Professional Documents
Culture Documents
The Solicitor General For Respondent
The Solicitor General For Respondent
Assailed in this petition for review on certiorari1 are the Resolutions dated June
7, 20132 and November 4, 20133 of the Court of Appeals (CA) in C.A.-G.R. CV No.
99594, which referred the records of the instant case to the Court of Tax Appeals
(CTA) for proper disposition of the appeal taken by respondent Bureau of Customs
(respondent).
The Facts
The instant case arose from a collection suit4 for unpaid taxes and customs
duties in the aggregate amount of P46,844,385.00 filed by respondent against
petitioner Mitsubishi Motors Philippines Corporation (petitioner) before the
Regional Trial Court of Manila, Branch 17 (RTC), docketed as Civil Case No. 02-
103763 (collection case).
Respondent alleged that from 1997 to 1998, petitioner was able to secure tax
credit certificates (TCCs) from various transportation companies; after which, it
made several importations and utilized said TCCs for the payment of various
customs duties and taxes in the aggregate amount of P46,844,385.00. 5 Believing
the authenticity of the TCCs, respondent allowed petitioner to use the same for
the settlement of such customs duties and taxes. However, a post-audit
investigation of the Department of Finance revealed that the TCCs were
fraudulently secured with the use of fake commercial and bank documents, and
thus, respondent deemed that petitioner never settled its taxes and customs duties
pertaining to the aforesaid importations.6 Thereafter, respondent demanded that
petitioner pay its unsettled tax and customs duties, but to no avail. Hence, it was
constrained to file the instant complaint.7
In its defense,8 petitioner maintained, inter alia, that it acquired the TCCs from
their original holders in good faith and that they were authentic, and thus, their
remittance to respondent should be considered as proper settlement of the taxes
and customs duties it incurred in connection with the aforementioned
importations.9
Initially, the RTC dismissed10 the collection case due to the continuous absences
of respondent’s counsel during trial.11 On appeal to the CA,12 and eventually the
Court,13the said case was reinstated and trial on the merits continued before the
RTC.14
After respondent’s presentation of evidence, petitioner filed a Demurrer to
Plaintiff’s Evidence15 on February 10, 2012, essentially contending that
respondent failed to prove by clear and convincing evidence that the TCCs were
fraudulently procured,16 and thus, prayed for the dismissal of the complaint.17 In
turn, respondent filed an Opposition18 dated March 7, 2012 refuting petitioner’s
contentions.
In an Order19 dated April 10, 2012, the RTC granted petitioner’s Demurrer to
Plaintiff’s Evidence, and accordingly, dismissed respondent’s collection case on the
ground of insufficiency of evidence.20 It found that respondent had not shown any
proof or substantial evidence of fraud or conspiracy on the part of petitioner in the
procurement of the TCCs.21 In this connection, the RTC opined that fraud is never
presumed and must be established by clear and convincing evidence, which
petitioner failed to do, thus, necessitating the dismissal of the complaint.22
Respondent moved for reconsideration,23 which was, however, denied in an
Order24 dated August 3, 2012. Dissatisfied, it appealed25 to the CA.
The core issue for the Court’s resolution is whether or not the CA correctly
referred the records of the collection case to the CTA for proper disposition of the
appeal taken by respondent.
Verily, the foregoing provisions explicitly provide that the CTA has exclusive
appellate jurisdiction over tax collection cases originally decided by the RTC.
In the instant case, the CA has no jurisdiction over respondent’s appeal; hence,
it cannot perform any action on the same except to order its dismissal pursuant to
Section 2, Rule 5039 of the Rules of Court. Therefore, the act of the CA in referring
respondent’s wrongful appeal before it to the CTA under the guise of furthering
the interests of substantial justice is blatantly erroneous, and thus, stands to be
corrected. In Anderson v. Ho,40 the Court held that the invocation of substantial
justice is not a magic wand that would readily dispel the application of procedural
rules,41 viz.:
x x x procedural rules are designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. While in certain instances,
we allow a relaxation in the application of the rules, we never intend to forge a
weapon for erring litigants to violate the rules with impunity. The liberal
interpretation and application of rules apply only in proper cases of
demonstrable merit and under justifiable causes and circumstances. While it is
true that litigation is not a game of technicalities, it is equally true that every
case must be prosecuted in accordance with the prescribed procedure to ensure
an orderly and speedy administration of justice. Party-litigants and their counsels
are well advised to abide by rather than flaunt, procedural rules for these rules illumine
the path of the law and rationalize the pursuit of justice.42 (Emphasis and underscoring
supplied)
The Facts
Respondent City amended its billing and sent a new Statement of Real Estate
Tax to petitioner in the amount of P151,376,134.66. Petitioner averred that this
amount covered real estate taxes on the lots utilized solely and exclusively for
public or governmental purposes such as the airfield, runway and taxiway, and
the lots on which they are situated.6
Petitioner paid respondent City the amount of four million pesos
(P4,000,000.00) monthly, which was later increased to six million pesos
(P6,000,000.00) monthly. As of December 2003, petitioner had paid respondent
City a total of P275,728,313.36.7
Upon request of petitioner’s General Manager, the Secretary of the Department
of Justice (DOJ) issued Opinion No. 50, Series of 1998,8 and we quote the pertinent
portions of said Opinion below:
You further state that among the real properties deemed transferred to MCIAA are
the airfield, runway, taxiway and the lots on which the runway and taxiway are situated,
the tax declarations of which were transferred in the name of the MCIAA. In 1997, the
City of Lapu-Lapu imposed real estate taxes on these properties invoking the provisions
of the Local Government Code.
It is your view that these properties are not subject to real property tax because they
are exclusively used for airport purposes. You said that the runway and taxiway are not
only used by the commercial airlines but also by the Philippine Air Force and other
government agencies. As such and in conjunction with the above interpretation of Section
15 of R.A. No. 6958, you believe that these properties are considered owned by the
Republic of the Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The properties used for airport
purposes (i.e., airfield, runway, taxiway and the lots on which the runway and
taxiway are situated) are owned by the Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete control over the
property which a municipal corporation has acquired in its public or governmental
capacity and which is devoted to public or governmental use. The municipality in dealing
with said property is subject to such restrictions and limitations as the legislature may
impose. On the other hand, property which a municipal corporation acquired in its private
or proprietary capacity, is held by it in the same character as a private individual. Hence,
the legislature in dealing with such property, is subject to the constitutional restrictions
concerning property (Martin, Public Corporations [1997], p. 30; see also Province of
Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of
properties transferred to the MCIAA and used for airport purposes, such as those involved
herein. Since such properties are of public dominion, they are deemed held by the MCIAA
in trust for the Government and can be alienated only as may be provided by law.
Based on the foregoing, it is our considered opinion that the properties used
for airport purposes, such as the airfield, runway and taxiway and the lots on
which the runway and taxiway are located, are owned by the State or by the
Republic of the Philippines and are merely held in trust by the MCIAA,
notwithstanding that certificates of titles thereto may have been issued in the
name of the MCIAA. (Emphases added)
However, upon motion of respondents, the RTC lifted the writ of preliminary
injunction in an Order15 dated December 5, 2005. The RTC reasoned as follows:
The respondent City, in the course of the hearing of its motion, presented to this Court
a certified copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-
Lapu), Section 25 whereof authorized the collection of a rate of one and one-half (1 1/2)
[per centum] from owners, executors or administrators of any real estate lying within the
jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest
revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160
(Local Government Code of 1991), to the mind of the Court this ordinance is still a valid
and effective ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules
and Regulations of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160,
though the 25% penalty collected is higher than the 2% interest allowed under Sec. 255
of the said law which provides:
In case of failure to pay the basic real property tax or any other tax levied under this
Title upon the expiration of the periods as provided in Section 250, or when due, as the
case may be, shall subject the taxpayer to the payment of interest at the rate of two
percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent
tax shall have been fully paid: Provided, however, That in no case shall the total interest
on the unpaid tax or portion thereof exceed thirty-six (36) months.
This difference does not however detract from the essential enforceability and
effectivity of Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the
Implementing Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to recompute the petitioner’s tax liability.
It is also the Court’s perception that respondent City can still collect the additional 1%
tax on real property without an ordinance to this effect. It may be recalled that Republic
Act No. 5447 has created the Special Education Fund which is constituted from the
proceeds of the additional tax on real property imposed by the law. Respondent City has
collected this tax as mandated by this law without any ordinance for the purpose, as there
is no need for it. Even when RA 5447 was amended by PD 464 (Real Property Tax Code),
respondent City had continued to collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only
Section 3, a(3) and b(2) which concern the allocation of the additional tax, considering that
under RA 7160, the proceeds of the additional 1% tax on real property accrue exclusively
to the Special Education Fund. Nevertheless, RA 5447 has not been totally repealed; there
is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be
enacted to enable the collection of the additional 1% tax. This is so since RA 5447 is still
in force and effect, and the declared policy of the government in enacting the law, which
is to contribute to the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection of the tax.
Considering that this is a tax of far-reaching importance, to require the passage of an
ordinance in order that the tax may be collected would be to place the collection of the tax
at the option of the local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain
the instant petition, the Court deems it proper, at this stage of the proceedings, not to
treat this issue, as it involves facts which are yet to be established.
x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a
futile gesture in the light of Section 263 of RA 7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem
within the one-year period, ownership fully vests on the local government unit concerned.
Thus, when in the present case petitioner failed to redeem the parcels of land acquired by
respondent City, the ownership thereof became fully vested on respondent City without
the latter having to perform any other acts to perfect its ownership. Corollary thereto,
ownership on the part of respondent City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents’ motion for
reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of preliminary injunction issued by this Court is
hereby lifted.
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals
(Cebu City), with urgent prayer for the issuance of a TRO and/or writ of
preliminary injunction, docketed as C.A.-G.R. S.P. No. 01360. The Court of
Appeals (Cebu City) issued a TRO17 on January 5, 2006 and shortly thereafter,
issued a writ of preliminary injunction18 on February 17, 2006.
The Court of Appeals likewise held that respondent City has a valid and
existing local tax ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of
Lapu-Lapu City, which provided for the imposition of real property tax. The
relevant provision reads:
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX.—A rate of one and one-half (1 1/2) per centum shall be
collected from owners, executors or administrators of any real estate lying within the
territorial jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in
the latest revision.30
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to
the effectivity of the LGC, it remained in force and effect, citing Section 529 of the
LGC and Article 278 of the LGC’s Implementing Rules and Regulations.31
As regards the Special Education Fund, the Court of Appeals held that
respondent City can still collect the additional 1% tax on real property even
without an ordinance to this effect, as this is authorized by Republic Act No. 5447,
as amended by Presidential Decree No. 464 (the Real Property Tax Code), which
does not require an enabling tax ordinance.
The Court of Appeals affirmed the RTC’s ruling that Republic Act No. 5447 was
still in force and effect notwithstanding the passing of the LGC, as the latter only
partially repealed the former law. What Section 534 of the LGC repealed was
Section 3(a)(3) and (b)(2) of Republic Act No. 5447, and not the entire law that
created the Special Education Fund.32 The repealed provisions referred to
allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco
and the percentage remittances to the taxing authority concerned. The Court of
Appeals, citing The Commission on Audit of the Province of Cebu v. Province of
Cebu,33 held that “[t]he failure to add a specific repealing clause particularly
mentioning the statute to be repealed indicates that the intent was not to repeal
any existing law on the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old laws.”34 The Court of Appeals
quoted the RTC’s discussion on this issue, which we reproduce below:
It may be observed that there is no requirement in RA 7160 that an ordinance
be enacted to enable the collection of the additional 1% tax. This is so since R.A.
5447 is still in force and effect, and the declared policy of the government in
enacting the law, which is to contribute to the financial support of the goals of
education as provided in the Constitution, necessitates the continued and
uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be
collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when
the SEF was created and the tax imposed.35
Regarding the penalty interest, the Court of Appeals found that Section 30 of
Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of
the tax due for a given year. Said provision reads:
Section 30. PENALTY FOR FAILURE TO PAY TAX.—Failure to pay the tax
provided for under this Chapter within the time fixed in Section 27, shall subject the
taxpayer to a surcharge of twenty-five percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of the Local
Government Code, the respondent City could only collect penalty surcharge up to
the extent of 72%, covering a period of three years or 36 months, for the entire
delinquent property.37 This was lower than the 25% per annum surcharge imposed
by Ordinance No. 44.38 The Court of Appeals affirmed the findings of the RTC in
the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160,
though the 25% penalty collected is higher than the 2% allowed under Sec. 255 of the said
law which provides:
xxxx
This difference does not however detract from the essential enforceability and
effectivity of Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of
the Implementing Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent city will have to [recompute] the petitioner’s tax liability.39
The Court of Appeals concluded that “it is clear that petitioner MCIAA is denied
by its charter the absolute right to dispose of its property to any person or entity
except to the national government and it is not empowered to obtain loans or
encumber its property without the approval of the President.”41 The questioned
Decision contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the power to tax is no longer
vested exclusively on Congress. LGUs, through its local legislative bodies, are now given
direct authority to levy taxes, fees and other charges pursuant to Article X, Section 5 of
the 1987 Constitution. And one of the most significant provisions of the LGC is the
removal of the blanket inclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. The express withdrawal by the Code of
previously granted exemptions from realty taxes applied to instrumentalities and
government-owned or -controlled corporations (GOCCs) such as the petitioner Mactan-
Cebu International Airport Authority. Thus, petitioner MCIAA became a taxable person
in view of the withdrawal of the realty tax exemption that it previously enjoyed under
Section 14 of RA No. 6958 of its charter. As expressed and categorically held in
the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by
persons, natural or juridical, are consistent with the State policy to ensure autonomy to
local governments and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to enable them to attain their fullest development
as self-reliant communities and make them effective partners in the attainment of
national goals.
However, in the case at bench, petitioner MCIAA’s charter expressly bars the
alienation or mortgage of its property to any person or entity except to the national
government. Therefore, while petitioner MCIAA is a taxable person for purposes of real
property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and
owning these properties by and through a public auction in order to satisfy petitioner
MCIAA’s tax liability.42 (Citations omitted)
In the questioned Resolution that affirmed its questioned Decision, the Court
of Appeals denied petitioner’s motion for reconsideration based on the following
grounds:
First, the MCIAA case remains the controlling law on the matter as the same
is the established precedent; not the MIAA case but the MCIAA case since the
former, as keenly pointed out by the respondent City of Lapu-Lapu, has not yet
attained finality as there is still yet a pending motion for reconsideration filed
with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in
the MIAA case cannot be similarly invoked in the case at bench. The said case
cannot be considered as the “law of the case.” The “law of the case” doctrine has
been defined as that principle under which determinations of questions of law will
generally be held to govern a case throughout all its subsequent stages where such
determination has already been made on a prior appeal to a court of last resort. It is
merely a rule of procedure and does not go to the power of the court, and will not be
adhered to where its application will result in an unjust decision. It relates entirely to
questions of law, and is confined in its operation to subsequent proceedings in the same
case. According to said doctrine, whatever has been irrevocably established constitutes
the law of the case only as to the same parties in the same case and not to different parties
in an entirely different case. Besides, pending resolution of the aforesaid motion for
reconsideration in the MIAA case, the latter case has not irrevocably established
anything.
Thus, after a thorough and judicious review of the allegations in petitioner’s motion
for reconsideration, this Court resolves to deny the same as the matters raised therein
had already been exhaustively discussed in the decision sought to be reconsidered, and
that no new matters were raised which would warrant the modification, much less
reversal, thereof.43(Emphasis added, citations omitted)
Petitioner’s Theory
Petitioner is before us now claiming that this Court, in the 2006 MIAA case,
had expressly declared that petitioner, while vested with corporate powers, is not
considered a government-owned or -controlled corporation, but is a government
instrumentality like the Manila International Airport Authority (MIAA),
Philippine Ports Authority (PPA), University of the Philippines, and Bangko
Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate
taxes imposed by respondent City.44
Petitioner alleges that Republic Act No. 6958 placed “a limitation on petitioner’s
administration of its assets and properties” as it provides under Section 4(e) that
“any asset in the international airport important to national security cannot be
alienated or mortgaged by petitioner or transferred to any entity other than the
National Government.”45
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in
disregarding the following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY
DECLARED BY THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS
EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY
OF LAPU-LAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL
BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH
THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX
WITHOUT ANY APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1%
TAX FOR THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY
CORRESPONDING ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY
INTEREST SANS ANY ORDINANCE MANDATING ITS IMPOSITION.46
Petitioner claims that the above purposes and objectives are analogous to those
enumerated in its charter, specifically Section 3 of Republic Act No. 6958, which
reads:
Section 3. Primary Purposes and Objectives.—The Authority shall principally
undertake the economical, efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City, hereinafter collectively referred to as the airports, and such other airports as may
be established in the Province of Cebu. In addition, it shall have the following objectives:
(a) To encourage, promote and develop international and domestic air traffic in the
central Visayas and Mindanao regions as a means of making the regions centers of
international trade and tourism, and accelerating the development of the means of
transportation and communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and service.
The powers, functions and duties of MIAA under Section 5 of Executive Order
No. 903 are:
Sec. 5. Functions, Powers and Duties.—The Authority shall have the following
functions, powers and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and other
appropriate government agencies, a comprehensive and integrated policy and program for
the Airport and to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or
services as shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development,
maintenance, operation and improvement of the Airport, and to control and/or supervise
as may be necessary the construction of any structure or the rendition of any services
within the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of
any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and
objectives;
(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport
premises, works, appliances, facilities or concessions or for any service provided by the
Authority, subject to the approval of the Minister of Transportation and Communications
in consultation with the Minister of Finance, and subject further to the provisions of Batas
Pambansa Blg. 325 where applicable;
(l) To invest its idle funds, as it may deem proper, in government securities and other
evidences of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the Airport and the
approaches thereof, which shall include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience and
security of passengers, visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly
necessary, incidental or conducive to the attainment of the purposes and objectives of the
Authority, including the adoption of necessary measures to remedy congestion in the
Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under
Section 4 of Republic Act No. 6958, as shown in the provision quoted below:
Petitioner claims that like MIAA, it has police authority within its
premises, as shown in their respective charters quoted below:
EO 903, Sec. 6. Police Authority.—The Authority shall have the power to
exercise such police authority as may be necessary within its premises to carry
out its functions and attain its purposes and objectives, without prejudice to the
exercise of functions within the same premises by the Ministry of National
Defense through the Aviation Security Command (AVSECOM) as provided in
LOI 961: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required.
x x x.
R.A. No. 6958, Section 5. Police Authority.—The Authority shall have the
power to exercise such police authority as may be necessary within its premises
or areas of operation to carry out its functions and attain its purposes and
objectives: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required.
x x x.
Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules
and regulations (Section 15, Executive Order No. 903; Section 12,
Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21,
Executive Order No. 903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an
annual report generally dealing with their activities and operations
(Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958);
and
4. Both have borrowing power subject to the approval of the
President (Section 16, Executive Order No. 903; Section 13, Republic Act
No. 6958).48
Petitioner suggests that it is because of its similarity with MIAA that
this Court, in the 2006 MIAA case, placed it in the same class as MIAA and
considered it as a government instrumentality.
Petitioner submits that since it is also a government instrumentality
like MIAA, the following conclusion arrived by the Court in the
2006 MIAA case is also applicable to petitioner:
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of government
units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or -controlled
corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to
“[t]axes, fees or charges of any kind” by local governments. The only exception
is when MIAA leases its real property to a “taxable person” as provided in
Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the
Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA,
being devoted to public use, are properties of public dominion and thus owned
by the State or the Republic of the Philippines. Article 420 specifically mentions
“ports x x x constructed by the State,” which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from
real estate tax under Section 234(a) of the Local Government Code. This Court
has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale.49 (Emphases added)
In its Consolidated Reply filed through the OSG, petitioner claims that
the 2006 MIAA ruling has overturned the 1996 MCIAA ruling. Petitioner
cites Justice Dante O. Tinga’s dissent in the MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and
ruling in Mactan. The majority provides for a wildly different interpretation of
Sections 133, 193 and 234 of the Local Government Code than that employed by
the Court in Mactan. Moreover, the parties in Mactanand in this case are
similarly situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded charters.
And the fact that the majority cites doctrines contrapuntal to the Local
Government Code as in Basco and Macedaevinces an intent to go against the
Court’s jurisprudential trend adopting the philosophy of expanded local
government rule under the Local Government Code.
x x x x The majority is obviously inconsistent with Mactan and there is no
way these two rulings can stand together. Following basic principles in
statutory construction, Mactan will be deemed as giving way to this new ruling.
xxxx
There is no way the majority can be justified unless Mactan is overturned.
The MCIAA and the MIAA are similarly situated. They are both, as will be
demonstrated, GOCCs, commonly engaged in the business of operating an
airport. They are the owners of airport properties they respectively maintain
and hold title over these properties in their name. These entities are both owned
by the State, and denied by their respective charters the absolute right to
dispose of their properties without prior approval elsewhere. Both of them are
not empowered to obtain loans or encumber their properties without prior
approval the prior approval of the President.52 (Citations omitted)
Respondents’ Theory
Discussion
In the 2006 MIAA case, the issue before the Court was “whether the
Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws.”73 We quote the extensive discussion of the Court
that led to its finding that MIAA’s lands and buildings were exempt from
real estate tax imposed by local governments:
First, MIAA is not a government-owned or -controlled corporation but an
instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or
-Controlled Corporation
xxxx
There is no dispute that a government-owned or
-controlled corporation is not exempt from real estate tax. However, MIAA is
not a government-owned or -controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or -controlled corporation as follows:
SEC. 2. General Terms Defined.—x x x
(13) Government-owned or -controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
A government-owned or -controlled corporation must be “organized as a
stock or non-stock corporation.” MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is divided
into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose
“capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x.” MIAA has capital but it is not divided
into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is
not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section
87 of the Corporation Code defines a non-stock corporation as “one where no
part of its income is distributable as dividends to its members, trustees or
officers.” A non-stock corporation must have members. Even if we assume that
the Government is considered as the sole member of MIAA, this will not make
MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income to the National
Treasury. This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
“organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers.” MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or -controlled corporation. What then is the
legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government “instrumentality” as follows:
SEC. 2. General Terms Defined.— x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain, police authority and the levying of fees and charges. At the same time,
MIAA exercises “all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order.”
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a “separate and
autonomous body” will make its operation more “financially viable.”
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a government-owned
or -controlled corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not
government-owned or -controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.74 (Emphases ours, citations
omitted)
The Court in the 2006 MIAA case went on to discuss the limitation on
the taxing power of the local governments as against the national
government or its instrumentality:
A government instrumentality like MIAA falls under Section 133(o) of the
Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units.—Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. x x x.
Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only
exercise such power “subject to such guidelines and limitations as the Congress
may provide.”
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments.
The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article or activity is taxable
is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation, such
exemption is construed liberally in favor of the national government
instrumentality. x x x.
xxxx
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public
funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against
local governments.
Thus, Section 133 of the Local Government Code states that “unless otherwise
provided” in the Code, local governments cannot tax national government
instrumentalities. x x x.75 (Emphases ours, citations omitted)
The Court emphasized that the airport lands and buildings of MIAA
are owned by the Republic and belong to the public domain. The Court
said:
The Airport Lands and Buildings of MIAA are property of public dominion
and therefore owned by the State or the Republic of the Philippines. x x x.
xxxx
No one can dispute that properties of public dominion mentioned in Article
420 of the Civil Code, like “roads, canals, rivers, torrents, ports and bridges
constructed by the State,” are owned by the State. The term “ports” includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a
“port” constructed by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and thus owned
by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties
for public use. x x x.
The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user’s tax. This
means taxing those among the public who actually use a public facility instead
of taxing all the public including those who never use the particular public
facility. A user’s tax is more equitable — a principle of taxation mandated in the
1987 Constitution.
The Airport Lands and Buildings of MIAA
x x x are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or
the Republic of the Philippines.76 (Emphases supplied, citations omitted)
The Court also held in the 2006 MIAA case that airport lands and
buildings are outside the commerce of man.
As properties of public dominion, the Airport Lands and Buildings are
outside the commerce of man. The Court has ruled repeatedly that properties
of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that properties devoted to
public use are outside the commerce of man, thus:
xxxx
The Civil Code, Article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance,
levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties
of public dominion are subject to encumbrances, foreclosures and auction sale.
This will happen if the City of Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for nonpayment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President
must first withdraw from public use the Airport Lands and Buildings. x x x.
xxxx
Thus, unless the President issues a proclamation withdrawing the Airport
Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are
not subject to levy on execution or foreclosure sale. As long as the Airport Lands
and Buildings are reserved for public use, their ownership remains with the
State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section 14, Chapter
4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government.—(1) The President shall have the power to reserve for settlement
or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
xxxx
There is no question, therefore, that unless the Airport Lands and Buildings
are withdrawn by law or presidential proclamation from public use, they are
properties of public dominion, owned by the Republic and outside the
commerce of man.77
Thus, the Court held that MIAA is “merely holding title to the Airport
Lands and Buildings in trust for the Republic. [Under] Section 48,
Chapter 12, Book I of the Administrative Code [which] allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic.”78
The Court in the 2006 MIAA case cited Section 234(a) of the Local
Government Code and held that said provision exempts from real estate
tax any “[r]eal property owned by the Republic of the Philippines.”79 The
Court emphasized, however, that “portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real
estate tax.” The Court further held:
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing “[t]axes, fees or charges
of any kind on the National Government, its agencies and instrumentalities
x x x.” The real properties owned by the Republic are titled either in the name
of the Republic itself or in the name of agencies or instrumentalities of the
National Government. The Administrative Code allows real property owned by
the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency
or instrumentality of the national government. This happens when title of the
real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government
Code states that real property owned by the Republic loses its tax exemption
only if the “beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.” MIAA, as a government instrumentality, is not
a taxable person under Section 133(o) of the Local Government Code. Thus, even
if we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial use of such land area
for a consideration to a taxable person and therefore such land area is subject
to real estate tax. x x x.80
Significantly, the Court reiterated the above ruling and applied the
same reasoning in Manila International Airport Authority v. City of
Pasay,81thus:
The only difference between the 2006 MIAA case and this case is that the 2006
MIAA case involved airport lands and buildings located in Parañaque City
while this case involved airport lands and buildings located in Pasay City. The
2006 MIAA case and this case raised the same threshold issue: whether the local
government can impose real property tax on the airport lands, consisting
mostly of the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of “instrumentality” under Section 2(10) of the Introductory
Provisions of the Administrative Code of 1987 uses the phrase “includes x x x
government-owned or -controlled corporations” which means that a
government “instrumentality” may or may not be a “government-owned or -
controlled corporation.” Obviously, the term government “instrumentality”
is broader than the term “government-owned or -controlled corporation.” x x x.
xxxx
The fact that two terms have separate definitions means that while a
government “instrumentality” may include a “government-owned or -controlled
corporation,” there may be a government “instrumentality” that will not qualify
as a “government-owned or -controlled corporation.”
A close scrutiny of the definition of “government-owned or -controlled
corporation” in Section 2(13) will show that MIAA would not fall under such
definition. MIAA is a government “instrumentality” that does not qualify as a
“government-owned or -controlled corporation.” x x x.
xxxx
Thus, MIAA is not a government-owned or -controlled corporation but a
government instrumentality which is exempt from any kind of tax from the local
governments. Indeed, the exercise of the taxing power of local government units
is subject to the limitations enumerated in Section 133 of the Local Government
Code. Under Section 133(o) of the Local Government Code, local government
units have no power to tax instrumentalities of the national government like
the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.
Furthermore, the airport lands and buildings of MIAA are properties of
public dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code. However,
under the same provision, if MIAA leases its real property to a taxable person,
the specific property leased becomes subject to real property tax. In this case,
only those portions of the NAIA Pasay properties which are leased to taxable
persons like private parties are subject to real property tax by the City of Pasay.
(Emphases added, citations omitted)
Like in MIAA, the airport lands and buildings of MCIAA are properties
of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or
the Republic of the Philippines, and are outside the commerce of man.
This, unless petitioner leases its real property to a taxable person, the
specific property leased becomes subject to real property tax; in which
case, only those portions of petitioner’s properties which are leased to
taxable persons like private parties are subject to real property tax by
the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and
conclusions of the Court in the 2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned or -controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative Code
because it is not organized as a stock or non-stock corporation. Neither is MIAA
a government-owned or -controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers
and performing essential public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments
under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only
if the beneficial use of real property owned by the Republic is given to a taxable
entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. x x x.
xxxx
The term “ports x x x constructed by the State” includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public use,
and at the very least intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of government
units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or -controlled
corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to
“[t]axes, fees or charges of any kind” by local governments. The only exception
is when MIAA leases its real property to a “taxable person” as provided in
Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the
Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA,
being devoted to public use, are properties of public dominion and thus owned
by the State or the Republic of the Philippines. Article 420 specifically mentions
“ports x x x constructed by the State,” which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from
real estate tax under Section 234(a) of the Local Government Code. This Court
has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale.85 (Emphases added)
WHEREFORE, we hereby GRANT the petition. We REVERSE and SET
ASIDE the Decision dated October 8, 2007 and
the Resolution dated February 12, 2008 of the Court of Appeals (Cebu
City) in C.A.-G.R. S.P. No. 01360. Accordingly, we DECLARE:
1. Petitioner’s properties that are actually, solely and exclusively used
for public purpose, consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated, EXEMPT from
real property tax imposed by the City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the additional
tax for the special education fund and the penalty interest, as well as the
final notices of real property tax delinquencies, issued by the City of
Lapu-Lapu on petitioner’s properties, except the assessment covering the
portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner’s
properties and the eventual forfeiture and purchase of the said
properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent
Property issued to respondent City of Lapu-Lapu.
SO ORDERED.
Sereno (CJ., Chairperson), Bersamin, Perez and Perlas-Bernabe, JJ.,
concur.
Petition granted, judgment and resolution reversed and set aside.
Notes.—For real property taxes, the incidental generation of income is
permissible because the test of exemption is the use of the property; The
effect of failing to meet the use requirement is simply to remove from the
tax exemption that portion of the property not devoted to charity.
(Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc., 682
SCRA 66 [2012])
The requirement of “payment under protest” is a condition sine qua
non before a protest or an appeal questioning the correctness of an
assessment of real property tax may be entertained. (Camp John Hay
Development Corporation vs. Central Board of Assessment Appeals, 706
SCRA 547 [2013])
——o0o——
G.R. No. 183531. March 25, 2015.*
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
which seeks to reverse and set aside the Decision2 dated April 30, 2008 and
Resolution3dated July 2, 2008 of the Court of Tax Appeals (CTA) En Banc in C.T.A.
E.B. No. 327 affirming the denial of Eastern Telecommunications Philippines,
Inc.’s (ETPI) claim for refund of its unutilized input value-added tax (VAT) in the
amount of P9,265,913.42 allegedly attributable to ETPI’s zero-rated sales of
services to nonresident foreign corporation for the taxable year 1998.
The Antecedents
ETPI is a domestic corporation located at the Telecoms Plaza Building, No. 316,
Sen. Gil Puyat Avenue, Salcedo Village, Makati City. It registered with the Bureau
of Internal Revenue (BIR) as a VAT taxpayer with Certificate of Registration
bearing RDO Control No. 49-490-000205 dated June 10, 1994.4
As a telecommunications company, ETPI entered into various international
service agreements with international telecommunications carriers and handles
incoming telecommunications services for nonresident foreign telecommunication
companies and the relay of said international calls within and around other places
in the Philippines. Consequently, to broaden its distribution coverage of
telecommunications services throughout the country, ETPI entered into various
interconnection agreements with local carriers that can readily relay the said
foreign calls to the intended local end-receiver.5
The nonresident foreign corporations pays ETPI in US dollars inwardly
remitted through the Philippine local banks, Metropolitan Banking Corporation,
Hong Kong and Shanghai Banking Corporation and Citibank through the manner
and mode of payments based on an internationally established standard which is
embodied in a Blue Book, or Manual, prepared by the Consultative Commission of
International Telegraph and Telephony and implemented between the contracting
parties in consonance with a set of procedural guidelines denominated as Traffic
Settlement Procedure.6
ETPI seasonably filed its Quarterly VAT Returns for the year 1998 which were,
however, simultaneously amended on February 22, 2001 to correct its input VAT
on domestic purchases of goods and services and on importation of goods and to
reflect its zero-rated and exempt sales for said year.7
On January 25, 2000, ETPI filed an administrative claim with the BIR for the
refund of the amount of P9,265,913.42 representing excess input tax attributable
to its effectively zero-rated sales in 1998 pursuant to Section 1128 of the Republic
Act (R.A.) No. 8424, also known as the National Internal Revenue Code of 1997
(NIRC), as implemented by Revenue Regulations (RR) No. 5-87 and as amended
by RR No.
7-95. 9
Pending review by the BIR, ETPI filed a Petition for Review10 before the CTA
on February 21, 2000 in order to toll the two-year reglementary period under
Section 22911of the NIRC. The case was docketed as CTA Case No. 6019. The BIR
Commissioner opposed the petition and averred that no judicial action can be
instituted by a taxpayer unless a claim has been duly filed before it. Considering
the importance of such procedural requirement, the BIR stressed that ETPI did
not file a formal/written claim for refund but merely submitted a quarterly VAT
return for the 4th quarter of 1998 contrary to what Section 229 of the NIRC
prescribes.12
In a Decision13 dated November 19, 2003, the CTA denied the petition because
the VAT official receipts presented by ETPI to support its claim failed to imprint
the word “zero-rated” on its face in violation of the invoicing requirements under
Section 4.108-1 of RR No. 7-95 which reads:
Sec. 4.108-1. Invoicing Requirements.—All VAT-registered persons shall, for every
sale or lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. the word “zero-rated” imprinted on the invoice covering zero-rated sales;
and
6. the invoice value or consideration. x x x (Emphasis ours)
The CTA further mentioned that even if ETPI is entitled to a refund, it still
failed to present sales invoices covering its VATable and exempt sales for purposes
of allocating its input taxes. It also criticized ETPI for filing its 1998 audited
financial records on February 22, 2001 when the same should have been reported
to the BIR as early as February 22, 1999. It being so, the CTA ratiocinated that
tax refunds, being in the nature of tax exemptions, are construed in strictissimi
juris against the taxpayer.14 Thus, ETPI’s noncompliance with what the tax laws
and regulations require resulted to the denial of its claim for VAT refund.
ETPI moved for the CTA’s reconsideration15 but it was denied in the
Resolution16 dated March 19, 2004. It was discussed: (1) that ETPI’s failure to
imprint the word “zero-rated” on the face of its receipts and invoices gives the
presumption that it is 10% VATable; (2) that its validly supported input VAT may
still be claimed as an automatic tax credit in payment of its future output VAT
liability; (3) that the total sales appearing on its 1998 Quarterly Return affects the
determination of its allowable refund even if the amounts of the reported zero-
rated sales indicated in the amended Quarterly VAT Returns and company-
provided zero-rated sales are the same; (4) that there is a need to verify the
truthfulness regarding ETPI’s claim that the discrepancy in the sales was due to
“write off” accounts; and (5) that the denial of the claim for refund was based on
the allocation it provided to its independent certified public accountant (CPA)
which it failed to support and which the independent CPA failed to include in its
audit.
Undaunted, ETPI filed a petition before the Court of Appeals (CA) which
referred the case to the CTA En Bancdue to the passage of R.A. No. 9282.17
On April 30, 2008, the CTA En Banc rendered a Decision18 which affirmed the
decision of the old CTA. In its disquisition, the CTA En Banc stated that VAT-
registered persons must comply with the invoicing requirements prescribed in
Sections 113(A)19 and 23720 of the NIRC. Moreover, the invoicing requirements
enumerated in Section 4.108-1 of RR No. 7-95 are mandatory due to the word
“shall” and not “may.” Hence, noncompliance with any thereof would disallow any
claim for tax credit or VAT refund. CTA Presiding Justice Ernesto Acosta (PJ
Acosta) filed a Concurring and Dissenting Opinion21 wherein he disagreed with the
majority’s view regarding the supposed mandatory requirement of imprinting the
term “zero-rated” on official receipts or invoices. He stated that Section 113 in
relation to Section 237 of the NIRC does not require the imprinting of the phrase
“zero-rated” on an invoice or official receipt for the document to be considered valid
for the purpose of claiming a refund or an issuance of a tax credit certificate.
Hence, the absence of the term “zero-rated” in an invoice or official receipt does
not affect its admissibility or competency as evidence in support of a refund claim.
Assuming that stamping the term “zero-rated” on an invoice or official receipt is a
requirement of the current NIRC, the denial of a refund claim is not the imposable
penalty for failure to comply with that requirement. Nevertheless, PJ Acosta
agreed with the majority’s decision to deny the claim due to ETPI’s failure to prove
the input taxes it paid on its domestic purchases of goods and services during the
period involved.
ETPI filed a motion for reconsideration which was denied in the
Resolution22 dated July 2, 2008. Hence, this petition.
The Issue
Whether or not the CTA erred in denying ETPI’s claim for refund of input taxes
resulting from its zero-rated sales.
ETPI posits that the NIRC allows VAT-registered taxpayers to file a claim for
refund of input taxes directly attributable to zero-rated transactions subject to
compliance with certain conditions. To bolster its averment, ETPI pointed out that
the imprint of the word “zero-rated” on the face of the sales invoice or receipt is
merely required in RR No. 7-95 which cannot prevail over a taxpayer’s substantive
right to claim a refund or tax credit for its input taxes. And, that the lack of the
word “zero-rated” on its invoices and receipts does not justify an outright denial of
its claim for refund or tax credit considering that it has presented equally relevant
and competent evidence to prove its claim. Moreover, its clients are nonresident
foreign corporations which are exempted from paying VAT. Thus, it cannot take
advantage of its omission to print the word “zero-rated” on its invoices and sales
receipts.
The Secretary of Finance has the authority to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the NIRC. Such
rules and regulations are given weight and respect by the courts in view of the
rule-making authority given to those who formulate them and their specific
expertise in their respective fields.24
An applicant for a claim for tax refund or tax credit must not only prove
entitlement to the claim but also compliance with all the documentary and
evidentiary requirements.25 Consequently, the old CTA, as affirmed by the CTA En
Banc, correctly ruled that a claim for the refund of creditable input taxes must be
evidenced by a VAT invoice or official receipt in accordance with Section
110(A)(1)26 of the NIRC. Sections 237 and 23827 of the same Code as well as Section
4.108-1 of RR No. 7-95 provide for the invoicing requirements that all VAT-
registered taxpayers should observe, such as: (a) the BIR Permit to Print; (b) the
Tax Identification Number of the VAT-registered purchaser; and (c) the word
“zero-rated” imprinted thereon. Thus, the failure to indicate the words “zero-rated”
on the invoices and receipts issued by a taxpayer would result in the denial of the
claim for refund or tax credit. Revenue Memorandum Circular No. 42-2003 on this
point reads:
A-13: Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the disallowance of the
claim for input tax by the purchaser-claimant.
If the claim for refund/TCC is based on the existence of zero-rated sales by
the taxpayer but it fails to comply with the invoicing requirements in the
issuance of sales invoices (e.g., failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the
invoice it is issuing to its customers does not depict its being a VAT-registered
taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment
is without prejudice to the right of the taxpayer to charge the input taxes to the
appropriate expense account or asset account subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by the processing office to the concerned
BIR office for verification of other tax liabilities of the taxpayer. (Emphasis ours)
In this respect, the Court has consistently ruled on the denial of a claim for
refund or tax credit whenever the word “zero-rated” has been omitted on the
invoices or sale receipts of the taxpayer-claimant as pronounced in Panasonic
Communications Imaging Corporation of the Philippines v. CIR 28 wherein it was
ratiocinated, viz.:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for
the efficient enforcement of the tax code and of course its amendments. The requirement
is reasonable and is in accord with the efficient collection of VAT from the covered
sales of goods and services. As aptly explained by the CTA’s First Division, the
appearance of the word “zero-rated” on the face of invoices covering zero-rated
sales prevents buyers from falsely claiming input VAT from their purchases
when no VAT was actually paid. If, absent such word, a successful claim for input VAT
is made, the government would be refunding money it did not collect.
Further, the printing of the word “zero-rated” on the invoice helps segregate
sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated.
Unable to submit the proper invoices, petitioner Panasonic has been unable to
substantiate its claim for refund.29 (Citations omitted and emphasis ours)
ETPI argues that its quarterly returns for the year 2008 substantiate the
amounts of its taxable and exempt sales which show the amounts of its taxable
sales, zero-rated sales and exempt sales. Moreover, the submission of its invoices
and receipts including the verification of its independent CPA are all sufficient to
support its claim.
The Court is not persuaded.
ETPI failed to discharge its burden to prove its claim. Tax refunds, being in the
nature of tax exemptions, are construed in strictissimi juris against the taxpayer
and liberally in favor of the government. Accordingly, it is a claimant’s burden to
prove the factual basis of a claim for refund or tax credit. Considering that ETPI
is engaged in mixed transactions that cover its zero-rated sales, taxable and
exempt sales, it is only appropriate and reasonable for it to present competent
evidence to validate all entries in its returns in order to properly determine which
transactions are zero-rated and which are taxable. Clearly, compliance with all
the VAT invoicing requirements provided by tax laws and regulations is
mandatory. A claim for unutilized input taxes attributable to zero-rated sales will
be given due course; otherwise, the claim should be struck off for failure to do so,
such as what ETPI did in the present case.
As aptly discussed by the old CTA:
But even assuming that the VAT official receipts which failed to indicate the word
“zero-rated” are accepted because of the corroborating evidence, still we cannot grant
petitioner’s claim for refund. This court noted that the amounts of sales appearing on the
1998 quarterly returns differ from those of the amounts used by the commissioned
independent CPA as bases for the allocation of verified input taxes, to wit:
The above table shows that [ETPI] adjusted its taxable sales by reducing the same to
P8,594,177.20 or a reduction of P50,990,134.05 while the amount of exempt sales was
overstated by P293,089,580.45. The adjustments, according to [ETPI’s] Assistant Vice
President – Finance Controllership Regina E. De Leon, were due to write-off of accounts.
Such being the case, the court believes that [ETPI] should have presented additional
documents to prove the accuracy of the adjustments made. Earlier, we have noted that
petitioner failed to present its VAT official receipts for taxable sales and non-VAT official
receipts for its exempt sales. These documents are necessary to verify the amounts of
taxable and exempt sales and for the court to properly allocate the verified input taxes
among the taxable, zero-rated and exempt sales. It is pertinent to state that while a
decrease in taxable sales will not affect [ETPI’s] claim for refund, the increase in the
exempt sales has the effect of a proportionate reduction on its claimed input VAT credits.
Thus, in the absence of the aforementioned documents, the court has no basis in the
computation of the allowable refund that may be granted to [ETPI].
The disparity between the amounts declared as taxable or exempt sales by [ETPI] in
its amended 1998 quarterly VAT returns and the revenue allocation provided by
petitioner has further created a doubt as to the accuracy of [ETPI’s] claim, considering
further that the 1998 audited financial statements, which were the bases of the revenue
allocation, were already available as early as February 22, 1999 while [ETPI] filed its
amended 1998 quarterly VAT returns on February 22, 2001.30
Lastly, the old CTA and the CTA En Banc, including PJ Acosta in his
Concurring and Dissenting Opinion, both found that ETPI failed to sufficiently
substantiate the existence of its effectively zero-rated sales for taxable year 1998.
It is noteworthy to state that the CTA is a highly specialized court dedicated
exclusively to the study and consideration of revenue-related problems, in which
it has necessarily developed an expertise. Hence, its factual findings, when
supported by substantial evidence, will not be disturbed on appeal. Verily, this
Court finds no sufficient reason to rule otherwise.
WHEREFORE, in view of the foregoing premises, the Decision dated April 30,
2008 and Resolution dated July 2, 2008 of the Court of Tax Appeals En Banc in
C.T.A. E.B. No. 327 are AFFIRMED.
SO ORDERED.
Velasco, Jr. (Chairperson), Peralta, Villarama, Jr. and Jardeleza, JJ., concur.
Judgment and resolution affirmed.
Notes.—A taxpayer can apply his input Value-Added Tax (VAT) only against
his output VAT. The only exception is when the taxpayer is expressly “zero-rated
or effectively zero-rated” under the law, like companies generating power through
renewable sources of energy. (Commissioner of Internal Revenue vs. San Roque
Power Corporation, 690 SCRA 336 [2013])
Prior to seeking judicial recourse before the Court of Tax Appeals (CTA), a
value-added tax (VAT)-registered person may apply for the issuance of a tax credit
certificate or refund of creditable input tax attributable to zero-rated or effectively
zero-rated sales within two (2) years after the close of taxable quarter when the
sales or purchases were made. (Commissioner of Internal Revenue vs. Silicon
Philippines, Inc. [formerly Intel Philippines Manufacturing, Inc.], 718 SCRA 513
[2014])
——o0o——
G.R. No. 206019. March 18, 2015.*
The Facts
CTA’s Decision
In its July 12, 2010 consolidated Decision,13 the CTA Special First Division
(First Division), in CTA Case No. 7588, ordered the CIR to refund to PNB
P77,172,555.28 representing its claim for refund of interests, surcharges and
penalties on capital gains taxes and documentary stamp taxes for the year 2003.14
In CTA Case No. 7355, however, the First Division denied PNB’s claim for the
refund of excess creditable withholding taxes for insufficiency of evidence. The tax
court agreed with PNB that the applicable withholding rate was indeed five
percent (5%) and not six percent (6%).15Nevertheless, it held that PNB, while able
to establish the fact of tax withholding and the remittance thereof to the BIR,
failed to present evidence to prove that Gotesco did not utilize the withheld taxes
to settle its tax liabilities. The First Division further stated that PNB should have
offered as evidence the 2003 Income Tax Return (2003 ITR) of Gotesco to show
that the excess withholding tax payments were not used by Gotesco to settle its
tax liabilities for 2003. The First Division elucidated:
With the above proof of payments, this Court finds that the fact of withholding and
payment of the withholding tax due were properly established by petitioner. x x x
However, it must be noted that although petitioner duly paid the withholding taxes,
there was no evidence presented to this Court showing that GOTESCO utilized the taxes
withheld to settle its own tax liability for the year 2003. Being creditable in nature,
petitioner should have likewise offered as evidence the 2003 Income Tax Return of
GOTESCO to convince the court that indeed the excess withholding tax payments were
not used by GOTESCO. The absence of such relevant evidence is fatal to petitioner’s
action preventing this Court from granting its claim. To allow petitioner its claim may
cause jeopardy to the Government if it be required to refund the claim already utilized.16
On July 30, 2010, PNB filed a Motion for Reconsideration (MR), attaching
therewith, among others, Gotesco’s 2003 ITR and the latter’s Schedule of Prepaid
Tax, which the First Division admitted as part of the records.
On April 5, 2011, the First Division issued a Resolution17 denying PNB’s MR
mainly because there were no documents or schedules to support the figures
reported in Gotesco’s 2003 ITR to show that no part of the creditable withholding
tax sought to be refunded was used, in part, for the settlement of Gotesco’s tax
liabilities for the same year. It stated that PNB should have likewise presented
the Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) issued
to Gotesco in relation to the creditable taxes withheld reported in its 2003 ITR.
BIR Form No. 2307, so declared in the Resolution, will confirm whether or not that
the amount being claimed by PNB was indeed not utilized by Gotesco to offset its
taxes. In denying the MR, the First Division explained:
Petitioner attached to its Motion, income tax returns of GOTESCO for the taxable year
2003, to prove that the latter did not utilize the taxes withheld by petitioner. The returns
were submitted without any attachment regarding its creditable taxes withheld. Except
for GOTESCO’s Unadjusted Schedule of Prepaid Tax for the taxable year 2003, there were
no other documents or schedules presented before this Court to support the figures
reported in the tax returns of GOTESCO for the same year under lines 27(C), (D) and (G)
of the Creditable Taxes Withheld.
We note that the amounts reported by GOTESCO as creditable taxes withheld for the
year 2003 were just P6,014,433.00 in total, which is less than P74,400,028.49, the
creditable taxes withheld from it by the petitioner. In fact, it is less than the
P12,400,004.70 creditable taxes withheld being claimed by petitioner in its present
motion. However, this Court deemed that such observation alone, without any supporting
document or schedule, is not enough to convince us that no part of the creditable
withholding tax sought to be refunded is included in the total tax credits reported by
GOTESCO in its tax returns for the taxable year 2003 which was used, in part, for the
settlement of its tax liabilities for the same year.
To sufficiently prove that GOTESCO did not utilize the creditable taxes withheld,
petitioner should have likewise presented BIR Forms No. 2307 issued to GOTESCO in
relation to the creditable taxes withheld reported in its 2003 tax returns. Doing so will
dispel any doubt as to the composition of GOTESCO’s creditable taxes withheld for 2003.
This will settle once and for all that the amount being claimed by petitioner was not
utilized by GOTESCO, and thus the claim should be granted. Until then, this Court will
stand by its decision and deny the claim.18
In due time, PNB filed an appeal before the CTA En Banc by way of a Petition
for Review, docketed as CTA EB Case No. 762.19 PNB argued that its evidence
confirms that Gotesco’s Six Million Fourteen Thousand and Four Hundred Thirty-
Three Pesos (P6,014,433) worth of tax credits, as reported and claimed in its 2003
ITR, did not form part of the P74,400,028.49 equivalent to six percent (6%)
creditable tax withheld. To support the foregoing position, PNB highlighted the
following:
1. Gotesco continues to recognize the foreclosed property as its own asset in its 2003
audited financial statements. It did not recognize the foreclosure sale and has not claimed
the corresponding creditable withholding taxes withheld by petitioner on the foreclosure
sale.
2. Gotesco testified that the P6,014,4333.00 tax credits claimed in the year 2003 does
not include the P74,400,028.49 withholding taxes withheld and paid by petitioner in the
year 2003.
3. PNB presented BIR Form No. 1606, the withholding tax remittance return filed by
PNB as withholding agent, which clearly shows that the amount of P74,400,028.49 was
withheld and paid upon PNB’s foreclosure of Gotesco’s asset.20
Finally, in its July 12, 2010 Decision, the First Division expressly provided that
Gotesco’s 2003 ITR was the only evidence it needed to show that the excess
withholding taxes paid and remitted to the BIR were not utilized by Gotesco.
On September 12, 2012, the CTA En Banc, in the first assailed
Decision,21 denied PNB’s Petition for Review and held:
In this case, petitioner is counting on the Income Tax Returns of GOTESCO for the
taxable year 2003 and on a certain Unadjusted Schedule of Prepaid Tax for the same year
to support its argument that GOTESCO did not utilize the taxes withheld by petitioner;
however, We are not persuaded.
To reiterate, since the claim for refund involves creditable taxes withheld from
GOTESCO, it is necessary to prove that these creditable taxes were not utilized by
GOTESCO to pay for its liabilities. The income tax returns alone are not enough to fully
support petitioner’s contention that no part of the creditable withholding tax sought to be
refunded by petitioner was utilized by GOTESCO; first, there were no other relevant
supporting documents or schedules presented to delineate the figures constituting the
creditable taxes withheld that was reported in GOTESCO’s 2003 tax returns; and second,
this Court cannot give credence to the Unadjusted Schedule of Prepaid Tax for the taxable
year 2003 being referred to by petitioner as the same pertains merely to a list of
GOTESCO’s creditable tax withheld for taxable year 2003 and was not accompanied by
any attachment to support its contents; also it is manifest from the records that petitioner
failed to have this Schedule of Prepaid Tax offered in evidence, and thus, was not admitted
as part of the records of this case.22
Issue
The petition is impressed with merit. As PNB insists at every turn, it has
presented sufficient evidence showing its entitlement to the refund of the excess
creditable taxes it erroneously withheld and paid to the BIR.
As earlier stated, the CTA predicated its denial action on the postulate that
even if PNB’s withholding and remittance of taxes were undisputed, it was not
able to prove that Gotesco did not utilize the taxes thus withheld to pay for its tax
liabilities for the year 2003.
In its Decision, the First Division categorically stated, “[P]etitioner should have
likewise offered as evidence the 2003 Income Tax Return of GOTESCO to convince
this Court that indeed the excess withholding tax payments were not used by
GOTESCO. The absence of such relevant evidence is fatal to petitioner’s action
preventing this Court from granting its claim.”24
Thus, apprised on what to do, and following the First Division’s advice, PNB
presented Gotesco’s 2003 ITRs as an attachment to its MR, which was
subsequently denied however. In ruling on the MR, the First Division again
virtually required PNB to present additional evidence, specifically, Gotesco’s
Certificates of Creditable Taxes Withheld (BIR Form No. 2307) covering
P6,014,433 tax credits claimed for year 2003, purportedly to show non-utilization
by Gotesco of the P74,400,028.49 withholding tax payments.
Although PNB was not able to submit Gotesco’s BIR Form No. 2307, the Court
is persuaded and so declares that PNB submitted evidence sufficiently showing
Gotesco’s non-utilization of the taxes withheld subject of the refund.
First, Gotesco’s Audited Financial Statements for year 2003, 25 which it
subsequently filed with the BIR in 2004, still included the foreclosed Ever Ortigas
Commercial Complex, in the Asset account “Property and Equipment.” This was
explained on page 8, Note 5 of Gotesco’s 2003 Audited Financial Statements:
Commercial complex and improvements pertain to the Ever Pasig Mall. As discussed
in Notes 1 and 7, the land and the mall, which were used as collaterals for the Company’s
bank loans, were foreclosed by the lender banks in 1999. However, the lender banks have
not been able to consolidate the ownership and take possession of these properties pending
decision of the case by the Court of Appeals. Accordingly, the properties are still carried
in the books of the Company. As of April 21, 2004, the Company continues to operate the
said mall. Based on the December 11, 2003 report of an independent appraiser, the fair
market value of the land, improvements and machinery and equipment would amount to
about P2.9 billion.
Land pertains to the Company’s properties in Pasig City where the Ever Pasig Mall is
situated.26