Cases in Taxation_Assessment,Levy & Distraint

7/28/2019 Cases in Taxation_Assessment,Levy & Distraint

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Digested Cases in Taxation (on Assessment, Levy and Distraint, and Statute of

Limitations)

CIR vs. CA, Atlas Consolidated242 SCRA 289GR No. 104151 March 10, 1995"Assessments are prima facie presumed correct and made in good faith. So that, in the absence of

proof of any irregularities in the performance of official duties, an assessment will not bedisturbed."FACTS: The Commissioner of Internal Revenue served two notices and demand for payment ofthe respective deficiency ad valorem and business taxes for taxable years 1975 and 1976 againstthe respondent Atlas Consolidated Mining and Development Corporation (ACMDC). The latterprotested both assessments but the same were denied; hence it filed two separate petitions forreview in the Court of Tax Appeals. The CTA rendered a consolidated decision holding, interalia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975and 1976 thereby effectively sustaining the theory of ACMDC that in computing the ad valoremtax on copper mineral, the refining and smelting charges should be deducted, in addition to

freight and insurance charges.However, the tax court held ACMDC liable for the amount consisting of 25% surcharge forlate payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyriteextracted during certain periods, and for alleged deficiency manufacturer's sales tax and suchcontractor's tax for leasing out of its personal properties. ACDMC elevated the matter to theSupreme Court claiming that the leasing out was a mere isolated transaction, hence should not besubjected to contractor's tax.ISSUE: Is the claim of the private respondent, with respect to the contractor's tax, impressed withmerit?

HELD: No. It is being held that ACMDC was not a manufacturer subject to the percentage taximposed by Section 186 of the tax code. However such conclusion cannot be made with respectto the contractor's tax being imposed on ACMDC. It cannot validly claim that the leasing out ofits personal properties was merely an isolated transaction. Its book of accounts shows thatseveral distinct payments were made for the use of its personal properties such as its plane,motor boat and dump truck. The series of transactions engaged in by ACMDC for the lease of itsaforesaid properties could also be deduced from the fact that during the period there were profitsearned and reported therefore. The allegation of ACMDC that it did not realize any profit fromthe leasing out of its said personal properties, since its income therefrom covered only the costsof operation such as salaries and fuel, is not supported by any documentary or substantialevidence.

Assessments are prima facie presumed correct and made in good faith. Contrary to the theoryof ACMDC, it is the taxpayer and not the BIR who has the duty of proving otherwise. It is anelementary rule that in the absence of proof of any irregularities in the performance of officialduties, an assessment will not be disturbed. All presumptions are in favor of tax assessments.Verily, failure to present proof of error in assessments will justify judicial affirmance of saidassessment.

REPUBLIC vs. CA, and NIELSON & CO.,INC.149 SCRA 351GR No. L-38540 April 30, 1987


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"The follow-up letter reiterating demand for payment could be considered a notice of assessmentin itself if duly received by the taxpayer."FACTS: The petitioner sought the review on certiorari of the decision of the respondent Court ofAppeals reversing the decision of the then Court of First Instance of Manila which orderedprivate respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as advalorem tax, occupation fees, additional residence tax and 25% surcharge for late payment, for

the years 1949 to 1952. Petitioner claims that the demand letter of 16 July 1955 showed animprint indicating that the original thereof was released and mailed on 4 August 1955 by theChief, Records Section of the Bureau of Internal Revenue, and that the original letter was notreturned to said Bureau; thus, said demand letter must be considered to have been received bythe private respondent. According to petitioner, if service is made by ordinary mail, unless theactual date of receipt is shown, service is deemed complete and effective upon the expiration offive (5) days after mailing. As the letter of demand dated 16 July 1955 was actually mailed toprivate respondent, there arises the presumption that the letter was received by privaterespondent in the absence of evidence to the contrary. More so, where private respondent did notoffer any evidence, except the self-serving testimony of its witness, that it had not received theoriginal copy of the demand letter dated 16 July 1955.

ISSUE: Was notice of assessment or demand properly served to the respondent? Should thereceipt by the respondent of the succeeding follow-up demand notices be construed as receipt ofthe original demand?HELD: As to the first issue, no. As correctly observed by the respondent court in its appealeddecision, while the contention of petitioner is correct that a mailed letter is deemed received bythe addressee in the ordinary course of mail, still this is merely a disputable presumption, subjectto controversion, and a direct denial of the receipt thereof shifts the burden upon the partyfavored by the presumption to prove that the mailed letter was indeed received by the addressee.Since petitioner has not adduced proof that private respondent had in fact received the demand

letter of 16 July 1955, it can not be assumed that private respondent received said letter. As to thesecond issue, Yes. Records show that petitioner wrote private respondent a follow-up letter dated19 September 1956, reiterating its demand for the payment of taxes as originally demanded inpetitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessmentin itself which was duly received by private respondent in accordance with its own admission.And consequently, under Section 7 of Republic Act No. 1125, the assessment is appealable to theCourt of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure toappeal in due time, as in the case at bar, makes the assessment in question final, executory anddemandable. Thus, private respondent is now barred from disputing the correctness of theassessment or from invoking any defense that would reopen the question of its liability on themerits.

COLLECTOR OF INTERNAL REVENUE vs. VDA. DE CODIERA102 PHIL 1165GR No. L-9675, September 28, 1957"The property levied by a competent court may, with the consent thereof, be distrained, subjectto the prior lien of the attachment creditor."FACTS: The Collector of Internal Revenue sent a warrant of distraint and levy against theproperties of Restituto Codiera for collection of certain deficiency specific tax. However, itcould not be effected in view of the attachment of the said properties of the CFI-Manila ofanother case. After seven years, the Collector of Internal Revenue issued a warrant of distraint


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and levy commanding the City Treasurer of Cebu City to distrain the goods, chattels, or effectsand other personal property of whatever character, and levy upon the real property and interest inor rights to real property of the estate of the deceased. The heirs of the deceased filed the actionwith the CTA barring the government to collect said deficiency on the ground of prescriptiontherefore praying to declare null and void, and of no legal force and effect the warrant of distraintand levy which the respondent issued on March 7, 1955.

ISSUE: Does the attachment made by a court in a civil case over certain properties of a taxpayerbar the government from enforcing a warrant of distraint and levy over the aforesaid propertiesin order to collect the taxes due?HELD: No. There may be a valid reason for non-distraint of the property which was due to theattachment of the CFI-Manila in another case. However, such property levied by a competentcourt may, with the consent thereof, be subsequently distrained, subject to the prior lien of theattachment creditor. The attachment merely deprives the Collector of Internal Revenue the powerto divest the Court of its jurisdiction over said property but it does not impair such rights as theGovernment may have for the collection of taxes.

CABRERA vs. THE PROVINCIAL TREASURER OF TAYABASGR No. 502, January 29, 1946"The taxpayer should at least be apprised of the exact date of the proceeding by which she is tolose her property. Failure of the taxpayer to accordingly correct or change name in theassessment record cannot supplant such absence of notice."

FACTS: The Provincial Treasurer of Tayabas issued a notice for the sale at public auction of thereal properties of Nemesio Cabrera forfeited for tax delinquency on December 15, 1940. Theletter sent to Nemesio Cabrera was returned marked Unclaimed for the latter was already deadin 1935. The land was actually sold in a rescheduled public auction sale on May 1941 to

Catigbac and was finalized in May 1942. Basilia Cabrera, the registered owner of the landsubject to attachment, filed a complaint with the CFI-Tayabas against the Provincial Treasurerand Catigbac attacking the validity of the sale on the grounds that she was not notified, eventhough the property had remained in the assessment book in the name of Nemesio Cabrera,because she became the registered owner thereof since 1934 when a Torrens Title was issued toher by the Register of Deeds of Tayabas.ISSUE: Is there a need for new notices if the land was not sold on the date specified in theprevious notice?HELD: Yes. Under the law, even if the notice state that the sale would take place on a specifieddate and every day thereafter, it is a general and indefinite notice. In order to protect thetaxpayers rights, the taxpayer should at least be apprised of the exact date of the proceeding bywhich she is to lose her property. Besides, the appellee admittedly being not notified also vitiatesthe proceeding. She is the registered owner of the land and had become liable for taxes thereon.For all purposes, she is the delinquent taxpayer "against whom the taxes were assessed." Itcannot be Nemesio for the latter's obligation to pay ended where Basilia's liability began.

Basilia may be criticized for failure to have changed the name in the assessment record.However, such circumstance, nevertheless, cannot supplant the absence of notice.

MAMBULAO LUMBER CO. vs. REPUBLIC132 SCRA 1


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GR No. L-37061, September 5, 1984"Forest charges are internal revenue taxes and the BIR has the sole power and duty to collectthem. Thus, an assessment made by the Bureau of Forestry cannot be considered an assessmentmade by the BIR."

FACTS: The Bureau of Forestry sent a demand letter dated January 15, 1949 to MambulaoLumber Co. demanding for the payment of forest charges and surcharges. Mambulao protested

the assessment. On August 29,1958, the BIR likewise wrote a letter to the company demandingpayment, which subsequently requested reinvestigation. The BIR gave the company twenty (20)days from receipt within which to submit the results of its verification of payments. For failure tocomply and failure to pay its tax liability despite demands, CIR filed a complaint for collectionwith CFI-Manila on August 25, 1961. The CFI-Manila and Court of Appeals decided againstMambulao ordering it to pay the tax liability. Petitioner argued that the collection is barred bythe statute of limitations under Sections 332 of the NIRC. As stated, the collection should bemade within the five (5) year period. From 1949 (date when the Bureau of Forestry assessed anddemand payment as forestry charges and surcharges) up to 1961 (date of filing of complaint), itis already more than five years.

ISSUE: Has the period of filing of collection complaint prescribed?HELD: No. The action for collection is not barred by prescription. The basis of the complaintfiled on August 1961 was the demand letter made by the CIR on August 29, 1958 and not thedemand letter of the Bureau of Forestry on January 1949. So that the reckoning date of the 5-yearperiod should be from the date of the BIR letter and not that of the Bureau of Forestry. This mustbe so because forest charges are internal revenue taxes and the BIR has the sole power and dutyto collect them.

FERNANDOS HERMANOS, INC. vs. COMMISSIONER

29 SCRA 552GR No. No. L-21551, September 30, 1969"The filing of an answer to taxpayer's petition for review is considered as institution of judicialaction."FACTS: The Commissioner of Internal Revenue assessed the petitioner investment corporationof deficiency income taxes for the years 1950 to 1954 and for 1957. There were two conflictingdates of assessment, which are vital to the compliance with the statute of limitations, based oneach claim of the petitioner and the respondent; the Commisioner's record of date of assesment isFebruary 27, 1956 while the petitioner believes the demand was made on December 27, 1955 sothat, as the petitioner corporation claims, the Commissioner's action to recover its tax liabilityshould be deemed to have prescribed for failure on the part of the Commissioner to file acomplaint for collection against it in an appropriate civil action.ISSUE: Has the action for collection prescribed?HELD: No. It has been held that "a judicial action for the collection of a tax is begun by thefiling of a complaint with the proper court of first instance, or where the assessment is appealedto the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review whereinpayment of the tax is prayed for." This is but logical for where the taxpayer avails of the right toappeal the tax assessment to the Court of Tax Appeals, the said Court is vested with the authorityto pronounce judgment as to the taxpayer's liability to the exclusion of any other court. In thepresent case, regardless of whether the assessments were made on February 24 and 27, 1956, as


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claimed by the Commissioner, or on December 27, 1955 as claimed by the taxpayer, thegovernment's right to collect the taxes due has clearly not prescribed, as the taxpayer's appeal orpetition for review was filed with the Tax Court on May 4, 1960, with the Commissioner filingon May 20, 1960 his Answer with a prayer for payment of the taxes due, long before theexpiration of the five-year period to effect collection by judicial action counted from the date ofassessment.

REPUBLIC vs. ARANETA2 SCRA 144GR No. L-14142, May 30, 1961"Where the tax obligation is secured by a bond, the prescriptive period for the action for theforfeiture of the bond is governed by the Civil Code."FACTS: The Solicitor General, in behalf of the Republic of the Philippines, filed before CFI ofManila an action against the defendant Araneta, as principals, and Manila Surety, as surety, torecover the internal revenue taxes including surcharges, the payment of which was guaranteed bya bond executed when the first extrajudicial demand for payment was made. The appellant-

taxpayers contend that the appellee's cause of action has prescribed, because the action forrecovery of internal revenue taxes and surcharge due brought on 22 February 1957, was notcommenced within the period of five years after the assessment dated 15 May 1948 had beenmade, as provided for in Section 331 of the Tax Code.ISSUE: Has the action to recover the taxes due from the taxpayer and the surety alreadyprescribed?HELD: No. The appellant-taxpayers cannot invoke prescription under the provisions of Section331 of the NIRC because the government is suing on the bond executed and filed by them toguarantee payment in 6 monthly installments of the tax liability due from 1946 to 1948, which is

a separate and distinct obligation of the parties thereto. The action to enforce the obligation onthe bond executed on March 18, 1949, having been filed in court on February 22, 1957, waswithin the 10-year prescriptive period to enforce a written contractual obligation, as set by theCivil Code.

MARCOS II vs. CA273 SCRA 47GR No. 120880, June 5, 1997"The approval of the court sitting in probate is not a mandatory requirement in the collection ofestate taxes.""In case of failure to file a return, the tax may be assessed at anytime within 10 years after theomission."FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grantCIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his taxdelinquencies during the period of his exile in the US. The Marcos family was assessed by theBIR after it failed to file estate tax returns. However the assessment were not protestedadministratively by Mrs. Marcos and the heirs of the late president so that they became final andunappealable after the period for filing of opposition has prescribed. Marcos contends that theproperties could not be levied to cover the tax dues because they are still pending probate withthe court, and settlement of tax deficiencies could not be had, unless there is an order by theprobate court or until the probate proceedings are terminated.


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Petitioner also pointed out that applying Memorandum Circular No. 38-68, the BIR's Noticesof Levy on the Marcos properties were issued beyond the allowed period, and are therefore nulland void.ISSUE: Are the contentions of Bongbong Marcos correct?HELD: No. The deficiency income tax assessments and estate tax assessment are already final

and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by thegovernment, sanctioned by Section 213 and 218 of the National Internal Revenue Code. Thissummary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civilactions and Criminal actions), and is not affected or precluded by the pendency of any other taxremedies instituted by the government.

The approval of the court, sitting in probate, or as a settlement tribunal over the deceased'sestate is not a mandatory requirement in the collection of estate taxes. On the contrary, underSection 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize theexecutor or judicial administrator of the decedent's estate to deliver any distributive share to anyparty interested in the estate, unless it is shown a Certification by the Commissioner of InternalRevenue that the estate taxes have been paid. This provision disproves the petitioner's contention

that it is the probate court which approves the assessment and collection of the estate tax.On the issue of prescription, the omission to file an estate tax return, and the subsequent failureto contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as underSec.223 of the NIRC, in case of failure to file a return, the tax may be assessed at anytime within10 years after the omission, and any tax so assessed may be collected by levy upon real propertywithin 3 years (now 5 years) following the assessment of the tax. Since the estate tax assessmenthad become final and unappealable by the petitioner's default as regards protesting the validity ofthe said assessment, there is no reason why the BIR cannot continue with the collection of thesaid tax.

REPUBLIC vs. HIZON320 SCRA 574GR No. 130430, December 13, 1999"A request for reconsideration of the tax assessment does not effectively suspend the running ofthe precriptive period if the same is filed after the assessment had become final andunappealable."FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income taxassessment covering the fiscal year 1981-1982. Respondent not having contested the assessment,petitioner BIR, on January 12, 1989, served warrants of distraint and levy to collect the taxdeficiency. However, for reasons not known, it did not proceed to dispose of the attachedproperties.

More than three years later, the respondent wrote the BIR requesting a reconsideration of hertax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. OnJanuary 1, 1997, it filed a case with the RTC to collect the tax deficiency. Hizon moved todismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIRCommissioner as required by Sec. 221 of the NIRC, and (2) that the action had alreadyprescribed. Over petitioner's objection, the trial court granted the motion and dismissed thecomplaint.

BIR on the other hand contends that respondent's request for reinvestigation of her taxdeficiency assessment on November 1992 effectively suspended the running of the period ofprescription.


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ISSUE: Has the action for collection of the tax prescribed?HELD: Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must be madewithin 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise theassessment becomes final, unappealable and, therefore, demandable. The notice of assessmentfor respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand,respondent made her request for reconsideration thereof only on November 3, 1992, without

stating when she received the notice of tax assessment. Hence, her request for reconsiderationdid not suspend the running of the prescriptive period provided under Sec. 223(c). Although theCommissioner acted on her request by eventually denying it on August 11, 1994, this is of nomoment and does not detract from the fact that the assessment had long become demandable.

CIR vs. VILLA22 SCRA 3GR No. L-23988, January 2, 1968"What may be the subject of a judicial review is the decision of the Commissioner on the protestagainst assessment, not the assessment itself."

FACTS: The spouses Villa filed joint income tax returns for the years 1951 to 1956. The BIRissued assessments for deficiency of income tax for the said years. Without contesting the saidassessments with the CIR, they filed a petition for review with the CTA. The CTA tookcognizance of the of the appeal and rendered favorable judgment to the spouses. The CIRappealed to the SC questioning the jurisdiction of the CTA.ISSUE: Is an appeal to the CTA proper in this case? Is the CTA vested with jurisdiction?HELD: No. The rule is that where a taxpayer questions an assessment and asks the Collector toreconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the

assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayercan appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on thedisputed assessment. Since in the instant case the taxpayer appealed the assessment of theCommissioner of Internal Revenue without previously contesting the same, the appeal waspremature and the Court of Tax Appeals had no jurisdiction to entertain said appeal. For, asstated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal Revenue ondisputed assessments. The Tax Court is a court of special jurisdiction. As such, it can takecognizance only of such matters as are clearly within its jurisdiction.

2006 Taxation Case Digests

PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OFINTERNAL REVENUEGR. No. 155541. January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs weremanaged by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 buttwo days after her death, PhilTrust filed her income tax return for 1978 not indicating that the


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decedent had died. The BIR conducted an administrative investigation of the decedents taxliability and found a deficiency income tax for the year 1997 in the amount of P318,233.93.Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessmentnotice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address statedin her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenueissued warrants of distraint and levy to enforce the collection of decedents deficiency incometax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984,

Commissioner filed a motion to allow his claim with probate court for the deficiency tax. TheCourt denied BIRs claim against the estate on the ground that no proper notice of the taxassessment was made on the proper party. On appeal, the CA held that BIRs service onPhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legalduty to inform the respondent of antecedents death. Consequently, as the estate failed toquestion the assessment within the statutory period of thirty days, the assessment became final,executory, and incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessmenton Juliana through PhilTrust was a valid service as to bind the estate.(2) Whether or not the CA erred in holding that the tax assessment had become final, executory,

and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically severedthe moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind theestate of the taxpayer. Although the administrator of the estate may have been remiss in his legalobligation to inform respondent of the decedents death, the consequence thereof merely refer tothe imposition of certain penal sanction on the administrator. These do not include the indefinitetolling of the prescriptive period for making deficiency tax assessment or waiver of the noticerequirement for such assessment.(2) The assessment was served not even on an heir or the estate but on a completely disinterestedparty. This improper service was clearly not binding on the petitioner. The most crucial point to

be remembered is that PhilTust had absolutely no legal relationship with the deceased or to herEstate. There was therefore no assessment served on the estate as to the alleged underpayment oftax. Absent this assessment, no proceeding could be initiated in court for collection of said tax;therefore, it could not have become final, executory and incontestable. Respondents claim forcollection filed with the court only on November 22, 1984 was barred for having been madebeyond the five-year prescriptive period set by law.

TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES OF ELECTRICCOOPERATIVES BY THE LOCAL GOVERNMENT CODE

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THESECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENTGR. No. 143076. June 10, 2003

Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf ofother electric cooperatives organized and existing under PD 269 which are members of petitionerPhilippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners,electric cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO1) are non-stock, non-profit electric cooperatives organized and existing under PD 269, asamended, and registered with the National Electrification Administration (NEA).Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all NationalGovernment, local government, and municipal taxes and fee, including franchise, flingrecordation, license or permit fees or taxes and any fees, charges, or costs involved in any court


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or administrative proceedings in which it may be party.From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, asamended, the Philippine Government, acting through the National Economic council (nowNational Economic Development Authority) and the NEA, entered into six loan agreements withthe government of the United States of America, through the United States Agency forInternational Development (USAID) with electric cooperatives as beneficiaries. The loanagreements contain similarly worded provisions on the tax application of the loan and any

property or commodity acquired through the proceeds of the loan.Petitioners allege that with the passage of the Local Government Code their tax exemptions havebeen validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of thesaid code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to allpersons, whether natural or juridical, except cooperatives duly registered under RA 6938, whileSec. 234 exempts the same cooperatives from payment of real property tax.

Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equalprotection clause since the provisions unduly discriminate against petitioners who are dulyregistered cooperatives under PD 269, as amended, and no under RA 6938 or the CooperativesCode of the Philippines?

(2) Is there an impairment of the obligations of contract under the loan entered into between thePhilippine and the US Governments?

Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on areasonable classification. Classification, to be reasonable must (a) rest on substantialclassifications; (b) germane to the purpose of the law; (c) not limited to the existing conditionsonly; and (d) apply equally to all members of the same class. We hold that there is reasonableclassification under the Local Government Code to justify the different tax treatment betweenelectric cooperatives covered by PD 269 and electric cooperatives under RA 6938.First, substantial distinctions exist between cooperatives under PD 269 and those under RA6938. In the former, the government is the one that funds those so-called electric cooperatives,

while in the latter, the members make equitable contribution as source of funds.a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to makeequitable contributions to capital. Petitioners themselves admit that to qualify as a member of anelectric cooperative under PD 269, only the payment of a P5.00 membership fee is requiredwhich is even refundable the moment the member is no longer interested in getting electricservice from the cooperative or will transfer to another place outside the area covered by thecooperative. However, under the Cooperative Code, the articles of cooperation of a cooperativeapplying for registration must be accompanied with the bonds of the accountable officers and asworn statement of the treasurer elected by the subscribers showing that at least 25% of theauthorized share capital has been subscribed and at least 25% of the total subscription has beenpaid and in no case shall the paid-up share capital be less than P2,000.00.b. Extent of Government Control over Cooperatives The extent of government control overelectric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primarysource of funds of these electric cooperatives. It is crystal clear that NEA incurred loans fromvarious sources to finance the development and operations of these electric cooperatives.Consequently, amendments were primarily geared to expand the powers of NEA over the electriccooperatives o ensure that loans granted to them would be repaid to the government. In contrast,cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizationswith minimal government intervention or regulation.Second, the classification of tax-exempt entities in the Local Government Code is germane to thepurpose of the law. The Constitutional mandate that every local government unit shall enjoylocal autonomy, does not mean that the exercise of the power by the local governments isbeyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to


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vet broad taxing powers upon the local government units and to limit exemptions from localtaxation to entities specifically provided therein.Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions arenot limited to existing conditions and apply equally to all members of the same class.

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment ofthe obligations of contracts does not prohibit every change in existing laws. To fall within the

prohibition, the change must not only impair the obligation of the existing contract, but theimpairment must be substantial. Moreover, to constitute impairment, the law must affect achange in the rights of the parties with reference to each other and not with respect to non-parties.The quoted provision under the loan agreement does not purport to grant any tax exemption infavor of any party to the contract, including the beneficiaries thereof. The provisions simply shiftthe tax burden, if any, on the transactions under the loan agreements to the borrower and/orbeneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of theborrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption isgranted therein.

TARIFF AND CUSTOMS LAWS; PRIMARY JURISDICTION OVER SEIZURE ANDFORFEITURE CASES

Chief State Prosecutor JOVENCITO R. ZUO, ATTY. CLEMENTE P. HERALDO, Chief ofthe Internal Inquiry and Prosecution Division-customs Intelligence and Investigation Service(IIPD-CIIS), and LEONITO A. SANTIAGO, Special Investigator of the IIPD-CIIS vs. JUDGEARNULFO G. CABREDO, Regional Trial Court, Branch 15, Tabaco City, AlbayAM. No. RTJ-03-1779, April 30, 2003

Facts: Atty. Winston Florin, the Deputy Collector of Customs of the Sub-Port of Tabaco, Albay,

issued on September 3, 2001 Warrant of Seizure and Detention (WSD) No. 06-2001against ashipment of 35, 000 bags of rice aboard the vessel M/V Criston for violation of Sec. 2530 of theTariff and Customs Code of the Philippines (TCCP).A few days, after the issuance of the warrant of seizure and detention, Antonio Chua, Jr. andCarlos Carillo, claiming to be consignees of the subject goods, filed before the Regional TrialCourt of Tabaco City, Albay a Petition with Prayer for the Issuance of Preliminary Injunctionand Temporary Restraining Order (TRO). The said petition sought to enjoin the Bureau ofCustoms and its officials from detaining the subject shipment.By virtue of said TRO, the 35,000 bags of rice were released from customs to Antonio Chua, Jr.and Carlos Carillo.In his complaint, Chief State Prosecutor Zuo alleged that respondent Judge violatedAdministrative Circular No. 7-99, which cautions trial court judges in their issuance of TROsand writs of preliminary injunctions. Said circular reminds judges of the principle, enunciated inMison vs. Natividad, that the Collector of Customs has exclusive jurisdiction over seizure andforfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle orput it to naught.

Issue: Whether or not the issuance of the TRO was illegal and beyond the jurisdiction of theRTC.

Held: The collection of duties and taxes due on the seized goods is not the only reason why trialcourts are enjoined from issuing orders releasing imported articles under seizure and forfeitureproceedings by the Bureau of Customs. Administrative Circular No. 7-99 takes into account the


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fact that the issuance of TROs and the granting of writs of preliminary injunction in seizure andforfeiture proceedings before the Bureau of Customs may arouse suspicion that the issuance orgrant was fro considerations other than the strict merits of the case. Furthermore, respondentJudges actuation goes against settled jurisprudence that the Collector of Customs has exclusivejurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with hisexercise thereof or stifle and put it to naught.Respondent Judge cannot claim that he issued the questioned TRO because he honestly believed

tat the Bureau of Customs was effectively divested of its jurisdiction over the seized shipment.Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdictionover seizure and forfeiture cases, a taint of illegality is correctly imputed, the most that can besaid is that under these circumstance, grave abuse of discretion may oust it of its jurisdiction.This does mean, however, that the trial court is vested with competence to acquire jurisdictionover these seizure and forfeiture cases. The proceedings before the Collector of Customs are notfinal. An appeal lies to the Commissioner of Customs and, thereafter, to the Court of TaxAppeals. It may even reach this Court through an appropriate petition for review. Certainly, theRTC is not included therein. Hence, it is devoid of jurisdiction.Clearly, therefore, respondent Judge had no jurisdiction to take cognizance of the petition andissue the questioned TRO.

It is a basic principle that the Collector of Customs has exclusive jurisdiction over seizure andforfeiture proceedings of dutiable goods. A studious and conscientious judge can easily beconversant with such an elementary rule.

NATURE OF FRANCHISE TAX; TAX EXEMPTION; WITHDRAWAL OF TAXPRIVILEGES BY THE LOCAL GOVERNMENT CODE

NATIONAL POWER CORPORATION vs. CITY OF CABANATUANGR. No. 149110, April 9, 2003

Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created

under Commonwealth Act 120. It is tasked to undertake the development of hydroelectricgenerations of power and the production of electricity from nuclear, geothermal, and othersources, as well as, the transmission of electric power on a nationwide basis.For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting agross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, therespondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75%of 1% of the formers gross receipts for the preceding year.Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government,refused to pay the tax assessment. It argued that the respondent has no authority to impose tax ongovernment entities. Petitioner also contend that as a non-profit organization, it is exempted fromthe payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395,as amended.The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitionerpay the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthlyinterest. Respondent alleged that petitioners exemption from local taxes has been repealed bySec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing thecase. On appeal, the Court of Appeals reversed the decision of the RTC and ordered thepetitioner to pay the city government the tax assessment.

Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because itsstocks are wholly owned by the National Government and its charter characterized is as a non-profit organization?(2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the


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Local Government Code (LGC)?

Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on theexercise by the corporation of a privilege to do business. The taxable entity is the corporationwhich exercises the franchise, and not the individual stockholders. By virtue of its charter,petitioner was created as a separate and distinct entity from the National Government. It can sueand be sued under its own name, and can exercise all the powers of a corporation under the

Corporation Code.To be sure, the ownership by the National Government of its entire capital stock does notnecessarily imply that petitioner is no engage din business.(2) YES. One of the most significant provisions of the LGC is the removal of the blanketexclusion of instrumentalities and agencies of the National Government from the coverage oflocal taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of anykind on the National Government, its agencies and instrumentalities, this rule now admits anexception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, orcharges on the aforementioned entities. The legislative purpose to withdraw tax privilegesenjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137and 193 categorically withdrawing such exemption subject only to the exceptions enumerated.

Since it would be tedious and impractical to attempt to enumerate all the existing statutesproviding for special tax exemptions or privileges, the LGC provided for an express, albeitgeneral, withdrawal of such exemptions or privileges. No more unequivocal language could havebeen used.

TAX EXEMPTIONS vs. TAX EXCLUSION; IN LIEU OF ALL TAXES PROVISION

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) vs. CITY OFDAVAO and ADELAIDA B. BARCELONA, in her capacity as City Treasurer of DavaoGR. No. 143867, March 25, 2003

Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchisetax was paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA 7082. Theexemption from all taxes on this franchise or earnings thereof was subsequently withdrawn byRA 7160 (LGC), which at the same time gave local government units the power to taxbusinesses enjoying a franchise on the basis of income received or earned by them within theirterritorial jurisdiction. The LGC took effect on January 1, 1992.The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides:Notwithstanding any exemption granted by law or other special laws, there is hereby imposed atax on businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%)of the gross annual receipts for the preceding calendar year based on the income receipts realizedwithin the territorial jurisdiction of Davao City.Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe)and Smart Information Technologies, Inc. (Smart) franchises which contained in leiu of alltaxes provisos.In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23of which provides that any advantage, favor, privilege, exemption, or immunity granted underexisting franchises, or may hereafter be granted, shall ipso facto become part of previouslygranted telecommunications franchises and shall be accorded immediately and unconditionally tothe grantees of such franchises. The law took effect on March 16, 1995.In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange,it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDTchallenged the power of the city government to collect the local franchise tax and demanded arefund of what had been paid as a local franchise tax for the year 1997 and for the first to the


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third quarters of 1998.

Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemptionfrom payment of the local franchise tax in view of the grant of tax exemption to Globe andSmart.

Held: Petitioner contends that because their existing franchises contain in lieu of all taxes

clauses, the same grant of tax exemption must be deemed to have become ipso facto part of itspreviously granted telecommunications franchise. But the rule is that tax exemptions should begranted only by a clear and unequivocal provision of law expressed in a language too plain tobe mistaken and assuming for the nonce that the charters of Globe and of Smart grant taxexemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear andunequivocal way of communicating the legislative intent.Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers toexemption from regulations and requirements imposed by the National TelecommunicationsCommission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exemptany specific telecommunications service from its rate or tariff regulations if the service hassufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted

by the law in line with its policy of deregulation is the exemption from the requirement ofsecuring permits from the NTC every time a telecommunications company imports equipment.Tax exemptions should be granted only by clear and unequivocal provision of law on the basis oflanguage too plain to be mistaken.

REMEDIES OF A TAXPAYER UNDER THE NIRC; POWER OF THE CTA TO REVIEWRULINGS OR OPINIONS OF COMMISSIONER

COMMISSIONER OF INTERNAL REVENUE vs. LEALGR. No. 113459, November 18, 2002

Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on dealers insecurities and lending investors, the Commissioner of Internal Revenue issued MemorandumOrder (RMO) No. 15-91 dated March 11, 1991, imposing five percent (5%) lending investorstax on pawnshops based on their gross income and requiring all investigating units of the Bureauto investigate and assess the lending investors tax due from them. The issuance of RMO No. 15-91 was an offshoot of petitioners evaluation that the nature of pawnshop business is akin to thatof lending investors.Subsequently, petitioner issued Revenue Memorandum Circular No. 43-91 dated May 27, 1992,subjecting the pawn ticket to the documentary stamp tax as prescribed in Title VII of the TaxCode.Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operatorof Josefina Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91and RMC No. 43-91 but the same was denied with finality by petitioner in October 30, 1991.Consequently, on March 18, 1992, respondent filed with the RTC a petition for prohibitionseeking to prohibit petitioner from implementing the revenue orders.Petitioner, through the Office of the Solicitor-General, filed a motion to dismiss the petition onthe ground that the RTC has no jurisdiction to review the questioned revenue orders and toenjoin their implementation. Petitioner contends that the subject revenue orders were issuedpursuant to his power to make rulings or opinions in connection with the Implementation of theprovisions of internal revenue laws. Thus, the case falls within the exclusive appellatejurisdiction of the Court of Tax Appeals, citing Sec. 7(1) of RA 1125.The RTC issued an order denying the motion to dismiss holding that the revenue orders are notassessments to implement a Tax Code provision, but are in effect new taxes (against


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pawnshops) which are not provided for under the Code, and which only Congress is empoweredto impose. The Court of Appeals affirmed the order issued by the RTC.

Issue: Whether or not the Court of Tax Appeals has jurisdiction to review rulings of theCommissioner implementing the Tax Code.

Held: The jurisdiction to review rulings of the Commissioner pertains to the Court of Tax

Appeals and NOT to the RTC. The questioned RMO and RMC are actually rulings or opinionsof the Commissioner implementing the Tax Code on the taxability of the Pawnshops.Under RA 1125, An Act Creating the Court of Tax Appeals, such rulings of the Commissioner ofInternal Revenue are appealable to that court:Sec. 7 Jurisdiction The Court of Tax Appeals shall exercise exclusive appellate jurisdiction toreview by appeal, as herein provided1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, orother matters arising under the National Revenue Code or other laws or part of law administeredby the Bureau of Internal Revenue.xxxxxx

tax remedies; section 220; who should institute appeal in tax cases

COMMISSIONER OF INTERNAL REVENUE vs. LA SUERTE CIGAR AND CIGARETTEFACTORYGR. No. 144942, July 4, 2002

Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the Petition forReview on Certiorari submitted by the Commissioner of Internal Revenue for non-compliancewith the procedural requirement of verification explicit in Sec. 4, Rule 7 of the 1997 Rules ofCivil Procedure and, furthermore, because the appeal was not pursued by the Solicitor-General.

When the motion for reconsideration filed by the petitioner was likewise denied, petitioner filedthe instant motion seeking an elucidation on the supposed discrepancy between thepronouncement of this Court, on the one hand that would require the participation of the Officeof the Solicitor-General and pertinent provisions of the Tax Code, on the other hand, that allowlegal officers of the Bureau of Internal Revenue (BIR) to institute and conduct judicial action inbehalf of the Government under Sec, 220 of the Tax Reform Act of 1997.

Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (asdistinguished from commencement of proceeding) without the participation of the Solicitor-General?

Held: NO. The institution or commencement before a proper court of civil and criminal actionsand proceedings arising under the Tax Reform Act which shall be conducted y legal officers ofthe Bureau of Internal Revenue is not in dispute. An appeal from such court, however, is not amatter of right. Sec. 220 of the Tax Reform Act must not be understood as overturning the long-established procedure before this Court in requiring the Solicitor-General to represent the interestof the Republic. This court continues to maintain that it is the Solicitor-General who has theprimary responsibility to appear for the government in appellate proceedings. Thispronouncement finds justification in the various laws defining the Office of the Solicitor-General, beginning with Act No. 135, which took effect on 16 June 1901, up to the presentAdministrative Code of 1987. Sec. 35, Chapter 12, Title III, Book IV of the said code outlinesthe powers and functions of the Office of the Solicitor General which includes, but not limited to,its duty to


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1. Represent the Government in the Supreme Court and the Court of Appeals in all criminalproceedings; represent the Government and its officers in the Supreme Court, the Court ofAppeals, and all other courts or tribunals in all civil actions and special proceedings in which theGovernment or any officer thereof in his official capacity is a party.2. Appear in any court in any action involving the validity of any treaty, law, executive order, orproclamation, rule or regulation when in his judgment his intervention is necessary or whenrequested by the Court.

TAX EXEMPTIONS; EXECUTIVE LEGISLATION

COCONUT OIL REFINERS ASSOCIATION, INC. et al vs. RUBEN TORRES, as ExecutiveSecretary, et alG.R. No. 132527. July 29, 2005

Facts: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, thesound and balanced conversion of the Clark and Subic military reservations and their extensionsinto alternative productive uses in the form of special economic zones in order to promote theeconomic and social development of Central Luzon in particular and the country in general. The

law contains provisions on tax exemptions for importations of raw materials, capital andequipment. After which the President issued several Executive Orders as mandated by the lawfor the implementation of RA 7227. Herein petitioners contend the validity of the tax exemptionprovided for in the law.

Issue: Whether or not the Executive Orders issued by President for the implementation of the taxexemptions constitutes executive legislation.

Held: To limit the tax-free importation privilege of enterprises located inside the specialeconomic zone only to raw materials, capital and equipment clearly runs counter to the intentionof the Legislature to create a free port where the free flow of goods or capital within, into, and

out of the zones is insured.The phrase tax and duty-free importations of raw materials, capital and equipment was merelycited as an example of incentives that may be given to entities operating within the zone. Publicrespondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, onwhich petitioners impliedly rely to support their restrictive interpretation, does not apply whenwords are mentioned by way of example. It is obvious from the wording of RA No. 7227,particularly the use of the phrase such as, that the enumeration only meant to illustrateincentives that the SSEZ is authorized to grant, in line with its being a free port zone.The Court finds that the setting up of such commercial establishments which are the only onesduly authorized to sell consumer items tax and duty-free is still well within the policy enunciatedin Section 12 of RA No. 7227 that . . .the Subic Special Economic Zone shall be developed intoa self-sustaining, industrial, commercial, financial and investment center to generate employmentopportunities in and around the zone and to attract and promote productive foreign investments.However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of ExecutiveOrder No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in alimited amount, from the Secured Area of the SSEZ, are null and void for being contrary toSection 12 of RA No. 7227. Said Section clearly provides that exportation or removal of goodsfrom the territory of the Subic Special Economic Zone to the other parts of the Philippineterritory shall be subject to customs duties and taxes under the Customs and Tariff Code andother relevant tax laws of the Philippines.

TAX EXEMPTIONS; NULLITY OF TAX DECLARATIONS AND TAX ASSESSMENTS


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RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), vs. PROVINCIALASSESOR OF SOUTH COTABATO, et al.G.R. No. 144486. April 13, 2005

Facts: RCPI was granted a franchise under RA 2036, the law provides tax exemption for severalproperties of the company. Section 14 of RA 2036 reads: In consideration of the franchise andrights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall

pay the same taxes as are now or may hereafter be required by law from other individuals, copartnerships, private, public or quasi-public associations, corporations or joint stock companies,on real estate, buildings and other personal property except radio equipment, machinery andspare parts needed in connection with the business of the grantee, which shall be exempt fromcustoms duties, tariffs and other taxes, as well as those properties declared exempt in this section.In consideration of the franchise, a tax equal to one and one-half per centum of all gross receiptsfrom the business transacted under this franchise by the grantee shall be paid to the Treasurer ofthe Philippines each year, within ten days after the audit and approval of the accounts asprescribed in this Act. Said tax shall be in lieu of any and all taxes of any kind, nature ordescription levied, established or collected by any authority whatsoever, municipal, provincial ornational, from which taxes the grantee is hereby expressly exempted. Thereafter, the municipal

treasurer of Tupi, South Cotabato assessed RCPI real property taxes from 1981 to 1985. Themunicipal treasurer demanded that RCPI pay P166,810 as real property tax on its radio stationbuilding in Barangay Kablon, as well as on its machinery shed, radio relay station tower and itsaccessories, and generating sets. The Local Board of Assessment Appeals affirmed theassessment of the municipal treasurer. When the case reach the C A, it ruled that, petitioner isexempt from paying the real property taxes assessed upon its machinery and radio equipmentmounted as accessories to its relay tower. However, the decision assessing taxes uponpetitioners radio station building, machinery shed, and relay station tower is valid.

Issue: (1) Whether or not appellate court erred when it excluded RCPIs tower, relay stationbuilding and machinery shed from tax exemption.

(2) Whether or not appellate court erred when it did not resolve the issue of nullity of the taxdeclarations and assessments due to non-inclusion of depreciation allowance.

Held: (1) RCPIs radio relay station tower, radio station building, and machinery shed are realproperties and are thus subject to the real property tax. Section 14 of RA 2036, as amended byRA 4054, states that in consideration of the franchise and rights hereby granted and anyprovision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are nowor may hereafter be required by law from other individuals, co partnerships, private, public orquasi-public associations, corporations or joint stock companies, on real estate, buildings andother personal property. The clear language of Section 14 states that RCPI shall pay the realestate tax.(2) The court held the assessment valid. The court ruled that, records of the case shows thatRCPI raised before the LBAA and the CBAA the nullity of the assessments due to the non-inclusion of depreciation allowance. Therefore, RCPI did not raise this issue for the first time.However, even if we consider this issue, under the Real Property Tax Code depreciationallowance applies only to machinery and not to real property.

SECRETARY OF FINANCE CANNOT PROMULGATE REGULATIONS FIXING A RATEOF PENALTY ON DELINQUENT TAXES

The Honorable Secretary of Finance vs. THE HONORABLE RICARDO M. ILARDE, PresidingJudge, Regional Trial Court, 6th Judicial Region, Branch 26, Iloilo City, and CIPRIANO P.CABALUNA, JR


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G.R. No. 121782. May 9, 2005

Facts: Cabaluna with his wife owns several real property located in Iloilo City. Cabaluana is theRegional Director of Regional Office No. VI of the Department of Finance in Iloilo City. Afterhis retirement, there are tax delinquencies on his properties; he paid the amount under protestcontending that the penalties imposed to him are in excess than that provided by law. Afterexhausting all administrative remedies, he filed a suit before the RTC which found that Section

4(c) of Joint Assessment Regulation No. 1-85 and Local Treasury Regulation No. 2-85 issued onAugust 1, 1985 by respondent Secretary (formerly Minister) of Finance is null and void; (2)declaring that the penalty that should be imposed for delinquency in the payment of real propertytaxes should be two per centum on the amount of the delinquent tax for each month ofdelinquency or fraction thereof, until the delinquent tax is fully paid but in no case shall the totalpenalty exceed twenty-four per centum of the delinquent tax as provided for in Section 66 ofP.D. 464 otherwise known as the Real Property Tax Code.

Issue: Whether or not the then Ministry of Finance could legally promulgate Regulationsprescribing a rate of penalty on delinquent taxes other than that provided for under PresidentialDecree (P.D.) No. 464, also known as the Real Property Tax Code.

Held: The Ministry of Finance now Secretary of Finance cannot promulgate regulationsprescribing a rate of penalty on delinquent taxes. The Court ruled that despite the promulgationof E.O. No. 73, P.D. No. 464 in general and Section 66 in particular, remained to be good law.To accept the Secretarys premise that E.O. No. 73 had accorded the Ministry of Finance theauthority to alter, increase, or modify the tax structure would be tantamount to saying that E.O.No. 73 has repealed or amended P.D. No. 464. Repeal of laws should be made clear andexpressed. Repeals by implication are not favored as laws are presumed to be passed withdeliberation and full knowledge of all laws existing on the subject. Such repeals are not favoredfor a law cannot be deemed repealed unless it is clearly manifest that the legislature so intendedit. Assuming argumenti that E.O. No. 73 has authorized the petitioner to issue the objected

Regulations, such conferment of powers is void for being repugnant to the well-encrusteddoctrine in political law that the power of taxation is generally vested with the legislature. Thus,for purposes of computation of the real property taxes due from private respondent for the years1986 to 1991, including the penalties and interests, is still Section 66 of the Real Property TaxCode of 1974 or P.D. No. 464. The penalty that ought to be imposed for delinquency in thepayment of real property taxes should, therefore, be that provided for in Section 66 of P.D. No.464, i.e., two per centum on the amount of the delinquent tax for each month of delinquency orfraction thereof but in no case shall the total penalty exceed twenty-four per centum of thedelinquent tax.

EVIDENCE IN TAX ASSESSMENTS; MACHINE COPIES OF RECORDS/ DOCUMENTSHAVE NO PROBATIVE VALUE

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INCG.R. No. 136975. March 31, 2005

Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the saleof plastic products, it imports synthetic resin and other chemicals for the manufacture of itsproducts. For this purpose, it is required to file an Import Entry and Internal Revenue Declaration(Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and CustomsCode. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-IntelligenceDivision of the Economic Intelligence and Investigation Bureau (EIIB), received confidentialinformation that the respondent had imported synthetic resin amounting to P115,599,018.00 but


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only declared P45,538,694.57. Thus, Hentex receive a subpoena to present its books of accountwhich it failed to do. The bureau cannot find any original copies of the products Hentex importedsince the originals were eaten by termites. Thus, the Bureau relied on the certified copies of therespondents Profit and Loss Statement for 1987 and 1988 on file with the SEC, the machinecopies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerptsfrom the entries certified by Tomas and Danganan. The case was submitted to the CTA whichruled that Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The

CA ruled that the income and sales tax deficiency assessments issued by the petitioner wereunlawful and baseless since the copies of the import entries relied upon in computing thedeficiency tax of the respondent were not duly authenticated by the public officer charged withtheir custody, nor verified under oath by the EIIB and the BIR investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for deficiencyincome tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate isbased on competent evidence and the law.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which providesthat the Commissioner of Internal Revenue has the power to make assessments and prescribe

additional requirements for tax administration and enforcement. Among such powers are thoseprovided in paragraph (b), which provides that Failure to submit required returns, statements,reports and other documents. When a report required by law as a basis for the assessment ofany national internal revenue tax shall not be forthcoming within the time fixed by law orregulation or when there is reason to believe that any such report is false, incomplete orerroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. Thisprovision applies when the Commissioner of Internal Revenue undertakes to perform heradministrative duty of assessing the proper tax against a taxpayer, to make a return in case of ataxpayers failure to file one, or to amend a return already filed in the BIR. The best evidenceenvisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accountingrecords of the taxpayer who is the subject of the assessment process, the accounting records of

other taxpayers engaged in the same line of business, including their gross profit and net profitsales. Such evidence also includes data, record, paper, document or any evidence gathered byinternal revenue officers from other taxpayers who had personal transactions or from whom thesubject taxpayer received any income; and record, data, document and information secured fromgovernment offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureauof Customs, and the Tariff and Customs Commission. However, the best evidence obtainableunder Section 16 of the 1977 NIRC, as amended, does not include mere photocopies ofrecords/documents. The petitioner, in making a preliminary and final tax deficiency assessmentagainst a taxpayer, cannot anchor the said assessment on mere machine copies ofrecords/documents. Mere photocopies of the Consumption Entries have no probative weight ifoffered as proof of the contents thereof. The reason for this is that such copies are mere scraps ofpaper and are of no probative value as basis for any deficiency income or business taxes againsta taxpayer.

Companies exempt from zero-rate tax

COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN EXPRESSINTERNATIONAL, INC.(PHILIPPINE BRANCH),G.R.No. 152609. June 29, 2005

Facts: American Express international is a foreign corporation operating in the Philippines, it is aregistered taxpayer. On April 13, 1999, [respondent] filed with the BIR a letter-request for the


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refund of its 1997 excess input taxes in the amount of P3,751,067.04, which amount was arrivedat after deducting from its total input VAT paid of P3,763,060.43 its applied output VATliabilities only for the third and fourth quarters of 1997 amounting to P5,193.66 and P6,799.43,respectively. The CTA ruled in favor of the herein respondent holding that its services aresubject to zero-rate pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section4.102-2 (b)(2) of Revenue Regulations 5-96. The CA affirmed the decision of the CTA.

Issue: Whether or not the company is subject to zero-rate tax pursuant to the Tax Reform Act of1997.

Held: Services performed by VAT-registered persons in the Philippines (other than theprocessing, manufacturing or repacking of goods for persons doing business outside thePhilippines), when paid in acceptable foreign currency and accounted for in accordance with therules and regulations of the BSP, are zero-rated. Respondent is a VAT-registered person thatfacilitates the collection and payment of receivables belonging to its non-resident foreign client,for which it gets paid in acceptable foreign currency inwardly remitted and accounted for inconformity with BSP rules and regulations. Certainly, the service it renders in the Philippines isnot in the same category as processing, manufacturing or repacking of goods and should,

therefore, be zero-rated. In reply to a query of respondent, the BIR opined in VAT Ruling No.080-89 that the income respondent earned from its parent companys regional operating centers(ROCs) was automatically zero-rated effective January 1, 1988. Service has been defined as theart of doing something useful for a person or company for a fee or useful labor or workrendered or to be rendered by one person to another. For facilitating in the Philippines thecollection and payment of receivables belonging to its Hong Kong-based foreign client, andgetting paid for it in duly accounted acceptable foreign currency, respondent renders servicefalling under the category of zero rating. Pursuant to the Tax Code, a VAT of zero percentshould, therefore, be levied upon the supply of that service.As a general rule, the VAT system uses the destination principle as a basis for the jurisdictionalreach of the tax. Goods and services are taxed only in the country where they are consumed.

Thus, exports are zero-rated, while imports are taxed. VAT rate for services that are performed inthe Philippines, paid for in acceptable foreign currency and accounted for in accordance withthe rules and regulations of the BSP. Thus, for the supply of service to be zero-rated as anexception, the law merely requires that first, the service be performed in the Philippines; second,the service fall under any of the However, the law clearly provides for an exception to thedestination principle; that is, for a zero percent categories in Section 102(b) of the Tax Code;and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rulesand regulations. Indeed, these three requirements for exemption from the destination principleare met by respondent. Its facilitation service is performed in the Philippines. It falls under thesecond category found in Section 102(b) of the Tax Code, because it is a service other thanprocessing, manufacturing or repacking of goods as mentioned in the provision. Undisputed isthe fact that such service meets the statutory condition that it be paid in acceptable foreigncurrency duly accounted for in accordance with BSP rules. Thus, it should be zero-rated.

Documents

Cases in Taxation_Assessment,Levy & Distraint