1

RESPONDENT

On February 25, 1992, respondent Commissioner filed an

G.R. No. 119286 October 13, 2004
Answer and by way of special and/or affirmative defenses
averred the following:
a) the petition states no cause of action for failure to allege
PASEO REALTY & DEVELOPMENT the dates when the taxes sought to be refunded were paid;
CORPORATION, petitioner, vs. COURT OF b) petitioner’s claim for refund is still under investigation
APPEALS, COURT OF TAX APPEALS and by respondent Commissioner;
COMMISSIONER OF INTERNAL REVENUE, c) the taxes claimed are deemed to have been paid and
collected in accordance with law and existing pertinent
rules and regulations;
d) petitioner failed to allege that it is entitled to the refund
or deductions claimed;
e) petitioner’s contention that it has available tax credit for
Date :October 13, 2004
the current and prior year is gratuitous and does not ipso
facto warrant the refund;
Issue : The issue is in this case, the Court is called to f) petitioner failed to show that it has complied with the
resolve the question of whether alleged excess taxes paid provision of Section 230 in relation to Section 204 of the
by a corporation during a taxable year should be refunded Tax Code.
or credited against its tax liabilities for the succeeding year.
FIRST RULING
Context : Paseo Realty and Development Corporation, a
domestic corporation engaged in the lease of two parcels of After trial, the respondent Court rendered a decision
land at Paseo de Roxas in Makati City, the Court of ordering respondent Commissioner "to refund in favor of
Appeals dismissing its petition for denied its claim for petitioner the amount of ₱54,104.00, representing excess
refund. creditable withholding taxes paid for January to July1989."

Fact Respondent Commissioner moved for reconsideration of

On April 16, 1990 Paseo Realty and Development the decision, alleging that the ₱54,104.00 ordered to be
Corporation, filed its Income Tax Return on the refunded "has already been included and is part and
calendar year 1989 declaring a gross income of parcel of the ₱172,477.00 which petitioner automatically
₱1,855,000.00, deductions of ₱1,775,991.00, net income applied as tax credit for the succeeding taxable year
of ₱79,009.00, an income tax due thereon in the amount 1990."
of ₱27,653.00, prior year’s excess credit of ₱146,026.00,
and creditable taxes withheld in 1989 of ₱54,104.00 or a In a resolution dated October 21, 1993
total tax credit of ₱200,130.00 and credit balance of
₱172,477.00. Respondent Court reconsidered its decision of July 29,
1993 and dismissed the petition for review, stating that it
On November 14, 1991,Paseo Realty and Development has "overlooked the fact that the petitioner’s 1989
Corporation, filed with respondent a claim for "the refund Corporate Income Tax Return (Exh. "A") indicated that
of excess creditable withholding and income taxes for the the amount of ₱54,104.00 subject of petitioner’s claim for
years 1989 and 1990 in the aggregate amount of refund has already been included as part and parcel of the
₱147,036.15. ₱172,477.00 which the petitioner automatically applied as
tax credit for the succeeding taxable year 1990."

On December 27, 1991 alleging that the prescriptive period

Motion for Reconsideration which was denied by
for refunds for 1989 would expire on December 30, 1991
respondent Court on March 10, 1994
and that it was necessary to interrupt the prescriptive
Petitioner filed a Petition for Review with the Court of
period, petitioner filed with the respondent Court of Tax
Appeals
Appeals a petition for review praying for the refund of
"₱54,104.00 representing creditable taxes withheld from
ISSUE
income payments of petitioner for the calendar year ending
December 31, 1989
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whether petitioner is entitled to a refund of ₱54,104.00 matter; and that the affirmation of the questioned Decision
representing creditable taxes withheld in 1989 and whether would lead to absurd results in the manner of claiming
petitioner refunds or in the application of prior years’ excess tax
credits.

The appellate court held thatPaseo Realty and Development (OSG) filed a Comment
Corporation, is not entitled to a refund because it had
already elected to apply the total amount of ₱172,447.00, On behalf of respondents asserting that the claimed refund
which includes the ₱54,104.00 refund claimed, against its of ₱54,104.00 was, by petitioner’s election in its Corporate
income tax liability for 1990. The appellate court Annual Income Tax Return for 1989, to be applied against
elucidated on the reason for its dismissal of petitioner’s its tax liability for 1990. Not having submitted its tax return
claim for refund, thus: for 1990 to show whether the said amount was indeed
applied against its tax liability for 1990, petitioner’s
In the instant case, it appears that when petitioner filed its election in its tax return stands. The OSG also contends that
income tax return for the year 1989, it filled up the box petitioner’s election to apply its overpaid income tax as tax
stating that the total amount of ₱172,477.00 shall be credit against its tax liabilities for the succeeding taxable
applied against its income tax liabilities for the succeeding year is mandatory and irrevocable.
taxable year.

Petitioner did not specify in its return the amount to be On September 2, 1997, petitioner filed a Reply
refunded and the amount to be applied as tax credit to the
succeeding taxable year, but merely marked an "x" to the dated August 31, 1996 insisting that the issue in this case
box indicating "to be applied as tax credit to the is not whether the amount of ₱54,104.00 was included as
succeeding taxable year." Unlike what petitioner had done tax credit to be applied against its 1990 income tax liability
when it filed its income tax return for the year 1988, it but whether the same amount was actually applied as
specifically stated that out of the ₱146,026.00 the entire tax credit for 1990. Petitioner claims that there is no need
refundable amount, only ₱64,623.00 will be made available to show that the amount of ₱54,104.00 had not been
as tax credit, while the amount of ₱81,403.00 will be automatically applied against its 1990 income tax liability
refunded. because the appellate court’s decision in C.A.-G.R. Sp. No.
32890 clearly held that petitioner charged its 1990 income
In its 1989 income tax return, petitioner filled up the box tax liability against its tax credit for 1988 and not 1989.
"to be applied as tax credit to succeeding taxable year," Petitioner also disputes the OSG’s assertion that the
which signified that instead of refund, petitioner will apply taxpayer’s election as to the application of excess taxes is
the total amount of ₱172,447.00, which includes the irrevocable averring that there is nothing in the law that
amount of ₱54,104.00 sought to be refunded, as tax credit prohibits a taxpayer from changing its mind especially
for its tax liabilities in 1990. Thus, there is really nothing if subsequent events leave the latter no choice but to
left to be refunded to petitioner for the year 1989. To change its election.
grant petitioner’s claim for refund is tantamount to
granting twice the refund herein sought to be refunded, to The OSG filed a Rejoinder
the prejudice of the Government.
dated March 5, 1997 stating that petitioner’s 1988 tax
The Court of Appeals denied petitioner’s Motion for return shows a prior year’s excess credit of ₱81,403.00,
Reconsideration creditable tax withheld of ₱92,750.00 and tax due of
₱27,127.00. Petitioner indicated that the prior year’s excess
Petitioner thus filed the instant Petition for Review credit of ₱81,403.00 was to be refunded, while the
arguing that the evidence presented before the lower courts remaining amount of ₱64,623.00 (₱92,750.00 -
conclusively shows that it did not apply the ₱54,104.00 to ₱27,127.00) shall be considered as tax credit for 1989.
its 1990 income tax liability However, in its 1989 tax return, petitioner included the
₱81,403.00 which had already been segregated for refund
that the Decision subject of the instant petition is in the computation of its excess credit, and specified that
inconsistent with a final decision the full amount of ₱172,479.00* (₱81,403.00 + ₱64,623.00
+ ₱54,104.00** - ₱27,653.00***) be considered as its tax
of the Sixteenth Division of the appellate court in C.A.- credit for 1990. Considering that it had obtained a
G.R. Sp. No. 32890 involving the same parties and subject favorable ruling for the refund of its excess credit for 1988
 3

in CA-G.R. SP. No. 32890, its remaining tax credit for ₱172,477.00
Amount indicated in petitioner’s 1989 tax return to be applied as tax credit for the
1989 should be the excess credit to be applied against its succeeding taxable year
1990 tax liability. In fine, the OSG argues that by its own
- 25,623.00
election, petitioner can no longer ask for a refund of its Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300)
creditable taxes withheld in 1989 as the same had been
₱146,854.00
applied against its 1990 tax due. Balance as of April 16, 1990

- 59,510.00
Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890)
In its Resolution
₱87,344.00
Balance as of January 2, 1991
dated July 16, 1997, the Court gave due course to the
- 33,240.00
petition and required the parties to simultaneously file their Income tax liability for calendar year 1990 applied as of April 15, 1991
respective memoranda within 30 days from notice. In ₱54,104.00
compliance with this directive, petitioner submitted its Balance as of April 15, 1991 now subject of the instant claim for refund
Memorandum16 dated September 18, 1997 in due time,
while the OSG filed its Memorandum17 dated April 27, Other than its own bare allegations, however, petitioner
1998 only on April 29, 1998 after several extensions. offers no proof to the effect that its creditable tax of
₱172,477.00 was applied as claimed above. Instead, it
anchors its assertion of entitlement to refund on an alleged
The petition must be denied. finding in C.A.-G.R. Sp. No. 32890

As a matter of principle, it is not advisable for this Court to involving the same parties to the effect that petitioner
set aside the conclusion reached by an agency such as the charged its 1990 income tax liability to its tax credit for
CTA which is, by the very nature of its functions, dedicated 1988 and not its 1989 tax credit. Hence, its excess
exclusively to the study and consideration of tax problems creditable taxes withheld of ₱54,104.00 for 1989 was left
and has necessarily developed an expertise on the subject, untouched and may be refunded.
unless there has been an abuse or improvident exercise of
its authority. Note should be taken, however, that nowhere in the case
referred to by petitioner did the Court of Appeals make a
This interdiction finds particular application in this case categorical determination that petitioner’s tax liability for
since the CTA, after careful consideration of the merits of 1990 was applied against its 1988 tax credit. The statement
the Commissioner of Internal Revenue’s motion for adverted to by petitioner was actually presented in the
reconsideration, reconsidered its earlier decision which appellate court’s decision in CA-G.R. Sp No. 32890 as part
ordered the latter to refund the amount of ₱54,104.00 to of petitioner’s own narration of facts. The pertinent
petitioner. Its resolution cannot be successfully assailed portion of the decision reads:
based, as it is, on the pertinent laws as applied to the
facts. It would appear from petitioner’s submission as follows:

Petitioner’s 1989 tax return indicates an aggregate x x x since it has already applied to its prior year’s
creditable tax of ₱172,477.00, representing its 1988 excess credit of ₱81,403.00 (which petitioner wanted
excess credit of ₱146,026.00 and 1989 creditable tax of refunded when it filed its 1988 Income Tax Return on April
₱54,104.00 less tax due for 1989, which it elected to apply 14, 1989) the income tax liability for 1988 of ₱28,127.00
as tax and the income tax liability for 1989 of ₱27,653.00, leaving
a balance refundable of ₱25,623.00 subject of C.T.A. Case
credit for the succeeding taxable year. No. 4439, the ₱92,750.00 (₱64,623.00 plus ₱28,127.00,
since this second amount was already applied to the amount
According to petitioner, it successively utilized this amount refundable of ₱81,403.00) should be the refundable
when it obtained refunds in CTA Case No. 4439 (C.A.- amount. But since the taxpayer again used part of it to
G.R. Sp. No. 32300) and CTA Case No. 4528 (C.A.-G.R. satisfy its income tax liability of ₱33,240.00 for 1990, the
Sp. No. 32890), and applied its 1990 tax liability, leaving a amount refundable was ₱59,510.00, which is the amount
balance of ₱54,104.00, the amount subject of the instant prayed for in the claim for refund and also in the petitioner
claim for refund. (sic) for review.
Represented mathematically, petitioner accounts for its
claim in this wise:
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That the present claim for refund already consolidates its its annual tax return for 1990 was submitted in support of
claims for refund for 1988, 1989, and 1990, when it filed a its claim. Yet, the petitioner's tax return for 1990 is
claim for refund of ₱59,510.00 in this case (CTA Case No. nowhere to be found in the records of this case.
4528). Hence, the present claim should be resolved
together with the previous claims.
Had petitioner presented its 1990 tax return in refutation of
The confusion as to petitioner’s entitlement to a refund respondent Commissioner’s allegation that it did not
could altogether have been avoided had it presented its tax present evidence to prove that its claimed refund had
return for 1990. Such return would have shown whether already been automatically credited against its 1990 tax
petitioner actually applied its 1989 tax credit of liability, the CTA would not have reconsidered its earlier
₱172,477.00, which includes the ₱54,104.00 creditable Decision. As it is, the absence of petitioner’s 1990 tax
taxes withheld for 1989 subject of the instant claim for return was the principal basis of the CTA’s Resolution
refund, against its 1990 tax liability as it had elected in its reconsidering its earlier Decision to grant petitioner’s claim
1989 return, or at least, whether petitioner’s tax credit of for refund.
₱172,477.00 was applied to its approved refunds as it
claims. Petitioner could even still have attached a copy of its 1990
tax return to its petition for review before the Court of
The return would also have shown whether there remained Appeals. The appellate court, being a trier of facts, is
an excess credit refundable to petitioner after deducting authorized to receive it in evidence and would likely have
its tax liability for 1990. As it is, we only have petitioner’s taken it into account in its disposition of the petition.
allegation that its tax due for 1990 was ₱33,240.00 and that
this was applied against its remaining tax credits using its In BPI-Family Savings Bank v. Court of Appeals, although
own "first in, first out" method of computation. petitioner failed to present its 1990 tax return, it presented
other evidence to prove its claim that it did not apply and
It would have been different had petitioner not included could not have applied the amount in dispute as tax credit.
the ₱54,104.00 creditable taxes for 1989 in the total Importantly, petitioner therein attached a copy of its final
amount it elected to apply against its 1990 tax liabilities. adjustment return for 1990 to its motion for reconsideration
Then, all that would have been required of petitioner are: before the CTA buttressing its claim that it incurred a net
proof that it filed a claim for refund within the two (2)-year loss and is thus entitled to refund. Considering this fact, the
prescriptive period provided under Section 230 of the Court held that there is no reason for the BIR to withhold
NIRC; evidence that the income upon which the taxes the tax refund.
were withheld was included in its return; and to establish
the fact of withholding by a copy of the statement (BIR
Form No. 1743.1) issued by the payor In this case, petitioner’s failure to present sufficient
evidence to prove its claim for refund is fatal to its
to the payee showing the amount paid and the amount of cause. After all, it is axiomatic that a claimant has the
tax withheld therefrom. However, since petitioner opted to burden of proof to establish the factual basis of his or her
apply its aggregate excess credits as tax credit for 1990, it claim for tax credit or refund. Tax refunds, like tax
was incumbent upon it to present its tax return for 1990 to exemptions, are construed strictly against the taxpayer.
show that the claimed refund had not been automatically
credited and applied to its 1990 tax liabilities. Section 69, Chapter IX, Title II of the National Internal
Revenue Code of the Philippines (NIRC) provides
The grant of a refund is founded on the assumption that the
tax return is valid, i.e., that the facts stated therein are true Sec. 69. Final Adjustment Return.—Every corporation
and correct. Without the tax return, it is an error to grant a liable to tax under Section 24 shall file a final adjustment
refund since it would be virtually impossible to determine return covering the total net income for the preceding
whether the proper taxes have been assessed and paid. calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to
Why the petitioner failed to present such a vital piece of the total tax due on the entire taxable net income of that
evidence confounds the Court. Petitioner could very well year the corporation shall either:
have attached a copy of its final adjustment return for
1990 when it filed its claim for refund on November 13, (a) Pay the excess tax still due; or
1991. Annex "B" of its Petition for Review dated
December 26, 1991 filed with the CTA, in fact, states that
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(b) Be refunded the excess amount paid, as the case may for a given taxable year is limited to the succeeding taxable
be. year only.

In case the corporation is entitled to a refund of the In this case, petitioner included its 1988 excess credit of
excess estimated quarterly income taxes paid, the ₱146,026.00 in the computation of its total excess credit for
refundable amount shown on its final adjustment 1989. It indicated this amount, plus the 1989 creditable
return may be credited against the estimated quarterly taxes withheld of ₱54,104.00 or a total of ₱172,477.00, as
income tax liabilities for the taxable quarters of the its total excess credit to be applied as tax credit for 1990.
succeeding taxable year. By its own disclosure, petitioner effectively combined its
1988 and 1989 tax credits and applied its 1990 tax due of
₱33,240.00 against the total, and not against its creditable
Revenue Regulation No. 10-77 of the Bureau of Internal taxes for 1989 only as allowed by Section 69. This is a
Revenue clarifies: clear admission that petitioner’s 1988 tax credit was
incorrectly and illegally applied against its 1990 tax
SEC. 7. Filing of final or adjustment return and final liabilities.
payment of income tax. – A final or an adjustment return
on B.I.R. Form No. 1702 covering the total taxable income Parenthetically, while a taxpayer is given the choice
of the corporation for the preceding calendar or fiscal year whether to claim for refund or have its excess taxes applied
shall be filed on or before the 15th day of the fourth month as tax credit for the succeeding taxable year, such election
following the close of the calendar or fiscal year. The is not final. Prior verification and approval by the
return shall include all the items of gross income and Commissioner of Internal Revenue is required. The
deductions for the taxable year. The amount of income tax availment of the remedy of tax credit is not absolute and
to be paid shall be the balance of the total income tax mandatory. It does not confer an absolute right on the
shown on the final or adjustment return after deducting taxpayer to avail of the tax credit scheme if it so chooses.
therefrom the total quarterly income taxes paid during the Neither does it impose a duty on the part of the government
preceding first three quarters of the same calendar or fiscal to sit back and allow an important facet of tax collection to
year. be at the sole control and discretion of the taxpayer.

Any excess of the total quarterly payments over the Contrary to petitioner’s assertion however, the taxpayer’s
actual income tax computed and shown in the election, signified by the ticking of boxes in Item 10 of BIR
adjustment or final corporate income tax return shall Form No. 1702, is not a mere technical exercise. It aids in
either (a) be refunded to the corporation, or (b) may be the proper management of claims for refund or tax credit by
credited against the estimated quarterly income tax leading tax authorities to the direction they should take in
liabilities for the quarters of the succeeding taxable addressing the claim.
year. The corporation must signify in its annual
corporate adjustment return its intention whether to The amendment of Section 69 by what is now Section 76
request for refund of the overpaid income tax or claim of Republic Act No. 842431 emphasizes that it is
for automatic credit to be applied against its income tax imperative to indicate in the tax return or the final
liabilities for the quarters of the succeeding taxable year adjustment return whether a tax credit or refund is sought
by filling up the appropriate box on the corporate tax by making the taxpayer’s choice irrevocable. Section 76
return (B.I.R. Form No. 1702). provides

SEC. 76. Final Adjustment Return.—Every corporation

ALMOST RULING liable to tax under Section 27 shall file a final adjustment
return covering the total taxable income for the preceding
As clearly shown from the above-quoted provisions, in case calendar or fiscal year. If the sum of the quarterly tax
the corporation is entitled to a refund of the excess payments made during the said taxable year is not equal to
estimated quarterly income taxes paid, the refundable the total tax due on the entire taxable income of that year,
amount shown on its final adjustment return may be the corporation shall either:
credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding year. A) Pay the balance of the tax still due; or
The carrying forward of any excess or overpaid income tax
(B) Carry-over the excess credit; or
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clearly shown and be based on language in the law too

(C) Be credited or refunded with the excess amount paid, as plain to be mistaken. Elsewise stated, taxation is the rule,
the case may be. exemption therefrom is the exception.

In case the corporation is entitled to a tax credit or refund

of the excess estimated quarterly income taxes paid, the
excess amount shown on its final adjustment return
may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of
the succeeding taxable years. Once the option to carry-over
and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered
irrevocable for that taxable period and no application for
cash refund or issuance of a tax credit certificate shall be
allowed therefore.

As clearly seen from this provision, the taxpayer is allowed

three (3) options

If the sum of its quarterly tax payments made during the

taxable year is not equal to the total tax due for that year:

(a) pay the balance of the tax still due;

(b) carry-over the excess credit; or

(c) be credited or refunded the amount paid. If the taxpayer
has paid excess quarterly income taxes, it may be entitled
to a tax credit or refund as shown in its final adjustment
return which may be carried over and applied against the
estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable years. However, once the
taxpayer has exercised the option to carry-over and to apply
the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years, such
option is irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit
certificate shall be allowed.

Had this provision been in effect when the present claim for
refund was filed, petitioner’s excess credits for 1988 could
have been properly applied to its 1990 tax liabilities.
Unfortunately for petitioner, this is not the case.

Taxation is a destructive power which interferes with the

personal and property rights of the people and takes from
them a portion of their property for the support of the
government. And since taxes are what we pay for civilized
society, or are the lifeblood of the nation, the law frowns
against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A
claim of refund or exemption from tax payments must be
 7

The above chronology shows that the petition was filed

seasonably.

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

The proven fact is that four days after the private
respondent received the petitioner's notice of assessment it
COMMISSIONER OF INTERNAL REVENUE, filed its letter of protest. This was apparently not taken into
petitioner, vs. ALGUE, INC., and THE COURT OF account before the warrant of distraint and levy was issued;
TAX APPEALS, respondents. indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a
“ Taxes are the lifeblood of the government and so should
copy of the protest that it was, if at all, considered by the
be collected without unnecessary hindrance On the other
tax authorities. During the intervening period, the warrant
hand, such collection should be made in accordance with
was premature and could therefore not be served.
law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the
As the Court of Tax Appeals correctly noted the protest
apparently conflicting interests of the authorities and the
filed by private respondent was not pro forma and was
taxpayers so that the real purpose of taxation, which is the
based on strong legal considerations. It thus had the effect
promotion of the common good, may be achieved.”
of suspending on January 18, 1965, when it was filed, the
Lifeblood Doctrine
reglementary period which started on the date the
assessment was received, viz., January 14, 1965. The
period started running again only on April 7, 1965, when
MAIN ISSUE
the private respondent was definitely informed of the
The main issue in this case is whether or not the Collector
implied rejection of the said protest and the warrant was
of Internal Revenue correctly disallowed the P75,000.00
finally served on it. Hence, when the appeal was filed on
deduction claimed by private respondent Algue as
April 23, 1965, only 20 days of the reglementary period
legitimate business expenses in its income tax returns.
had been consumed.
Now for the substantive question.
FACTS
The petitioner contends that the claimed deduction of
On January 14, 1965, the private respondent, a domestic
P75,000.00 was properly disallowed because it was not an
corporation engaged in engineering, construction and other
ordinary reasonable or necessary business expense.
allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as
The Court of Tax Appeals had seen it differently
delinquency income taxes for the years 1958 and 1959.
Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual
On January 18, 1965, Algue flied for reconsideration,On
services rendered.
March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel,
The payment was in the form of promotional fees. These
Atty. Alberto Guevara, Jr., who refused to receive it on the
were collected by the Payees for their work in the creation
ground of the pending protest.
of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of
A search of the protest in the dockets of the case proved
the Philippine Sugar Estate Development Company.
fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service
Parenthetically, it may be observed that the petitioner had
of the warrant.
Originally claimed these promotional fees to be personal
holding company incomebut later conformed to the
On April 7, 1965, Atty. Guevara was finally informed that
decision of the respondent court rejecting this assertion.
the BIR was not taking any action on the protest and it was
only then that he accepted the warrant of distraint and levy
earlier sought to be served. Sixteen days later, on April 23,
In fact, as the said court found, the amount was earned
1965, Algue filed a petition for review of the decision of
through the joint efforts of the persons among whom it was
the Commissioner of Internal Revenue with the Court
distributed It has been established that the Philippine Sugar
of Tax Appeals
Estate Development Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil
 8

manufacturing process. Pursuant to such authority, Alberto who did practically everything, from the formation of the
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, Vegetable Oil Investment Corporation to the actual
O'Farell, and Pablo Sanchez, worked for the formation of purchase by it of the Sugar Estate properties. This finding
the Vegetable Oil Investment Corporation, inducing other of the respondent court is in accord with the following
persons to invest in it provision of the Tax Code:

Ultimately, after its incorporation largely through the

promotion of the said persons, this new corporation SEC. 30. Deductions from gross income.--In computing net
purchased the PSEDC properties. income there shall be allowed as deductions —
For this sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the (a) Expenses:
P75,000.00 promotional fees were paid to the aforenamed
individuals. (1) In general.--All the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for
There is no dispute that the payees duly reported their salaries or other compensation for personal services
respective shares of the fees in their income tax returns and actually rendered; .
paid the corresponding taxes thereon.

The Court of Tax Appeals also found, after examining the It is worth noting at this point that most of the payees were
evidence, that no distribution of dividends was involved. not in the regular employ of Algue nor were they its
controlling stockholders
The petitioner claims that these payments are fictitious
because most of the payees are members of the same family
in control of Algue. It is argued that no indication was
made as to how such payments were made, whether by The Solicitor General is correct when he says that the
check or in cash, and there is not enough substantiation of burden is on the taxpayer to prove the validity of the
such payments. In short, the petitioner suggests a tax claimed deduction. In the present case, however, we find
dodge, an attempt to evade a legitimate assessment by that the onus has been discharged satisfactorily. The private
involving an imaginary deduction. respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted
We find that these suspicions were adequately met by the by the payees in inducing investors and prominent
private respondent when its President, Alberto Guevara, businessmen to venture in an experimental enterprise and
and the accountant, Cecilia V. de Jesus, involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was,
testified that the payments were not made in one lump sum sufficiently recompensed.
but periodically and in different amounts as each payee's
need arose.
It is said that taxes are what we pay for civilization society.
Admittedly, everything seemed to be informal. This Without taxes, the government would be paralyzed for lack
arrangement was understandable, however, in view of the of the motive power to activate and operate it
close relationship among the persons in the family
corporation. Hence, despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities, every
We agree with the respondent court that the amount of the person who is able to must contribute his share in the
promotional fees was not excessive. running of the government. The government for its part, is
expected to respond in the form of tangible and intangible
The total commission paid by the Philippine Sugar benefits intended to improve the lives of the people and
Estate Development Co. to the private respondent was enhance their moral and material values. This symbiotic
P125,000.00 relationship is the rationale of taxation and should dispel
After deducting the said fees, Algue still had a balance of the erroneous notion that it is an arbitrary method of
P50,000.00 as clear profit from the transaction. The amount exaction by those in seat of power
of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees
 9

But even as we concede the inevitability and

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

We hold that the appeal of the private respondent from the

decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125.
And we also find that the claimed deduction by the private
respondent was permitted under the Internal Revenue Code
and should therefore not have been disallowed by the
petitioner.
 10

G.R. No. 193007 July 19, 2011 assumption of office in 2010, the BIR revived the
idea and would impose the challenged tax on toll
fees beginning August 16, 2010 unless judicially
RENATO V. DIAZ and AURORA MA. F. TIMBOL, enjoined.
Petitioners, vs. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, Petitioners hold the view that Congress did not, when
Respondents. it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are
FACTS subject to VAT; that a toll fee is a "user’s tax," not a
sale of services; that to impose VAT on toll fees
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol would amount to a tax on public service; and that,
(petitioners) filed this petition for declaratory relief since VAT was never factored into the formula for
“In Aquino v. Municipality of Malay,20 the Court explained the concept of declaratory
relief, viz.: computing toll fees, its imposition would violate the
An action for declaratory relief presupposes that there has been no actual breach of the non-impairment clause of the constitution.
instruments involved or of the rights arising thereunder. Since the purpose of an action
for declaratory relief is to secure an authoritative statement of the rights and obligations
of the parties under a statute, deed, or contract for their guidance in the enforcement On August 13, 2010 the Court issued a temporary
thereof, or compliance therewith, and not to settle issues arising from an alleged breach
thereof, it may be entertained before the breach or violation of the statute, deed or restraining order (TRO), enjoining the
contract to which it refers. A petition for declaratory relief gives a practical remedy for
ending controversies that have not reached the state where another relief is immediately
implementation of the VAT. The Court required
available; and supplies the need for a form of action that will set controversies at rest the government, represented by respondents
before they lead to a repudiation of obligations, an invasion of rights, and a commission
of wrongs. (Emphases and underscoring supplied.) Cesar V. Purisima, Secretary of the Department
of Finance, and Kim S. Jacinto-Henares,
assailing the validity of the impending imposition Commissioner of Internal Revenue, to comment on
of value-added tax (VAT) by the Bureau of the petition within 10 days from notice.Later, the
Internal Revenue (BIR) on the collections of Court issued another resolution treating the petition
tollway operators. as one for prohibition.

On August 23, 2010 the Office of the Solicitor

General filed the government’s comment. The
Renato V. Diaz and Aurora Ma. F. Timbol claim that, government avers that the NIRC imposes VAT on
since the VAT would result in increased toll fees, all kinds of services of franchise grantees, including
they have an interest as regular users of tollways tollway operations, except where the law provides
in stopping the BIR action. Additionally, Diaz otherwise; that the Court should seek the meaning
claims that he sponsored the approval of Republic and intent of the law from the words used in the
Act 7716 (the 1994 Expanded VAT Law or EVAT statute; and that the imposition of VAT on tollway
Law) and Republic Act 8424 (the 1997 National operations has been the subject as early as 2003 of
Internal Revenue Code or the NIRC) at the House of several BIR rulings and circulars .
Representatives. Timbol, on the other hand, claims
that she served as Assistant Secretary of the The government also argues that petitioners have no
Department of Trade and Industry and consultant right to invoke the non-impairment of contracts
of the Toll Regulatory Board (TRB) in the past clause since they clearly have no personal interest
administration. in existing toll operating agreements (TOAs)
between the government and tollway operators. At
Petitioners allege that the BIR attempted during the any rate, the non-impairment clause cannot limit the
administration of President Gloria Macapagal- State’s sovereign taxing power which is generally
Arroyo to impose VAT on toll fees. The imposition read into contracts.
was deferred, however, in view of the consistent
opposition of Diaz and other sectors to such move. Finally, the government contends that the non-
But, upon President Benigno C. Aquino III’s inclusion of VAT in the parametric formula for
computing toll rates cannot exempt tollway
 11

operators from VAT. In any event, it cannot be

claimed that the rights of tollway operators to a A. On the Procedural Issues:
reasonable rate of return will be impaired by the VAT
since this is imposed on top of the toll rate. Further, On August 24, 2010 the Court issued a resolution,
the imposition of VAT on toll fees would have very treating the petition as one for prohibition rather
minimal effect on motorists using the tollways. than one for declaratory relief, the characterization
that petitioners Diaz and Timbol gave their action.
In their reply to the government’s comment, The government has sought reconsideration of the
petitioners point out that tollway operators cannot Court’s resolution,however, arguing that
be regarded as franchise grantees under the NIRC petitioners’ allegations clearly made out a case for
since they do not hold legislative franchises. declaratory relief, an action over which the Court
Further, the BIR intends to collect the VAT by has no original jurisdiction. The government adds,
rounding off the toll rate and putting any excess moreover, that the petition does not meet the
collection in an escrow account. requirements of Rule 65 for actions for prohibition
But this would be illegal since only the Congress can since the BIR did not exercise judicial, quasi-judicial,
modify VAT rates and authorize its disbursement. or ministerial functions when it sought to impose
Finally, BIR Revenue Memorandum Circular 63- VAT on toll fees. Besides, petitioners Diaz and
2010 (BIR RMC 63-2010), which directs toll Timbol has a plain, speedy, and adequate remedy in
companies to record an accumulated input VAT of the ordinary course of law against the BIR action in
zero balance in their books as of August 16, 2010, the form of an appeal to the Secretary of Finance.
contravenes Section 111 of the NIRC which grants
entities that first become liable to VAT a But there are precedents for treating a petition for
transitional input tax credit of 2% on beginning declaratory relief as one for prohibition if the case
inventory. For this reason, the VAT on toll fees has far-reaching implications and raises questions
cannot be implemented. that need to be resolved for the public good.8 The
Court has also held that a petition for prohibition is a
The Issues Presented proper remedy to prohibit or nullify acts of executive
officials that amount to usurpation of legislative
1. Whether or not the Court may treat the petition for authority.
declaratory relief as one for prohibition; and
Here, the imposition of VAT on toll fees has far-
2. Whether or not petitioners Diaz and Timbol have reaching implications. Its imposition would impact,
legal standing to file the action. not only on the more than half a million motorists
who use the tollways everyday, but more so on the
government’s effort to raise revenue for funding
The case also presents two substantive issues: various projects and for reducing budgetary deficits.

1. Whether or not the government is unlawfully To dismiss the petition and resolve the issues later,
expanding VAT coverage by including tollway after the challenged VAT has been imposed, could
operators and tollway operations in the terms cause more mischief both to the tax-paying public
"franchise grantees" and "sale of services" under and the government. A belated declaration of nullity
Section 108 of the Code; and of the BIR action would make any attempt to refund
to the motorists what they paid an administrative
2. Whether or not the imposition of VAT on tollway nightmare with no solution. Consequently, it is not
operators a) amounts to a tax on tax and not a tax on only the right, but the duty of the Court to take
services; b) will impair the tollway operators’ right to cognizance of and resolve the issues that the petition
a reasonable return of investment under their TOAs; raises.
and c) is not administratively feasible and cannot be
implemented.
 12

Although the petition does not strictly comply with whether or not the performance thereof calls for the
the requirements of Rule 65, the Court has ample exercise or use of the physical or mental faculties.
power to waive such technical requirements when the (Underscoring supplied)
legal questions to be resolved are of great importance
to the public. The same may be said of the It is plain from the above that the law imposes VAT
requirement of locus standi which is a mere on "all kinds of services" rendered in the Philippines
procedural requisite. for a fee, including those specified in the list. The
enumeration of affected services is not exclusive.11
By qualifying "services" with the words "all kinds,"
B. On the Substantive Issues: Congress has given the term "services" an all-
One. The relevant law in this case is Section 108 of encompassing meaning. The listing of specific
the NIRC, as amended. VAT is levied, assessed, and services are intended to illustrate how pervasive and
collected, according to Section 108, on the gross broad is the VAT’s reach rather than establish
receipts derived from the sale or exchange of services concrete limits to its application. Thus, every activity
as well as from the use or lease of properties. The that can be imagined as a form of "service" rendered
third paragraph of Section 108 defines "sale or for a fee should be deemed included unless some
exchange of services" as follows: provision of law especially excludes it.

The phrase ‘sale or exchange of services’ means the Now, do tollway operators render services for a fee?
performance of all kinds of services in the Presidential Decree (P.D.) 1112 or the Toll Operation
Philippines for others for a fee, remuneration or Decree establishes the legal basis for the services that
consideration, including those performed or rendered tollway operators render. Essentially, tollway
by construction and service contractors; stock, real operators construct, maintain, and operate
estate, commercial, customs and immigration expressways, also called tollways, at the operators’
brokers; lessors of property, whether personal or real; expense. Tollways serve as alternatives to regular
warehousing services; lessors or distributors of public highways that meander through populated
cinematographic films; persons engaged in milling, areas and branch out to local roads. Traffic in the
processing, manufacturing or repacking goods for regular public highways is for this reason slow-
others; proprietors, operators or keepers of hotels, moving. In consideration for constructing tollways at
motels, resthouses, pension houses, inns, resorts; their expense, the operators are allowed to collect
proprietors or operators of restaurants, refreshment government-approved fees from motorists using the
parlors, cafes and other eating places, including clubs tollways until such operators could fully recover their
and caterers; dealers in securities; lending investors; expenses and earn reasonable returns from their
transportation contractors on their transport of goods investments.
or cargoes, including persons who transport goods or
cargoes for hire and other domestic common carriers When a tollway operator takes a toll fee from a
by land relative to their transport of goods or cargoes; motorist, the fee is in effect for the latter’s use of the
common carriers by air and sea relative to their tollway facilities over which the operator enjoys
transport of passengers, goods or cargoes from one private proprietary rights12 that its contract and the
place in the Philippines to another place in the law recognize. In this sense, the tollway operator is
Philippines; sales of electricity by generation no different from the following service providers
companies, transmission, and distribution companies; under Section 108 who allow others to use their
services of franchise grantees of electric utilities, properties or facilities for a fee:
telephone and telegraph, radio and television
broadcasting and all other franchise grantees except 1. Lessors of property, whether personal or real;
those under Section 119 of this Code and non-life
insurance companies (except their crop insurances), 2. Warehousing service operators;
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of 3. Lessors or distributors of cinematographic films;
 13

distinction between franchises granted by Congress

4. Proprietors, operators or keepers of hotels, motels, and franchises granted by some other government
resthouses, pension houses, inns, resorts; agency. The latter, properly constituted, may grant
franchises. Indeed, franchises conferred or granted by
5. Lending investors (for use of money); local authorities, as agents of the state, constitute as
much a legislative franchise as though the grant had
6. Transportation contractors on their transport of been made by Congress itself.15 The term
goods or cargoes, including persons who transport "franchise" has been broadly construed as referring,
goods or cargoes for hire and other domestic not only to authorizations that Congress directly
common carriers by land relative to their transport of issues in the form of a special law, but also to those
goods or cargoes; and granted by administrative agencies to which the
power to grant franchises has been delegated by
7. Common carriers by air and sea relative to their Congress.16
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Tollway operators are, owing to the nature and object
Philippines. of their business, "franchise grantees." The
construction, operation, and maintenance of toll
It does not help petitioners’ cause that Section 108 facilities on public improvements are activities of
subjects to VAT "all kinds of services" rendered for a public consequence that necessarily require a special
fee "regardless of whether or not the performance grant of authority from the state. Indeed, Congress
thereof calls for the exercise or use of the physical or granted special franchise for the operation of tollways
mental faculties." This means that "services" to be to the Philippine National Construction Company, the
subject to VAT need not fall under the traditional former tollway concessionaire for the North and
concept of services, the personal or professional South Luzon Expressways. Apart from Congress,
kinds that require the use of human knowledge and tollway franchises may also be granted by the TRB,
skills. pursuant to the exercise of its delegated powers under
P.D. 1112.17 The franchise in this case is evidenced
And not only do tollway operators come under the by a "Toll Operation Certificate."18
broad term "all kinds of services," they also come
under the specific class described in Section 108 as Petitioners contend that the public nature of the
"all other franchise grantees" who are subject to services rendered by tollway operators excludes such
VAT, "except those under Section 119 of this Code." services from the term "sale of services" under
Section 108 of the Code. But, again, nothing in
Tollway operators are franchise grantees and they do Section 108 supports this contention. The reverse is
not belong to exceptions (the low-income radio true. In specifically including by way of example
and/or television broadcasting companies with gross electric utilities, telephone, telegraph, and
annual incomes of less than ₱10 million and gas and broadcasting companies in its list of VAT-covered
water utilities) that Section 11913 spares from the businesses, Section 108 opens other companies
payment of VAT. The word "franchise" broadly rendering public service for a fee to the imposition of
covers government grants of a special right to do an VAT. Businesses of a public nature such as public
act or series of acts of public concern.14 utilities and the collection of tolls or charges for its
use or service is a franchise.19
Petitioners of course contend that tollway operators
cannot be considered "franchise grantees" under Nor can petitioners cite as binding on the Court
Section 108 since they do not hold legislative statements made by certain lawmakers in the course
franchises. But nothing in Section 108 indicates that of congressional deliberations of the would-be law.
the "franchise grantees" it speaks of are those who As the Court said in South African Airways v.
hold legislative franchises. Petitioners give no reason, Commissioner of Internal Revenue,20 "statements
and the Court cannot surmise any, for making a made by individual members of Congress in the
 14

consideration of a bill do not necessarily reflect the fees, the limitation on the kind of vehicles that can
sense of that body and are, consequently, not use the road, the speed restrictions and other
controlling in the interpretation of law." The conditions for the use of the road do not affect the
congressional will is ultimately determined by the public character of the road.
language of the law that the lawmakers voted on.
Consequently, the meaning and intention of the law The terminal fees MIAA charges to passengers, as
must first be sought "in the words of the statute itself, well as the landing fees MIAA charges to airlines,
read and considered in their natural, ordinary, constitute the bulk of the income that maintains the
commonly accepted and most obvious significations, operations of MIAA. The collection of such fees does
according to good and approved usage and without not change the character of MIAA as an airport for
resorting to forced or subtle construction." public use. Such fees are often termed user’s tax.
This means taxing those among the public who
Two. Petitioners argue that a toll fee is a "user’s tax" actually use a public facility instead of taxing all the
and to impose VAT on toll fees is tantamount to public including those who never use the particular
taxing a tax.21 Actually, petitioners base this public facility. A user’s tax is more equitable – a
argument on the following discussion in Manila principle of taxation mandated in the 1987
International Airport Authority (MIAA) v. Court of Constitution."23 (Underscoring supplied)
Appeals:22
Petitioners assume that what the Court said above,
No one can dispute that properties of public equating terminal fees to a "user’s tax" must also
dominion mentioned in Article 420 of the Civil Code, pertain to tollway fees. But the main issue in the
like "roads, canals, rivers, torrents, ports and bridges MIAA case was whether or not Parañaque City could
constructed by the State," are owned by the State. sell airport lands and buildings under MIAA
The term "ports" includes seaports and airports. The administration at public auction to satisfy unpaid real
MIAA Airport Lands and Buildings constitute a estate taxes. Since local governments have no power
"port" constructed by the State. Under Article 420 of to tax the national government, the Court held that
the Civil Code, the MIAA Airport Lands and the City could not proceed with the auction sale.
Buildings are properties of public dominion and thus MIAA forms part of the national government
owned by the State or the Republic of the although not integrated in the department
Philippines. framework."24 Thus, its airport lands and buildings
are properties of public dominion beyond the
x x x The operation by the government of a tollway commerce of man under Article 420(1)25 of the Civil
does not change the character of the road as one for Code and could not be sold at public auction.
public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes As can be seen, the discussion in the MIAA case on
they pay the government, or only those among the toll roads and toll fees was made, not to establish a
public who actually use the road through the toll fees rule that tollway fees are user’s tax, but to make the
they pay upon using the road. The tollway system is point that airport lands and buildings are properties of
even a more efficient and equitable manner of taxing public dominion and that the collection of terminal
the public for the maintenance of public roads. fees for their use does not make them private
properties. Tollway fees are not taxes. Indeed, they
he charging of fees to the public does not determine are not assessed and collected by the BIR and do not
the character of the property whether it is for public go to the general coffers of the government.
dominion or not. Article 420 of the Civil Code
defines property of public dominion as "one intended It would of course be another matter if Congress
for public use." Even if the government collects toll enacts a law imposing a user’s tax, collectible from
fees, the road is still "intended for public use" if motorists, for the construction and maintenance of
anyone can use the road under the same terms and certain roadways. The tax in such a case goes directly
conditions as the rest of the public. The charging of to the government for the replenishment of resources
 15

it spends for the roadways. This is not the case here. imposed on any person who, in the course of trade or
What the government seeks to tax here are fees business, sells or renders services for a fee. In other
collected from tollways that are constructed, words, the seller of services, who in this case is the
maintained, and operated by private tollway operators tollway operator, is the person liable for VAT. The
at their own expense under the build, operate, and latter merely shifts the burden of VAT to the tollway
transfer scheme that the government has adopted for user as part of the toll fees.
expressways.26 Except for a fraction given to the
government, the toll fees essentially end up as For this reason, VAT on tollway operations cannot be
earnings of the tollway operators. a tax on tax even if toll fees were deemed as a "user’s
tax." VAT is assessed against the tollway operator’s
In sum, fees paid by the public to tollway operators gross receipts and not necessarily on the toll fees.
for use of the tollways, are not taxes in any sense. A Although the tollway operator may shift the VAT
tax is imposed under the taxing power of the burden to the tollway user, it will not make the latter
government principally for the purpose of raising directly liable for the VAT. The shifted VAT burden
revenues to fund public expenditures.27 Toll fees, on simply becomes part of the toll fees that one has to
the other hand, are collected by private tollway pay in order to use the tollways.32
operators as reimbursement for the costs and
expenses incurred in the construction, maintenance Three. Petitioner Timbol has no personality to invoke
and operation of the tollways, as well as to assure the non-impairment of contract clause on behalf of
them a reasonable margin of income. Although toll private investors in the tollway projects. She will
fees are charged for the use of public facilities, neither be prejudiced by nor be affected by the
therefore, they are not government exactions that can alleged diminution in return of investments that may
be properly treated as a tax. Taxes may be imposed result from the VAT imposition. She has no interest
only by the government under its sovereign authority, at all in the profits to be earned under the TOAs. The
toll fees may be demanded by either the government interest in and right to recover investments solely
or private individuals or entities, as an attribute of belongs to the private tollway investors.
ownership.28
Besides, her allegation that the private investors’ rate
Parenthetically, VAT on tollway operations cannot be of recovery will be adversely affected by imposing
deemed a tax on tax due to the nature of VAT as an VAT on tollway operations is purely speculative.
indirect tax. In indirect taxation, a distinction is made Equally presumptuous is her assertion that a
between the liability for the tax and burden of the tax. stipulation in the TOAs known as the Material
The seller who is liable for the VAT may shift or pass Adverse Grantor Action will be activated if VAT is
on the amount of VAT it paid on goods, properties or thus imposed. The Court cannot rule on matters that
services to the buyer. In such a case, what is are manifestly conjectural. Neither can it prohibit the
transferred is not the seller’s liability but merely the State from exercising its sovereign taxing power
burden of the VAT.29 based on uncertain, prophetic grounds.

Thus, the seller remains directly and legally liable for Four. Finally, petitioners assert that the substantiation
payment of the VAT, but the buyer bears its burden requirements for claiming input VAT make the VAT
since the amount of VAT paid by the former is added on tollway operations impractical and incapable of
to the selling price. Once shifted, the VAT ceases to implementation. They cite the fact that, in order to
be a tax30 and simply becomes part of the cost that claim input VAT, the name, address and tax
the buyer must pay in order to purchase the good, identification number of the tollway user must be
property or service. indicated in the VAT receipt or invoice. The manner
by which the BIR intends to implement the VAT – by
Consequently, VAT on tollway operations is not rounding off the toll rate and putting any excess
really a tax on the tollway user, but on the tollway collection in an escrow account – is also illegal, while
operator. Under Section 105 of the Code, 31 VAT is the alternative of giving "change" to thousands of
 16

motorists in order to meet the exact toll rate would be fees which by now can no longer be collected. The
a logistical nightmare. Thus, according to them, the tollway operators agreed to waive the 2% transitional
VAT on tollway operations is not administratively input VAT, in exchange for cancellation of their past
feasible.33 due VAT liabilities. Notably, the right to claim the
2% transitional input VAT belongs to the tollway
Administrative feasibility is one of the canons of a operators who have not questioned the circular’s
sound tax system. It simply means that the tax system validity. They are thus the ones who have a right to
should be capable of being effectively administered challenge the circular in a direct and proper action
and enforced with the least inconvenience to the brought for the purpose.
taxpayer. Non-observance of the canon, however,
will not render a tax imposition invalid "except to the Conclusion
extent that specific constitutional or statutory
limitations are impaired."34 Thus, even if the In fine, the Commissioner of Internal Revenue did
imposition of VAT on tollway operations may seem not usurp legislative prerogative or expand the VAT
burdensome to implement, it is not necessarily law’s coverage when she sought to impose VAT on
invalid unless some aspect of it is shown to violate tollway operations. Section 108(A) of the Code
any law or the Constitution. clearly states that services of all other franchise
grantees are subject to VAT, except as may be
Here, it remains to be seen how the taxing authority provided under Section 119 of the Code. Tollway
will actually implement the VAT on tollway operators are not among the franchise grantees
operations. Any declaration by the Court that the subject to franchise tax under the latter provision.
manner of its implementation is illegal or Neither are their services among the VAT-exempt
unconstitutional would be premature. Although the transactions under Section 109 of the Code.
transcript of the August 12, 2010 Senate hearing
provides some clue as to how the BIR intends to go If the legislative intent was to exempt tollway
about it,35 the facts pertaining to the matter are not operations from VAT, as petitioners so strongly
sufficiently established for the Court to pass allege, then it would have been well for the law to
judgment on. Besides, any concern about how the clearly say so. Tax exemptions must be justified by
VAT on tollway operations will be enforced must clear statutory grant and based on language in the law
first be addressed to the BIR on whom the task of too plain to be mistaken.37 But as the law is written,
implementing tax laws primarily and exclusively no such exemption obtains for tollway operators. The
rests. The Court cannot preempt the BIR’s discretion Court is thus duty-bound to simply apply the law as it
on the matter, absent any clear violation of law or the is found.1avvphi1
Constitution.
Lastly, the grant of tax exemption is a matter of
For the same reason, the Court cannot prematurely legislative policy that is within the exclusive
declare as illegal, BIR RMC 63-2010 which directs prerogative of Congress. The Court’s role is to
toll companies to record an accumulated input VAT merely uphold this legislative policy, as reflected first
of zero balance in their books as of August 16, 2010, and foremost in the language of the tax statute. Thus,
the date when the VAT imposition was supposed to any unwarranted burden that may be perceived to
take effect. The issuance allegedly violates Section result from enforcing such policy must be properly
111(A)36 of the Code which grants first time VAT referred to Congress. The Court has no discretion on
payers a transitional input VAT of 2% on beginning the matter but simply applies the law.
inventory.
The VAT on franchise grantees has been in the
In this connection, the BIR explained that BIR RMC statute books since 1994 when R.A. 7716 or the
63-2010 is actually the product of negotiations with Expanded Value-Added Tax law was passed. It is
tollway operators who have been assessed VAT as only now, however, that the executive has earnestly
early as 2005, but failed to charge VAT-inclusive toll pursued the VAT imposition against tollway
 17

operators. The executive exercises exclusive

discretion in matters pertaining to the implementation
and execution of tax laws. Consequently, the
executive is more properly suited to deal with the
immediate and practical consequences of the VAT
imposition.

WHEREFORE, the Court DENIES respondents

Secretary of Finance and Commissioner of Internal
Revenue’s motion for reconsideration of its August
24, 2010 resolution, DISMISSES the petitioners
Renato V. Diaz and Aurora Ma. F. Timbol’s petition
for lack of merit, and SETS ASIDE the Court’s
temporary restraining order dated August 13, 2010.