tax vat cases

7/31/2019 Tax Vat Cases

1/51

Factual Antecedents

Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and byvirtue of the laws of the Republic of the Philippines, is engaged in the business ofdesigning, developing, manufacturing and exporting advance and large-scale integrated

circuit components or "IC's."[3]

Petitioner is registered with the Bureau of Internal Revenue(BIR) as a Value Added Tax (VAT) taxpayer[4] and with the Board of Investments (BOI)as a preferred pioneer enterprise.[5]

On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue(CIR), through the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center ofthe Department of Finance (DOF), an application for credit/refund of unutilized input VATfor the period October 1, 1998 to December 31, 1998 in the amount of P31,902,507.50,broken down as follows:

AmountTax Paid on Imported/Locally PurchasedCapital Equipment P 15,170,082.00Total VAT paid on Purchases per InvoicesReceived During the Period for which this Application is Filed 16,732,425.50Amount of Tax Credit/Refund Applied For P 31,902,507.50[6]

Proceedings before the CTA Division

On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for

Review with the CTA Division, docketed as CTA Case No. 6212. Petitioner alleged thatfor the 4th quarter of 1998, it generated and recorded zero-rated export sales in the amountof P3,027,880,818.42, paid to petitioner in acceptable foreign currency and accounted forin accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; [7] and thatfor the said period, petitioner paid input VAT in the total amount of P31,902,507.50,[8]

which have not been applied to any output VAT.[9]

To this, respondent filed an Answer[10] raising the following special and affirmativedefenses, to wit:

8. The petition states no cause of action as it does not allege the dates when the taxessought to be refunded/credited were actually paid;

9. It is incumbent upon herein petitioner to show that it complied with the provisions ofSection 229 of the Tax Code as amended;

10. Claims for refund are construed strictly against the claimant, the same being in thenature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35);


2/51

11. One who claims to be exempt from payment of a particular tax must do so under clearand unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466;Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304);

12. In an action for refund, the burden is upon the taxpayer to prove that he is entitled

thereto, and failure to sustain the same is fatal to the action for refund. Furthermore, aspointed out in the case of William Li Yao vs. Collector (L-11875, December 28, 1963),amounts sought to be recovered or credited should be shown to be taxes which areerroneously or illegally collected; that is to say, their payment was an independent singleact of voluntary payment of a tax believed to be due and collectible and accepted by thegovernment, which had therefor become part of the State moneys subject to expenditureand perhaps already spent or appropriated; and

13. Taxes paid and collected are presumed to have been made in accordance with the lawand regulations, hence not refundable.[11]

On November 18, 2003, the CTA Division rendered a Decision

[12]

partially grantingpetitioner's claim for refund of unutilized input VAT on capital goods. Out of the amountof P15,170,082.00, only P9,898,867.00 was allowed to be refunded because trainingmaterials, office supplies, posters, banners, T-shirts, books, and other similar itemspurchased by petitioner were not considered capital goods under Section 4.106-1(b) ofRevenue Regulations (RR) No. 7-95 (Consolidated Value-Added Tax Regulations).[13] Withregard to petitioner's claim for credit/refund of input VAT attributable to its zero-ratedexport sales, the CTA Division denied the same because petitioner failed to present anAuthority to Print (ATP) from the BIR; [14] neither did it print on its export sales invoicesthe ATP and the word "zero-rated."[15] Thus, the CTA Division disposed of the case in thiswise:

WHEREFORE, in view of the foregoing the instant petition for review is herebyPARTIALLY GRANTED. Respondent is ORDERED to ISSUE A TAX CREDITCERTIFICATE in favor of petitioner in the reduced amount of P9,898,867.00 representinginput VAT on importation of capital goods. However, the claim for refund of input VATattributable to petitioner's alleged zero-rated sales in the amount of P16,732,425.50 ishereby DENIED for lack of merit.

SO ORDERED.[16]

Not satisfied with the Decision, petitioner moved for reconsideration.[17] It claimed that itis not required to secure an ATP since it has a "Permit to Adopt Computerized AccountingDocuments such as Sales Invoice and Official Receipts" from the BIR.[18] Petitioner furtherargued that because all its finished products are exported to its mother company, IntelCorporation, a non-resident corporation and a non-VAT registered entity, the printing ofthe word "zero-rated" on its export sales invoices is not necessary. [19]

On its part, respondent filed a Motion for Partial Reconsideration[20] contending thatpetitioner is not entitled to a credit/refund of unutilized input VAT on capital goodsbecause it failed to show that the goods imported/purchased are indeed capital goods as


3/51

defined in Section 4.106-1 of RR No. 7-95.[21]

The CTA Division denied both motions in a Resolution[22] dated August 10, 2004. It notedthat:

[P]etitioner's request for Permit to Adopt Computerized Accounting Documents such asSales Invoice and Official Receipt was approved on August 31, 2001 while the periodinvolved in this case was October 31, 1998 to December 31, 1998 x x x. While it appearsthat petitioner was previously issued a permit by the BIR Makati Branch, such permit wasonly limited to the use of computerized books of account x x x. It was only on August 31,2001 that petitioner was permitted to generate computerized sales invoices and officialreceipts [provided that the BIR Permit Number is printed] in the header of the document xx x.

x x x x

Thus, petitioner's contention that it is not required to show its BIR permit number on thesales invoices runs counter to the requirements under the said "Permit." This court alsowonders why petitioner was issuing computer generated sales invoices during the periodinvolved (October 1998 to December 1998) when it did not have an authority or permit.Therefore, we are convinced that such documents lack probative value and should betreated as inadmissible, incompetent and immaterial to prove petitioner's export salestransaction.

x x x x

ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion forReconsideration filed by petitioner as well as the Motion for Partial Reconsideration ofrespondent are hereby DENIED for lack of merit. The pronouncement in the assaileddecision is REITERATED.

SO ORDERED[23]

Ruling of the CTA En Banc

Undaunted, petitioner elevated the case to the CTAEn Banc via a Petition for Review,[24]

docketed as EB Case No. 23.

On September 30, 2005, the CTAEn Banc issued the assailed Decision[25] denying thepetition for lack of merit. Pertinent portions of the Decision read:

This Court notes that petitioner raised the same issues which have already been thoroughlydiscussed in the assailed Decision, as well as, in the Resolution denying petitioner's Motionfor Partial Reconsideration.

With regard to the first assigned error, this Court reiterates that, the requirement of[printing] the BIR permit to print on the face of the sales invoices and official receipts is a


4/51

control mechanism adopted by the Bureau of Internal Revenue to safeguard the interest ofthe government.

This requirement is clearly mandated under Section 238 of the 1997 National InternalRevenue Code, which provides that:

SEC. 238. Printing of Receipts or Sales or Commercial Invoice. - All persons who areengaged in business shall secure from the Bureau of Internal Revenue an authority to printreceipts or sales or commercial invoices before a printer can print the same.

The above mentioned provision seeks to eliminate the use of unregistered and double ormultiple sets of receipts by striking at the very root of the problem -- the printer(H. S. deLeon, The National Internal Revenue Code Annotated, 7th Ed., p. 901). And what betterway to prove that the required permit to print was secured from the Bureau of InternalRevenue than to show or print the same on the face of the invoices. There can be no othervalid proof of compliance with the above provision than to show the Authority to PrintPermit number [printed] on the sales invoices and official receipts.

With regard to petitioner's failure to print the word "zero-rated" on the face of its exportsales invoices, it must be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically requires that all value-added tax registered persons shall, for every sale orlease of goods or properties or services, issue duly registered invoices which must show theword "zero-rated" [printed] on the invoices covering zero-rated sales.

It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way ofsubstantial evidence. Well settled in our jurisprudence [is] that tax refunds are in the natureof tax exemptions and as such, they are regarded as in derogation of sovereign authority(Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95). Thus, tax refunds areconstrued in strictissimi juris against the person or entity claiming the same (Commissionerof Internal Revenue vs. Procter & Gamble Philippines Manufacturing Corporation, 204

SCRA 377; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA332).

In this case, not only should petitioner establish that it is entitled to the claim but it mustmost importantly show proof of compliance with the substantiation requirements asmandated by law or regulations.

The rest of the assigned errors pertain to the alleged errors of the First Division: in findingthat the petitioner failed to comply with the substantiation requirements provided by law inproving its claim for refund; in reducing the amount of petitioner's tax credit for input vaton importation of capital goods; and in denying petitioner's claim for refund of input vatattributable to petitioner's zero-rated sales.

It is petitioner's contention that it has clearly established its right to the tax credit or refundby way of substantial evidence in the form of material and documentary evidence and itwould be improper to set aside with haste the claimed input VAT on capital goodsexpended for training materials, office supplies, posters, banners, t-shirts, books and the


5/51

like because Revenue Regulations No. 7-95 defines capital goods as to include even thosegoods which are indirectly used in the production or sale of taxable goods or services.

Capital goods or properties, as defined under Section 4.106-1(b) of Revenue RegulationsNo. 7-95, refer "to goods or properties with estimated useful life greater than one year and

which are treated as depreciable assets under Section 29 (f), used directly or indirectly inthe production or sale of taxable goods or services."

Considering that the items (training materials, office supplies, posters, banners, t-shirts,books and the like) purchased by petitioner as reflected in the summary were not dulyproven to have been used, directly or indirectly[,] in the production or sale of taxable goodsor services, the same cannot be considered as capital goods as defined above[.Consequently,] the same may not x x x then [be] claimed as such.

WHEREFORE, in view of the foregoing, this instant Petition for Review is herebyDENIED DUE COURSE and hereby DISMISSED for lack of merit. This Court's

Decision of November 18, 2003 and Resolution of August 10, 2004 are herebyAFFIRMED in all respects.

SO ORDERED.[26]

Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied theMotion[27] in a Resolution[28] dated April 20, 2006.

Issues

Hence, the instant Petition raising the following issues for resolution:

(1) whether the CTAEn Banc erred in denying petitioner's claim for credit/ refund of inputVAT attributable to its zero-rated sales in the amount of P16,732,425.00 due to its failure:

(a) to show that it secured an ATP from the BIR and to indicate the same in its export salesinvoices; and

(b) to print the word "zero-rated" in its export sales invoices.[29]

(2) whether the CTAEn Banc erred in ruling that only the amount of P9,898,867.00 can beclassified as input VAT paid on capital goods.[30]

Petitioner's Arguments

Petitioner posits that the denial by the CTAEn Banc of its claim for refund of input VATattributable to its zero-rated sales has no legal basis because the printing of the ATP and theword "zero-rated" on the export sales invoices are not required under Sections 113 and 237of the National Internal Revenue Code (NIRC).[31] And since there is no law requiring theATP and the word "zero-rated" to be indicated on the sales invoices, [32] the absence of suchinformation in the sales invoices should not invalidate the petition[33] nor result in the


6/51

outright denial of a claim for tax credit/refund. [34] To support its position, petitioner citesIntel Technology Philippines, Inc. v. Commissioner of Internal Revenue,[35] where Intel'sfailure to print the ATP on the sales invoices or receipts did not result in the outright denialof its claim for tax credit/refund.[36] Although the cited case only dealt with the printing ofthe ATP, petitioner submits that the reasoning in that case should also apply to the printing

of the word "zero-rated."[37]

Hence, failure to print of the word "zero-rated" on the salesinvoices should not result in the denial of a claim.

As to the claim for refund of input VAT on capital goods, petitioner insists that it hassufficiently proven through testimonial and documentary evidence that all the goodspurchased were used in the production and manufacture of its finished products which weresold and exported.[38]

Respondent's Arguments

To refute petitioner's arguments, respondent asserts that the printing of the ATP on the

export sales invoices, which serves as a control mechanism for the BIR, is mandated bySection 238 of the NIRC;[39] while the printing of the word "zero-rated" on the export salesinvoices, which seeks to prevent purchasers of zero-rated sales or services from claimingnon-existent input VAT credit/refund,[40] is required under RR No. 7-95, promulgatedpursuant to Section 244 of the NIRC.[41] With regard to the unutilized input VAT on capitalgoods, respondent counters that petitioner failed to show that the goods itpurchased/imported are capital goods as defined in Section 4.106-1 of RR No. 7-95. [42]

Our Ruling

The petition is bereft of merit.

Before us are two types of input VAT credits. One is a credit/refund of input VATattributable to zero-rated sales under Section 112 (A) of the NIRC, and the other is acredit/refund of input VAT on capital goods pursuant to Section 112 (B) of the same Code.

Credit/refund of input VAT on zero-rated sales

In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A) [43]

of the NIRC lays down four requisites, to wit:

1) the taxpayer must be VAT-registered;

2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;

3) the claim must be filed within two years after the close of the taxable quarter when suchsales were made; and

4) the creditable input tax due or paid must be attributable to such sales, except thetransitional input tax, to the extent that such input tax has not been applied against theoutput tax.


7/51

To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices,certifications of inward remittance, export declarations, and airway bills of lading for thefourth quarter of 1998. The CTA Division, however, found the export sales invoices of noprobative value in establishing petitioner's zero-rated sales for the purpose of claiming

credit/refund of input VAT because petitioner failed to show that it has an ATP from theBIR and to indicate the ATP and the word "zero-rated" in its export sales invoices. [44] TheCTA Division cited as basis Sections 113,[45] 237[46] and 238[47] of the NIRC, in relation toSection 4.108-1 of RR No. 7-95.[48]

We partly agree with the CTA.

Printing the ATP on the invoices or receipts is not required

It has been settled inIntel Technology Philippines, Inc. v. Commissioner of InternalRevenue[49]that the ATP need not be reflected or indicated in the invoices or receipts

because there is no law or regulation requiring it.

[50]

Thus, in the absence of such law orregulation, failure to print the ATP on the invoices or receipts should not result in theoutright denial of a claim or the invalidation of the invoices or receipts for purposes ofclaiming a refund.[51]

ATP must be secured from the BIR

But while there is no law requiring the ATP to be printed on the invoices or receipts,Section 238 of the NIRC expressly requires persons engaged in business to secure an ATPfrom the BIR prior to printing invoices or receipts. Failure to do so makes the person liableunder Section 264[52] of the NIRC.

This brings us to the question of whether a claimant for unutilized input VAT on zero-ratedsales is required to present proof that it has secured an ATP from the BIR prior to theprinting of its invoices or receipts.

We rule in the affirmative.

Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated. To prove this, duly registered invoices or receiptsevidencing zero-rated sales must be presented. However, since the ATP is not indicated inthe invoices or receipts, the only way to verify whether the invoices or receipts are dulyregistered is by requiring the claimant to present its ATP from the BIR. Without this proof,the invoices or receipts would have no probative value for the purpose of refund. In thecase ofIntel, we emphasized that:

It bears reiterating that while the pertinent provisions of the Tax Code and the rules andregulations implementing them require entities engaged in business to secure a BIRauthority to print invoices or receipts and to issue duly registered invoices or receipts, it isnot specifically required that the BIR authority to print be reflected or indicated therein.Indeed, what is important with respect to the BIR authority to print is that it has been


8/51

secured or obtained by the taxpayer, and that invoices or receipts are duly registered.[53] (Emphasis supplied)

Failure to print the word "zero-rated" on

the sales invoices is fatal to a claim for

refund of input VAT

Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to aclaim for credit/refund of input VAT on zero-rated sales.

InPanasonic Communications Imaging Corporation of the Philippines (formerlyMatsushita Business Machine Corporation of the Philippines) v. Commissioner of InternalRevenue,[54] we upheld the denial of Panasonic's claim for tax credit/refund due to theabsence of the word "zero-rated" in its invoices. We explained that compliance withSection 4.108-1 of RR 7-95, requiring the printing of the word "zero rated" on the invoicecovering zero-rated sales, is essential as this regulation proceeds from the rule-making

authority of the Secretary of Finance under Section 244

[55]

of the NIRC.All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated"in the invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-ratedsales. The failure to indicate the ATP in the sales invoices or receipts, on the other hand, isnot. In this case, petitioner failed to present its ATP and to print the word "zero-rated" onits export sales invoices. Thus, we find no error on the part of the CTA in denying outrightpetitioner's claim for credit/refund of input VAT attributable to its zero-rated sales.

Credit/refund of input VAT on capital goods

Capital goods are defined under Section 4.106-1(b) of RR No. 7-95

To claim a refund of input VAT on capital goods, Section 112 (B)[56] of the NIRC requiresthat:

1. the claimant must be a VAT registered person;

2. the input taxes claimed must have been paid on capital goods;

3. the input taxes must not have been applied against any output tax liability; and

4. the administrative claim for refund must have been filed within two (2) years after

the close of the taxable quarter when the importation or purchase was made.

Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:

"Capital goods or properties" refer to goods or properties with estimated useful life greaterthat one year and which are treated as depreciable assets under Section 29 (f), [57] useddirectly or indirectly in the production or sale of taxable goods or services.


9/51

Based on the foregoing definition, we find no reason to deviate from the findings of theCTA that training materials, office supplies, posters, banners, T-shirts, books, and the othersimilar items reflected in petitioner's Summary of Importation of Goods are not capitalgoods. A reduction in the refundable input VAT on capital goods from P15,170,082.00 to

P9,898,867.00 is therefore in order.WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September30, 2005 and the Resolution dated April 20, 2006 of the Court of Tax AppealsEn Banc arehereby AFFIRMED.

SO ORDERED.

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION,PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

D E C I S I O N

PERALTA, J.:

For this Court's resolution is the Petition for Review on Certiorari under Rule 45 of theRevised Rules of Civil Procedure assailing the Decision[1] dated April 19, 2001 andResolution[2] dated August 6, 2003 of the Court of Appeals (CA).

The facts, as shown in the records, are the following:

Under Section 100 of the Tax Code of the Philippines, petitioner is a zero-rated ValueAdded Tax (VAT) person for being an exporter of copper concentrates. According topetitioner, on January 20, 1994, it filed its VAT return for the fourth quarter of 1993,showing a total input tax of P863,556,963.74 and an excess VAT credit ofP842,336,291.60 and, on January 25, 1996, it applied for a tax refund or a tax creditcertificate for the latter amount with respondent Commissioner of Internal Revenue (CIR).On the same date, petitioner filed the same claim for refund with the Court of Tax Appeals(CTA), claiming that the two-year prescriptive period provided for under Section 230 ofthe Tax Code for claiming a refund was about to expire. The CIR failed to file his answerwith the CTA; thus, the former declared the latter in default.

On August 24, 1998, the CTA rendered its Decision[3] denying petitioner's claim for refunddue to petitioner's failure to comply with the documentary requirements prescribed underSection 16 of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-88, dated April 7, 1988. The dispositive portion of the Decision reads:


10/51

WHEREFORE, in view of the foregoing, the instant Petition for Review is herebyDISMISSED for lack of merit.

SO ORDERED.[4]

Petitioner filed a Motion for Reconsideration[5]

praying for the reopening of the case inorder for it to present the required documents, together with its proof of non-availment forprior and succeeding quarters of the input VAT subject of petitioner's claim for refund. TheCTA granted the motion in its Resolution[6] dated October 29, 1998. Thereafter, in aResolution[7] dated June 21, 2000, the CTA denied petitioner's claim. It ruled that the actionhas already prescribed and that petitioner has failed to substantiate its claim that it has notapplied its alleged excess input taxes to any of its subsequent quarter's output tax liability.

The CTA's Decision and Resolution were questioned in the CA. However, the CA affirmedin toto the said Decision and Resolution, disposing the case as follows:

WHEREFORE, the petition is DISMISSED for lack of merit. The questioned Decision ofthe CTA dated August 24, 1998 and the Resolution dated June 21, 2000 are AFFIRMED intoto.

SO ORDERED.[8]

Subsequently, petitioner's Motion for Reconsideration[9] of the CA's Decision was denied ina Resolution[10] dated August 6, 2003.

Thus, the present petition.

Petitioner lists the following as grounds for his petition:

I

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM FORREFUND HAS PRESCRIBED, DESPITE FAILURE OF RESPONDENT AND THECOURT OF TAX APPEALS TO RAISE THE ISSUE OF PRESCRIPTION INRESPONDENT'S ANSWER OR IN THE CTA'S ORIGINAL DECISION DATED 16SEPTEMBER 1998.

II

THE COURT OF APPEALS ERRED IN UPHOLDING THE COURT OF TAXAPPEALS' FINDING IN ITS DECISION DATED 24 AUGUST 1998 THATPETITIONER, IN NOT SUBMITTING ITS EXPORT DOCUMENTS, FAILED TOPRESENT ADEQUATE PROOF THAT ITS INPUT TAXES ARE DIRECTLYATTRIBUTABLE TO ITS EXPORT SALES.

III


11/51


12/51

x x x x

3. Effectively zero-rated sale of goods and services.

i) photocopy of approved application for zero-rate if filing for the first time.

ii) sales invoice or receipt showing name of the person or entity to whom the sale of goodsor services were delivered, date of delivery, amount of consideration, and description ofgoods or services delivered.

iii) evidence of actual receipt of goods or services.

4. Purchase of capital goods.

i) original copy of invoice or receipt showing the date of purchase, purchase price, amountof value-added tax paid and description of the capital equipment locally purchased.

ii) with respect to capital equipment imported, the photocopy of import entry document forinternal revenue tax purposes and the confirmation receipt issued by the Bureau ofCustoms for the payment of the value-added tax.

5. In applicable cases,

where the applicant's zero-rated transactions are regulated by certain government agencies,a statement therefrom showing the amount and description of sale of goods and services,name of persons or entities (except in case of exports) to whom the goods or services weresold, and date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to theamount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and exempt sales of goodsand services, and the VAT paid (inputs) on purchases of goods and services cannot bedirectly attributed to any of the aforementioned transactions, the following formula shall beused to determine the creditable or refundable input tax for zero-rated sale:

Amount of Zero-rated SaleTotal Sales

xTotal Amount of Input Taxes

= Amount Creditable/Refundable

In case the application for refund/credit of input VAT was denied or remained unactedupon by the BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition for Review before the CTA. If the taxpayer's claim is


13/51

supported by voluminous documents, such as receipts, invoices, vouchers or long accounts,their presentation before the CTA shall be governed by CTA Circular No. 1-95, asamended, reproduced in full below -

In the interest of speedy administration of justice, the Court hereby promulgates the

following rules governing the presentation of voluminous documents and/or long accounts,such as receipts, invoices and vouchers, as evidence to establish certain facts pursuant toSection 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in CompaniaMaritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of RepublicAct No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, aftermotion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers, dates andamounts covered by the invoices or receipts and the amount/s of tax paid; and (b) aCertification of an independent Certified Public Accountant attesting to the correctness ofthe contents of the summary after making an examination, evaluation and audit of thevoluminous receipts and invoices. The name of the accountant or partner of the firm incharge must be stated in the motion so that he/she can be commissioned by the Court toconduct the audit and, thereafter, testify in Court relative to such summary and certificationpursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account formarking, identification and comparison with the originals thereof need not be done beforethe Court or Clerk of Court anymore after the introduction of the summary and CPAcertification. It is enough that the receipts, invoices, vouchers or other documents coveringthe said accounts or payments to be introduced in evidence must be pre-marked by theparty concerned and submitted to the Court in order to be made accessible to the adverseparty who desires to check and verify the correctness of the summary and CPAcertification. Likewise, the originals of the voluminous receipts, invoices or accounts mustbe ready for verification and comparison in case doubt on the authenticity thereof is raisedduring the hearing or resolution of the formal offer of evidence. [14]

As to the evidence that must be presented, the provisions of the pertinent laws provide:

Section 106, Tax Code

Refunds or tax credits of input tax. - (a) Any VAT-registered person, whose sales are zero-

rated, may, within two (2) years after the close of the taxable quarter when the sales weremade, apply for the issuance of a tax credit certificate or refund creditable input tax due orpaid attributable to such sales, except transitional input tax, to the extent that such input taxhas not been applied against output tax: Provided, however, That in case of zero-rated salesunder Section 100 (a) (2) (A) (I), (ii) and (b) and Section 102 (b) (1) and (2), the acceptableforeign currency exchange proceeds thereof have been duly accounted for in accordancewith the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, Thatwhere the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in


14/51

taxable or exempt sale of goods or properties or services, and the amount of creditableinput tax due or paid cannot be directly and entirely attributed to any one of thetransactions, it shall be allocated proportionately on the basis of the volume of sales.

Section 16 of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 3-

88, dated April 7, 1988A photocopy of the purchase invoice or receipt evidencing the value added tax paid shallbe submitted together with the application. The original copy of the said invoice/receipt,however, shall be presented for cancellation prior to the issuance of the Tax CreditCertificate or refund. In addition, the following documents shall be attached wheneverapplicable:

1. Export Sales

i) Photocopy of export document showing the amount of export, the date and destination ofthe goods exported. With respect to foreign currency denominated sale, the photocopy ofthe invoice or receipt evidencing the sale of the goods, as well as the name of the person towhom the goods were delivered.

ii) Statement from the Central Bank or any of its accredited agent banks that the proceedsof the sale in acceptable foreign currency has been inwardly remitted and accounted for inaccordance with applicable banking regulations.

x x x x

In all cases, the amount of refund or tax credit that may be granted shall be limited to theamount of value-added tax (VAT) paid directly and entirely attributable to the zero-ratedtransaction during the period covered by the application for credit or refund.

The CTA, applying the abovementioned rules, in its Decision dated August 24, 1998, cameout with the following factual findings:

The formal offer of evidence of the petitioner failed to include photocopy of its exportdocuments, as required. There is no way therefore, in determining the kind of goods andactual amount of export sales it allegedly made during the quarter involved. This finding isvery crucial when we try to relate it with the requirement of the aforementioned regulationsthat the input tax being claimed for refund or tax credit must be shown to be entirelyattributable to the zero-rated transaction, in this case, export sales of goods. Without the

export documents, the purchase invoice/receipts submitted by the petitioner as proof of itsinput taxes cannot be verified as being directly attributable to the goods so exported.

Lastly, We cannot grant petitioner's claim for credit or refund of input taxes due to itsfailure to show convincingly that the same has not been applied to any of its output taxliability as provided under Section 106 (a) of the Tax Code. There is no evidence to showthat the amount herein claimed for refund when applied for on January 25, 1996 has notbeen priorly or thereafter applied to its output tax liability.[15]


15/51

The above factual findings of the CTA were even bolstered when it granted petitioner'smotion for reconsideration allowing petitioner to submit the necessary documents and otherpieces of evidence, so as to comply with the requirements provided for by law. However,despite such allowance, petitioner still failed to comply. Thus, in its Resolution [16] dated

June 21, 2000, the CTA finally disposed the case by ruling that:The Court finds and so holds that Petitioner failed again to present proof that it has notapplied the alleged excess input taxes to any of its subsequent quarter's output tax liability.In this Court's decision dated August 24, 1998, We already mentioned that petitioner failedto convince us that its input taxes have not been applied to any of its output tax liability asprovided under Section 106 (a). Now on its second opportunity to substantiate its claim,Petitioner again failed to prove this particular allegation. Petitioner merely presented inevidence the following documents to show that it has not applied the amount ofP4,534,933.74, subject of the claim, to its 1994 first quarter output tax liability, to wit:

Exhibits

1.) Output/Input VAT (Per Return) Listings for the first quarter of1994

T

2.) Schedule of Output Taxes for the month U, U-1 to U-2of January 1994 U-3 to U-53.) Schedule of Materials and Supplies for V, V-1 to V-9for the first quarter of 19944.) Schedule of Output Taxes for the month W, W-1 to W-4of February 1994

Nowhere in all the documents submitted to this Court by the Petitioner can We find its1994 first quarter VAT return which, to Our mind and as repeatedly ruled in a litany ofcases, is necessary for purposes of determining with particular certainty whether or not theclaimed input taxes were applied to any of its output tax liability in the first quarter or inthe succeeding quarters of 1994. And there is no reason at this point for Us to digress fromthis ruling.[17]

The above factual findings were affirmed and accorded respect by the CA. Nevertheless,petitioner insists that it has submitted documents and other pieces of evidence, except thoserequired by law, that would establish the existence of the input VAT for the fourth quarterof 1993 and that the excess input VAT claimed for refund or tax credit has not been applied

to its output tax liability for prior and succeeding quarters.

The above argument, however, is flawed. It must be remembered that when claiming taxrefund/credit, the VAT-registered taxpayer must be able to establish that it does haverefundable or creditable input VAT, and the same has not been applied against its outputVAT liabilities - information which are supposed to be reflected in the taxpayer's VATreturns. Thus, an application for tax refund/credit must be accompanied by copies of thetaxpayer's VAT return/s for the taxable quarter/s concerned.[18] The CTA and the CA, based


16/51

on their appreciation of the evidence presented, committed no error when they declared thatpetitioner failed to prove that it is entitled to a tax refund and this Court, not being a trier offacts, must defer to their findings. Again, as aptly ruled by this Court inAtlas:[19]

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for

well-settled is the general rule that the jurisdiction of this Court in cases brought before itfrom the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 ofthe Revised Rules of Court, is limited to reviewing or revising errors of law; findings offact of the latter are conclusive. This Court is not a trier of facts. It is not its function toreview, examine and evaluate or weigh the probative value of the evidence presented.

The distinction between a question of law and a question of fact is clear-cut. It has beenheld that "[t]here is a question of law in a given case when the doubt or difference arises asto what the law is on a certain state of facts; there is a question of fact when the doubt ordifference arises as to the truth or falsehood of alleged facts."

Whether petitioner corporation actually made zero-rated sales; whether it paid input VATon these sales in the amount it had declared in its returns; whether all the input VATsubject of its applications for refund/credit can be attributed to its zero-rated sales; andwhether it had not previously applied the input VAT against its output VAT liabilities, areall questions of fact which could only be answered after reviewing, examining, evaluating,or weighing the probative value of the evidence it presented, and which this Court does nothave the jurisdiction to do in the present Petitions for Review on Certiorari under Rule 45of the Revised Rules of Court.

Granting that there are exceptions to the general rule, when this Court looked intoquestions of fact under particular circumstances, none of these exist in the instant cases.The Court of Appeals, in both cases, found a dearth of evidence to support the claims forrefund/credit of the input VAT of petitioner corporation, and the records bear out thisfinding. Petitioner corporation itself cannot dispute its non-compliance with therequirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95, asamended. It concentrated its arguments on its assertion that the substantiation requirementsunder Revenue Regulations No. 2-88 should not have applied to it, while beingconspicuously silent on the evidentiary requirements mandated by other relevantregulations.[20]

Taxation is a destructive power which interferes with the personal and property rights ofthe people and takes from them a portion of their property for the support of thegovernment. And, since taxes are what we pay for civilized society, or are the lifeblood ofthe nation, the law frowns against exemptions from taxation and statutes granting taxexemptions are thus construedstrictissimi juris against the taxpayer and liberally in favorof the taxing authority. A claim of refund or exemption from tax payments must be clearlyshown and be based on language in the law too plain to be mistaken. Elsewise stated,taxation is the rule, exemption therefrom is the exception. [21]

Anent the issue of prescription, wherein petitioner questions the ruling of the CA that theformer's claim for refund has prescribed, disregarding the failure of respondent


17/51

Commissioner of Internal Revenue and the CTA to raise the said issue in their answer andoriginal decision, respectively, this Court finds the same moot and academic. Although itmay appear that the CTA only brought up the issue of prescription in its later resolutionand not in its original decision, its ruling on the merits of the application for refund, couldonly imply that the issue of prescription was not the main consideration for the denial of

petitioner's claim for tax refund. Otherwise, the CTA would have just denied theapplication on the ground of prescription.

WHEREFORE, the Petition is hereby DENIED for lack of merit. The Decision andResolution of the Court of Appeals, dated April 19, 2001 and August 6, 2003, respectively,are hereby AFFIRMED.

SO ORDERED.

RENATO V. DIAZ AND AURORA MA. F. TIMBOL, PETITIONERS, VS. THESECRETARY OF FINANCE AND THE COMMISSIONER OF INTERNAL

REVENUE, RESPONDENTS.

D E C I S I O N

ABAD, J.:

May toll fees collected by tollway operators be subjected to value- added tax?

The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition fordeclaratory relief[1] assailing the validity of the impending imposition of value-added tax(VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have aninterest as regular users of tollways in stopping the BIR action. Additionally, Diaz claimsthat he sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT Law orEVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or theNIRC) at the House of Representatives. Timbol, on the other hand, claims that she servedas Assistant Secretary of the Department of Trade and Industry and consultant of the TollRegulatory Board (TRB) in the past administration.

Petitioners allege that the BIR attempted during the administration of President GloriaMacapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, inview of the consistent opposition of Diaz and other sectors to such move. But, uponPresident Benigno C. Aquino III's assumption of office in 2010, the BIR revived the ideaand would impose the challenged tax on toll fees beginning August 16, 2010 unlessjudicially enjoined.


18/51

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend toinclude toll fees within the meaning of "sale of services" that are subject to VAT; that a tollfee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount toa tax on public service; and that, since VAT was never factored into the formula for

computing toll fees, its imposition would violate the non-impairment clause of theconstitution.

On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining theimplementation of the VAT. The Court required the government, represented byrespondents Cesar V. Purisima, Secretary of the Department of Finance, and Kim S.Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10days from notice. [2] Later, the Court issued another resolution treating the petition as onefor prohibition. [3]

On August 23, 2010 the Office of the Solicitor General filed the government's comment. [4]

The government avers that the NIRC imposes VAT on all kinds of services of franchisegrantees, including tollway operations, except where the law provides otherwise; that theCourt should seek the meaning and intent of the law from the words used in the statute; andthat the imposition of VAT on tollway operations has been the subject as early as 2003 ofseveral BIR rulings and circulars. [5]

The government also argues that petitioners have no right to invoke the non-impairment ofcontracts clause since they clearly have no personal interest in existing toll operatingagreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally readinto contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric formulafor computing toll rates cannot exempt tollway operators from VAT. In any event, itcannot be claimed that the rights of tollway operators to a reasonable rate of return will beimpaired by the VAT since this is imposed on top of the toll rate. Further, the impositionof VAT on toll fees would have very minimal effect on motorists using the tollways.

In their reply [6] to the government's comment, petitioners point out that tollway operatorscannot be regarded as franchise grantees under the NIRC since they do not hold legislativefranchises. Further, the BIR intends to collect the VAT by rounding off the toll rate andputting any excess collection in an escrow account. But this would be illegal since only theCongress can modify VAT rates and authorize its disbursement. Finally, BIR RevenueMemorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies torecord an accumulated input VAT of zero balance in their books as of August 16, 2010,contravenes Section 111 of the NIRC which grants entities that first become liable to VATa transitional input tax credit of 2% on beginning inventory. For this reason, the VAT ontoll fees cannot be implemented.

The Issues Presented


19/51

The case presents two procedural issues:

1. Whether or not the Court may treat the petition for declaratory relief as one forprohibition; and

2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.

The case also presents two substantive issues:

1. Whether or not the government is unlawfully expanding VAT coverage by includingtollway operators and tollway operations in the terms "franchise grantees" and "sale ofservices" under Section 108 of the Code; and

2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on taxand 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 beimplemented.

The Court's Rulings

A. On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating the petition as one forprohibition rather than one for declaratory relief, the characterization that petitioners Diazand Timbol gave their action. The government has sought reconsideration of the Court'sresolution, [7] however, arguing that petitioners' allegations clearly made out a case fordeclaratory relief, an action over which the Court has no original jurisdiction. Thegovernment adds, moreover, that the petition does not meet the requirements of Rule 65 foractions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerialfunctions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbolhas a plain, speedy, and adequate remedy in the ordinary course of law against the BIRaction in the form of an appeal to the Secretary of Finance.

But there are precedents for treating a petition for declaratory relief as one for prohibition ifthe case has far-reaching implications and raises questions that need to be resolved for thepublic good. [8] The Court has also held that a petition for prohibition is a proper remedy toprohibit or nullify acts of executive officials that amount to usurpation of legislativeauthority. [9]

Here, the imposition of VAT on toll fees has far-reaching implications. Its impositionwould impact, not only on the more than half a million motorists who use the tollwayseveryday, but more so on the government's effort to raise revenue for funding variousprojects and for reducing budgetary deficits.

To dismiss the petition and resolve the issues later, after the challenged VAT has beenimposed, could cause more mischief both to the tax-paying public and the government. A


20/51

belated declaration of nullity of the BIR action would make any attempt to refund to themotorists what they paid an administrative nightmare with no solution. Consequently, it isnot only the right, but the duty of the Court to take cognizance of and resolve the issuesthat the petition raises.

Although the petition does not strictly comply with the requirements of Rule 65, the Courthas ample power to waive such technical requirements when the legal questions to beresolved are of great importance to the public. The same may be said of the requirement oflocus standi which is a mere procedural requisite. [10]

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT islevied, assessed, and collected, according to Section 108, on the gross receipts derivedfrom the sale or exchange of services as well as from the use or lease of properties. Thethird 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 ofservices 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 ofcinematographic films; persons engaged in milling, processing, manufacturing orrepacking 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 transportof goods or cargoes, including persons who transport goods or cargoes for hire andother domestic common carriers by land relative to their transport of goods orcargoes; 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 distributioncompanies; services of franchise grantees of electric utilities, telephone and telegraph,radio and television broadcasting and all other franchise grantees except those underSection 119 of this Code and non-life insurance companies (except their cropinsurances), including surety, fidelity, indemnity and bonding companies; and similarservices regardless of whether or not the performance thereof calls for the exercise oruse 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 inthe Philippines for a fee, including those specified in the list. The enumeration of affectedservices is not exclusive. [11] By qualifying "services" with the words "all kinds," Congresshas given the term "services" an all-encompassing meaning. The listing of specificservices are intended to illustrate how pervasive and broad is the VAT's reach rather thanestablish concrete limits to its application. Thus, every activity that can be imagined as aform of "service" rendered for a fee should be deemed included unless some provision oflaw especially excludes it.


21/51

Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or theToll Operation Decree establishes the legal basis for the services that tollway operatorsrender. Essentially, tollway operators construct, maintain, and operate expressways, alsocalled 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 inthe regular public highways is for this reason slow-moving. In consideration forconstructing tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recovertheir 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 latter'suse of the tollway facilities over which the operator enjoys private proprietary rights [12] thatits contract and the law recognize. In this sense, the tollway operator is no different fromthe following service providers under Section 108 who allow others to use their propertiesor 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 whotransport goods or cargoes for hire and other domestic common carriers by land relative totheir transport of goods or cargoes; and7. Common carriers by air and sea relative to their transport of passengers, goods orcargoes from one place in the Philippines to another place in the Philippines.

It does not help petitioners' cause that Section 108 subjects to VAT "all kinds of services"rendered for a fee "regardless of whether or not the performance thereof calls for theexercise or use of the physical or mental faculties." This means that "services" to be subjectto VAT need not fall under the traditional concept of services, the personal or professionalkinds that require the use of human knowledge and skills.

And not only do tollway operators come under the broad term "all kinds of services," theyalso 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 lessthan P10 million and gas and water utilities) that Section 119 [13] spares from the paymentof VAT. The word "franchise" broadly covers government grants of a special right to doan act or series of acts of public concern. [14]

Petitioners of course contend that tollway operators cannot be considered "franchisegrantees" under Section 108 since they do not hold legislative franchises. But nothing in


22/51

Section 108 indicates that the "franchise grantees" it speaks of are those who holdlegislative franchises. Petitioners give no reason, and the Court cannot surmise any, formaking a distinction between franchises granted by Congress and franchises granted bysome other government agency. The latter, properly constituted, may grant 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 Congressitself. [15] The term "franchise" has been broadly construed as referring, not only toauthorizations that Congress directly issues in the form of a special law, but also to thosegranted by administrative agencies to which the power to grant franchises has beendelegated by Congress. [16]

Tollway operators are, owing to the nature and object of their business, "franchisegrantees." The construction, operation, and maintenance of toll facilities on publicimprovements are activities of public consequence that necessarily require a special grantof authority from the state. Indeed, Congress granted special franchise for the operation oftollways to the Philippine National Construction Company, the former tollway

concessionaire for the North and South Luzon Expressways. Apart from Congress, tollwayfranchises may also be granted by the TRB, pursuant to the exercise of its delegated powersunder P.D. 1112. [17] The franchise in this case is evidenced by a "Toll OperationCertificate." [18]

Petitioners contend that the public nature of the services rendered by tollway operatorsexcludes 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. Inspecifically including by way of example electric utilities, telephone, telegraph, andbroadcasting companies in its list of VAT-covered businesses, Section 108 opens othercompanies rendering public service for a fee to the imposition of VAT. Businesses of apublic nature such as public utilities and the collection of tolls or charges for its use orservice is a franchise. [19]

Nor can petitioners cite as binding on the Court statements made by certain lawmakers inthe course of congressional deliberations of the would-be law. As the Court said in SouthAfrican Airways v. Commissioner of Internal Revenue, [20] "statements made by individualmembers of Congress in the consideration of a bill do not necessarily reflect the sense ofthat body and are, consequently, not controlling in the interpretation of law." Thecongressional will is ultimately determined by the language of the law that the lawmakersvoted on. Consequently, the meaning and intention of the law must first be sought "in thewords of the statute itself, read and considered in their natural, ordinary, commonlyaccepted and most obvious significations, according to good and approved usage andwithout resorting to forced or subtle construction."

Two. Petitioners argue that a toll fee is a "user's tax" and to impose VAT on toll fees istantamount to taxing a tax. [21] Actually, petitioners base this argument on the followingdiscussion inManila International Airport Authority (MIAA) v. Court of Appeals: [22]

No one can dispute that properties of public dominion mentioned in Article 420 of theCivil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the


23/51

State," are owned by the State. The term "ports" includes seaports and airports. TheMIAA Airport Lands and Buildings constitute a "port" constructed by the State.Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings areproperties of public dominion and thus owned by the State or the Republic of thePhilippines.

x x x The operation by the government of a tollway does not change the character ofthe 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 thoseamong the public who actually use the road through the toll fees they pay upon usingthe road. The tollway system is even a more efficient and equitable manner of taxingthe public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the propertywhether it is for public dominion or not. Article 420 of the Civil Code definesproperty 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 roadunder 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 andother 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 MIAAcharges to airlines, constitute the bulk of the income that maintains the operations ofMIAA. The collection of such fees does not change the character of MIAA as anairport for public use. Such fees are often termed user's tax. This means taxing thoseamong the public who actually use a public facility instead of taxing all the publicincluding those who never use the particular public facility. A user's tax is moreequitable - a principle of taxation mandated in the 1987 Constitution."[23]

(Underscoring supplied)

Petitioners assume that what the Court said above, equating terminal fees to a "user's tax"must also pertain to tollway fees. But the main issue in theMIAA case was whether or notParaaque City could sell airport lands and buildings under MIAA administration atpublic auction to satisfy unpaid real estate taxes. Since local governments have no power totax the national government, the Court held that the City could not proceed with the auctionsale. MIAA forms part of the national government although not integrated in thedepartment framework." [24] Thus, its airport lands and buildings are properties of publicdominion beyond the commerce of man under Article 420(1) [25] of the Civil Code andcould not be sold at public auction.

As can be seen, the discussion in theMIAA case on toll roads and toll fees was made, not toestablish a rule that tollway fees are user's tax, but to make the point that airport lands andbuildings are properties of public dominion and that the collection of terminal fees for theiruse does not make them private properties. Tollway fees are not taxes. Indeed, they arenot assessed and collected by the BIR and do not go to the general coffers of thegovernment.


24/51

It would of course be another matter if Congress enacts a law imposing a user's tax,collectible from motorists, for the construction and maintenance of certain roadways. Thetax in such a case goes directly to the government for the replenishment of resources itspends for the roadways. This is not the case here. What the government seeks to tax here

are fees collected from tollways that are constructed, maintained, and operated by privatetollway operators at their own expense under the build, operate, and transfer scheme thatthe government has adopted for expressways. [26] Except for a fraction given to thegovernment, the toll fees essentially end up as earnings of the tollway operators.

In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes inany sense. A tax is imposed under the taxing power of the government principally for thepurpose of raising revenues to fund public expenditures. [27] Toll fees, on the other hand, arecollected by private tollway operators as reimbursement for the costs and expenses incurredin the construction, maintenance and operation of the tollways, as well as to assure them areasonable 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. Taxesmay be imposed only by the government under its sovereign authority, toll fees may bedemanded by either the government or private individuals or entities, as an attribute ofownership. [28]

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to thenature of VAT as an indirect tax. In indirect taxation, a distinction is made between theliability for the tax and burden of the tax. The seller who is liable for the VAT may shift orpass on the amount of VAT it paid on goods, properties or services to the buyer. In such acase, what is transferred is not the seller's liability but merely the burden of the VAT. [29]

Thus, the seller remains directly and legally liable for payment of the VAT, but the buyerbears 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 [30] and simply becomes part of the cost that thebuyer 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 thetollway 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, theseller of services, who in this case is the tollway operator, is the person liable for VAT. Thelatter 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 weredeemed as a "user's tax." VAT is assessed against the tollway operator's gross receipts andnot necessarily on the toll fees. Although the tollway operator may shift the VAT burden tothe tollway user, it will not make the latter directly liable for the VAT. The shifted VATburden simply becomes part of the toll fees that one has to pay in order to use the tollways.[32]

Three. Petitioner Timbol has no personality to invoke the non-impairment of contract


25/51

clause on behalf of private investors in the tollway projects. She will neither be prejudicedby nor be affected by the alleged diminution in return of investments that may result fromthe VAT imposition. She has no interest at all in the profits to be earned under the TOAs.The interest in and right to recover investments solely belongs to the private tollwayinvestors.

Besides, her allegation that the private investors' rate of recovery will be adversely affectedby imposing VAT on tollway operations is purely speculative. Equally presumptuous is herassertion that a stipulation in the TOAs known as the Material Adverse Grantor Action willbe activated if VAT is thus imposed. The Court cannot rule on matters that are manifestlyconjectural. Neither can it prohibit the State from exercising its sovereign taxing powerbased on uncertain, prophetic grounds.

Four. Finally, petitioners assert that the substantiation requirements for claiming inputVAT make the VAT on tollway operations impractical and incapable of implementation.They cite the fact that, in order to claim input VAT, the name, address and tax

identification number of the tollway user must be indicated in the VAT receipt or invoice.The manner by which the BIR intends to implement the VAT - by rounding off the toll rateand putting any excess collection in an escrow account - is also illegal, while the alternativeof giving "change" to thousands of motorists in order to meet the exact toll rate would be alogistical nightmare. Thus, according to them, the VAT on tollway operations is notadministratively feasible. [33]

Administrative feasibility is one of the canons of a sound tax system. It simply means thatthe tax system should be capable of being effectively administered and enforced with theleast inconvenience to the taxpayer. Non-observance of the canon, however, will not rendera tax imposition invalid "except to the extent that specific constitutional or statutorylimitations are impaired." [34] Thus, even if the imposition of VAT on tollway operationsmay seem burdensome to implement, it is not necessarily invalid unless some aspect of it isshown to violate any law or the Constitution.

Here, it remains to be seen how the taxing authority will actually implement the VAT ontollway operations. Any declaration by the Court that the manner of its implementation isillegal or unconstitutional would be premature. Although the transcript of the August 12,2010 Senate hearing provides some clue as to how the BIR intends to go about it, [35] thefacts pertaining to the matter are not sufficiently established for the Court to pass judgmenton. Besides, any concern about how the VAT on tollway operations will be enforced mustfirst be addressed to the BIR on whom the task of implementing tax laws primarily andexclusively rests. The Court cannot preempt the BIR's discretion on the matter, absent anyclear violation of law or the Constitution.

For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010which directs toll companies to record an accumulated input VAT of zero balance in theirbooks as of August 16, 2010, the date when the VAT imposition was supposed to takeeffect. The issuance allegedly violates Section 111(A) [36] of the Code which grants firsttime VAT payers a transitional input VAT of 2% on beginning inventory.


26/51

In this connection, the BIR explained that BIR RMC 63-2010 is actually the product ofnegotiations with tollway operators who have been assessed VAT as early as 2005, butfailed to charge VAT-inclusive toll fees which by now can no longer be collected. Thetollway operators agreed to waive the 2% transitional input VAT, in exchange for

cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitionalinput VAT belongs to the tollway operators who have not questioned the circular's validity.They are thus the ones who have a right to challenge the circular in a direct and properaction brought for the purpose.

Conclusion

In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative orexpand the VAT law's coverage when she sought to impose VAT on tollway operations.Section 108(A) of the Code clearly states that services of all other franchise grantees aresubject to VAT, except as may be provided under Section 119 of the Code. Tollwayoperators are not among the franchise grantees subject to franchise tax under the latterprovision. Neither are their services among the VAT-exempt transactions under Section109 of the Code.

If the legislative intent was to exempt tollway operations from VAT, as petitioners sostrongly allege, then it would have been well for the law to clearly say so. Tax exemptionsmust be justified by clear statutory grant and based on language in the law too plain to bemistaken. [37] But as the law is written, no such exemption obtains for tollway operators.The Court is thus duty-bound to simply apply the law as it is found.

Lastly, the grant of tax exemption is a matter of legislative policy that is within theexclusive prerogative of Congress. The Court's role is to merely uphold this legislativepolicy, as reflected first and foremost in the language of the tax statute. Thus, anyunwarranted burden that may be perceived to result from enforcing such policy must beproperly referred to Congress. The Court has no discretion on the matter but simplyapplies the law.

The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716or the Expanded Value-Added Tax law was passed. It is only now, however, that theexecutive has earnestly pursued the VAT imposition against tollway operators. Theexecutive exercises exclusive discretion in matters pertaining to the implementation andexecution of tax laws. Consequently, the executive is more properly suited to deal with theimmediate and practical consequences of the VAT imposition.

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

SO ORDERED.


27/51

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),PETITIONER, VS. THE BUREAU OF INTERNAL REVENUE (BIR),

REPRESENTED HEREIN BY HON. JOSE MARIO BUAG, IN HIS OFFICIAL

CAPACITY AS COMMISSIONER OF INTERNAL REVENUE, PUBLICRESPONDENT, JOHN DOE AND JANE DOE, WHO ARE PERSONS ACTINGFOR, IN BEHALF, OR UNDER THE AUTHORITY OF RESPONDENT.

PUBLIC AND PRIVATE RESPONDENTS.

D E C I S I O N

PERALTA, J.:

For resolution of this Court is the Petition forCertiorari and Prohibition[1] with prayer forthe issuance of a Temporary Restraining Order and/or Preliminary Injunction, dated April

17, 2006, of petitioner Philippine Amusement and Gaming Corporation (PAGCOR),seeking the declaration of nullity of Section 1 of Republic Act (R.A.) No. 9337 insofar as itamends Section 27 (c) of the National Internal Revenue Code of 1997, by excludingpetitioner from exemption from corporate income tax for being repugnant to Sections 1 and10 of Article III of the Constitution. Petitioner further seeks to prohibit the implementationof Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being contraryto law.

The undisputed facts follow.

PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A[2] on January 1,1977. Simultaneous to its creation, P.D. No. 1067-B[3] (supplementing P.D. No. 1067-A)was issued exempting PAGCOR from the payment of any type of tax, except a franchisetax of five percent (5%) of the gross revenue.[4] Thereafter, on June 2, 1978, P.D. No. 1399was issued expanding the scope of PAGCOR's exemption.[5]

To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No.1869[6] was issued. Section 13 thereof reads as follows:

Sec. 13.Exemptions. -- x x x

(1) Customs Duties, taxes and other imposts on importations. - All importations ofequipment, vehicles, automobiles, boats, ships, barges, aircraft and such other gamblingparaphernalia, including accessories or related facilities, for the sole and exclusive use ofthe casinos, the proper and efficient management and administration thereof and such otherclubs, recreation or amusement places to be established under and by virtue of thisFranchise shall be exempt from the payment of duties, taxes and other imposts, includingall kinds of fees, levies, or charges of any kind or nature.

Vessels and/or accessory ferry boats imported or to be imported by any corporation havingexisting contractual arrangements with the Corporation, for the sole and exclusive use of


28/51

the casino or to be used to service the operations and requirements of the casino, shalllikewise be totally exempt from the payment of all customs duties, taxes and other imposts,including all kinds of fees, levies, assessments or charges of any kind or nature, whetherNational or Local.

(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form,income or otherwise, as well as fees, charges, or levies of whatever nature, whetherNational or Local, shall be assessed and collected under this Franchise from theCorporation; nor shall any form of tax or charge attach in any way to the earnings ofthe Corporation, except a Franchise Tax of five percent (5%)of the gross revenue orearnings derived by the Corporation from its operation under this Franchise. Suchtax shall be due and payable quarterly to the National Government and shall be inlieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description,levied, established, or collected by any municipal, provincial or national governmentauthority.

(b) Others: The exemption herein granted for earnings derived from the operationsconducted under the franchise, specifically from the payment of any tax, income orotherwise, as well as any form of charges, fees or levies, shall inure to the benefit of andextend to corporation(s), association(s), agency(ies), or individual(s) with whom theCorporation or operator has any contractual relationship in connection with the operationsof the casino(s) authorized to be conducted under this Franchise and to those receivingcompensation or other remuneration from the Corporation as a result of essential facilitiesfurnished and/or technical services rendered to theCorporation or operator.

The fee or remuneration of foreign entertainers contracted by the Corporation or operatorin pursuance of this provision shall be free of any tax.

(3)Dividend Income. Notwithstanding any provision of law to the contrary, in the eventthe Corporation should declare a cash dividend income corresponding to the participationof the private sector shall, as an incentive to the beneficiaries, be subject only to a final flatincome rate of ten percent (10%) of the regular income tax rates. The dividend incomeshall not in such case be considered as part of the beneficiaries' taxable income; provided,however, that such dividend income shall be totally exempted from income or other formof taxes if invested within six (6) months from the date the dividend income is received inthe following:

(a) operation of the casino(s) or investments in any affiliate activity that will ultimatelyredound to the benefit of the Corporation; or any other corporation with whom theCorporation has any existing arrangements in connection with or related to the operationsof the casino(s);

(b) Government bonds, securities, treasury notes, or government debentures; or

(c) BOI-registered or export-oriented corporation(s).[7]

PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was


29/51

later restored by Letter of Instruction No. 1430, which was issued in September 1984.

On January 1, 1998, R.A. No. 8424,[8] otherwise known as theNational Internal RevenueCode of 1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled corporations (GOCCs) shall pay corporate income tax, except

petitioner PAGCOR, the Government Service and Insurance Corporation, the SocialSecurity System, the Philippine Health Insurance Corporation, and the Philippine CharitySweepstakes Office, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - Theprovisions of existing special general laws to the contrary notwithstanding, allcorporations, agencies or instrumentalities owned and controlled by the Government,except the Government Service and Insurance Corporation (GSIS), the SocialSecurity System (SSS), the Philippine Health Insurance Corporation (PHIC), thePhilippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement andGaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income asare imposed by this Section upon corporations or associations engaged in similar business,industry, or activity.[9]

With the enactment of R.A. No. 9337[10] on May 24, 2005, certain sections of the NationalInternal Revenue Code of 1997 were amended. The particular amendment that is at issuein this case is Section 1 of R.A. No. 9337, which amended Section 27 (c) of the NationalInternal Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCsthat are exempt from payment of corporate income tax, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - Theprovisions of existing special general laws to the contrary notwithstanding, allcorporations, agencies, or instrumentalities owned and controlled by the Government,

except the Government Service and Insurance Corporation (GSIS), the SocialSecurity System (SSS), the Philippine Health Insurance Corporation (PHIC), and thePhilippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon theirtaxable income as are imposed by this Section upon corporations or associations engagedin similar business, industry, or activity.

Different groups came to this Court via petitions forcertiorari and prohibition[11] assailingthe validity and constitutionality of R.A. No. 9337, in particular:

1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods andproperties; Section 5, which imposes a 10% VAT on importation of goods; and Section 6,

which imposes a 10% VAT on sale of services and use or lease of properties, all contain auniform provisoauthorizing the President, upon the recommendation of the Secretary ofFinance, to raise the VAT rate to 12%. The said provisions were alleged to be violative ofSection 28 (2), Article VI of the Constitution, which section vests in Congress theexclusive authority to fix the rate of taxes, and of Section 1, Article III of the Constitutionon due process, as well as of Section 26 (2), Article VI of the Constitution, which sectionprovides for the "no amendment rule" upon the last reading of a bill;


30/51

2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of theConstitution, or the guarantee of equal protection of the laws, and Section 28 (1), ArticleVI of the Constitution; and

3) other technical aspects of the passage of the law, questioning the manner it was passed.

On September 1, 2005, the Court dismissed all the petitions and upheld theconstitutionality of R.A. No. 9337.[12]

On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-2005,[13]specifically identifying PAGCOR as one of the franchisees subject to 10% VAT imposedunder Section 108 of the National Internal Revenue Code of 1997, as amended by R.A. No.9337. The said revenue regulation, in part, reads:

Sec. 4. 108-3.Definitions and Specific Rules on Selected Services. --

x x x x

(h) x x x

Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the TaxCode, regardless of how their franchisees may have been granted, shall be subject to the10% VAT imposed under Sec.108 of the Tax Code. This includes, among others, thePhilippine Amusement and Gaming Corporation (PAGCOR), and its licensees orfranchisees.

Hence, the present petition forcertiorari.

PAGCOR raises the following issues:

I

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOIDAB INITIO FORBEING REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED INSECTION 1, ARTICLE III OF THE 1987 CONSTITUTION.

II

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOIDAB INITIO FOR

BEING REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED INSECTION 10, ARTICLE III OF THE 1987 CONSTITUTION.

III

WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL ANDVOIDAB INITIO FOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424,SECTION 108, INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE


31/51

SERVICES OF THE PETITIONER AS WELL AS PETITIONER'S LICENSEES ORFRANCHISEES WHEN THE BASIC LAW, AS INTERPRETED BY APPLICABLEJURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER OR ONPETITIONER'S LICENSEES OR FRANCHISEES.[14]

The BIR, in its Comment[15]

dated December 29, 2006, counters:I

SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTHVALID AND CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BEHARMONIOUSLY CONSTRUED TOGETHER SO AS TO GIVE EFFECT TO ALL OFTHEIR PROVISIONS WHENEVER POSSIBLE.

II

SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION10, ARTICLE III OF THE 1987 CONSTITUTION.

III

BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONALUNTIL STRICKEN DOWN BY LAWFUL AUTHORITIES.

The Office of the Solicitor General (OSG), by way of Manifestation InLieu of Comment,[16] concurred with the arguments of the petitioner. It added that although the State is free toselect the subjects of taxation and that the inequity resulting from singling out a particularclass for taxation or exemption is not an infringement of the constitutional limitation, a tax

law must operate with the same force and effect to all persons, firms and corporationsplaced in a similar situation. Furthermore, according to the OSG, public respondent BIRexceeded its statutory authority when it enacted RR No. 16-2005, because the latter'sprovisions are contrary to the mandates of P.D. No. 1869 in relation to R.A. No. 9337.

The main issue is whether or not PAGCOR is still exempt from corporate income tax andVAT with the enactment of R.A. No. 9337.

After a careful study of the positions presented by the parties, this Court finds the petitionpartly meritorious.

Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National InternalRevenue Code of 1977, petitioner is no longer exempt from corporate income tax as it hasbeen effectively omitted from the list of GOCCs that are exempt from it. Petitioner arguesthat such omission is unconstitutional, as it is violative of its right to equal protection of thelaws under Section 1, Article III of the Constitution:

Sec. 1. No person shall be deprived of life, liberty, or property without due process of law,nor shall any person be denied the equal protection of the laws.


32/51


33/51

CHAIRMAN ENRILE. Wala na, tinanggal na namin yon.

HON. R. DIAZ. Tinanggal na ba natin yon?

CHAIRMAN ENRILE. Oo.HON. R. DIAZ. Because I was wondering whether we covered the tax on --- Whether on auniversal basis, we included a tax on cockfighting winnings.

CHAIRMAN ENRILE. No, we removed the ---

HON. R. DIAZ. I . . . (inaudible) natin yong lotto?

CHAIRMAN ENRILE. PatiPAGCORtinanggalupon request.

CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.CHAIRMAN ENRILE. Philippine Insurance --- Health, health ba. Yon angrequest ngChairman, I will accept. (laughter) Pag-Pag-ibig yon, maliliit na sa tao yon.

HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in anamount that would reflect the VAT and other sales taxes---

CHAIRMAN ENRILE. No, we're talking of this measure only. We will not ---(discontinued)

HON. ROXAS. No, no, no, no, from the --- arising from the exemption. Assuming thatwhen we release the money into the hands of the public, they will not use that to --- forwallpaper. They will spend that eh, Mr. Chairman. So when they spend that---

CHAIRMAN ENRILE. There's a VAT.

HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there aquantification? Is there an approximation?

CHAIRMAN JAVIER. Not anything.

HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is notcirculating in the economy which is unrealistic.

CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government,somebody receives it in the form of wages and supplies and other services and othergoods. They are not being taken from the public and stored in a vault.

CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income


34/51


35/51

services and the like. What is your comment on this? This is going to affect a lot ofservices on the government side.

THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.

SEN. OSMEA. It goes from pocket to the other, Monico.REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because youmay have your own pre-judgment on this and I don't blame you. I don't blame you. And Iknow you have your own research. But will this not affect a lot, the disbursements onsocial services and other?

REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldn'tit be easier for you to explain to, say, foreign creditors, how do you explain to them that ifthere is a fiscal gap some of our richest corporations has [been] spared [from] taxation bythe government which is one rich source of revenues. Now, why do you save, why do you

spare certain government corporations on that, like Pagcor? So, would it be easier for youto make an argument if everything was exposed to taxation?

REP. TEVES. Mr. Chair, please.

THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before wecall Congressman Teves?

MR. PURISIMA. Thank you, Mr. Chair.

Yes, from definitely improving the collection, it will help us because it will then enteras an official revenue although when dividends declare it also goes in as other income.(sic)

x x x x

REP. TEVES. Mr. Chairman.

x x x x

THE CHAIRMAN (REP. LAPUS).