COMM. OF CUSTOMS vs.

MANILA STAR
FERRY
G.R. No. L-31776-78 October 21, 1993
FACTS:

Manila Star Ferry - owner and operator

of tugboat Orestes
United
Navigation
&
Transport
Corporation - owner and operator of
bargelighter UN-L-106
Ceaba Shipping Agency - owner and
operator of an ocean-going vessel S/S
Argo

The patrol boat of Philippines Navy caught the

crew of the S/S Argo in the act of unloading
foreign-made goods onto the UN-L-106, which
was towed by the tugboat Orestes and
escorted by two wooden bancas of unknown
ownership, in Manila Bay.
The foreign-made goods were not manifested
and declared by the vessel for discharge in
Manila.
Said vessels and watercraft were charged with
smuggling and declared by the Collector of
Customs as forfeited in favor of the Philippine
government by virtue of Section 2530 (a) and
(c) of the Tariff and Customs Code.
On appeal, the Court of Tax Appeals modified
the decision and ordered payment of fine
instead of forfeiture of the vessels and
watercraft.
Hence, this appeal.
ISSUE:
Whether or not the subject vessels and
watercraft were engaged in smuggling
and should be forfeited in favor of the
government under Section 2530 (a) and
(c) of the Tariff and Customs Code.
RULING:
Sec. 2530.Property Subject to Forfeiture
Under Tariff and Customs Laws. Any vessel
or aircraft, cargo, articles and other objects
shall, under the following conditions, be
subject to forfeiture:
a. Any vessel or aircraft, including
cargo, which shall be used lawfully
in the importation or exportation of
articles into or from any Philippine
port or place except a port of
entry; and any vessel which, being
of less than thirty tons capacity
shall be used in the importation of
articles into any Philippine port or
place except into a port of the Sulu
sea where importation in such
vessel may be authorized by the
Commissioner, with the approval of
the department head.

xxxx xxxx xxxx

c. Any vessel or aircraft into which
shall be transferred cargo unladen
contrary to law prior to the
arrival of the importing vessel
or aircraft at her port of
destination.
The penalty of forfeiture is imposed on any
vessel, engaged in smuggling if the conditions
enumerated in Section 2530 (a) are
compresent.
These conditions are:
(1) The vessel is "used unlawfully in the
importation or exportation of articles into or
from" the Philippines;
(2) The articles are imported or exported into
or 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."
There is no question that the vessel S/S Argo
was apprehended while unloading goods of
foreign origin onto the barge UN-L-106 and
the tugboat Orestes, without the necessary
papers showing that the goods were entered
lawfully though a port of entry and that taxes
and duties on said goods had been paid.
However, while the S/S Argo was caught
unloading smuggled goods in Manila Bay, the
said vessel and the goods cannot be forfeited
in favor of the government because the Port
of Manila is a port of entry.
The Commissioner of Customs argues that the
phrase "except a port of entry" should mean
"except a port of destination," and inasmuch
as there is no showing that the Port of Manila
was the port of destination of the S/S Argo, its
forfeiture was in order.
Section 2530(a) in unmistakable terms
provides that a vessel engaged in
smuggling "in a port of entry" cannot be
forfeited. This is the clear and plain meaning
of the law. It is not within the province of the
Court to inquire into the wisdom of the law,
for indeed, we are bound by the words of the
statute
Nevertheless, although the vessel cannot be
forfeited, it is subject to a fine of not more
than P10,000.00 for failure to supply the
requisite manifest for the unloaded cargo
under Section 2521 of Code, which reads as
follows:
Sec. 2521. Failure to Supply Requisite
Manifests. If any vessel or aircraft

enters or departs from a port of entry

without
submitting
the
proper
manifest to the customs authorities,
or shall enter or depart conveying
unmanifested cargo other than as
stated in the next preceding section
hereof, such vessel or aircraft shall
be fined in a sum not exceeding ten
thousand pesos.
The barge-lighter UN-L-106 and the tugboat
Orestes, on the other hand, are subject to
forfeiture under paragraph (c) of Section 2530
of the Tariff and Customs Code. The bargelighter and tugboat fall under the term
"vessel" which includes every sort of boat,
craft or other artificial contrivance used, or
capable of being used, as a means of
transportation on water
Said section 2530 (c) prescribes the forfeiture
of' any vessel or aircraft into which shall be
transferred cargo unladen contrary to law
before the arrival of the vessel or aircraft at
her port of destination. Manila was not the
port of destination, much less a port of call of
the S/S Argo, the importing vessel. The S/S
Argo left Hongkong and was bound for
Jesselton, North Borneo, Djakarta and
Surabaja, Indonesia; and yet it stopped at the
Port of Manila to unload the smuggled goods
onto the UN-L-106 and the Orestes.
Forfeiture proceedings are proceedings in rem
and are directed against the res. It is no
defense that the owner of the vessel sought
to be forfeited had no actual knowledge that
his property was used illegally. The absence or
lack of actual knowledge of such use is a
defense personal to the owner himself which
cannot in any way absolve the vessel from the
liability of forfeiture Commissioner of Customs
v. Court of Appeals.

CHEVRON PHILIPPINES vs. BUREAU OF

CUSTOMS G.R. No. 178759 August 11,
2008
FACTS:
Chevron Phils. Inc., is engaged in the business
of importing, distributing and marketing of
petroleum products in the Philippines. In
1996, the importations subject of this case
arrived and were covered by 8 bills of lading.
The shipments were unloaded from the
carrying vessels onto petitioners oil tanks
over a period of 3 days from the date of their
arrival. Subsequently, the IMPORT ENTRY
DECLARATIONS (IEDS) were filed and 90%
of the total customs duties were paid. The
IMPORT ENTRY AND INTERNAL REVENUE
DECLARATIONS (IEIRDS) of the shipments
were thereafter filed.
The importations were appraised at a duty
rate of 3% as provided under RA 8180 and
petitioner paid the import duties amounting to
P316,499,021. Prior to the effectivity of RA
8180 on April 16, 1996, the rate of duty on
imported crude oil was 10%.Three years later,
then Finance Secretary received a letter
denouncing the deliberate concealment,
manipulation and scheme employed by
petitioner in the Importation Of Crude Oil,
Thereby Resulting In Huge Losses Of
Revenue For The Government. This letter
was endorsed to the Bureau of Customs (BOC)
for investigation.
On August 1, 2000, petitioner received a
demand letter from the District Collector
requiring the immediate settlement of the
amount of P73,535,830 representing the
difference between the 10% and 3% tariff
rates on the shipments. Petitioner objected to
the using of the 10% duty rate and insisted

that the 3% tariff rate should instead be

applied. Furthermore it raised the defense of
prescription against the assessment pursuant
to Section 1603 of the Tariff and Customs
Code (TCC). Thus, it prayed that the
assessment for deficiency customs duties be
cancelled and the notice of demand be
withdrawn.
The Special Investigator found that there was
an irregularity in the filing and acceptance of
the import entries beyond the 30-day nonextendible period prescribed under Section
1301 of the TCC and in the release of the
shipments after the same had already been
deemed
abandoned
in
favor
of
the
government.
Petitioner was then ordered to pay
P1,180,170,769.21 representing the total
dutiable value of the importations.
The CTA en banc held that it was the filing of
the IEIRDs that constituted entry under the
TCC.
Reason:Since these were filed beyond
the 30-day period, they were not
seasonably "entered" in accordance
with Section 1301 in relation to Section
205 of the TCC. Consequently, they
were
deemed
abandoned
under
Sections 1801 and 1802 of the TCC. It
also ruled that the notice required
under Customs Memorandum Order
was not necessary in view of
petitioner's actual knowledge of the
arrival of the shipments. It likewise
agreed with the CTA Division's finding
that petitioner committed fraud when
it failed to file the IEIRD within the 30day period with the intent to "evade
the higher rate." Petitioner was
ordered to pay respondent the total
dutiable value of the oil shipments
amounting to P893,781,768.21.
ISSUE 1:
PETITIONER
INSISTS
THAT
UNDER
SECTION 1301 OF THE TARIFF AND
CUSTOMS CODE IMPORTED ARTICLES
MUST BE ENTERED WITHIN A NON
EXTENDABLE PERIOD OF 30 DAYS FROM
THE DATE OF DISCHARGE OF THE LAST
PACKAGE FROM A VESSEL, OTHERWISE
THE BUREAU OF CUSTOMS WILL DEEM
THE
IMPORTED
GOODS
IMPLIEDLY
ABANDONED UNDER SECTION 1801
Whether or not entry under Section
1301 in relation to Section 1801 of the
TCC refers to the IED or the IEIRD

HELD:
"entry" in sections 1301 and 1801 of the tcc
refers to both the ied and ieird.
Under Section 1301 of the TCC, imported
articles must be entered within a nonextendible period of 30 days from the date of
discharge of the last package from a vessel.
Otherwise, the BOC will deem the imported
goods impliedly abandoned under Section
1801. Thus:
Section 1301. Persons Authorized
to Make Import Entry. - Imported
articles must be entered in the
customhouse at the port of entry
within thirty (30) days, which
shall not be extendible from date
of discharge of the last package
from the vessel or aircraft either
(a) by the importer, being holder
of the bill of lading, (b) by a duly
licensed customs broker acting
under authority from a holder of
the bill or (c) by a person duly
empowered to act as agent or
attorney-in-fact for each holder:
Provided, That where the entry is
filed by a party other than the
importer, said importer shall
himself be required to declare
under oath and under the
penalties
of
falsification
or
perjury that the declarations and
statements contained in the entry
are true and correct: Provided,
further, That such statements
under oath shall constitute prima
facie evidence of knowledge and
consent of the importer of
violation
against
applicable
provisions of this Code when the
importation is found to be
unlawful. (Emphasis supplied)
Section 1801. Abandonment,
Kinds and Effect of. - An
imported article is deemed
abandoned under any of the
following circumstances:
xxx xxx xxx
b. When the owner, importer,
consignee or interested party
after due notice, fails to file an
entry within thirty (30) days,
which shall not be extendible,
from the date of discharge of
the last package from the
vessel or aircraft, or having
filed such entry, fails to claim

his importation within fifteen

(15) days, which shall not
likewise be extendible, from the
date of posting of the notice to
claim
such
importation.
(Emphasis supplied)

including all acts, omissions and concealment

involving a breach of legal or equitable duty,
trust or confidence justly reposed, resulting in
the damage to another or by which an undue
and unconscionable advantage is taken of
another.

The term "entry" in customs law has a triple

meaning. It means (1) the documents filed at
the customs house; (2) the submission and
acceptance of the documents and (3) the
procedure of passing goods through the
customs house.22

The evidence showed that petitioner bided its

time to file the IEIRD so as to avail of a lower
rate of duty. (At or about the time these
developments were taking place, the bill
lowering the duty on these oil products from
10% to 3% was already under intense
discussion in Congress.) There was a
calculated and preconceived course of action
adopted by petitioner purposely to evade the
payment of the correct customs duties then
prevailing. This was done in collusion with the
former District Collector, who allowed the
acceptance of the late IEIRDs and the
collection of duties using the 3% declared
rate. A clear indication of petitioners
deliberate
intention
to
defraud
the
government was its non-disclosure of
discrepancies on the duties declared in the
IEDs (10%) and IEIRDs (3%) covering the
shipments

The IED serves as basis for the payment of

advance duties on importations whereas the
IEIRD evidences the final payment of duties
and taxes. The question is: was the filing of
the IED sufficient to constitute "entry" under
the TCC?
The law itself, in Section 205, defines the
meaning of the technical term "entered" as
used in the TCC:
Section 205. Entry, or Withdrawal from
Warehouse, for Consumption. - Imported
articles shall be deemed "entered" in the
Philippines for consumption when the
specified entry form is properly filed and
accepted,
together
with
any
related
documents regained by the provisions of this
Code and/or regulations to be filed with such
form at the time of entry, at the port or
station by the customs official designated to
receive such entry papers and any duties,
taxes, fees and/or other lawful charges
required to be paid at the time of making such
entry have been paid or secured to be paid
with the customs official designated to receive
such monies, provided that the article has
previously arrived within the limits of the port
of entry.
xxx xxx xxx
(Emphasis supplied)
Clearly, the operative act that constitutes
"entry" of the imported articles at the port of
entry is the filing and acceptance of the
"specified entry form" together with the other
documents required by law and regulations.
There is no dispute that the "specified entry
form" refers to the IEIRD. Section 205 defines
the precise moment when the imported
articles are deemed "entered.
ISSUE 2: EXISTENCE OF FRAUD
HELD:
Fraud, in its general sense, is deemed to
comprise anything calculated to deceive,

Hence, due to the presence of fraud, the

prescriptive period of the finality of liquidation
under Section 1603 was inapplicable:
Section 1603. Finality of Liquidation. When
articles have been entered and passed free of
duty or final adjustments of duties made, with
subsequent delivery, such entry and passage
free of duty or settlements of duties will, after
the expiration of one (1) year, from the date
of the final payment of duties, in the absence
of fraud or protest or compliance audit
pursuant to the provisions of this Code, be
final and conclusive upon all parties, unless
the liquidation of the import entry was merely
tentative.40
ISSUE 3: ON ABANDONMENT
Petitioners failure to file the required entries
within a non-extendible period of thirty days
from date of discharge of the last package
from the carrying vessel constituted implied
abandonment of its oil importations. This
means that from the precise moment that the
non-extendible thirty-day period lapsed, the
abandoned shipments were deemed (that is,
they
became)
the
property
of
the
government. Therefore, when petitioner
withdrew the oil shipments for consumption, it
appropriated for itself properties which
already belonged to the government.
Accordingly, it became liable for the total
dutiable value of the shipments of imported
crude oil amounting to P1,210,280,789.21

reduced by the total amount of duties paid

amounting
to
P316,499,021.00
thereby
leaving a balance of P893,781,768.21.
By the very nature of its functions, the CTA is
a highly specialized court specifically created
for the purpose of reviewing tax and customs
cases. It is dedicated exclusively to the study
and
consideration
of
revenue-related
problems and has necessarily developed an
expertise on the subject. Thus, as a general
rule, its findings and conclusions are accorded
great respect and are generally upheld by this
Court, unless there is a clear showing of a
reversible error or an improvident exercise of
authority. There is no such showing here.

PROTON PILIPINAS CORP. vs. REPUBLIC

G.R. No. 165027 October 12, 2006
FACTS:
Herein petitioner Proton Pilipinas Corporation
(Proton) is a corporation duly organized and
existing under Philippine laws and duly
registered5 with the Board of Investments
(BOI). It is engaged in the business of
importing,
manufacturing,
and
selling
vehicles.
Sometime
in
1997,
Devmark
Textile
Industries, Inc. (Devmark), a corporation duly
registered with the Securities and Exchange
Commission (SEC) and with the BOI, and
engaged in the business of spinning, knitting,
weaving, dyeing, and finishing all types of
textile, yarns, and fabrics, together with
Texasia, Inc. (Texasia), expressed the intention
to purchase the various vehicles distributed
and marketed by petitioner. In payment
thereof, the above named companies offered
petitioner their Tax Credit Certificates (TCCs)
worth
P30,817,191.00.
The
companies,
through their officers, guaranteed petitioner
that the TCCs were valid, genuine, and
subsisting. They further assured petitioner
that said TCCs were a safe and a valid mode
of payment for import duties and taxes as
they were issued by the Department of
Finance (DOF) and duly honored and accepted
by the Bureau of Customs (BOC).
Persuaded by the representations and
assurances made by the two companies as to
the legality of the transaction, Paul Y.
Rodriguez, in his capacity as Executive VicePresident of Proton, signed a Deed of
Assignment6 with Eulogio L. Reyes, General
Manager of Devmark. The terms and
conditions of the Deed of Assignment are as
follows:
1. That the acceptance by the
ASSIGNEE
of
the
above
duty/taxes
credit
certificate
being assigned by ASSIGNOR
shall be subject to condition
that the [DOF] approves the
proposed assignment.
2. For the purpose of this
assignment,
the
above
duty/taxes certificates being
assigned hereby to ASSIGNEE
shall not be credited as
payment
of
ASSIGNORs
account
unless
and
until

ASSIGNEE
has
in
turn
utilized/applied the same with
the [BOC] or Bureau of Internal
Revenue [BIR] for payment of
each duty/tax obligations.

3. ASSIGNEE undertakes to
issue to ASSIGNOR the Tax
Credit
corresponding
credit
notes, as when the above
duty/taxes credit certificates
was (sic) use[d]/applied, either
partially
or
fully
by
the
ASSIGNEE,
in
payment
of
ASSIGNEEs
duty/taxes
obligation with the [BOC] or
[BIR], respectively.

4. Withstanding the abovestated arrangement, such Tax

Credit assigned and transferred
by the ASSIGNOR to ASSIGNEE
shall be subject to post-audit by
the Government and shall be
credited to the ASSIGNOR only
upon actual availment thereof
by ASSIGNEE.

5. If the whole or any portion of

the Tax Credit assigned and
transferred by ASSIGNOR to the
ASSIGNEE is disallowed by the
Government upon post-audit or
cannot be utilized for any cause
or reason not attributable to the
fault
negligence
of
the
ASSIGNEE, the whole amount
corresponding such Tax Credit
or such portion thereof as is
disallowed by the Government
or cannot be utilized by
ASSIGNEE shall be paid in cash
to ASSIGNEE by the ASSIGNOR
immediately upon receipt of
written notice of such event.7

Consequently, the TCCs, as well as their

transfers to petitioner, were submitted to the
DOF for evaluation and approval. Thereafter,
the DOF, through its Undersecretary Antonio
P. Belicena, cleared said TCCs for transaction
and approved them for transfer. For that
reason, petitioner delivered 13 vehicles with a
total value of P10,778,500.00 and post-dated
checks worth P10,592,618.00, in exchange for
the said TCCs, to Devmark and Texasia in

accordance with their agreement. In turn,

petitioner used the TCCs for payment of its
customs duties and taxes to the BOC.
In the interim, the Office of the Ombudsman
(Ombudsman) under Hon. Aniano Desierto
began conducting an investigation on the
alleged "P60 Billion DOF Tax Credit Scam" in
July 1998. On 30 March 1999, Silverio T.
Manuel, Jr., as Graft Investigator II, was given
the assignment to look into the alleged
irregular issuances of four TCCs to Devmark
and its subsequent transfer to and utilization
by petitioner. Based on the Fact-Finding
Report8 dated 29 October 1999 of the Fact
Finding
and
Investigation
Bureau,
Ombudsman, the TCCs were found to be
irregularly and fraudulently issued by several
officers of the DOF, including its Department
Undersecretary Belicena, to Devmark.
As revealed in the said Report, all the
pertinent documents submitted by Devmark
in support of its application for the TCCs were
fake and spurious. As a consequence thereof,
the transfers of the subject TCCs to petitioner
and their subsequent use of the same was
declared invalid and illegal. The Report
recommended among other things, that the
directors of the petitioner and Devmark, along
with several DOF officers, be criminally
charged with violation of Section 3(e) and (j)
of Republic Act No. 3019,9 otherwise known
as The Anti-Graft and Corrupt Practices Act.
On the weight of the Fact-Finding Report, the
Ombudsman filed with the Sandiganbayan,
Criminal Cases No. 26168 to 7110 charging
DOF Undersecretary Belicena together with
Reyes, General Manager of Devmark, Peter Y.
Rodriguez and Paul Y. Rodriguez, in their
capacity as Director and Executive VicePresident/Chief Operating Officer of the
petitioner, respectively, for violation of
Section 3(e) and (j) of Republic Act No. 3019.
In turn, petitioner filed a criminal case
for Estafa against the officers of
Devmark with the City Prosecutor of
Mandaluyong, docketed as I.S. No. 0042921-K, entitled, Proton Pilipinas, Inc.
v. Robert Liang. The BOC on the other
hand, filed Civil Case No. 02-10265011
against petitioner before the RTC for the
collection of taxes and customs duties,
which remain unpaid because the
subject TCCs had been cancelled brought
about by petitioners use of fraudulent
TCCs in paying its obligations.
Petitioner then filed a Motion to Dismiss12 the
aforesaid civil case filed against it by BOC on
the grounds of lack of jurisdiction, prematurity

of action, and litis pendentia. The said Motion,

however, was denied by the trial court in its
Order dated 24 January 2003. Petitioner
sought
reconsideration
of
the
abovementioned Order, but the same was likewise
denied in another Order dated 15 April 2003.
ISSUE: WON THE CIVIL CASE FOR
COLLECTION OF UNPAID CUSTOM DUTIES
AND
TAXED
BE
SIMULTANEOUSLY
INSTITUTED AND DETERMINED IN THE
SAME PROCEEDINGS AS THE CRIMINALS
CASES BEFORE THE SANDIGANBAYAN AS
IT CANNOT BE MADE THE CIVIL ASPECT
OF THE CRIMINAL CASES BEFORE IT.
HELD: NO!
Said obligation is not a consequence of the
felonies acts charged before it: said obligation
is not a consequence of the felonious acts
charged in the criminal proceeding nor is it a
mere civil liability arising from crime that
could be wiped out by the judicial declaration
of non existence of the criminal acts charged.
While it is true that according to the aforesaid
Section 4, of Republic Act No. 8249, the
institution of the criminal action automatically
carries with it the institution of the civil action
for the recovery of civil liability, however, in
the case at bar, the civil case for the
collection of unpaid customs duties and taxes
cannot be simultaneously instituted and
determined in the same proceedings as the
criminal cases before the Sandiganbayan, as
it cannot be made the civil aspect of the
criminal cases filed before it. It should be
borne in mind that the tax and the obligation
to pay the same are all created by statute; so
are its collection and payment governed by
statute.17 The payment of taxes is a duty
which the law requires to be paid. Said
obligation is not a consequence of the
felonious acts charged in the criminal
proceeding nor is it a mere civil liability
arising from crime that could be wiped out by
the judicial declaration of non-existence of the
criminal acts charged.18 Hence, the payment
and collection of customs duties and taxes in
itself creates civil liability on the part of the
taxpayer. Such civil liability to pay taxes
arises from the fact, for instance, that one has
engaged himself in business, and not because
of any criminal act committed by him.

RENATO DIAZ vs. SECRETARY OF

FINANCE
G.R. No. 193007 July 19, 2011
FACTS:
Petitioners Renato V. Diaz and Aurora Ma. F.
Timbol filed this petition for declaratory
relief[1] assailing the validity of the impending
imposition of VAT by the BIR on the collections
of tollway operators.
Petitioners hold the view that Congress did
not, when it enacted the NIRC, intend to
include toll fees within the meaning of sale of
services that are subject to VAT; that a toll fee
is a users tax, not a sale of services; that to
impose VAT on toll fees would amount to a tax
on public service; and that, since VAT was
never factored into the formula for computing
toll fees, its imposition would violate the nonimpairment clause of the constitution.
The government avers that the NIRC imposes
VAT on all kinds of services of franchise
grantees, including tollway operations, except
where the law provides otherwise; that the

Court should seek the meaning and intent of

the law from the words used in the statute;
and that the imposition of VAT on tollway
operations has been the subject as early as
2003 of several BIR rulings and circulars.
Finally, the government contends that the
non-inclusion of VAT in the parametric formula
for computing toll rates cannot exempt
tollway operators from VAT. In any event, it
cannot be claimed that the rights of tollway
operators to a reasonable rate of return will
be impaired by the VAT since this is imposed
on top of the toll rate. Further, the imposition
of VAT on toll fees would have very minimal
effect on motorists using the tollways.
Petitioners point out that tollway operators
cannot be regarded as franchise grantees
under the NIRC since they do not hold
legislative franchises.
ISSUES:
1. Whether or not the government is
unlawfully expanding VAT coverage by
including tollway operators and tollway
operations in the terms franchise
grantees and sale of services under
Section 108 of the Code; and
2. Whether or not the imposition of VAT
on tollway operators a) amounts to a tax
on tax and not a tax on services; b) will
impair the tollway operators right to a
reasonable return of investment under
their TOAs; and c) is not administratively
feasible and cannot be implemented.
COURTS RULING:
On the Substantive Issues:
One. The relevant law in this case is Section
108 of the NIRC, as amended. VAT is levied,
assessed, and collected, according to Section
108, on the gross receipts derived from the
sale or exchange of services as well as from
the use or lease of properties. The third
paragraph of Section 108 defines sale or
exchange of services as follows:
The phrase sale or exchange of services
means the performance of all kinds of
services in the Philippines for others for
a fee, remuneration or consideration,
including those performed or rendered
by construction and service contractors;
stock, real estate, commercial, customs
and immigration brokers; lessors of
property, whether personal or real;

warehousing
services;
lessors
or
distributors of cinematographic films;
persons engaged in milling, processing,
manufacturing or repacking goods for
others; proprietors, operators or keepers
of hotels, motels, resthouses, pension
houses, inns, resorts; proprietors or
operators of restaurants, refreshment
parlors, cafes and other eating places,
including clubs and caterers; dealers in
securities;
lending
investors;
transportation
contractors
on
their
transport of goods or cargoes, including
persons who transport goods or cargoes
for hire and other domestic common
carriers by land relative to their
transport of goods or cargoes; common
carriers by air and sea relative to their
transport of passengers, goods or
cargoes
from
one
place
in
the
Philippines to another place in the
Philippines; sales of electricity by
generation companies, transmission, and
distribution
companies; services
of
franchise grantees of electric utilities,
telephone and telegraph, radio and
television broadcasting and all other
franchise grantees except those under
Section 119 of this Code and non-life
insurance companies (except their crop
insurances), including surety, fidelity,
indemnity and bonding companies; and
similar services regardless of whether or
not the performance thereof calls for the
exercise or use of the physical or mental
faculties. (Underscoring supplied)
It is plain from the above that the law
imposes VAT on all kinds of services rendered
in the Philippines 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,
Congress has given the term services an allencompassing meaning. The listing of specific
services are intended to illustrate how
pervasive and broad is the VATs reach rather
than establish concrete limits to its
application. Thus, every activity that can be
imagined as a form of service rendered for a
fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for
a fee? Presidential Decree (P.D.) 1112 or the
Toll Operation Decree establishes the legal
basis for the services that tollway operators
render. Essentially,
tollway
operators
construct,
maintain,
and
operate
expressways, also called tollways, at the
operators
expense. Tollways
serve
as
alternatives to regular public highways that

meander through populated areas and branch

out to local roads. Traffic in the regular public
highways is for this reason slow-moving. In
consideration for constructing tollways at
their expense, the operators are allowed to
collect
government-approved
fees
from
motorists using the tollways until such
operators could fully recover their expenses
and earn reasonable returns from their
investments.
When a tollway operator takes a toll fee from
a motorist, the fee is in effect for the latters
use of the tollway facilities over which the
operator
enjoys
private
proprietary
[12]
rights that its contract and the law
recognize. In this sense, the tollway operator
is no different from the following service
providers under Section 108 who allow others
to use their properties or facilities for a fee:
1. Lessors of property, whether personal or
real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic
films;
4. Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns,
resorts;
5. Lending investors (for use of money);
6. Transportation
contractors
on
their
transport of goods or cargoes, including
persons who transport goods or cargoes for
hire and other domestic common carriers by
land relative to their transport of goods or
cargoes; and
7. Common carriers by air and sea relative to
their transport of passengers, goods or
cargoes from one place in the Philippines to
another place in thePhilippines.
Services to be subject to VAT need not fall
under the traditional concept of services, the
personal or professional kinds that require the
use of human knowledge and skills.
And not only do tollway operators come
under the broad term all kinds of services,
they also come under the specific class
described in Section 108 as all other franchise
grantees who are subject to VAT, except those
under Section 119 of this Code.
Tollway operators are franchise grantees and
they do not belong to exceptions (the low-

income radio and/or television broadcasting

companies with gross annual incomes of less
than P10 million and gas and water utilities)
that Section 119[13] spares from the payment
of VAT. The word franchise broadly covers
government grants of a special right to do an
act or series of acts of public concern.
Nothing in Section 108 indicates that the
franchise grantees it speaks of are those who
hold legislative franchises. Indeed, franchises
conferred or granted by local authorities, as
agents of the state, constitute as much a
legislative franchise as though the grant had
been made by Congress itself.[15] The term
franchise has been broadly construed as
referring, not only to authorizations that
Congress directly issues in the form of a
special law, but also to those granted by
administrative agencies to which the power to
grant franchises has been delegated by
Congress.
Tollway operators are, owing to the nature
and object of their business, franchise
grantees. The franchise in this case is
evidenced by a Toll Operation Certificate.[18]
Petitioners contend that the public nature of
the services rendered by tollway operators
excludes such services from the term sale of
services under Section 108 of the Code. But,
again, nothing in Section 108 supports this
contention. The reverse is true. In specifically
including by way of example electric utilities,
telephone,
telegraph,
and
broadcasting
companies in its list of VAT-covered
businesses,
Section
108
opens
other
companies rendering public service for a fee
to the imposition of VAT. Businesses of a
public nature such as public utilities and the
collection of tolls or charges for its use or
service is a franchise.
Two. Petitioners argue that a toll fee is a
users tax and to impose VAT on toll fees is
tantamount to taxing a tax.[21] Actually,
petitioners base this argument on the
following discussion in Manila International
Airport Authority (MIAA) v. Court of Appeals:
No one can dispute that properties of
public dominion mentioned in Article 420
of the Civil Code, like roads, canals,
rivers, torrents, ports and bridges
constructed by the State,are owned by
the State. The term ports includes
seaports
and
airports.
The MIAA Airport Lands and
Buildings
constitute a port constructed by the
State. Under Article 420 of the Civil

Code,
the MIAA Airport Lands and
Buildings are properties of public
dominion and thus owned by the State
or the Republic of the Philippines.
x x x The operation by the government
of a tollway does not change the
character of the road as one for public
use. Someone
must
pay
for the
maintenance of the road, either the
public indirectly through the taxes they
pay the government, or only those
among the public who actually use the
road through the toll fees they pay upon
using the road. The tollway system is
even a more efficient and equitable
manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does
not determine the character of the
property whether it is for public
dominion or not. Article 420 of the Civil
Code defines property of public dominion
as one intended for public use. Even if
the government collects toll fees, the
road is still intended for public use if
anyone can use the road under the same
terms and conditions as the rest of the
public. The
charging
of
fees,
the
limitation on the kind of vehicles that
can use the road, the speed restrictions
and other conditions for the use of the
road do not affect the public character of
the road.
The terminal fees MIAA charges to
passengers, as well as the landing fees
MIAA charges to airlines, constitute the
bulk of the income that maintains the
operations of MIAA.The collection of
such fees does not change the character
of MIAA as an airport for public use.
Such fees are often termed users tax.
This means taxing those among the
public who actually use a public facility
instead of taxing all the public including
those who never use the particular
public facility. A users tax is more
equitable
a
principle
of
taxation
mandated in the 1987 Constitution.
[23]
(Underscoring supplied)
As can be seen, the discussion in
the MIAA case on toll roads and toll fees was
made, not to establish a rule that tollway fees
are users tax, but to make the point that
airport lands and buildings are properties of
public dominion and that the collection of
terminal fees for their use does not make
them private properties. Tollway fees are not

taxes. Indeed, they are not assessed and

collected by the BIR and do not go to the
general coffers of the government.
Petitioners assume that what the Court said
above, equating terminal fees to a users tax
must also pertain to tollway fees. But the
main issue in the MIAA case was whether or
not Paraaque City could sell airport lands and
buildings under MIAA administration at public
auction to satisfy unpaid real estate taxes.
Since local governments have no power to tax
the national government, the Court held that
the City could not proceed with the auction
sale. MIAA forms part of the national
government although not integrated in the
department framework.[24] Thus, its airport
lands and buildings are properties of public
dominion beyond the commerce of man under
Article 420(1)[25] of the Civil Code and could
not be sold at public auction.
Tollway fees are not taxes. Indeed, they are
not assessed and collected by the BIR and do
not go to the general coffers of the
government.
In sum, fees paid by the public to tollway
operators for use of the tollways, are not
taxes in any sense. A tax is imposed under
the taxing power of the government
principally for the purpose of raising revenues
to fund public expenditures.[27] Toll fees, on
the other hand, are collected by private
tollway operators as reimbursement for the
costs
and
expenses
incurred
in the
construction, maintenance and operation of
the tollways, as well as to assure them a
reasonable margin of income. Although toll
fees are charged for the use of public
facilities, therefore, they are not government
exactions that can be properly treated as a
tax. Taxes may be imposed only by the
government under its sovereign authority, toll
fees may be demanded by either the
government or private individuals or entities,
as an attribute of ownership.
Parenthetically, VAT on tollway operations
cannot be deemed a tax on tax due to the
nature of VAT as an indirect tax. In indirect
taxation, a distinction is made between the
liability for the tax and burden of the tax. The
seller who is liable for the VAT may shift or
pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a
case, what is transferred is not the sellers
liability but merely the burden of the VAT.
Thus, the seller remains directly and legally
liable for payment of the VAT, but the buyer

bears its burden since the amount of VAT paid

by the former is added to the selling price.
Once shifted, the VAT ceases to be a tax and
simply becomes part of the cost that the
buyer must pay in order to purchase the
good, property or service.
Consequently, VAT on tollway operations is
not really a tax on the tollway user, but on the
tollway operator. Under Section 105 of the
Code, [31] VAT is imposed on any person who,
in the course of trade or business, sells or
renders services for a fee. In other words, the
seller of services, who in this case is the
tollway operator, is the person liable for VAT.
The latter merely shifts the burden of VAT to
the tollway user as part of the toll fees.
For this reason, VAT on tollway operations
cannot be a tax on tax even if toll fees were
deemed as a users tax. VAT is assessed
against the tollway operators gross receipts
and not necessarily on the toll fees. Although
the tollway operator may shift the VAT burden
to the tollway user, it will not make the latter
directly liable for the VAT. The shifted VAT
burden simply becomes part of the toll fees
that one has to pay in order to use the
tollways.

CIR vs. SM PRIME HOLDINGS, INC.

G.R. No. 193007 July 19, 2011
FACTS:
Respondents (SM Prime) and (First Asia) are
domestic corporations engaged in the
business of operating cinema houses, among
others.
CTA Case No. 7079
On September 26, 2003, the (BIR) sent SM
Prime a Preliminary Assessment Notice (PAN)
for value added tax (VAT) deficiency on
cinema
ticket
sales
in
the
amount
of P119,276,047.40 for taxable year 2000.[8] In
response, SM Prime filed a letter-protest
dated December 15, 2003.[9]
On December 12, 2003, the BIR sent SM
Prime a Formal Letter of Demand for the
alleged VAT deficiency, which the latter
protested in a letter dated January 14, 2004.
[10]

On September 6, 2004, the BIR denied the

protest filed by SM Prime and ordered it to
pay the VAT deficiency for taxable year 2000
in the amount of P124,035,874.12.[11]
CTA Case No. 7085
On May 15, 2002, the BIR sent First Asia
a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in
the
total
amount
of P35,823,680.93.

[13]

First Asia protested the PAN in a letter

dated July 9, 2002.[14]

which the latter protested through a letter

dated November 11, 2004.

Subsequently, the BIR issued a Formal Letter

of Demand for the alleged VAT deficiency
which was protested by First Asia in a letter
dated December 12, 2002.[15]

On May 11, 2005, the BIR rendered a Decision

denying the protests. It ordered First Asia to
pay
the
amounts
of P33,610,202.91
and P28,590,826.50 for VAT deficiency for
taxable years 2002 and 2003, respectively.

On September 6, 2004, the BIR rendered a

Decision denying the protest and ordering
First
Asia
to
pay
the
amount
of P35,823,680.93 for VAT deficiency for
taxable year 1999.[16]
CTA Case No. 7111
On April 16, 2004, the BIR sent a PAN to First
Asia for VAT deficiency on cinema ticket sales
for taxable year 2000 in the amount
of P35,840,895.78. First Asia protested
the
[18]
PAN through a letter dated April 22, 2004.
Thereafter, the BIR issued a Formal Letter of
Demand
for
alleged
VAT
deficiency.
[19]
First Asia protested the same in a letter
dated July 9, 2004.[20]
On October 5, 2004, the BIR denied the
protest and ordered First Asia to pay the VAT
deficiency in the amount of P35,840,895.78
for taxable year 2000.[21]
This prompted First Asia to file a Petition for
Review before the CTA on December 16,
2004. The case was docketed as CTA Case No.
7111.[22]

CTA Case No. 7272

Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket
sales for the taxable year 2002 in the total
amount of P32,802,912.21 was issued against
First Asia by the BIR. In response, First Asia
filed a protest-letter dated November 11,
2004. The BIR then sent a Formal Letter of
Demand, which was protested by First Asia
on December 14, 2004.[23]
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket
sales in the total amount of P28,196,376.46
for the taxable year 2003 was issued by the
BIR
against
First
Asia. In
a
letter
dated September 23,
2004,
First Asia
protested the PAN. A Formal Letter of Demand
was thereafter issued by the BIR to First Asia,

Ruling of the CTA First Division

On September 22, 2006, the First Division of
the CTA rendered a Decision granting the
Petition for Review. Resorting to the language
used and the legislative history of the law, it
ruled
that
the
activity
of
showing
cinematographic films is not a service covered
by VAT under the National Internal Revenue
Code (NIRC) of 1997, as amended, but an
activity subject to amusement tax under RA
7160, otherwise known as the Local
Government Code (LGC) of 1991. The CTA
First Division held that the House of
Representatives resolved that there should
only be one business tax applicable to
theaters and movie houses, which is the 30%
amusement tax imposed by cities and
provinces under the LGC of 1991. Further, it
held that consistent with the States policy to
have a viable, sustainable and competitive
theater and film industry, the national
government should be precluded from
imposing its own business tax in addition to
that already imposed and collected by local
government units. The CTA First Division
likewise found that Revenue Memorandum
Circular (RMC) No. 28-2001, which imposes
VAT on gross receipts from admission to
cinema houses, cannot be given force and
effect because it failed to comply with the
procedural due process for tax issuances
under RMC No. 20-86.
Ruling of the CTA En Banc
The CTA En Banc held that Section 108 of the
NIRC actually sets forth an exhaustive
enumeration of what services are intended to
be subject to VAT. And since the showing or
exhibition of motion pictures, films or movies
by cinema operators or proprietors is not
among
the
enumerated
activities
contemplated in the phrase sale or exchange
of services, then gross receipts derived by
cinema/ theater operators or proprietors from
admission tickets in showing motion pictures,
film or movie are not subject to VAT. It
reiterated that the exhibition or showing of
motion pictures, films, or movies is instead
subject to amusement tax under the LGC of
1991. As regards the validity of RMC No. 28-

2001, the CTA En Banc agreed with its First

Division that the same cannot be given force
and effect for failure to comply with RMC No.
20-86.
Petitioners Arguments
Petitioner argues that the enumeration of
services subject to VAT in Section 108 of the
NIRC is not exhaustive because it covers all
sales of services unless exempted by law. He
claims that the CTA erred in applying the rules
on statutory construction and in using
extrinsic aids in interpreting Section 108
because
the
provision
is
clear
and
unambiguous. Thus, he maintains that the
exhibition of movies by cinema operators or
proprietors to the paying public, being a sale
of service, is subject to VAT.
Respondents Arguments
Respondents, on the other hand, argue that a
plain reading of Section 108 of the NIRC of
1997 shows that the gross receipts of
proprietors or operators of cinemas/theaters
derived from public admission are not among
the services subject to VAT. Respondents
insist that gross receipts from cinema/theater
admission tickets were never intended to be
subject to any tax imposed by the national
government. According to them, the absence
of gross receipts from cinema/theater
admission tickets from the list of services
which are subject to the national amusement
tax under Section 125 of the NIRC of 1997
reinforces this legislative intent. Respondents
also highlight the fact that RMC No. 28-2001
on which the deficiency assessments were
based is an unpublished administrative ruling.
ISSUE:
Whether or not gross receipts of
proprietors
or
operators
of
cinemas/theaters derived from public
admission are among the services
subject to VAT?
RULING:
The enumeration of services subject to VAT
under Section 108 of the NIRC is not
exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services
and Use or Lease of Properties.

(A) Rate and Base of Tax. There shall be

levied, assessed and collected, a value-added
tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of
services, including the use or lease of
properties.
The
phrase sale
or
exchange
of
services means the performance of all kinds
of services in the Philippines for others for a
fee,
remuneration
or
consideration, including those performed or
rendered by construction and service
contractors; stock, real estate, commercial,
customs and immigration brokers; lessors of
property,
whether
personal
or
real;
warehousing
services; lessors
or
distributors
of
cinematographic
films; persons engaged in milling, processing,
manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels,
motels, rest houses, pension houses, inns,
resorts;
proprietors
or
operators
of
restaurants, refreshment parlors, cafes and
other eating places, including clubs and
caterers; dealers in securities; lending
investors; transportation contractors on their
transport of goods or cargoes, including
persons who transport goods or cargoes for
hire and other domestic common carriers by
land, air and water relative to their transport
of goods or cargoes; services of franchise
grantees of telephone and telegraph, radio
and television broadcasting and all other
franchise grantees except those under
Section 119 of this Code; services of banks,
non-bank financial intermediaries and finance
companies; and non-life insurance companies
(except their crop insurances), including
surety, fidelity, indemnity and bonding
companies; and similar services regardless
of whether or not the performance thereof
calls for the exercise or use of the physical or
mental faculties. The phrase sale or exchange
of services shall likewise include:
(1) The lease or the use of or the right or
privilege to use any copyright, patent, design
or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like
property or right;
(7) The lease of motion picture films,
films, tapes and discs; and
(8) The lease or the use of or the right to use
radio, television, satellite transmission and
cable television time
A cursory reading of the foregoing provision
clearly shows that the enumeration of the sale

or exchange of services subject to VAT is not

exhaustive. The words, including, similar
services, and shall likewise include, indicate
that the enumeration is by way of example
only.
Among those included in the enumeration is
the lease of motion picture films, films, tapes
and discs. This, however, is not the same as
the showing or exhibition of motion pictures
or films. As pointed out by the CTA En Banc:
Exhibition in Blacks Law Dictionary is defined
as To show or display. x x x To produce
anything in public so that it may be taken into
possession (6th ed., p. 573). While the word
lease is defined as a contract by which one
owning such property grants to another the
right to possess, use and enjoy it on specified
period of time in exchange for periodic
payment of a stipulated price, referred to as
rent (Blacks Law Dictionary, 6th ed., p. 889).
Since the activity of showing motion pictures,
films or movies by cinema/ theater operators
or proprietors is not included in the
enumeration, it is incumbent upon the court
to the determine whether such activity falls
under the phrase similar services. The intent
of the legislature must therefore be
ascertained.
The legislature never intended
operators
or proprietors of cinema/theater houses
to be covered by VAT
On October 10, 1991, the LGC of 1991 was
passed into law. The local government
retained the power to impose amusement tax
on proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses,
boxing stadia, and other places of amusement
at a rate of not more than thirty percent
(30%) of the gross receipts from admission
fees under Section 140 thereof. [50] In the case
of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors,
lessees, or operators and paid to the local
government before the gross receipts are
divided between said proprietors, lessees, or
operators and the distributors of the
cinematographic films. However, the provision
in the Local Tax Code expressly excluding the
national government from collecting tax from
the proprietors, lessees, or operators of
theaters, cinematographs, concert halls,
circuses and other places of amusements was
no longer included.
In 1994, RA 7716 restructured the VAT system
by widening its tax base and enhancing its
administration. Three years later, RA 7716
was amended by RA 8241. Shortly thereafter,
the NIRC of 1997[51] was signed into
law. Several amendments[52] were made to

expand the coverage of VAT. However, none

pertain to cinema/theater operators or
proprietors. At present, only lessors or
distributors of cinematographic films are
subject to VAT. While persons subject to
amusement tax[53] under the NIRC of 1997 are
exempt from the coverage of VAT.
To hold otherwise would impose an
unreasonable burden on cinema/theater
houses operators or proprietors, who would
be paying an additional 10%[55] VAT on top of
the 30% amusement tax imposed by Section
140 of the LGC of 1991, or a total of 40%
tax. Such imposition would result in injustice,
as persons taxed under the NIRC of 1997
would be in a better position than those taxed
under the LGC of 1991. We need not belabor
that a literal application of a law must be
rejected if it will operate unjustly or lead to
absurd results.[56] Thus, we are convinced that
the legislature never intended to include
cinema/theater operators or proprietors in the
coverage of VAT.
Revenue Memorandum Circular No. 282001 is invalid
Considering that there is no provision of law
imposing VAT on the gross receipts of
cinema/theater operators or proprietors
derived from admission tickets, RMC No. 282001 which imposes VAT on the gross receipts
from admission to cinema houses must be
struck down. We cannot overemphasize that
RMCs must not override, supplant, or modify
the law, but must remain consistent and in
harmony with, the law they seek to apply and
implement.[

FORT BONIFACIO DEV. CORP. vs. CIR

G.R. No. 173425

September 4,
2012

FACTS:
Petitioner was a real estate developer that
bought from the national government a parcel
of land that used to be the Fort Bonifacio
reservation, now For Bonifacio Global City. At

the time of the said sale there was as yet no

VAT imposed so Petitioner did not pay any VAT
on its purchase. Subsequently, Petitioner
started selling lots to interested buyers.
During this time, VAT was already in effect.
Realizing that its transitional input tax credit
was not applied in computing its output VAT
for the first quarter of 1997, petitioner on
November 17, 1998 filed with the BIR a claim
for
refund
of
the
amount
of
P
359,652,009.47 erroneously paid as output
VAT for the said period. BIR disallowed the
petitioner from claiming refund. It avers that
prior payment of taxes is necessary for the
availment of transitional input tax credit.
ISSUE:
Whether or not petitioner is entitled to
transitional input tax credit. If in the
affirmative, is the petitioner entitled to a
refund erroneously paid as output VAT.
HELD:
YES. Petitioner is entitled to claim transitional
input VAT.
SEC. 105. Transitional input tax credits.
A person who becomes liable to
value-added tax or any person who
elects to be a VAT-registered person
shall, subject to the filing of an
inventory as prescribed by regulations,
be allowed input tax on his beginning
inventory of goods, materials and
supplies equivalent to 8% of the value
of such inventory or the actual valueadded tax paid on such goods,
materials and supplies, whichever is
higher, which shall be creditable
against the output tax.
Contrary to the view of the CTA and the CA,
there is nothing in the above-quoted provision
to indicate that prior payment of taxes is
necessary for the availment of the 8%
transitional input tax credit. Obviously, all that
is required is for the taxpayer to file a
beginning inventory with the BIR.
If the intent of the law were to limit the input
tax to cases where actual VAT was paid, it
could have simply said that the tax base shall
be the actual value-added tax paid. Instead,
the law as framed contemplates a situation
where a transitional input tax credit is claimed
even if there was no actual payment of VAT in
the underlying transaction. In such cases, the
tax base used shall be the value of the
beginning inventory of goods, materials and
supplies.39
Moreover, prior payment of taxes is not
required to avail of the transitional input tax
credit because it is not a tax refund per se but
a tax credit. Tax credit is not synonymous to
tax refund. Tax refund is defined as the money
that a taxpayer overpaid and is thus returned
by the taxing authority.40 Tax credit, on the
other hand, is an amount subtracted directly
from ones total tax liability.41 It is any

amount given to a taxpayer as a subsidy, a

refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior
payment of taxes is not a prerequisite to avail
of a tax credit.
While a tax liability is essential to the
availment or use of any tax credit, prior tax
payments are not. On the contrary, for the
existence or grant solely of such credit,
neither a tax liability nor a prior tax payment
is needed. The Tax Code is in fact replete with
provisions granting or allowing tax credits,
even though no taxes have been previously
paid.

CITY OF MANILA vs. HON. CARIDAD

GRECIA-CUERDO
G.R. No. 175723 February 4, 2014
FACTS:
Petitioner City of Manila, through its
treasurer, petitioner Liberty Toledo,
assessed taxes for the taxable period
from January to December 2002
against the private respondents. In
addition to the taxes purportedly due
from private respondents pursuant to
Section 14, 15, 16, 17 of the Revised
Revenue Code of Manila (RRCM),
said assessment covered the local
business taxes. Private respondents
were constrained to pay the P
19,316,458.77
assessment
under
protest.

On
January
24,
2004,
private
respondents filed before the RTC of
Pasay City the complaint denominated
as one for Refund or Recovery of
Illegally and/or ErroneouslyCollected
Local Business Tax, Prohibition with
Prayer to Issue TRO and Writ of
Preliminary Injunction.

The RTC granted private respondents

application for a writ of preliminary
injunction.

Petitioners
filed
a
Motion
for
Reconsideration but the RTC denied.
Petitioners then filed a special civil
action for certiorari with the CA but the
CA dismissed petitioners petition
for certiorari holding that it has no
jurisdiction over the said petition.

The CA ruled that since appellate

jurisdiction over private respondents
complaint for tax refund, which was
filed with the RTC, is vested in the
Court of Tax Appeals (CTA), pursuant to
its
expanded
jurisdiction
under
Republic Act No. 9282 (RA 9282), it
follows
that
a
petition
for certiorari seeking nullification of an
interlocutory order issued in the said
case should, likewise, be filed with the
CTA.

Petitioners
filed
a
Motion
for
Reconsideration, but the CA denied it
in its Resolution hence, this petition

ISSUE:
Whether or not the CTA has
jurisdiction over a special civil
action for certiorari assailing an
interlocutory order issued by the
RTC in a local tax case.
HELD:
Petition is denied

The CTA has jurisdiction over a special

civil action for certiorari assailing an
interlocutory order issued by the RTC
in a local tax case. In order for any
appellate court to effectively exercise
its appellate jurisdiction, it must have
the authority to issue, among others, a
writ of certiorari. In transferring
exclusive jurisdiction over appealed
tax cases to the CTA, it can reasonably
be assumed that the law intended to
transfer also such power as is deemed
necessary, if not indispensable, in aid
of such appellate jurisdiction. There is
no perceivable reason why the transfer
should only be considered as partial,
not total.

Consistent
with
the
above
pronouncement, the Court has held as
early as the case of J.M. Tuason & Co.,
Inc. v. Jaramillo, et al. [118 Phil. 1022
(1963)] that if a case may be
appealed to a particular court or
judicial tribunal or body, then said
court or judicial tribunal or body has
jurisdiction to issue the extraordinary
writ of certiorari, in aid of its appellate
jurisdiction.
This
principle
was
affirmed in De Jesus v. Court of
Appeals (G.R. No. 101630, August 24,
1992) where the Court stated that a
court may issue a writ of certiorari in
aid of its appellate jurisdiction if said
court has jurisdiction to review, by
appeal or writ of error, the final orders
or decisions of the lower court.

(2) await the final decision of

the
Commissioner
on
the
disputed
assessments
and
appeal such final decision to
the Court of Tax Appeals within
30 days after receipt of a copy
of such decision. These options
are mutually exclusive and
resort
to
one
bars
the
application of the other.
Interpreting the above provision, the
taxpayer has two options in case of
inaction by the CIR. First is to appeal to
the CTA within 30 days from the lapse
of the 180 day period; or second, wait
for the CIR to issue the decision and
then appeal, if adverse, to the CTA
within 30 days from the receipt of the
decision by the taxpayer (because
even if the CIR failed to decide on the
case within the 180 day period, it can
still decide on it and may even issue a
favorable judgment to the taxpayer,
hence it may be logical to wait and
only appeal if the adverse decision is
actually received).
Therefore, as in Section 228, when the
law provided for the remedy to appeal
the inaction of the CIR, it did not
intend to limit it to a single remedy of
filing of an appeal after the lapse of
the 180-day prescribed period.
Precisely, when a taxpayer protested
an assessment, he naturally expects
the CIR to decide either positively or
negatively.
A taxpayer cannot be prejudiced if he
chooses to wait for the final decision of
the CIR on the protested assessment.
More so, because the law and
jurisprudence
have
always
contemplated a scenario where the CIR
will
decide
on
the
protested
assessment.
In the case at bar, LLCI chose to wait
for the CIR to decide on the case and it
did not appeal within 30 days from the
lapse of the 180-day period. LLCI
received the adverse decision of the
CIR on March 12, 1999. It appealed on
April 12, 1999 which is still within the
30-day period to appeal to the CTA.
The revenue regulation in question is
invalid because in effect, it limited the
remedy provided for by the law.
Section 228 of the NIRC prevails over
the said revenue regulation. The said
revenue regulation cannot validly take
away the option of the taxpayer to
continue waiting, even after the lapse
of the 180 day period, for the CIR to
decide on the case and just appeal,
within 30 days from receipt, if the
CIRs ruling is adverse.
It must however be noted that these
two remedies are mutually exclusive.
o

LASCONA LAND Co. Inc. vs. CIR

G.R. No. 171251 March 5, 2012
FACTS
The Commissioner of Internal Revenue
(CIR) issued an assessment against
Lascona Land Co., Inc. (Lascona)
informing the latter of its alleged
deficiency income tax for the year
1993 in the amount of P753,266.56.
Consequently, on April 20, 1998,
Lascona filed a letter protest, but was
denied by Norberto R. Odulio, Officerin-Charge (OIC), Regional Director,
Bureau of Internal Revenue, Revenue
Region No. 8, Makati City.
On April 12, 1999, Lascona appealed
the decision before the CTA.
Lascona alleged that the Regional
Director erred in ruling that the failure
to appeal to the CTA within thirty (30)
days from the lapse of the 180-day
period rendered the assessment final
and executory.
The CIR, however, maintained that
Lasconas failure to timely file an
appeal with the CTA after the lapse of
the 180-day reglementary period
provided under Section 228 of the
National Internal Revenue Code (NIRC)
resulted to the finality of the
assessment.
ISSUE
Whether the subject assessment
has become final, executory and
demandable due to the failure of
petitioner to file an appeal before
the CTA within thirty (30) days
from the lapse of the One Hundred
Eighty (180)-day period pursuant
to Section 228 of the NIRC.
HELD
NO.
The Court has held that in case the
Commissioner failed to act on the
disputed assessment within the 180day period from date of submission of
documents, a taxpayer can either:
o
(1) file a petition for review
with the Court of Tax Appeals
within 30 days after the
expiration of the 180-day
period; or

Petitioner wrote the respondents reiterating

its
request
to
reverse
the
disputed
assessments and invoking the DOJ legal
opinions which have been affirmed by
Secretary Gonzalez. Despite petitioners plea,
however, respondents refused to issue the
building permits for the construction of the
AUF Medical Center in the main campus and
renovation of a school building located at
Marisol Village. Petitioner then appealed the
matter to City Mayor Carmelo F. Lazatin but
no written response was received by
petitioner.
Consequently, petitioner paid under protest
the following:
Medical Center (new construction): Building
Permit and Electrical Fee for P 217,475.20,
Locational Clearance Fee for 283,741.64, Fire
Code Fee for 144,690.00 and a Total of P
645,906.84.

ANGELES UNIVERSITY vs. CITY OF

ANGELES
G.R. No. 189999 June 27, 2012
FACTS:
Petitioner Angeles University Foundation
(AUF) is an educational institution established
on May 25, 1962 and was converted into a
non-stock, non-profit education foundation
under the provisions of Republic Act (R.A.) No.
6055 on December 4, 1975.
Sometime in August 2005, petitioner filed
with the Office of the City Building Official an
application for a building permit for the
construction of an 11-storey building of the
Angeles University Foundation Medical Center
in its main campus located at MacArthur
Highway, Angeles City, Pampanga. Said office
issued a Building Permit Fee Assessment. An
Order of Payment was also issued by the City
Planning and Development Office requiring
petitioner to pay the Locational Clearance
Fee.
In separate letters dated November 15, 2005
addressed to respondents City Treasurer Juliet
G. Quinsaat and Acting City Building Official
Donato N. Dizon, petitioner claimed that it is
exempt from the payment of the building
permit and locational clearance fees, citing
legal opinions rendered by the Department of
Justice (DOJ).

School Building (renovation): Building Permit

and Electrical Fee for P 37,857.20, Locational
Clearance Fee for 6,000.57, Fire Code Fee for
5,967.7 and a Total of P 49,825.51
Petitioner likewise paid the following sums as
required by the City Assessors Office:
Real Property Tax Basic Fee for P 86,531.10,
SEF for 43,274.54, Locational Clearance Fee
for 1,125.00 and a Total P130,930.64.
[GRAND TOTAL - P 826,662.99]
On August 31, 2006, petitioner filed a
Complaint before the trial court seeking the
refund. On September 21, 2007, the trial
court rendered judgment in favor of the
petitioner and against the respondent.
Respondents appealed to the CA which
reversed the trial court, holding that while
petitioner is a tax-free entity, it is not exempt
from the payment of regulatory fees. The CA
noted that under R.A. No. 6055, petitioner was
granted exemption only from income tax
derived from its educational activities and real
property used exclusively for educational
purposes. Regardless of the repealing clause
in the National Building Code, the CA held
that petitioner is still not exempt because a
building permit cannot be considered as the
other charges mentioned in Sec. 8 of R.A. No.
6055 which refers to impositions in the nature
of tax, import duties, assessments and other
collections for revenue purposes, following
the ejusdem generisrule.
ISSUE 1:

Whether petitioner is exempt from the

payment of building permit and related
fees
imposed
under
the
National
Building Code.

rents or fees against persons or property,

while fee means a charge fixed by law or
ordinance for the regulation or inspection of a
business or activity.

HELD: NO .

That charges in its ordinary meaning appears

to be a general term which could cover a
specific fee does not support petitioners
position that building permit fees are among
those other charges from which it was
expressly exempted. Note that the other
charges mentioned in Sec. 8 of R.A. No. 6055
is qualified by the words imposed by the
Government on all x x x property used
exclusively for the educational activities of the
foundation. Building permit fees are not
impositions on property but on the activity
subject of government regulation. While it
may be argued that the fees relate to
particular properties, i.e., buildings and
structures, they are actually imposed on
certain activities the owner may conduct
either to build such structures or to repair,
alter, renovate or demolish the same. This is
evident from the following provisions of the
National Building Code:

R.A. No. 6055 granted tax exemptions to

educational institutions like petitioner which
converted to non-stock, non-profit educational
foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt
from the payment of all taxes, import duties,
assessments, and other charges imposed by
the Government onall income derived from or
property, real or personal, used exclusively for
the educational activities of the Foundation.
(Emphasis supplied.)
On February 19, 1977, Presidential Decree
(P.D.) No. 1096 was issued adopting the
National Building Code of the Philippines. The
said Code requires every person, firm or
corporation,
including
any
agency
or
instrumentality of the government to obtain a
building
permit
for
any
construction,
alteration or repair of any building or
structure.[19]Building permit refers to a
document issued by the Building Official x x x
to an owner/applicant to proceed with the
construction, installation, addition, alteration,
renovation,
conversion,
repair,
moving,
demolition or other work activity of a specific
project/building/structure or portions thereof
after the accompanying principal plans,
specifications and other pertinent documents
with the duly notarized application are found
satisfactory and substantially conforming with
the National Building Code of the Philippines x
x x and its Implementing Rules and
Regulations (IRR). Building permit fees refers
to the basic permit fee and other charges
imposed under the National Building Code.
Exempted from the payment of building
permit fees are: (1) public buildings and (2)
traditional indigenous family dwellings. Not
being expressly included in the enumeration
of structures to which the building permit fees
do not apply, petitioners claim for exemption
rests solely on its interpretation of the term
other charges imposed by the National
Government in the tax exemption clause of
R.A. No. 6055.
A charge is broadly defined as the price of, or
rate for, something, while the word fee
pertains to a charge fixed by law for services
of public officers or for use of a privilege
under control of government.As used in the
Local Government Code of 1991 (R.A. No.
7160), charges refers to pecuniary liability, as

Section 301. Building Permits:

No person,
firm or corporation, including any agency
orinstrumentality of the government shall
erect, construct, alter, repair, move, convert
or demolish any building or structure or
causethe same to be done without first
obtaining a building permittherefor from the
Building Official assigned in the place where
thesubject building is located or the building
work is to be done. (Italics supplied.)
That a building permit fee is a regulatory
imposition is highlighted by the fact that in
processing an application for a building
permit, the Building Official shall see to it that
the applicant satisfies and conforms with
approved standard requirements on zoning
and land use, lines and grades, structural
design, sanitary and sewerage, environmental
health, electrical and mechanical safety as
well as with other rules and regulations
implementing the National Building Code.[24]
Thus, ancillary permits such as electrical
permit, sanitary permit and zoning clearance
must also be secured and the corresponding
fees paid before a building permit may be
issued. And as can be gleaned from the
implementing rules and regulations of the
National Building Code, clearances from
various government authorities exercising and
enforcing
regulatory
functions
affecting
buildings/structures, like local government
units, may be further required before a
building permit may be issued.[25]

Since building permit fees are not

charges on property, they are not
impositions from which petitioner is
exempt.

use or principal use cannot be substituted for

the words used exclusively without doing
violence to the Constitutions and the law.
Solely is synonymous with exclusively.

ISSUE 2: Whether petitioners claim is

exempted from the payment of real
property tax assessed against its real
presently occupied by informal settlers.

What is meant by actual, direct and exclusive

use of the property for charitable purposes is
the direct and immediate and actual
application of the property itself to the
purposes for which the charitable institution is
organized. It is not the use of the income from
the real property that is determinative of
whether the property is used for tax-exempt
purposes.[32] (Emphasis and underscoring
supplied.)

HELD: No.
Section 28(3), Article
Constitution provides:

VI

of

the

1987

(3) Charitable institutions, churches and

parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands,
buildings,
and
improvements,
actually,
directly and exclusively used for religious,
charitable or educational purposes shall be
exempt from taxation.
Section 234(b) of the Local Government Code
of
1991
implements
the
foregoing
constitutional provision by declaring that -SECTION 234. Exemptions from Real Property
Tax. The following are exempted from
payment of the real property tax:
(b)
Charitable
institutions,
churches,
parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries
and all lands, buildings, and improvements
actually, directly, and exclusively used for
religious, charitable or educational purposes;
In Lung Center of the Philippines v. Quezon
City,[31] this Court held that only portions of
the hospital actually, directly and exclusively
used for charitable purposes are exempt from
real property taxes, while those portions
leased to private entities and individuals are
not exempt from such taxes. We explained the
condition for the tax exemption privilege of
charitable and educational institutions, as
follows:
Under the 1973 and 1987 Constitutions and
Rep. Act No. 7160 in order to be entitled to
the exemption, the petitioner is burdened to
prove, by clear and unequivocal proof, that (a)
it is a charitable institution; and (b) its real
properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes.
Exclusive is defined as possessed and enjoyed
to the exclusion of others; debarred from
participation or enjoyment; and exclusively is
defined, in a manner to exclude; as enjoying a
privilege exclusively. If real property is used
for one or more commercial purposes, it is not
exclusively used for the exempted purposes
but is subject to taxation. The words dominant

Petitioner failed to discharge its burden to

prove that its real property is actually, directly
and
exclusively
used
for
educational
purposes. While there is no allegation or proof
that petitioner leases the land to its present
occupants, still there is no compliance with
the constitutional and statutory requirement
that said real property is actually, directly and
exclusively used for educational purposes.
The respondents correctly assessed the land
for real property taxes for the taxable period
during which the land is not being devoted
solely to petitioners educational activities.
Accordingly, the CA did not err in ruling that
petitioner is likewise not entitled to a refund
of the real property tax it paid under protest.
WHEREFORE, the petition is DENIED. The
Decision dated July 28, 2009 and Resolution
dated October 12, 2009 of the Court of
Appeals in CA-G.R. CV No. 90591 are
AFFIRMED.

CITY OF IRIGA vs. CAM SUR III ELECTRIC

COOP.
G.R. No. 192945 September 5, 2012
Doctrine
The Court reiterates that a franchise tax is a
tax levied on the exercise by an entity of the
rights or privileges granted to it by the
government. In the absence of a clear and
subsisting legal provision granting it tax
exemption, a franchise holder, though nonprofit in nature, may validly be assessed
franchise tax by a local government unit.
FACTS:
CASURECO III is an electric cooperative duly
organized
and
existing
by
virtue
of
Presidential Decree (PD) 269,4rll as
amended, and registered with the National
Electrification Administration (NEA). It is
engaged in the business of electric power
distribution
to
various
end-users
and
consumers within the City of Iriga and the
municipalities of Nabua, Bato, Baao, Buhi,
Bula and Balatan of the Province of Camarines
Sur, otherwise known as the "Rinconada
area."5rllrll
Sometime in 2003, petitioner City of Iriga
required CASURECO III to submit a report of
its gross receipts for the period 1997-2002 to
serve as the basis for the computation of
franchise
taxes,
fees
and
other
charges.6rll The latter complied and was
subsequently assessed taxes.
On January 7, 2004, petitioner made a final
demand on CASURECO III to pay the franchise
taxes due for the period 1998-2003 and real
property taxes due for the period 19952003.8rll CASURECO III, however, refused
to pay said taxes on the ground that it is an
electric cooperative provisionally registered
with the Cooperative Development Authority
(CDA),9rll and therefore exempt from the
payment of local taxes.
On March 15, 2004, petitioner filed a
complaint for collection of local taxes against
CASURECO III before the RTC, citing its power
to tax under the Local Government Code
(LGC) and the Revenue Code of Iriga City.
It alleged that as of December 31, 2003,
CASURECO III's franchise and real property
taxes
liability,
inclusive
of
penalties,
surcharges and interest, amounted to
Seventeen Million Thirty-Seven Thousand Nine

Hundred Thirty-Six Pesos and Eighty-Nine

Centavos (P 17,037,936.89) and Nine
Hundred Sixteen Thousand Five Hundred
Thirty-Six Pesos and Fifty Centavos (P
916,536.50), respectively.
In its Answer, CASURECO III denied liability for
the assessed taxes, asserting that the
computation of the petitioner was erroneous
because it included 1) gross receipts from
service areas beyond the latters territorial
jurisdiction; 2) taxes that had already
prescribed; and 3) taxes during the period
when it was still exempt from local
government tax by virtue of its then
subsisting registration with the CDA.
RTC ruled that the real property taxes due for
the years 1995-1999 had already prescribed
in accordance with the LGC. However, it found
CASURECO III liable for franchise taxes for the
years 2000-2003 based on its gross receipts
from Iriga City and the Rinconada area on the
ground that the "situs of taxation is the place
where the privilege is exercised."
On appeal, the CA found CASURECO III to be a
non-profit entity, not falling within the purview
of "businesses enjoying a franchise" pursuant
to Section 137 of the LGC. It explained that
CASURECO
III's
non-profit
nature
is
diametrically opposed to the concept of a
"business," which, as defined under Section
131 of the LGC, is a "trade or commercial
activity regularly engaged in as a means of
livelihood or with a view to profit."
Consequently, it relieved CASURECO III from
liability to pay franchise taxes.
ISSUE 1:
Whether or not CASURECO is exempt
from franchise tax?
RULING:
NO. CASURECO III is not
payment of franchise tax

exempt

from

PD 269, which took effect on August 6, 1973,

granted electric cooperatives registered with
the NEA, like CASURECO III, several tax
privileges, one of which is exemption from the
payment of "all national government, local
government and municipal taxes and fees,
including franchise, filing, recordation, license
or permit fees or taxes."22rllrll
On March 10, 1990, Congress enacted into
law RA 6938, otherwise known as the
"Cooperative Code of the Philippines," and RA
693924 creating the CDA. The latter law
vested the power to register cooperatives
solely on the CDA, while the former provides

that electric cooperatives registered with the

NEA under PD 269 which opt not to register
with the CDA shall not be entitled to the
benefits and privileges under the said law.
On January 1, 1992, the LGC took effect, and
Section 193 thereof withdrew tax exemptions
or incentives previously enjoyed by "all
persons, whether natural or juridical, including
government-owned or controlled corporations,
except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and
non-profit
hospitals
and
educational
institutions."25rllrll
In Philippine Rural Electric Cooperatives
Association, Inc. (PHILRECA) v. The Secretary,
Department
of
Interior
and
Local
Government,26rll the Court held that the
tax privileges granted to electric cooperatives
registered with NEA under PD 269 were validly
withdrawn and only those registered with the
CDA under RA 6938 may continue to enjoy the
tax privileges under the Cooperative Code.
Therefore, CASURECO III can no longer
invoke PD 269 to evade payment of local
taxes.
Moreover,
its
provisional
registration with the CDA which granted
it exemption for the payment of local
taxes was extended only until May 4,
1992. Thereafter, it can no longer claim
any exemption from the payment of
local
taxes,
including
the
subject
franchise tax.
ISSUE 2:
Whether or not the city has the power to
impose local taxes?
RULING:
YES! Indisputably, petitioner has the power to
impose local taxes. The power of the local
government units to impose and collect taxes
is derived from the Constitution itself which
grants them "the power to create its own
sources of revenues and to levy taxes, fees
and charges subject to such guidelines and
limitation as the Congress may provide."This
explicit constitutional grant of power to tax is
consistent with the basic policy of local
autonomy
and
decentralization
of
governance.
With
this
power,
local
government units have the fiscal mechanisms
to raise the funds needed to deliver basic
services to their constituents and break the
culture of dependence on the national
government. Thus, consistent with these
objectives, the LGC was enacted granting the
local government units, like petitioner, the

power to impose and collect franchise tax, to

wit:
SEC. 137. Franchise Tax. - Notwithstanding
any exemption granted by any law or other
special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the
preceding calendar year based on the
incoming receipt, or realized, within its
territorial jurisdiction. xxx
SEC. 151. Scope of Taxing Powers. - Except as
otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the
province or municipality may impose:
Provided, however, That the taxes, fees and
charges levied and collected by highly
urbanized and independent component cities
shall accrue to them and distributed in
accordance with the provisions of this Code.
The rates of taxes that the city may levy may
exceed the maximum rates allowed for the
province or municipality by not more than fifty
percent (50%) except the rates of professional
and amusement taxes.

ISSUE 3:
Whether or not CASURECO is correct in
maintaining tah it is exempt from
payment of FRANCHISE tax because of
its nature as a non profit cooperative as
contemplated in PD 269, and insists that
only entities engaged in business, and
not non-profit entities like itself, are
subject to the said franchise tax.
RULING:
NO. The Court is not persuaded.
In National Power Corporation v. City of
Cabanatuan,29 the Court declared that "a
franchise tax is a tax on the privilege of
transacting business in the state and
exercising corporate franchises granted by
the state."30rll It is not levied on the
corporation simply for existing as a
corporation, upon its property or its income,
but on its exercise of the rights or privileges
granted to it by the government.31rll "It is
within this context that the phrase tax on
businesses enjoying a franchise in Section
137 of the LGC should be interpreted and
understood."32rllrll
Thus, to be liable for local franchise tax, the
following requisites should concur: (1) that
one has a "franchise" in the sense of a
secondary or special franchise; and (2) that it
is exercising its rights or privileges under this

franchise within the territory of the pertinent

local government unit.33rllrll
There is a confluence of these requirements in
the case at bar. By virtue of PD 269, NEA
granted CASURECO III a franchise to operate
an electric light and power service for a
period of fifty (50) years from June 6,
1979,34rll and it is undisputed that
CASURECO III operates within Iriga City and
the Rinconada area. It is, therefore, liable to
pay franchise tax notwithstanding its nonprofit nature.
ISSUE 4:
CASURECO III further argued that its
liability to pay franchise tax, if any,
should be limited to gross receipts
received from the supply of the
electricity within the City of Iriga and not
those from the Rinconada area.

RULING:
Again, the Court is not convinced.
It should be stressed that what the petitioner
seeks to collect from CASURECO III is a
franchise tax, which as defined, is a tax on
the exercise of a privilege. As Section
13735rll of the LGC provides, franchise tax
shall be based on gross receipts precisely
because it is a tax on business, rather than on
persons or property.36rll Since it partakes
of the nature of an excise tax/37rll the
situs of taxation is the place where the
privilege is exercised, in this case in the City
of Iriga, where CASURECO III has its principal
office and from where it operates, regardless
of the place where its services or products are
delivered. Hence, franchise tax covers all
gross receipts from Iriga City and the
Rinconada area.