TAXATION

J. BERSAMIN

General Principles of Taxation

NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.;

H&B, INC.; SUPPLIES STATION, INC.; and HARDWARE WORKSHOP, INC. v. ANTHONY
ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE CITY OF MANILA
G.R. No. 180651, July 30, 2014, BERSAMIN, J.:

The issue here concerns double taxation. There is double taxation when the same taxpayer is
taxed twice when he should be taxed only once for the same purpose by the same taxing authority
within the same jurisdiction during the same taxing period, and the taxes are of the same kind or
character. Double taxation is obnoxious.

Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since
these are being imposed: (1) on the same subject matter the privilege of doing business in the City
of Manila; (2) for the same purpose to make persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within
the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the
same taxing periods per calendar year; and (6) of the same kind or character a local business tax
imposed on gross sales or receipts of the business.

FACTS:

The City of Manila assessed and collected taxes from the individual petitioners pursuant
to Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of
the Revenue Code of Manila. At the same time, the City of Manila imposed additional taxes upon
the petitioners pursuant to Section 21 of the Revenue Code of Manila, as amended, as a condition
for the renewal of their respective business licenses for the year 1999.

To comply with the City of Manilas assessment of taxes under Section 21, the petitioners
paid under protest corresponding to the first quarter of 1999.

The petitioners formally requested the Office of the City Treasurer for the tax credit or
refund of the local business taxes paid under protest. However, then City Treasurer denied the
request. Consequently, the petitioners filed their respective petitions for certiorari in the RTC of
Manila.

The RTC perceives no proscribed double taxation in the strict, narrow, or obnoxious
sense. On appeal to the CA, the latter denied the petitioners appeal.

ISSUE:

Whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as
amended, constitutes double taxation (YES)

RULING:

The appeal is meritorious. The collection of taxes pursuant to Section 21 of the Revenue
Code of Manila constituted double taxation.

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Double taxation means taxing the same property twice when it should be taxed only once;
Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction,
during the same taxing period; and the taxes must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same subject matter the privilege of doing business in
the City of Manila; (2) for the same purpose to make persons conducting business within the
City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of
Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of
Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character
a local business tax imposed on gross sales or receipts of the business.

The Court revisits Section 143 of the LGC, the very source of the power of municipalities
and cities to impose a local business tax, and to which any local business tax imposed by
petitioner City of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code. In the same way, businesses such as respondents, already
subject to a local business tax under Section 14 of Tax Ordinance No. 7794 can no longer be made
liable for local business tax under Section 21 of the same Tax Ordinance.

Based on the foregoing reasons, petitioner should not have been subjected to taxes under
Section 21 of the Manila Revenue Code for the fourth quarter of 2001, considering that it had
already been paying local business tax under Section 14 of the same ordinance. Hence, payments
made under Section 21 must be refunded in favor of petitioner.

National Taxation

H. TAMBUNTING PAWNSHOP, INC., VS COMMISSIONER OF INTERNAL REVENUE

G.R. No. 173373, FIRST DIVISION, July 29, 2013, BERSAMIN, J.

To be entitled to claim a tax deduction, the taxpayer must competently establish the factual
and documentary bases of its claim.

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

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Same Same Requisites for the Deductibility of Ordinary and Necessary Trade or
Business Expenses, Like Those Paid for Security and Janitorial Services, Management and
Professional Fees, and Rental Expenses.The requisites for the deductibility of ordinary and
necessary trade or business expenses, like those paid for security and janitorial services,
management and professional fees, and rental expenses, are that: (a) the expenses must be
ordinary and necessary (b) they must have been paid or incurred during the taxable year
(c) they must have been paid or incurred in carrying on the trade or business of the
taxpayer and (d) they must be supported by receipts, records or other pertinent papers.

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

FACTS:

On June 26, 2000, the BIR issued assessment notices and demand letters assessing
Tambunting for deficiency percentage tax, income tax and compromise penalties for taxable year
1997. On July 26, 2000, Tambunting instituted an administrative protest against the assessment
notices and demand letters with the Commissioner of Internal Revenue.

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

On October 8, 2004, the CTA First Division rendered a decision ordering petitioner to
PAY the respondent the amount representing deficiency income tax for the year 1997, plus 20%
delinquency interest pursuant to Section 249 (C) of the National Internal Revenue Code. After its
motion for reconsideration was denied for lack of merit, Tambunting filed a petition for review in
the CTA En Banc, arguing that the First Division erred in disallowing its deductions on the
ground that it had not substantiated them by sufficient evidence. The CTA En Banc denied
Tambuntings petition for review. The CTA En Banc also denied Tambuntings motion for
reconsideration for its lack of merit. Hence, this appeal by petition for review on certiorari.

Tambunting argues that the CTA should have allowed its deductions because it had
been able to point out the provisions of law authorizing the deductions; that it proved its
entitlement to the deductions through all the documentary and testimonial evidence presented in
court; that the provisions of Section 34 (A)(1)(b) of the 1997 National Internal Revenue Code,
governing the types of evidence to prove a claim for deduction of expenses, were applicable
because the law took effect during the pendency of the case in the CTA; that the CTA had allowed
deductions for ordinary and necessary expenses on the basis of cash vouchers issued by the
taxpayer or certifications issued by the payees evidencing receipt of interest on loans as well as

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agreements relating to the imposition of interest; that it had thus shown beyond doubt that it had
incurred the losses in its auction sales; and that it substantially complied with the requirements of
Revenue Regulations No. 12-77 on the deductibility of its losses.

ISSUE:

WON Tambunting competently established the factual and documentary bases of its
claim for deductions.

RULING:

NO. The Court agrees with the CTA En Banc that because this case involved assessments
relating to transactions incurred by Tambunting prior to the effectivity of Republic Act No. 8424
(National Internal Revenue Code of 1997, or NIRC of 1997), the provisions governing the propriety
of the deductions was Presidential Decree 1158 (NIRC of 1977).

We affirm the aforequoted ruling of the CTA En Banc.

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

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

The requisites for the deductibility of ordinary and necessary trade or business expenses, like
those paid for security and janitorial services, management and professional fees, and rental
expenses, are that: (a) the expenses must be ordinary and necessary; (b) they must have been paid
or incurred during the taxable year; (c) they must have been paid or incurred in carrying on the
trade or business of the taxpayer; and (d) they must be supported by receipts, records or other
pertinent papers.

In denying Tambuntings claim for deduction of its security and janitorial expenses,
management and professional fees, and its rental expenses, the CTA En Banc explained that
contrary to petitioners contention, the security/janitorial expenses paid to Pathfinder
Investigation were not duly substantiated. The certification issued by Mr. Balisado was not the
proper document required by law to substantiate its expenses. Petitioner should have presented

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the official receipts or invoices to prove its claim as provided for under Section 238 of the National
Internal Revenue Code of 1977.

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

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

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

As previously discussed, the proper substantiation requirement for an expense to be

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

Moreover, the issue on the submission of cash vouchers as evidence to prove expenses
incurred has been addressed by this Court in the assailed Resolution.

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

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

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G. TAMBUNTING PAWNSHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 172394, 13 October 2010, THIRD DIVISION (Bersamin, J.)

It is now settled that for purposes of determining their tax liability, pawnshops are treated
as non-bank financial intermediaries.

Petitioner H. Tambunting Pawnshop, Inc. (Tambunting) received an assessment notice

dated August 27, 2003 from the Bureau of Internal Revenue (BIR), demanding the payment of
deficiency Value-Added Tax (VAT) and compromise penalty for taxable year 2000 in the
amounts of P5,212,404.52 and P25,000, respectively. Tambunting, disclaiming its liability,
protested the assessment with the respondent Commissioner of Internal Revenue (CIR), arguing
that a pawnshop business was not subject to VAT and the compromise penalty. Tambuntings
main argument is that pawnshops are not within the concept of all services and similar services
as provided in Section 108 (A) of the National Internal Revenue Code. Tambunting also argues
that the enumeration under Section 108(A) of the National Internal Revenue Code of services
subject to VAT is exclusive.

ISSUE:

Whether the petitioner, a pawnshop operator, was liable for VAT and the compromise
penalty for taxable year 2000.

RULING:

NO. It is now settled that for purposes of determining their tax liability, pawnshops are
treated as non-bank financial intermediaries. The VAT on non-bank financial intermediaries
was first levied under R.A. No. 7716 (Expanded Value-Added Tax Law). However, Section 11 of
R.A. No. 8241 amended Section 17 of R.A. No. 7716 to move the effectivity of the VAT on non-
bank financial intermediaries to January 1, 1998. Later, R.A. No. 8424 (National Internal Revenue
Code or Tax Reform Act of 1997) again moved the effectivity of the imposition of the VAT to
December 31, 1999. Still later, R.A. No. 8761 retarded the effectivity of the VAT on non-bank
financial intermediaries to January 1, 2001. Lastly, R.A. No. 9010 revised the effectivity of the
VAT on non-bank financial intermediaries by making it start on January 1, 2003. Accordingly,
the consecutive deferments of the effectivity date of the application of VAT on non-bank
financial intermediaries like pawnshops resulted in their non-liability for VAT during the
affected taxable years.

CHEVRON PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 210836, SEPTEMBER 1, 2015, BERSAMIN, J., EN BANC*

Excise tax on petroleum products is essentially a tax on property, the direct liability for
which pertains to the statutory taxpayer (i.e., manufacturer, producer or importer). Any excise tax
paid by the statutory taxpayer on petroleum products sold to any of the entities or agencies named
in Section 135 of the National Internal Revenue Code (NIRC) exempt from excise tax is deemed
illegal or erroneous, and should be credited or refunded to the payor pursuant to Section 204 of the

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NIRC. This is because the exemption granted under Section 135 of the NIRC must be construed in
favor of the property itself, that is, the petroleum products.

Taxation; Excise Taxes; Under Section 129 of the National Internal Revenue Code (NIRC), as
amended, excise taxes are imposed on two (2) kinds of goods, namely: (a) goods manufactured or
produced in the Philippines for domestic sales or consumption or for any other disposition; and (b)
things imported.Under Section 129 of the NIRC, as amended, excise taxes are imposed on two
kinds of goods, namely: (a) goods manufactured or produced in the Philippines for domestic sales
or consumption or for any other disposition; and (b) things imported. Undoubtedly, the excise tax
imposed under Section 129 of the NIRC is a tax on property. With respect to imported things,
Section 131 of the NIRC declares that excise taxes on imported things shall be paid by the owner
or importer to the Customs officers, conformably with the regulations of the Department of
Finance and before the release of such articles from the customs house, unless the imported
things are exempt from excise taxes and the person found to be in possession of the same is other
than those legally entitled to such tax exemption. For this purpose, the statutory taxpayer is the
importer of the things subject to excise tax.

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

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

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

Facts

Chevron sold and delivered petroleum products to CDC in the period from August 2007 to
December 2007. Chevron did not pass on to CDC the excise taxes paid on the importation of the
petroleum products sold to CDC in taxable year 2007; hence, on June 26, 2009, it filed an

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administrative claim for tax refund or issuance of tax credit certificate in the amount of
P6,542,400.00. Considering that CIR did not act on the administrative claim for tax refund or tax
credit, Chevron elevated its claim to the CTA by petition for review.

The CTA First Division denied Chevrons judicial claim for tax refund or tax credit. The
CTA En Banc affirmed the ruling of the CTA First Division, stating that there was nothing in
Section 135 (c) of the NIRC that explicitly exempted Chevron as the seller of the imported
petroleum products from the payment of the excise taxes; and holding that because it did not fall
under any of the categories exempted from paying excise tax, Chevron was not entitled to the tax
refund or tax credit.

Chevron appealed to the Court, but the Court (Second Division) denied the petition for
review on certiorari for failure to show any reversible error on the part of the CTA En Banc.

Hence, Chevron has filed the Motion for Reconsideration, submitting that it was entitled
to the tax refund or tax credit because ruling promulgated on April 25, 2012 in Pilipinas Shell, on
which the CTA En Banc had based its denial of the claim of Chevron, was meanwhile reconsidered
by the Courts First Division on February 19, 2014.

Issue

WON Chevron was entitled to the tax refund or the tax credit for the excise taxes paid on
the importation of petroleum products that it had sold to CDC in 2007.

Ruling

YES. The excise tax is a tax is a tax on property; hence, the exemption from the excise tax
expressly granted under Section 135 of the NIRC must be construed in favor of the petroleum
products on which the excise tax was initially imposed.

Accordingly, the excise taxes that Chevron paid on its importation of petroleum products
subsequently sold to CDC were illegal and erroneous, and should be credited or refunded to
Chevron in accordance with Section 204 of the NIRC.

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

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

Chevron, being the statutory taxpayer, paid the excise taxes on its importation of the petroleum
products.

Pursuant to Section 135(c), petroleum products sold to entities that are by law
exempt from direct and indirect taxes are exempt from excise tax. The phrase which are

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

CDC was created to be the implementing and operating arm of the Bases Conversion and
Development Authority to manage the Clark Special Economic Zone (CSEZ). As a duly-registered
enterprise in the CSEZ, CDC has been exempt from paying direct and indirect taxes pursuant to
Section 24 of Republic Act No. 7916 (The Special Economic Zone Act of 1995), in relation to
Section 15 of Republic Act No. 9400 (Amending Republic Act No. 7227, otherwise known as the
Bases Conversion Development Act of 1992).

Inasmuch as its liability for the payment of the excise taxes accrued immediately upon
importation and prior to the removal of the petroleum products from the customs house,
Chevron was bound to pay, and actually paid such taxes. But the status of the petroleum products
as exempt from the excise taxes would be confirmed only upon their sale to CDC in 2007 (or, for
that matter, to any of the other entities or agencies listed in Section 135 of the NIRC). Before then,
Chevron did not have any legal basis to claim the tax refund or the tax credit as to the petroleum
products.

Consequently, the payment of the excise taxes by Chevron upon its importation of
petroleum products was deemed illegal and erroneous upon the sale of the petroleum products to
CDC. Section 204 of the NIRC explicitly allowed Chevron as the statutory taxpayer to claim the
refund or the credit of the excise taxes thereby paid.

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

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

The general rule applies here because Chevron did not pass on to CDC the excise taxes paid on
the importation of the petroleum products, the latter being exempt from indirect taxes by virtue
of Section 24 of Republic Act No. 7916, in relation to Section 15 of Republic Act No. 9400, not
because Section 135(c) of the NIRC exempted CDC from the payment of excise tax.

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LUZON HYDRO CORPORATION v. COMMISSION ON INTERNAL REVENUE

G.R. No. 188260; November 13, 2013, J. Bersamin

Even though the sale of electricity by a power generation company is subject to zero-rated
VAT, its claim for refund or tax credit cannot be granted where no VAT official receipts and VAT
returns have been presented to prove that it actually made zero-rated sales of electricity. An entity
claiming for refund or tax credit carries with it the burden of proving that not only is it entitled
under the substantive law to the allowance of its claim for refund or tax credit but also that it met
all the requirements for evidentiary substantiation of its claim before the administrative official
concerned.

FACTS:

Luzon Hydro Corporation (LHC) is a corporation duly organized under the laws of the
Philippines, has been registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.
LHC entered into a Power Purchase Agreement with National Power Corporation (NPC) wherein
the electricity produced by the former from its operation of the Bakun Hydroelectric Power Plant
was to be sold exclusively to the latter. Relative to its sale to NPC, Luzon Hydro was granted by
the BIR a certificate for Zero Rate for VAT purposes from January 1, 2000 to December 31, 2000
and January 2, 2001 to December 31, 2001. Subsequently, LHC incurred an input VAT in the
amount of P9,795,427.89 on its domestic purchases of goods and services used in its generation
and sales of electricity to NPC in the four quarters of 2001, and it declared the input VAT of
P9,795,427.89 in its amended VAT returns for the four quarters on 2001.

Later on, LHC filed a written claim for refund or tax credit relative to its unutilized input
VAT. After an investigation, BIR made a recommendation in its report favorable to LHCs claim.
However, despite the favorable recommendation, the CIR did not act on the claim. Hence, the
LHC filed its petition for review in the CTA praying for the refund or tax credit certificate
corresponding to the unutilized input VAT. The CTA Division promulgated its decision in favor of
CIR and denied the petition for review for lack of merit on the ground that LHC did not comply
with the requirement of proving that it had effectively zero-rated sales for the quarters of 2001.
After the denial of its motion for reconsideration, LHC elevated the case to CTA En Banc, which
promulgated a decision affirming the Division and denying the claim for refund or tax credit.

ISSUE:

Whether or not Luzon Hydro Corporation is entitled to a refund or tax credit.

RULING:

Petition Denied.

A claim for refund or tax credit for unutilized input VAT may be allowed only if the
following requisites concur, namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is
engaged in zero-rated or effectively zero-rated sales; (c) the input taxes are due or paid; (d) the
input taxes are not transitional input taxes; (e) the input taxes have not been applied against
output taxes during and in the succeeding quarters; (f) the input taxes claimed are attributable to
zero-rated or effectively zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1) and
(2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been
duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas; (h) where there are both zero-rated or effectively zero-rated sales and taxable or exempt

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sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the
input taxes shall be proportionately allocated on the basis of sales volume; and (i) the claim is
filed within two years after the close of the taxable quarter when such sales were made.

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

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

COMMISSIONER OF INTERNAL REVENUE v. PL MANAGEMENT INTERNATIONAL

PHILIPPINES, INC.
G.R. No. 160949, 4 April 2011, THIRD DIVISION (Bersamin, J.)

There are two alternative options of a corporate taxpayer whose total quarterly income tax
payments exceed its tax liability tax refund and tax credit. These two options under Section 76 of
the National Internal Revenue Code are alternative in nature. The choice of one precludes the
other. One cannot get a tax refund and a tax credit at the same time for the same excess income
taxes paid.

In 1997, PL Management International Philippines, Inc. (PL Management), earned

an income of P24,000,000.00 from its professional services rendered to UEM-MARA
Philippines Corporation (UMPC), from which income UMPC withheld P1,200,000.00 as PL
Managements withholding agent. In its 1997 income tax return (ITR), PL Management reported
a net loss of P983,037.00, but expressly signified that it had a creditable withholding tax of
P1,200,000.00 for taxable year 1997 to be claimed as tax credit in taxable year 1998. On April 13,
1999, PL Management submitted its ITR for taxable year 1998, in which it declared a net loss of
P2,772,043.00. Due to its net-loss position, PL Management was unable to claim the
P1,200,000.00 as tax credit. On April 12, 2000, PL Management filed with the Commissioner of
Internal Revenue (CIR) a written claim for the refund of the P1,200,000.00 unutilized creditable
withholding tax for taxable year 1997. However, CIR did not act on the claim.

Due to CIRs inaction, PL Management filed a petition for review in the Commission on
Tax Appeals (CTA). CTA denied PL Managements claim on the ground of prescription. PL
Management appealed to the Court of Appeals (CA) assailing the correctness of CTAs denial of
its judicial claim for refund on the ground of bar by prescription

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ISSUE:

Whether or not tax refund of the unutilized creditable withholding tax for taxable year
1997 may be granted to PL Management

RULING:

NO. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Court
expounds on the two alternative options of a corporate taxpayer whose total quarterly income
tax payments exceed its tax liability, and on how the choice of one option precludes the other,
viz:

The first option is relatively simple. Any tax on income that is paid in excess of
the amount due the government may be refunded, provided that a taxpayer
properly applies for the refund. The second option works by applying the
refundable amount, as shown on the FAR of a given taxable year, against the
estimated quarterly income tax liabilities of the succeeding taxable year. xxx
These two options under Section 76 are alternative in nature. The choice of
one precludes the other. xxx One cannot get a tax refund and a tax credit at
the same time for the same excess income taxes paid. xxx

Inasmuch as PL Management already opted to carry-over its unutilized creditable

withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be
converted into a claim for tax refund because of the irrevocability rule provided in Section 76
of the NIRC of 1997. Thereby, PL Management became barred from claiming the refund.
However, in view of its irrevocable choice, PL Management remained entitled to utilize that
amount of P1,200,000.00 as tax credit in succeeding taxable years until fully exhausted. In this
regard, prescription did not bar it from applying the amount as tax credit considering that
there was no prescriptive period for the carrying over of the amount as tax credit in
subsequent taxable years.

Tariff and Customs Code of the Philippines

AGRIEX CO., LTD., petitioner, vs. HON. TITUS B. VILLANUEVA, Commissioner, Bureau of
Customs (now replaced by HON. ANTONIO M. BERNARDO), and HON. BILLY C. BIBIT,
Collector of Customs, Port of Subic (now replaced by HON. EMELITO VILLARUZ),
respondents.
G.R. No. 158150 September 10, 2014, FIRST DIVISION, BERSAMIN, J.

The Court affirms the exclusive jurisdiction of the Bureau of Customs over seizure cases
within the Subic Freeport Zone.

Subic Special Economic Zone; Subic Bay Metropolitan Authority; The Subic Special
Economic Zone, or the Subic Bay Freeport (SBF), was established pursuant to Section 12 of Republic
Act (RA) No. 7227 (The Bases Conversion and Development Act of 1992), to be operated and
managed as a special customs territory. On the other hand, the Subic Bay Metropolitan Authority
(SBMA) was created under Section 13 of RA No. 7227 to serve as an operating and implementing
arm of the Conversion Authority within the SBF.

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J. BERSAMIN

Collector of Customs; Warrant of Seizure and Detention; The Collector of Customs was
authorized to institute seizure proceedings and to issue Warrant of Seizure and Detentions (WSDs)
in the Subic Bay Freeport (SBF), subject to the review by the Commissioner of Customs.
Accordingly, the proper remedy to question the order or resolution of the Commissioner of
Customs was an appeal to the CTA, not to the CA.

Administrative Agencies; Bureau of Customs; Jurisdiction; Subic Bay Metropolitan

Authority; Both the Subic Bay Metropolitan Authority (SBMA) and the Bureau of Customs (BOC)
have the power to seize and forfeit goods or articles entering the Subic Bay Freeport (SBF), except
that SBMAs authority to seize and forfeit goods or articles entering the SBF has been limited only to
cases involving violations of Republic Act (RA) No. 7227 or its Implementing Rules and Regulations
(IRR). There is no question therefore, that the authority of the Bureau of Customs is larger in
scope because it covers cases concerning violations of the customs laws. The authority of the
Bureau of Customs to seize and forfeit goods and articles entering the Subic Bay Freeport does not
contravene the nature of the Subic Bay Freeport as a separate customs authority. Indeed, the
investors can generally and freely engage in any kind of business as well as import into and export
out goods with minimum interference from the Government.

Same; Same; Same; Tariff and Customs Code; Section 602 of the Tariff and Customs Code
vests exclusive original jurisdiction in the Bureau of Customs (BOC) over seizure and forfeiture
cases in the enforcement of the tariff and customs laws.The treatment of the Subic Bay Freeport
as a separate customs territory cannot completely divest the Government of its right to intervene
in the operations and management of the Subic Bay Freeport, especially when patent violations of
the customs and tax laws are discovered. After all, Section 602 of the Tariff and Customs Code
vests exclusive original jurisdiction in the Bureau of Customs over seizure and forfeiture cases in
the enforcement of the tariff and customs laws.

FACTS:

Petitioner, a foreign corporation whose principal office was in Bangkok, Thailand, entered
into a contract of sale with PT. Gloria Mitra Niagatama International of Surabaya, Indonesia (PT.
Gloria Mitra) for 180,000 bags (or 9,000 metric tons) of Thai white rice. After the unloading,
transfer and storage of the rice shipment at SBMAs warehouse, Collector Bibit issued Warrant of
Seizure and Detention (WSD) to cover the 180,000 bags of Thai white rice intended for
transshipment upon discovery that the consignees of the 180,000 bags of rice in Indonesia were
nonexistent, and the consignee in the Fiji Islands denied being involved in the importation of
rice. Thereafter, Collector Bibit issued a Notice of Sale of the seized rice.

Petitioner instituted the petition for certiorari and prohibition in the CA alleging grave
abuse of discretion on the part of the respondents for issuing the Notice of Sale. Petitioner alleged
that Subic Bay Freeport is a separate customs territory and hence Bureau of Customs had no
jurisdiction over the 180,000 bags of Thai white rice intended for transshipment to other countries.
CA denied the petition.

ISSUE:

Whether the Collector of Customs has power to seize and forfeit goods or articles enetering the
Subic Bay Freeport.

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J. BERSAMIN

RULING:

Both the SBMA and the Bureau of Customs have the power to seize and forfeit goods or
articles entering the Subic Bay Freeport, except that SBMAs authority to seize and forfeit goods
or articles entering the Subic Bay Freeport has been limited only to cases involving violations of
RA No. 7227 or its IRR. There is no question therefore, that the authority of the Bureau of
Customs is larger in scope because it covers cases concerning violations of the customs laws.

The authority of the Bureau of Customs to seize and forfeit goods and articles entering the
Subic Bay Freeport does not contravene the nature of the Subic Bay Freeport as a separate
customs authority. Indeed, the investors can generally and freely engage in any kind of business
as well as import into and export out goods with minimum interference from the Government.
Yet, the treatment of the Subic Bay Freeport as a separate customs territory cannot completely
divest the Government of its right to intervene in the operations and management of the Subic
Bay Freeport, especially when patent violations of the customs and tax laws are discovered. After
all, Section 602 of the Tariff and Customs Code vests exclusive original jurisdiction in the Bureau
of Customs over seizure and forfeiture cases in the enforcement of the tariff and customs laws.

The discovery of nonexistent and false consignees constitutes sufficient probable cause, as
required by Section 2535 of the Tariff and Customs Code, that violations of the customs laws,
particularly Section 102(k) and Section 2530(a), (f) and (l), pars. 3, 4, and 5 of the Tariff and
Customs Code, had been committed. For that reason, the institution of the seizure proceedings
and the issuance of WSD by the Collector of Customs were well within the jurisdiction of the
Bureau of Customs.

The CA is also correct in denying the petition since the proper remedy to question the
order or resolution of the Commissioner of Customs was an appeal to the CTA, not to the CA.

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