indefinitely for a decision or ruling which may or may not be forthcoming

and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him

waiting for an indefinite period of time for a ruling or decision of the Collector (now Commissioner)

of Internal Revenue on his claim for refund. It would make matters more exasperating for the

taxpayer if we were to close the doors of the courts of justice for such a relief until after the Collector

(now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go

signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired

jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever

action respondent (herein petitioner) may take. At stake are claims for refund and unlike disputed

assessments, no decision of respondent (herein petitioner) is required before one can go to this

Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03

dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the

Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that

taxpayers need not wait for the lapse of the subject 120-day period, to wit:

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In response to [the] request of selected taxpayers for adoption of procedures in handling refund

cases that are aligned to the statutory requirements that refund cases should be elevated to the

Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No.

42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to

wit:

I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving

a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or

OSS-DOF), the administrative agency and the tax court may act on the case separately. While the

case is pending in the tax court and at the same time is still under process by the administrative

agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall

request from the head of the investigating/processing office for the docket containing certified true

copies of all the documents pertinent to the claim. The docket shall be presented to the court as

evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the

meantime, the investigating/processing office of the administrative agency shall continue processing

the refund/TCC case until such time that a final decision has been reached by either the CTA or the

administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the

latter shall cease from processing the claim. On the other hand, if the administrative agency is able to

process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings

thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.23

(Emphasis

supplied)

G.R. No. 196113

Taganito Mining Corporation v. CIR

The Facts

The CTA Second Divisions narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by

virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa

St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission

with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary

purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing,

exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for

market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing

and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone,

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and all kinds of ores, metals and their by-products and which by-products thereof of every kind and

description and by whatsoever process the same can be or may hereafter be produced, and generally

and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines,

and mineral rights and claims and to conduct all business appertaining thereto, to purchase, locate,

lease or otherwise acquire, mining claims and rights, timber rights, water rights, concessions and

mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever

which this corporation may from time to time find to be to its advantage to mine lands, and to

explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize

water rights in such manner as may be authorized or permitted by law; to purchase, hire, make,

construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve, repair, manage, work

and operate private roads, barges, vessels, aircraft and vehicles, private telegraph and telephone

lines, and other communication media, as may be needed by the corporation for its own purpose,

and to purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and

operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks, aqueducts,

shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and

compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and

refineries, matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other

buildings, engines, machinery, spare parts, tools, implements and other works, conveniences and

properties of any description in connection with or which may be directly or indirectly conducive to

any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or take part in

any operations;

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN

8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter

of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with

authority to exercise the functions of the said office, including inter alia, the power to decide refunds

of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other

matters arising under the National Internal Revenue Code (NIRC) or other laws administered by

Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National

Office Building, Diliman, Quezon