DONE

G.R. No. 188260 November 13, 2013

LUZON HYDRO CORPORATION,Petitioner,v. COMMISSIONER OF INTERNAL

REVENUE,Respondent.

BERSAMIN,J.:

FACTS:

Pursuant to the Power Purchase Agreement entered into with the National Power Corporation (NPC), the
electricity produced by the petitioner Luzon Hydro Corporation from its operation of the Bakun Hydroelectric
Power Plant was sold exclusively to NPC.

Relative to its sale to NPC, the petitioner was granted by the BIR a certificate for Zero Rate for VAT purposes
in the periods from January 1, 2000 to December 31, 2000; February 1, 2000 to December 31, 2000
(Certificate No. Z-162-2000); and from January 2, 2001 to December 31, 2001 (Certificate No. 2001-269).

The petitioner alleged herein that it had incurred input VAT in the amount ofP9,795,427.89 on its domestic
purchases of goods and services used in its generation and sales of electricity to NPC in the four quarters
of 2001;and that it had declared the input VAT ofP9,795,427.89 in its amended VAT returns for the four
quarters on 2001.

On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to its unutilized
input VAT for the period from October 1999 to October 2001 aggregatingP14,557,004.38. Subsequently,
on July 24, 2002, it amended the claim for refund or tax credit to cover the period from October 1999 to
May 2002 for P20,609,047.56

Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on the petitioners
claim despite the favorable recommendation. Hence, on April 14, 2003, the petitioner filed its petition for
review in the CTA, praying for the refund or tax credit certificate (TCC) corresponding to the unutilized input
VAT paid for the four quarters of 2001 totalingP9,795,427.88.

CTA in division and CTA en banc denied the claim, holding that petitioner had not established its having
effectively zero-rated sales for the four quarters of 2001.

ISSUE: Whether or not CTA en banc erred in affirming the decision of CTA

HELD: No. CTA en banc decision sustained.

Taxation Law - requisites for claim of refund or tax credit for unutilized input VAT

A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur,
namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in zero-rated or effectively zero-
rated sales; (c) the input taxes are due or paid; (d) the input taxes are not transitional input taxes; (e) the
input taxes have not been applied against output taxes during and in the succeeding quarters; (f) the input
taxes claimed are attributable to zero-rated or effectively zero-rated sales; (g) for zero-rated sales under
Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas; (h) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales volume; and (i) the claim is filed within two years after the
close of the taxable quarter when such sales were made.

The petitioner did not competently establish its claim for refund or tax credit. We agree with the CTA En
Banc that the petitioner did not produce evidence showing that it had zero-rated sales for the four quarters
of taxable year 2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated
sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any
sale of electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it
carried the burden not only that it was entitled under the substantive law to the allowance of its claim for
refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim before
the administrative official concerned, or in the de novo litigation before the CTA in Division.

Although the petitioner has correctly contended here that the sale of electricity by a power generation
company like it should be subject to zero-rated VAT under Republic Act No. 9136,ts assertion that it need
not prove its having actually made zero-rated sales of electricity by presenting the VAT official receipts and
VAT returns cannot be upheld. It ought to be reminded that it could not be permitted to substitute such vital
and material documents with secondary evidence like financial statements.

The letter opinion by BIR Regional Director Rene Q. Aguas to the effect that its financial statements and its
return were sufficient to establish that it had generated zero-rated sale of electricity is bereft of merit. To
recall, the CTA En Banc rejected the insistence because, firstly, the letter opinion referred to taxable year
2000 but this case related to taxable year 2001, and, secondly, even assuming for the sake of argument
that the financial statements, the return and the letter opinion had related to taxable year 2001, they still
could not be taken at face value for the purpose of approving the claim for refund or tax credit due to the
need to produce the supporting documents proving the existence of the zero-rated sales, which did not
happen here. In that respect, the CTA En Banc properly disregarded the letter opinion as irrelevant to the
present claim of the petitioner.

G.R. No. 173373 : July 29, 2013

H. TAMBUNTING PAWNSHOP, INC.,Petitioner,v. COMMISSIONER OF INTERNAL

REVENUE,Respondent.

BERSAMIN,J.:

FACTS:

H. Tambunting Pawnshop, Inc. (petitioner), a domestic corporation duly licensed and authorized to engage
in the pawnshop business, appeals the adverse decision promulgated on April 24, 2006,whereby the Court
of Tax Appeals En Bane (CTA En Bane) affirmed the decision of the CTA First Division ordering it to pay
deficiency income taxes in the amount ofP4,536,687.15 for taxable yaar 1997, plus 20% delinquency
interest computed from August 29, 2000 until full payment, but cancelling the compromise penalties for lack
of basis.

On June 26, 2000, the Bureau of Internal Revenue (BIR), through then Acting Regional Director Lucien E.
Sayuno of Revenue Region No. 6 in Manila, issued assessment notices and demand letters, all numbered
32-1-97, assessing Tambunting for deficiency percentage tax, income tax and compromise penalties for
taxable year 1997.
On July 26, 2000, Tambunting instituted an administrative protest against the assessment notices and
demand letters with the Commissioner of Internal Revenue.

On February 21, 2001, Tambunting brought a petition for review in the CTA, pursuant to Section 228 of the
National Internal Revenue Code of 1997,citing the inaction of the Commissioner of Internal Revenue on its
protest within the 180-day period prescribed by law.

On October 8, 2004, the CTA First Division rendered a decision, making the pawnshop liable for
P4,536,687.15 representing deficiency income tax for the year 1997, plus 20% delinquency interest
computed from August 29, 2000 until full payment thereof pursuant to Section 249 (C) of the National
Internal Revenue Code. However, the compromise penalties in the sum ofP49,000.00 was cancelled for
lack of legal basis.

After its motion for reconsideration was denied for lack of merit on February 18, 2005,Tambunting filed a
petition for review in the CTA En Banc, arguing that the First Division erred in disallowing its deductions on
the ground that it had not substantiated them by sufficient evidence.

On April 24, 2006, the CTA En Banc denied Tambuntings petition for review. On June 29, 2006, the CTA
En Banc also denied Tambuntings motion for reconsideration for its lack of merit.

Hence, this appeal by petition for review on certiorari.

ISSUE: Whether or not Tambunting is liable for the deficiency income taxes?

HELD: Court of Tax Appeals decision is affirmed.

TAXATION LAW : tax deductions

We affirm the aforequoted ruling of the CTA En Banc.

The rule that tax deductions, being in the nature of tax exemptions, are to be construed in strictissimi juris
against the taxpayer is well settled.Corollary to this rule is the principle that when a taxpayer claims a
deduction, he must point to some specific provision of the statute in which that deduction is authorized and
must be able to prove that he is entitled to the deduction which the law allows.An item of expenditure,
therefore, must fall squarely within the language of the law in order to be deductible.A mere averment that
the taxpayer has incurred a loss does not automatically warrant a deduction from its gross income.

As the CTA En Banc held, Tambunting did not properly prove that it had incurred losses. The subasta books
it presented were not the proper evidence of such losses from the auctions because they did not reflect the
true amounts of the proceeds of the auctions due to certain items having been left unsold after the auctions.
The rematado books did not also prove the amounts of capital because the figures reflected therein were
only the amounts given to the pawnees. It is interesting to note, too, that the amounts received by the
pawnees were not the actual values of the pawned articles but were only fractions of the real values.

As to business expenses, Section 29 (a) (1) (A) of the NIRC of 1977 provides:

(a) Expenses. (1) Business expenses. (A) In general. All ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries
or other compensation for personal services actually rendered; traveling expenses while away from home
in the pursuit of a trade, profession or business, rentals or other payments required to be made as a
condition to the continued use or possession, for the purpose of the trade, profession or business, of
property to which the taxpayer has not taken or is not taking title or in which he has no equity.
The requisites for the deductibility of ordinary and necessary trade or business expenses, like those paid
for security and janitorial services, management and professional fees, and rental expenses, are that : (a)
the expenses must be ordinary and necessary; (b) they must have been paid or incurred during the taxable
year; (c) they must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d)
they must be supported by receipts, records or other pertinent papers.

In denying Tambuntings claim for deduction of its security and janitorial expenses, management and
professional fees, and its rental expenses, the CTA En Banc explained

Contrary to petitioners contention, the security/janitorial expenses paid to Pathfinder Investigation were not
duly substantiated. The certification issued by Mr. Balisado was not the proper document required by law
to substantiate its expenses. Petitioner should have presented the official receipts or invoices to prove its
claim as provided for under Section 238 of the National Internal Revenue Code of 1977, as amended, to
wit:

"SEC. 238. Issuance of receipts or sales or commercial invoices. All persons subject to an internal revenue
tax shall for each sale or transfer of merchandise or for services rendered valued atP25.00 or more, issue
receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction,
quantity, unit cost and description of merchandise or nature of service; Provided, That in the case of sales,
receipts or transfers in the amount ofP100.00 or more, or, regardless of amount, where the sale or transfer
is made by persons subject to value-added tax to other persons also subject to value-added tax; or, where
the receipts is issued to cover payment made as rentals, commissions, compensation or fees, receipts or
invoices shall be issued which shall show the name, business style, if any, and address of the purchaser,
customer, or client. The original of each receipt or invoice shall be issued to the purchases, customer or
client at the time the transaction is effected, who, if engaged in business or in the exercise of profession,
shall keep and preserve the same in his place of business for a period of 3 years from the close of the
taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved
by the issuer, also in his place of business, for a like period.

With regard to the misclassified items of expenses, petitioner's statements were self-serving, likewise it
failed to substantiate its allegations by clear and convincing evidence as provided under the foregoing
provision of law.

Bearing in mind the principle in taxation that deductions from gross income partake the nature of tax
exemptions which are construed in strictissimi juris against the taxpayer, the Court en banc is not inclined
to believe the self-serving statements of petitioner regarding the misclassified items of office supplies,
advertising and rent expenses.

Among the expenses allegedly incurred, courts may consider only those supported by credible evidence
and which appear to have been genuinely incurred in connection with the trade or business of the taxpayer.

As previously discussed, the proper substantiation requirement for an expense to be allowed is the official
receipt or invoice. While the rental payments were subjected to the applicable expanded withholding taxes,
such returns are not the documents required by law to substantiate the rental expense. Petitioner should
have submitted official receipts to support its claim.

TAXATION LAW : requirements for cash vouchers to serve as evidence to prove expenses

Moreover, the issue on the submission of cash vouchers as evidence to prove expenses incurred has been
addressed by this Court in the assailed Resolution, to wit:
"The trend then was to allow deductions based on cash vouchers which are signed by the payees. It bears
to note that the cases cited by petitioner are pronouncements by this Court in 1980, 1982 and 1989.

However, latest jurisprudence has deviated from such interpretation of the law. Thus, this Court held in the
case of Pilmico-Mauri Foods Corporation v. Commissioner of Internal Revenue C.T.A. Case No. 6151,
December 15, 2004;

Petitioners contention that the NIRC of 1977 did not impose substantiation requirements on deductions
from gross income is bereft of merit. Section 238 of the 1977 Tax Code [now Section 237] provides

From the foregoing provision of law, a person who is subject to an internal revenue tax shall issue receipts,
sales or commercial invoices, prepared at least in duplicate. The provision likewise imposed a responsibility
upon the purchaser to keep and preserve the original copy of the invoice or receipt for a period of three
years from the close of the taxable year in which the invoice or receipt was issued. The rationale behind
the latter requirement is the duty of the taxpayer to keep adequate records of each and every transaction
entered into in the conduct of its business. So that when their books of accounts are subjected to a tax audit
examination, all entries therein could be shown as adequately supported and proven as legitimate business
transactions. Hence, petitioners claim that the NIRC of 1977 did not require substantiation requirements is
erroneous."

In order that the cash vouchers may be given probative value, these must be validated with official receipts.

Petitioners management and professional fees were disallowed as these were supported merely by cash
vouchers, which the Courts Division correctly found to have little probative value.

Again, we affirm the foregoing holding of the CTA En Banc for the reasons therein stated. To reiterate,
deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed
against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction
claimed.Tambunting did not discharge its burden of substantiating its claim for deductions due to the
inadequacy of its documentary support of its claim. Its reliance on withholding tax returns, cash vouchers,
lessors certifications, and the contracts of lease was futile because such documents had scant probative
value. As the CTA En Banc succinctly put it, the law required Tambunting to support its claim for deductions
with the corresponding official receipts issued by the service providers concerned.

Regarding proof of loss due to fire, the text of Section 29(d) (2) & (3) of P.D. 1158 (NIRC of 1977) then in
effect, is clear enough, to wit:

(2) By corporation. In the case of a corporation, all losses actually sustained and charged off within the
taxable year and not compensated for by insurance or otherwise.

(3) Proof of loss. In the case of a non-resident alien individual or foreign corporation, the losses
deductible are those actually sustained during the year incurred in business or trade conducted within the
Philippines, and losses actually sustained during the year in transactions entered into for profit in the
Philippines although not connected with their business or trade, when such losses are not compensated
for by insurance or otherwise. The Secretary of Finance, upon recommendation of the Commissioner of
Internal Revenue, is hereby authorized to promulgate rules and regulations prescribing, among other
things, the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty
or from robbery, theft, or embezzlement during the taxable year : Provided, That the time to be so prescribed
in the regulations shall not be less than 30 days nor more than 90 days from the date of the occurrence of
the casualty or robbery, theft, or embezzlement giving rise to the loss.

TAXATION LAW : deductible losses

The implementing rules for deductible losses are found in Revenue Regulations No. 12-77, as follows:

SECTION 1. Nature of deductible losses. Any loss arising from fires, storms or other casualty, and from
robbery, theft or embezzlement, is allowable as a deduction under Section 30 (d) for the taxable year in
which the loss is sustained. The term "casualty" is the complete or partial destruction of property resulting
from an identifiable event of a sudden, unexpected, or unusual nature. It denotes accident, some sudden
invasion by hostile agency, and excludes progressive deterioration through steadily operating cause.
Generally, theft is the criminal appropriation of anothers property for the use of the taker. Embezzlement is
the fraudulent appropriation of another's property by a person to whom it has been entrusted or into whose
hands it has lawfully come.

SECTION 2. Requirements of substantiation. The taxpayer bears the burden of proving and substantiating
his claim for deduction for losses allowed under Section 30 (d) and should comply with the following
substantiation requirements

(a) A declaration of loss which must be filed with the Commissioner of Internal Revenue or his deputies
within a certain period prescribed in these regulations after the occurrence of the casualty, robbery, theft or
embezzlement.

(b) Proof of the elements of the loss claimed, such as the actual nature and occurrence of the event
and amount of the loss.

SECTION 3. Declaration of loss. Within forty-five days after the date of the occurrence of casualty or
robbery, theft or embezzlement, a taxpayer who sustained loss therefrom and who intends to claim the loss
as a deduction for the taxable year in which the loss was sustained shall file a sworn declaration of loss
with the nearest Revenue District Officer. The sworn declaration of loss shall contain, among other things,
the following information

(a) The nature of the event giving rise to the loss and the time of its occurrence;

(b) A description of the damaged property and its location;

(c) The items needed to compute the loss such as cost or other basis of the property; depreciation allowed
or allowable if any; value of property before and after the event; cost of repair;

(d) Amount of insurance or other compensation received or receivable.

Evidence to support these items should be furnished, if available. Examples are purchase contracts and
deeds, receipted bills for improvements, and pictures and competent appraisals of the property before and
after the casualty.

SECTION 4. Proof of loss. (a) In general. The declaration of loss, being one of the essential requirements
of substantiation of a claim for a loss deduction, is subject to verification and does not constitute sufficient
proof of the loss that will justify its deductibility for income tax purposes. Therefore, the mere filing of a
declaration of loss does not automatically entitle the taxpayer to deduct the alleged loss from gross income.
The failure, however, to submit the said declaration of loss within the period prescribed in these regulations
will result in the disallowance of the casualty loss claimed in the taxpayer's income tax return. The taxpayer
should therefore file a declaration of loss and should be prepared to support and substantiate the
information reported in the said declaration with evidence which he should gather immediately or as soon
as possible after the occurrence of the casualty or event causing the loss.
(b) Casualty loss. Photographs of the property as it existed before it was damaged will be helpful in
showing the condition and value of the property prior to the casualty. Photographs taken after the casualty
which show the extent of damage will be helpful in establishing the condition and value of the property after
it was damaged. Photographs showing the condition and value of the property after it was repaired, restored
or replaced may also be helpful.

Furthermore, since the valuation of the property is of extreme importance in determining the amount of loss
sustained, the taxpayer should be prepared to come forward with documentary proofs, such as cancelled
checks, vouchers, receipts and other evidence of cost.

The foregoing evidence should be kept by the taxpayer as part of his tax records and be made available to
a revenue examiner, upon audit of his income tax return and the declaration of loss.

(c) Robbery, theft or embezzlement losses. - To support the deduction for losses arising from robbery,
theft or embezzlement, the taxpayer must prove by credible. evidence all the elements of the loss, the
amount of the loss, and the proper year of the deduction. The taxpayer bears the burden of proof, and no
deduction will be allowed unless he shows the property was stolen, rather than misplaced or lost. A mere
disappearance of property is not enough, nor is a mere error or shortage in accounts.

Failure to report theft or robbery to the police may be a factor against the taxpayer. On the other hand, a
mere report of alleged theft or robbery to the police authorities is not a conclusive proof of the loss arising
therefrom.

In the context of the foregoing rules, the CT A En Bane aptly rejected Tam bunting's claim for deductions
due to losses from fire and theft. The documents it had submitted to support the claim, namely : (a) the
certification from the Bureau of Fire Protection in Malolos; (b) the certification from the Police Station in
Malolos; (c) the accounting entry for the losses; and (d) the list of properties lost, were not enough. What
were required were for Tambunting to submit the sworn declaration of loss mandated by Revenue
Regulations 12-77. Its failure to do so was prejudicial to the claim because the sworn declaration of loss
was necessary to forewarn the BIR that it had suffered a loss whose extent it would be claiming as a
deduction of its tax liability, and thus enable the BIR to conduct its own investigation of the incident leading
to the loss. Indeed, the documents Tambunting submitted to the BIR could not serve the purpose of their
submission without the sworn declaration of loss.

G.R. No. 161759 : July 02, 2014

COMMISSIONER OF CUSTOMS, i>Petitioner,i>v.b>OILINK INTERNATIONAL

CORPORATION,Respondent.

BERSAMIN, J.:

FACTS:

Union Refinery Corporation (URC) was established under the Corporation Code of the Philippines. URC
imported oil products into the country.

Oilink was incorporated for the primary purpose of manufacturing, imporating exporting, buying and selling
or dealing in oil and gas, and their refinements and by-products at wholesale and retail of petroleum. URC
and Oilink had interlocking directors when Oilink started its business.
To expedite the transfer of the operator name for the Customs Bonded Warehouse then operated by URC,
Magleo, the VP and General Manager of URC manifested that URC and Oilink had the same Board of
Directors and that Oilink was 100% owned by URC.

On March 1998, District Collector of the Port of Manila demanded that URC pay the taxes and duties on its
oil imports that had arrived between January 6, 1991 and November 7, 1995, at the port of Lucanin in
Bataan. On April 1998, URC responded by seeking the landed computations and challenged the
inconsistencies of the demands.

On November 1998, the Customs Commissioner formally directed that URC pay. On January 1999, Magleo,
in behalf of URC, denied liability and insisted that only 28, 933,079.20 should be paid by way of compromise.
Commissioner Tan rejected Magleo proposal and directed URC to pay 99,216,580.10. On May, Manuel
Co, URC President, conveyed willingness to pay ony 94,216,580.10 to which the initial amount of
28,264,974 would be taken from the collectibles of Oilink from the National Power Corporation, and the
balance to paid in monthly installments over a period of 3 years to be secured with corresponding post-
dated checks and its future available tax credits.

On July 2, 1999, Commissioner Tan made a final demand for the total liability of 138,060,200.49 upon URC
and Oilink. Oilink protested the assessment on the ground that it was not the party liable for the assessed
deficiency taxes. Comm. Tan stressed that the Bureau of Customs (BoC) would not issue any clearance to
Oilink unless the amount of 138,060,200.49 demanded as Oilink tax liability be first paid.

Oilink appealed to the CTA, seeking nullification of the assessment for having been issued without authority
and for shifting the imposition from URC to Oilink.

CTA rendered its decision declaring as null and void the assessment of the Commissioner of Customs.
Aggrieved, the Commissioner of Customs brought a petition for review in the CA. The CA ruled on the issue
of whether or not Oilink was an alter ego of URC. CA said there was no clear and convincingly established
evidence to support the allegations.

ISSUE: Whether or not Oilink was used by URC to escape its liabiites?

HELD: The Decision of the Court of Appeals is affirmed.

MERCANTILE LAW: piercing of the corporate veil

A corporation, upon coming into existence, is invested by law with a personality separate and distinct from
those of the persons composing it as well as from any other legal entity to which it may be related. The
separate and distinct personality of the corporation is, however, a mere fiction established by law for
convenience and to promote the ends of justice. It may not be used or invoked for ends that subvert the
policy and purpose behind its establishment, or intended by law to which the corporation owes its being.
This is true particularly when the fiction is used to defeat public convenience, to justify wrong, to protect
fraud, to defend crime, to confuse legitimate legal or judicial issues, to perpetrate deception or otherwise to
circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct,
or business conduit for the sole benefit of the stockholders or of another corporate entity. In such instances,
the veil of corporate entity will be pierced or disregarded with reference to the particular transaction involved.

Ini>Philippine National Bank v. Ritratto Group, Inc.,he Court has outlined the following circumstances that
are useful in the determination of whether a subsidiary is a mere instrumentality of the parent-corporation,
viz:
1. Control, not mere majority or complete control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the
violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiff's
legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.

In applying the nstrumentalityor lter egodoctrine, the courts are concerned with reality, not form, and with
how the corporation operated and the individual defendant relationship to the operation. Consequently, the
absence of any one of the foregoing elements disauthorizes the piercing of the corporate veil.

Indeed, the doctrine of piercing the corporate veil has no application here because the Commissioner of
Customs did not establish that Oilink had been set up to avoid the payment of taxes or duties, or for
purposes that would defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. It is also noteworthy
that from the outset the Commissioner of Customs sought to collect the deficiency taxes and duties from
URC, and that it was only on July 2, 1999 when the Commissioner of Customs sent the demand letter
toothRC and Oilink. That was revealing, because the failure of the Commissioner of Customs to pursue the
remedies against Oilink from the outset manifested that its belated pursuit of Oilink was only an afterthought.

Petition for review on certiorari is DENIED.

G.R. No. 158150 : September 10, 2014

AGRIEX CO., LTD.,Petitioner, v. HON. TITUS B. VILLANUEVA, Commissioner,

Bureau of Customs (now replaced by HON. ANTONIO M. BERNARDO), and
HON. BILLY C. BIBIT, Collector of Customs, Port of Subic (now replaced by HON. EMELITO
VILLARUZ),Respondents.

BERSAMIN,J.:

FACTS:

Petitioner, a foreign corporation, entered into a contract of sale with PT. Gloria Mitra of Indonesia and with
R&C Agro Trade, for the sale of 180,000 and 20,000 bags of Thai white rice, respectively. It chartered
chartered the vessel MV Hung Yen to transport the 200,000 bags of Thai white rice to the Subic Free Port
for transshipment to their designated consignees in the Fiji Islands and Indonesia (for the 180,000 bags),
and in Cebu City (for the 20,000 bags).

Due to the delay in the berthing and unloading of the cargo from the vessel, the petitioner, through its agent
in Subic, applied for a vessel exit clearance to allow the MV Hung Yen to sail for the Labuan Free Port in
Malaysia. Despite the issuance of the clearance, the MV Hung Yen did not set sail for the Labuan Free
Port. Upon recommendation by the officers of BOC, Collector Bitbit issued a Warrant of Seizure and
Detention against the 200,000 bags of Thai White Rice. Thus, petitioner fled with the BOC an Urgent Motion
to Quash Warrant of Seizure.

Pending hearing of the seizure proceedings, Collector Bitbit issued a Notice of Sale for the auction of the
bags of rice. Petitioner filed a motion for reconsideration but the same was not acted upon. Consequently,
the petitioner instituted the petition for certiorari and prohibition in the CA with prayer for TRO. Petitioners
contended that respondents had no authority to issue the Notice of Sale as they had no jurisdiction over
the 180,000 bags intended for transshipment.

Accordingly, Commissioner issued a memorandum directing Bitbit not to proceed with the Auction until
further orders from his office. The CA issued a TRO enjoining respondents to desist from holding the
auction. The respondents did not file their Comment vis-vis the petition for certiorari and prohibition. Instead,
they filed a Manifestation and, whereby they prayed for the dismissal of the petition on the ground of
mootness due to Commissioner Villanuevas issuance of the memorandum. The CA denied the
manifestation and motion. Meanwhile, Collector Bibit denied the motion for the quashal of the warrant of
seizure issued against the rice shipments, and ordered their forfeiture in favor of the Government.

Petitioner appealed the ruling of Collector Bitbit to Commissioner Villanueva but the latter affirmed the
forfeiture of the 180,000 bags of Thai white rice. Eventually, the auction sale went on as scheduled. The
CA rendered its assailed judgment on the petition for certiorari and prohibition, denying the petition stating
that the
Commissioner of Customs has the primary jurisdiction to have the goods seized through the issuance of a
warrant of seizure and detention order, which is the situation obtaining in this instant case because when
public respondent Collector Billy C. Bibit as District Collector of Customs, Port of Subic, issued an amended
warrant of seizure and detention order.

Petitioner moved for reconsideration but the CA denied the same. Thus, this petition for review.

ISSUE: Whether or not the CA erred in not declaring the seizure proceedings null and void for lack of
jurisdiction over the rice shipment
HELD: CA Decision Affirmed

Taxation and Remedial Law: The Collector of Customs sitting in seizure and forfeiture proceedings
has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture
of dutiable goods

Verily, the rule is that from the moment imported goods are actually in the possession or control of the
Customs authorities, even if no warrant for seizure or detention had previously been issued by the Collector
of Customs in connection with the seizure and forfeiture proceedings, the BOC acquires exclusive
jurisdiction over such imported goods for the purpose of enforcing the customs laws, subject to appeal to
the Court of Tax Appeals whose decisions are appealable to this Court.

As we have clarified in Commissioner of Customs v. Makasiar, the rule that RTCs have no review powers
oversuch proceedings is anchored upon the policy of placing no unnecessary hindrance on the
government's drive, not only to prevent smuggling and other frauds upon Customs, but more importantly,
to render effective and efficient the collection of import and export duties due the State, which enables the
government to carry out the functions it has been instituted to perform.

The issuance Notice of Sale was merely an incident of the seizure proceedings commenced by the Collector
of Customs. Consequently, the correctness of its issuance was necessarily subsumed to the determination
of the propriety of the seizure proceedings, a matter that was within the exclusive jurisdiction of the Bureau
of Customs.

G.R. No. 160206 : July 15, 2015

M/V "DON MARTIN" VOY 047 AND ITS CARGOES OF 6,500 SACKS OF
IMPORTED RICE, PALACIO SHIPPING, INC., AND LEOPOLDO "JUNIOR"
PAMULAKLAKIN,Petitioners,v.HON. SECRETARY OF FINANCE, BUREAU OF CUSTOMS, AND
THE DISTRICT COLLECTOR OF CAGAYAN DE ORO CITY,Respondents.

BERSAMIN,J.:

FACTS:

Petitioner Palacio Shipping, Inc was the owner of the M/V Don Martin, a vessel of Philippine registry
engaged in coastwise trade.The M/V Don Martin docked at the port of Cagayan de Oro City with its cargo
of 6,500 sacks of rice consigned to petitioner Leopoldo "Junior" Pamulaklakin. According to the petitioners,
the vessel left Calbayog City loaded with the 6,500 sacks of rice purchased in Occidental Mindoro. Based
on an intelligence report to the effect that the cargo of rice being unloaded from the M/V Don Martin had
been smuggled, the Economic Intelligence and Investigation Bureau (EIIB), with the assistance of the
Bureau of Customs (BOC), apprehended and seized the vessel and its entire rice cargo on January 26,
1999. The District Collector of Customs in Cagayan de Oro City then issued a warrant of seizure and
detention pursuant to Section 2301of the Tariff and Customs Code of the Philippines. At the hearing on the
seizure, the petitioners represented that the vessel was a common carrier; and that the 6,500 sacks of rice
had been locally produced and acquired. They submitted several documents to substantiate their claims.

District Collector of Customs Pacasum rendered her ruling whereby she concluded that in the absence of
a showing of lawful entry into the country the 6,500 sacks of rice were of foreign origin and thus subject to
seizure and forfeiture for violation of Section 2530 (f) and (1) No. 1 of the TCCP, as amended; that the
presentation of the supporting documents by the claimants was a strategy to conceal the true nature and
origin of the rice cargo in order to mislead the Customs authorities into believing that the rice was locally
produced and locally purchased. Since the subject rice was established to be of the imported variety and
considering that the said cargoes are not covered by proper import documents, the importation of the same
fall squarely on the above quoted provision of the TCCP; that with respect to the vessel MV "DON MARTIN",
which is a common carrier, no evidence sufficient enough to warrant its forfeiture in favor of the government,
thus, its release was ordered by the District Collector. The BOC Deputy Commissioner upheld the District
Collector.

Meanwhile, the order to release the vessel, being adverse to the interest of the Government, was elevated
to the Secretary of Finance for automatic review pursuant to Section 2313 of the TCCP. Then Secretary of
Finance reversed the order for the release of the vessel based on the finding that the operator of the vessel
is the shipper of the smuggled goods. The petitioners brought a petition for review in the CTA to seek the
nullification of the 3rdIndorsement of the Secretary of Finance, and to obtain the release of the rice shipment
and the vessel. Pending the resolution of the appeal, the CTA ordered the release of the vessel and the
rice cargo upon the petitioners' filing of bonds in favor of the BOC.

Subsequently, the CTA rendered its decision in favor of the petitioners. The respondents filed theirMotion
for Partial Reconsideration,citing the sole ground that the decision by BOC Deputy Commissioner upholding
the forfeiture of the 6,500 sacks of rice had already attained finality; and arguing that the CTA lacked the
jurisdiction to resolve the issue on the forfeiture of the 6,500 sacks of rice because the appeal to the CTA
had been limited to the forfeiture of the vessel. The CA overturned the decision of the Court of Tax Appeals,
and ordered that the sacks of rice and its carrying vessel be deemedforfeited in favor of the Government.

ISSUE: Whether or not the CTA has jurisdiction on the forfeiture of the 6,500 sacks of rice, and whether
the forfeiture of the 6,500 sacks of rice and its carrying vessel is proper?

HELD: The appeal is meritorious.

TAXATION LAW: Jurisdiction of the CTA including matters not raised on appeal

The CTA had jurisdiction to resolve the issue on theforfeiture of the 6,500 sacks of rice and of the vessel.
At the time of the filing on June 21, 1999 in the CTA of the petition for review,the jurisdiction of the CTA
was defined and governed by Section 7 of Republic Act No. 1125 (An Act Creating the Court of Tax
Appeals), which relevantly states that the CTA shall exercise exclusive appellate jurisdiction to review by
appeal, decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges; seizure, detention or release of property affected fines, forfeitures or other penalties
imposed in relation thereto or other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs. Section 2402 of the TCCP also provides that the party aggrieved
by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in
any case of seizure may appeal to the Court of Tax Appeals, in the manner and within the period prescribed
by law and regulations. Conformably with the foregoing provisions, the action of the Collector of Customs
was appealable to the Commissioner of Customs, whose decision was subject to the exclusive appellate
jurisdiction of the CTA, whose decision was in turn appealable to the CA.

Once a court acquires jurisdiction over a case, it has wide discretion to look upon matters which, although
not raised as an issue, would give life and meaning to the law. An appellate court is clothed with ample
authority to review rulings even if they are not assigned as errors in the appeal in these instances: (a)
grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned
as errors on appeal but are evidently plain or clerical errors within contemplation of law;(c) matters not
assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice;
(d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed to raise or which the lower court
ignored;(e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters
not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.

Under the circumstances, the issue on the legality of the forfeiture of the rice was fully raised and submitted
in the CTA, which thus had adequate basis to resolve it. Under Section 2530 (a) and (k)of the TCCP, the
forfeiture of a vehicle, vessel or aircraft is anchored on its being used unlawfully in the transport of
contraband or smuggled articles into or from any Philippine port. Consequently, the determination of the
legality of the forfeiture of the M/V Don Martin was necessarily contingent on whether the customs
authorities had validly and properly seized the shipment of 6,500 sacks of rice on account of the rice being
smuggled. Given this logical correlation, the CTA could not be divested of its jurisdiction to determine the
legality of the forfeiture of the rice.

TAXATION LAW: legality of forfeiture

The 6,500 sacks of rice were not unlawfully imported into the Philippines; hence, there was no legal ground
for the forfeiture of the rice and its carrying vessel.

The CTA observed that in order that a shipment be liable to forfeiture, it must be proved that fraud has been
committed by the consignee/importer to evade the payment of the duties due. This is clear under Section
2530 (f) and (1) of the TCCP. As defined, actual or intentional fraud consist of deception wilfully and
deliberately done or resorted to in order to induce another to give up some right. It must amount to
intentional wrong-doing with the sole object of avoiding the tax. To establish the existence of fraud, theonus
probandirests on the respondents who ordered the forfeiture of the shipment of rice and its carrying vessel.
The Court does not agree with the respondents that the subject 6,500 bags of rice are not covered by proper
import documents, hence should be declared forfeited in favor of the government. The said ratiocination of
respondents did not clearly indicate any actual commission of fraud or any attempt or frustration thereof.
The circumstances presented by the respondents fail to establish the commission of fraud of petitioners.

To warrant forfeiture, Section 2530(a) and (f) of the TCCP requires that the importation must have been
unlawful or prohibited. According to Section 3601 of the TCCP:"[a]ny person who shall fraudulently import
or bring into the Philippines, or assist in so doing, any article, contrary to law, or shall receive, conceal, buy,
sell, or in any manner facilitate the transportation, concealment, or sale of such article after importation,
knowing the same to have been imported contrary to law, shall be guilty of smuggling." To warrant the
forfeiture of the 6,500 sacks of rice and the carrying vessel, there must be a prior showing of probable
cause that the rice cargo was smuggled. The burden of proof is shifted to the claimant. The respondents
should establish probable cause prior to forfeiture by proving: (1) that the importation or exportation of the
6,500 sacks of rice was effected or attempted contrary to law, or that the shipment of the 6,500 sacks of
rice constituted prohibited importation or exportation; and (2) that the vessel was used unlawfully in the
importation or exportation of the rice, or in conveying or transporting the rice, if considered as contraband
or smuggled articles in commercial quantities, into or from any Philippine port or place. A review of the
records discloses that no probable cause existed to justify the forfeiture of the rice cargo and the vessel.

The proof of the rice being smuggled or the subject of illegal importation was patently insufficient. Although
the rice samples from the shipment dominantly bore foreign rice characteristics as compared with the
Philippine varieties, the PRRI and NFA opined that further analysis was necessary to turn up with a more
concrete result. No additional analysis was made. In contrast, the records showed that the 6,500 sacks of
rice were of local origin, having been purchased from Occidental Mindoro from a licensed grains dealer.
Further, under Section 902 of the TCCP, the right to engage in the Philippine coastwise trade was limited
to vessels carrying a certificate of Philippine registry,like the M/V Don Martin.In the absence of any showing
by the respondents that the vessel was licensed to engage in trade with foreign countries and was not
limited to coastwise trade, the inference that the shipment of the 6,500 sacks of rice was transported only
between Philippine ports and not imported from a foreign country became fully warranted. Here, the
importation of rice was not among the prohibited importations provided under Section 101 of the TCCP.

The penalty of forfeiture could be imposed on any vessel engaged in smuggling, provided that the following
conditions were present: (1) The vessel is "used unlawfully in the importation or exportation of articles into
or from" the Philippines; (2) The articles are imported to or exported from "any Philippine port or place,
except a port of entry"; or (3) If the vessel has a capacity of less than 30 tons and is "used in the importation
of articles into any Philippine port or place other than a port of the Sulu Sea, where importation in such
vessel may be authorized by the Commissioner, with the approval of the department head. With the
absence of the first and second conditions, the M/V Don Martin must be released.

TAXATION LAW: period of appeal before the CTA

The decision of BOC Deputy Commissioner on the forfeiture of the 6,500 sacks of rice would become final
and immutable if the petitioners did not appeal it in the CTA within 30 days from receipt thereof. Such period
of appeal was expressly set in Section 11 of R.A. No. 1125, which relevantly declares that any person,
association or corporation adversely affected by a decision or ruling of the Collector of Internal
Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an
appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

The petitioners insisted that they were not furnished a copy of the decision of BOC Deputy Commissioner
Rosqueta; and that they only learned of the decision on June 1, 1999 after the issuance of theIndorsement
of the Secretary of Finance.Considering that the respondents did not dispute such insistence of the
petitioners, and did not present evidence showing the contrary, the 30-day period for filing the appeal in the
CTA commenced to run for the petitioners only after June 1, 1999, which was the date when they
unquestionably acquired notice of the adverse decision. Accordingly, they had until July 1, 1999 within
which to appeal. With their petition for review being filed on June 21, 1999, which was well within the 30-
day period provided in Section 11, their appeal was timely.

Petition is granted.

G.R. No. 210836 : September 1, 2015

CHEVRON PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,
Respondent.

BERSAMIN, J.:

FACTS:

Chevron sold and delivered petroleum products to Clark Development Corporation (CDC), a tax exempt
entity, in the period from August 2007 to December 2007. Chevron did not pass on to CDC the excise taxes
paid on the importation of the petroleum products sold to CDC in taxable year 2007, hence, on June 26,
2009, it filed an administrative claim for tax refund or issuance of tax credit certificate. Considering that
respondent CIR did not act on the administrative claim for tax refund or tax credit, Chevron elevated its
claim to the CTA.

The CTA First Division denied Chevrons judicial claim for tax refund or tax credit. The CTA en banc affirmed
the CTA Divisions decision. Chevron appealed to the Supreme Court (Second Division) but the same was
denied on the ground of failure to show any reversible error on the part of the CTA. On motion for
reconsideration, however, the Court (First Division) took cognizance of the case.

ISSUE: Whether or not Chevron is entitled to the tax refund or tax credit for the excise taxes paid on the
importation of petroleum products to a tax exempt entity like CDC?

HELD: The petition is meritorious.

TAXATION LAW: excise tax on sale of petroleum products

Excise tax is a tax on property. Hence, the exemption from the excise tax expressly granted under Section
135 of the NIRC must be construed in favour of the petroleum products on which the excise tax was initially
imposed. Accordingly, the excise taxes that Chevron paid on its importation of petroleum products
subsequently sold to CDC were illegal and erroneous, and should be credited or refunded to Chevron in
accordance with Section 204 of the NIRC.

Under Section 129 of the NIRC, excise taxes are imposed on two kinds of goods, namely: 1) goods
manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition,
and 2) things imported. Undoubtedly, the excise tax imposed under Section 129 of the NIRC is a tax on
property.

With respect to imported things, Section 131 of the NIRC declares that excise taxes on imported things
shall be paid by the owner or importer to the Customs officers, conformably with the regulations of the
Department of Finance and before the release of such articles from the customs house, unless the imported
things are exempt from excise taxes and the person found to be in possession of the same is other than
those legally entitled to such tax exemption. For this purpose, the statutory taxpayer is the importer of the
things subject to excise tax. Chevron, being the statutory taxpayer, paid the excise taxes on its importation
of the petroleum products.

Pursuant to Section 135 (c), NIRC, petroleum products sold to entities that are by law exempt from direct
and indirect taxes are exempt from excise tax. The phrase which are by law exempt from direct and indirect
taxes describes the entities to whom the petroleum products must be sold in order to render he exemption
operative. Section 135 (c) should thus be construed as an exemption in favour of the petroleum products
on which the excise tax was levied in the first place. The exemption cannot be granted to the buyers (the
tax exempt entities) because they are not under any legal duty to pay the excise tax.

Inasmuch as its liability for the payment of the excise taxes accrued immediately upon importation and prior
to the removal of the petroleum products from the customs house, Chevron was bound to pay, and actually
paid such taxes. But the status of the petroleum products as exempt from the excise taxes would be
confirmed only upon their sale to CDC in 2007. Before then, Chevron did not have any legal basis to claim
the tax refund or the tax credit as to the petroleum products.

It is noteworthy that excise taxes are considered as a kind of indirect tax, the liability for the payment of
which may fall on a person other than whoever actually bears the burden of the tax. Simply put, the statutory
taxpayer may shift the economic burden of the excise tax payment to another-the buyer.

In cases involving excise tax exemptions on petroleum products under Section 135 of the NIRC, the Court
has consistently held that it is the statutory taxpayer who is entitled to claim the tax refund or tax credit. But
the Court has also made clear that this rule does not apply where the law grants the party to whom the
economic burden of the tax is shifted by virtue of an exemption from both direct and indirect taxes. In which
case, such party must be allowed to claim the tax refund or tax credit even if it is not considered as the
statutory taxpayer under the law.
Petition GRANTED.

G.R. No. 195147 : July 11, 2016

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE NATIONAL BANK,

Respondent.

BERSAMIN, J.:

FACTS:

On March 23, 2000, the petitioner issued a Letter of Authority, which PNB received on March 28, 2000. The
letter of authority authorized the examination of PNB's books of accounts and other accounting records in
relation to its internal revenue taxes for taxable year 1997.On May 12, 2003, PNB received the preliminary
assessment notice with details of discrepancies dated March 31, 2003, which indicated that PNB had
deficiency payments of documentary stamp taxes (DST), withholding taxes on compensation, and
expanded withholding taxes for taxable year 1997.

On May 26, 2003, the petitioner issued a formal assessment notice, together with a formal letter of demand
and details of discrepancies, requiring PNB to pay.

PNB immediately paid Assessment No. 97-000067 on May 30, 2003, but filed a protest against Assessment
No. 97-000064. The petitioner denied PNB's protest through the final decision on disputed assessment
dated December 10, 2003. On January 16, 2004, PNB filed its petition for review in the CTA.

On March 3, 2009, the CTA cancelled the assessment for deficiency documentary stamp taxes on
petitioner's Interbank Call Loans for taxable year 1997.

ISSUE: Whether or not the respondent bank's interbank call loans transacted in 1997 were subject to
documentary stamp taxes?

HELD: CTAs decision is affirmed.

TAXATION LAW: interbank call loans

An interbank call loan refers to the cost of borrowings from other resident banks and non-bank financial
institutions with quasi-banking authority that is payable on call or demand. It is transacted primarily to correct
a bank's reserve requirements. Under the Manual of Regulation for Banks (MORB) issued by the Bangko
Sentral ng Pilipinas (BSP), interbank borrowings, which include interbank call loans, shall be evidenced by
deposit substitute instruments containing the minimum features prescribed -under Section X235.3 of the
MORB, except those that are settled through the banks' respective demand deposit accounts with the BSP
via Philpass.

Simply put, an interbank call loan is considered as a deposit substitute transaction by a bank performing
quasi-banking functions to cover reserve deficiencies. It does not fall under the definition of a loan
agreement. Even if it does, the DST liability under Section 180, supra, will only attach if the loan agreement
was signed abroad but the object of the contract is located or used in the Philippines, which was not the
case in regard to PNB's interbank call loans.

We note, however, that for taxation purposes interbank call loans are not considered as deposit substitutes
by express provision of Section 20(y) of the 1977 NIRC, as amended by P.D. No. 1959.
The foregoing notwithstanding, it can readily be discerned from Section 180, supra, that the DST of P0.30
on each P200.00, or fractional part thereof, shall only be imposed on the face value of: (1) loan agreements;
(2) bills of exchange; (3) drafts; (4) instruments and securities issued by the Government or any of its
instrumentalities; (5) certificates of deposits drawing interest; (6) orders for the payment of any sum of
money otherwise than at sight or on demand; and (7) promissory notes, whether negotiable or non-
negotiable, except bank notes issued for circulation, and on each renewal of any such note. Interbank call
loans, although not considered as deposit substitutes, are not expressly included among the taxable
instruments listed in Section 180; hence, they may not be held as taxable.
G.R. No. 190506 : June 13, 2016

CORAL BAY NICKEL CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,

Respondent.

BERSAMIN, J.:

FACTS:

The petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt mixed sulphide,
is a VAT entity registered with the Bureau of Internal Revenue (BIR). It is also registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone Export Enterprise at the Rio Tuba Export Processing Zone
under PEZA Certificate of Registration dated December 27, 2002.

On August 5, 2003, the petitioner filed its Amended VAT Return declaring unutilized input tax from its
domestic purchases of capital goods, other than capital goods and services, for its third and fourth quarters
of 2002 totalling P50,124,086.75. On June 14, 2004, it filed its Application for Tax Credits/Refund.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA on July 8, 2004
by petition for review, praying for the refund of the aforesaid input VAT.

After trial on the merits, the CTA in Division promulgated its decision on March 10, 2008 denying the
petitioner's claim for refund on the ground that the petitioner was not entitled to the refund of alleged
unutilized input VAT following Section 106(A)(2)(a)(5) of the National Internal Revenue Code (NIRC) of
1997, as amended, in relation to Article 77(2) of the Omnibus Investment Code and conformably with the
Cross Border Doctrine.

The petitioner elevated the matter to the CTA En Banc, which also denied the petition through the assailed
decision promulgated on May 29, 2009.

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

HELD: CTAs decision is affirmed.

TAXATION LAW: input vat of a PEZA registered entity.

Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered enterprises was based on their
choice of fiscal incentives, namely: (1) if the PEZAregistered enterprise chose the 5% preferential tax on its
gross income in lieu of all taxes, as provided by Republic Act No. 7916, as amended, then it was VAT-
exempt; and (2) if the PEZA-registered enterprise availed itself of the income tax holiday under Executive
Order No. 226, as amended, it was subject to VAT at 10% (now, 12%). Based on this old rule, Toshiba
allowed the claim for refund or credit on the part of Toshiba Information Equipment (Phils) Inc.

This is not true with the petitioner. With the issuance of RMC 74-99, the distinction under the old rule was
disregarded and the new circular took into consideration the two important principles of the Philippine VAT
system: the Cross Border Doctrine and the Destination Principle.

The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan. Its plant site was
specifically located inside the Rio Tuba Export Processing Zone a special economic zone (ECOZONE)
created by Proclamation No. 304, Series of 2002, in relation to Republic Act No. 7916. As such, the
purchases of goods and services by the petitioner that were destined for consumption within the ECOZONE
should be free of VAT; hence, no input VAT should then be paid on such purchases, rendering the petitioner
not entitled to claim a tax refund or credit. Verily, if the petitioner had paid the input VAT, the CTA was
correct in holding that the petitioner's proper recourse was not against the Government but against the
seller who had shifted to it the output VAT following RMC No. 42-03.

We should also take into consideration the nature of VAT as an indirect tax. Although the seller is statutorily
liable for the payment of VAT, the amount of the tax is allowed to be shifted or passed on to the buyejr.
However, reporting and remittance of the VAT paid to the BIR remained to be the seller/supplier's obligation.
Hence, the proper party to seek the tax refund or credit should be the suppliers, not the petitioner.

In view of the foregoing considerations, the Court must uphold the rejection of the appeal of the petitioner.
This Court has repeatedly pointed out that a claim for tax refund or credit is similar to a tax exemption and
should be strictly construed against the taxpayer. The burden of proof to show that he is ultimately entitled
to the grant of such tax refund or credit rests on the taxpayer. Sadly, the petitioner has not discharged its
burden.

G.R. No. 215950 : June 20, 2016

TRIDHARMA MARKETING CORPORATION, Petitioner, v. COURT OF TAX

APPEALS, SECOND DIVISION, AND THE COMMISSIONER OF INTERNAL REVENUE,
Respondents.

BERSAMIN, J.:

FACTS:

On August 16, 2013, the petitioner received a Preliminary Assessment Notice (PAN) from the BIR assessing
it with various deficiency taxes - income tax (IT), valueadded tax (VAT), withholding tax on compensation
(WTC), expanded withholding tax (EWT) and documentary stamp tax (DST) - totalling P4,640,394,039.97,
inclusive of surcharge and interest.

On September 23, 2013, the petitioner received from the BIR a Formal Letter of Demand assessing it with
deficiency taxes for the taxable year ending December 31, 2010 amounting to P4,697,696,275.25, inclusive
of surcharge and interest. It filed a protest against the formal letter of demand. Respondent CIR required
the petitioner to submit additional documents in support of its protest, and the petitioner complied.

On February 28, 2014, the petitioner received a Final Decision on Disputed Assessment worth
P4,473,228,667.87.

The petitioner filed with the CIR a protest through a Request for Reconsideration. However, the CIR
rendered a decision dated May 26, 2014 denying the request.

Prior to the CIR's decision, the petitioner paid the assessments corresponding to the WTC, DST and EWT
deficiency assessments, inclusive of interest, amounting to P5,836,786.10. It likewise reiterated its offer to
compromise the alleged deficiency assessments on IT and VAT.
The petitioner appealed the CIR's decision to the CTA via its so-called Petition for Review with Motion to
Suspend Collection of Tax (CTA Case No. 8833).

The CTA Second Division issued the first assailed resolution on July 8, 2014, stating that petitioner's
Financial Statements and Independent Auditor's Report for December 31, 2013 and 2012, as identified by
its witness, indicate that the company's total equity for the year 2012 and 2013 was P955,095,301 and
P916,768,767, respectively. To yield to respondent's alleged assessment and collection in the amount of
P4,467,391,881.76 would definitely jeopardize the normal business operations of petitioner thereby causing
irreparable injury to its ability to continue.

Considering petitioner's willingness to post bond in such reasonable amount as may be fixed by the CTA,
pursuant to Section 11 of R.A. No. 1125, as amended, in the interest of substantial justice, it granted
petitioner's Motion for Suspension of Collection of Tax, provided, however, that petitioner deposits an
acceptable surety bond equivalent to 150% of the assessment or P6,701,087,822.64 within fifteen (15)
days from notice hereof.

The petitioner filed its Motion for Partial Reconsideration praying for the reduction of the bond to an amount
it could obtain.

On December 22, 2014, the CTA in Division issued its second assailed resolution reducing the amount of
the petitioner's surety bond to P4,467,391,881.76, which was the equivalent of the BIR's deficiency
assessment for IT and VAT.

Hence, the petitioner has commenced this special civil action for certiorari.

The Court issued a TRO enjoining the implementation of the CTA resolutions and the collection of the
deficiency assessments.

ISSUE: Did the CTA in Division commit grave abuse of discretion in requiring the petitioner to file a surety
bond despite the supposedly patent illegality of the assessment that was beyond the petitioner's net worth
but equivalent to the deficiency assessment for IT and VAT?

HELD: Court of Tax Appeals Resolutions requiring the petitioner to post a surety bond of P4,467,391,881.76
as a condition to restrain the collection of the deficiency taxes assessed against are is annulled and set
aside.

TAXATION LAW: requirement of bond

Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, states that when in the opinion of the CTA the
collection by the BIR or the Commissioner of Customs may jeopardize the interest of the Government and/or
the taxpayer the CTA at any stage of the proceeding may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount.

As shown in its audited financial statements for the year ending December 31, 2013, petitioners net worth
only amounted to P916,768,767.00, making the amount of P4,467,391,881.76 fixed for the bond nearly five
times greater than such net worth.
The surety bond amounting to P4,467,391,881.76 imposed by the CTA was within the parameters
delineated in Section 11 of R.A. 1125, as amended. The Court holds, however, that the CTA in Division
gravely abused its discretion because it fixed the amount of the bond at nearly five times the net worth of
the petitioner without conducting a preliminary hearing to ascertain whether there were grounds to suspend
the collection of the deficiency assessment on the ground that such collection would jeopardize the interests
of the taxpayer. Although the amount of P4,467,391,881.76 was itself the amount of the assessment, it
behoved the CTA in Division to consider other factors recognized by the law itself towards suspending the
collection of the assessment, like whether or not the assessment would jeopardize the interest of the
taxpayer, or whether the means adopted by the CIR in determining the liability of the taxpayer was legal
and valid. Simply prescribing such high amount of the bond like the initial 150% of the deficiency
assessment of P4,467,391,881.76 (or P6,701,087,822.64), or later on even reducing the amount of the
bond to equal the deficiency assessment would practically deny to the petitioner the meaningful opportunity
to contest the validity of the assessments, and would likely even impoverish it as to force it out of business.

At this juncture, it becomes imperative to reiterate the principle that the power to tax is not the power to
destroy. It should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly, lest the tax collector "kill the hen that lays the golden egg."
(Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, G.R. No. 167330)

Moreover, Section 11 of R.A. 1125, as amended, indicates that the requirement of the bond as a condition
precedent to suspension of the collection applies only in cases where the processes by which the collection
sought to be made by means thereof are carried out in consonance with the law, not when the processes
are in plain violation of the law that they have to be suspended for jeopardizing the interests of the taxpayer.

REMEDIAL LAW: question of fact

The petitioner submits that the patent illegality of the assessment was sufficient ground to dispense with
the bond requirement because the CIR was essentially taxing its sales revenues without allowing the
deduction of the cost of goods sold by virtue of the CIR refusing to consider evidence showing that it had
really incurred costs. However, the Court is not in the position to rule on the correctness of the deficiency
assessment, which is a matter still pending in the CTA.

The Court deems it best to remand the matter involving the petitioner's plea against the correctness of the
deficiency assessment to the CTA for the conduct of a preliminary hearing in order to determine whether
the required surety bond should be dispensed with or reduced. Absent any evidence and preliminary
determination by the CTA, the Court cannot make any factual finding and settle the issue of whether the
petitioners should comply with the security requirement under Section 11, R.A. No. 1125. The determination
of whether the methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for
being patently in violation of the law is a question of fact that calls for the reception of evidence which
would serve as basis. In this regard, the CTA is in a better position to initiate this given its time and
resources. The remand of the case to the CTA on this question is, therefore, more sensible and proper. For
the Court to make any finding of fact on this point would be premature. As stated earlier, there is no
evidentiary basis. Moreover, any finding by the Court would pre-empt the CTA from properly exercising
its jurisdiction and settle the main issues presented before it. (Pacquiao v. Court of Tax Appeals, First
Division, and the Commissioner of Internal Revenue, G.R. No. 213394)

Consequently, the remand to the CTA of the questions involving the suspension of collection and the correct
amount of the bond is the proper course of action.
Petition for certiorari is GRANTED. The Court of Tax Appeals, Second Division, is REQUIRED to
forthwith conduct a preliminary hearing in CTA Case No. 8833 to determine and rule on whether the
bond required under Section 11 of Republic Act No. 1125 may be dispensed with or reduced to
restrain the collection of the deficiency taxes assessed against the petitioner.