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Table of Contents

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COMMERCIAL LAW
Bank of the Philippine Islands v. LCL Capital, Inc., G.R. No. 243396,
September 14, 2021
LCL Capital, Inc. v. Bank of the Philippine, G.R. No. 243409, September 14,
2021……………………………………………………………………………………………..3

Pedro D. Dusol And Maricel M. Dusol v. Emmarck A. Lazo, G.R. No. 200555, January
20, 2021…………………………………………………………………………….……………………7
Kaizen Builders, Inc. v. Court Of Appeals, G.R. No. 226894, September 03, 2020…....9

Pioneer Insurance & Surety Corporation v. TIG Insurance Company, successor by

merger to Clearwater Insurance Company, G.R. No. 256177, June 27, 2022…………15
TAXATION
Commissioner of Internal Revenue v. East Asia Utilities, G.R. No. 225266, November
16, 2020………………………………………………………………………………………………..16

Commissioner of Internal Revenue v. Filminera Resources Corporation, G.R. No.

236325, September 16, 2020……………………………………………………………………...19
Commissioner of Internal Revenue v. Philex Mining Corporation, G.R. No. 230016,
November 23, 2020 ………………………………………………………………………………….24
KEPCO Philippines Corporation v. Commissioner of Internal Revenue, G.R. No.
225750-51, July 28, 2020………………………………………………………………………….27

Metropolitan Waterworks and Sewerage System v. Central Board of Assessment

Appeals, The Pasay City Local Board of Assessment Appeals, The Pasay City Treasurer
and City Assessor, G.R. No. 215955, January 13, 2021……………………………………31
Chevron Holdings, Inc. (Formerly Caltex Asia Limited) v. Commissioner of Internal
Revenue, G.R. No. 215159, July 05, 2022……………………………………………………..34
NATIONAL POWER Corporation v. The Province Of Pampanga and Pia Magdalena D.
Quibal, G.R. No. 230648, October 06, 2021…………………………………………………...40

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Bank of the Philippine Islands v. LCL Capital, Inc., G.R. No. 243396,
September 14, 2021

LCL Capital, Inc. v. Bank of the Philippine, G.R. No. 243409, September
14, 2021

SUBJECT: MERCANTILE LAW – GENERAL BANKING ACT

DOCTRINE:
(1) The redemption price must consist of the following: (1) the principal
obligation or the amount due under t he mortgage deed; (2) interest at the rate
specified in the mortgage; (3) expenses of foreclosure, i.e., Judicial
Commission, Publication Fee, and Sheriffs Fee; and (4) other expenses as a
result of the custody of the property less the income received. For emost, the
redemption price must be based on the amount due under the mortgage deed
and not the bid price.

(2) Any unpaid real estate tax is chargeable against the taxable person who
had actual, or beneficial use and possession of the property regardless of
whether he or she is the owner.

Facts:
In 1997, LCL Capital, Inc. (LCL) obtained a loan from Far East Bank & Trust
Co. (FEBTC) in the amount of P3,000,000.00 subject to 17% interest per annum. As
security, LCL executed a deed of Real Estate Mortgage over its two condominium units.
In 2000, the Bank of the Philippine Islands (BPI) merged with FEBTC. As the surviving
corporation, BPI absorbed FEBTC's assets and liabilities.
When LCL failed to pay the indebtedness including interests and penalties, BPI
applied for extrajudicial foreclosure of the real estate mortgage before the Office of the
Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Pasig City. At the
public auction sale, BPI emerged as the highest bidder and was issued a Certificate of
Sale on May 21, 2003. After almost two months, or on July 11, 2003, BPI executed an
Affidavit of Consolidation of ownership over the foreclosed condominium units.
Consequently, new condominium certificates of title were issued in favor of BPI.
Aggrieved, LCL filed an action against BPI for the annulment of the certificates of
title before the Regional Trial Court of Pasig City, Branch 161 (RTC), docketed as Civil
Case No. 69591. Mainly, LCL alleged that the consolidation of ownership is premature
having been made before the lapse of the redemption period. In a Decision dated
November 14, 2008, the RTC declared the consolidation void and directed the Register
of Deeds of Pasig City to reinstate the certificates of title of LCL subject to the exercise
of its right of redemption.
BPI maintained that the real estate taxes must be included in the computation
of the redemption price while LCL insisted that the applicable interest rate should be
6% and not the stipulated 17% per annum. In due course, the CA, on November 27,

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2018, denied the motions for lack of merit. Undaunted, BPI and LCL separately filed
their petitions for review on certiorari under Rule 45 docketed as S.C. G.R. No.
243396[17] and G.R. No. 243409 respectively.
BPI contends that LCL must reimburse the realty taxes as part of the redemption
price because it retained possession of the foreclosed properties. On the other hand,
LCL argues that the CA can no longer remand the case for recomputation of the
redemption price lest it will violate the immutability of the RTC's final judgment which
declared void the consolidation of ownership. On February 6, 2019, the Court
consolidated the petitions.

Issue:
1. Whether or not the CA can no longer remand the case for recomputation
price.

2. Whether or not LCL must reimburse the realty taxes as part if the
redemption price.

Ruling:
1. Yes, the CA can still remand the case to RTC for the recomputation of
the redemption price.
All the issues between the parties are deemed resolved and laid to rest once a
judgment becomes final. No other action can be taken on the decision except to order
its execution. The courts cannot modify the judgment to correct perceived errors of law
or fact. Public policy and sound practice dictate that every litigation must come to an
end at the risk of occasional errors. This is the doctrine of immutability of a final
judgment. Here, it is undisputed that the RTC Decision dated November 14, 2008 in
Civil Case No. 69591, declaring void the consolidation of the condominium certificates
of title in BPI's name and directing the Register of Deeds of Pasig City to reinstate the
certificates of title of LCL subject to the exercise of its right of redemption, already lapsed
into finality.
Contrary to LCL's theory, the recomputation of the redemption price will not
violate the doctrine of immutability of a final judgment. Suffice it to say that the RTC
Decision dated November 14, 2008, did not mention the actual amount of the
redemption price. The computation of the redemption price was discussed only in the
RTC Order [dated January 27, 2017 and the CA Decision dated May 17, 2018 in CA-
G.R. SP No. 152018.

The Court had ruled that Section 78 of Republic Act (RA) No. 337 or the "General
Banking Act," as amended, (now Section 47 of RA No. 8791 or the "General Banking
Law of 2000") shall govern in cases where the mortgagee is a bank, and not the Rules
of Court in relation to Section 6 of Act No. 3135, as amended by Act No. 4118. In Ponce
de Leon v. Rehabilitation Finance Corp., the Court explained that Section 78 of RA No.

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337 had the effect of amending Section 6of Act No. 3135 insofar as the redemption price
is concerned when the mortgagee is a bank, or a banking or credit institution. The
conflict between the two laws must be resolved in favor of RA No. 337 for being a special
and subsequent legislation. The ruling was cited and applied in the cases of Sy v. Court
Corporation v. Mateo, and GE Money Bank, Inc. v. Sps. Dizon.

In this case, the mortgagee BPI is a banking institution. Hence, Section 78 of RA

No. 337, as further amended by Presidential Decree No. 1828 the effective law at the
time the contract of loan and the deed of real estate mortgage were executed in 1997,
shall govern in computing the redemption price for the foreclosed properties.
Applying the above provision pertaining to extrajudicial foreclosure, the
redemption price must consist of the following: (1) the principal obligation or the amount
due under the mortgage deed; (2) interest at the rate specified in the mortgage; (3)
expenses of foreclosure, i.e., Judicial Commission, Publication Fee, and Sheriffs Fee;
and (4) other expenses as a result of the custody of the property less the income received.

Foremost, the redemption price must be based on the amount due under the
mortgage deed and not the bid price. Yet, the CA and the RTC both agreed in the total
amount of P2,380,287.07, corresponding the bid price and the foreclosure expenses,
which is way below the principal loan of P3,000,000.00 stated in the mortgage deed.

The RTC erred in applying the legal interest of 6% per annum given that the
stipulated interest is neither excessive nor unconscionable. As part of the redemption
price, Section 78 of RA No. 337, as further amended, is explicit that the principal
obligation shall earn interest at the rate specified in the mortgage contract. Thus, the
Court affirms the CA's imposition of interest rate at 17% per annum which the parties
specified in the contract of loan and the mortgage deed.
2. YES, LCL must reimburse the realty taxes as part of the redemption
price.
The CA refused to include the real estate taxes as part of the redemption price.
Apparently, the CA misread the case of Sps. Guevarra v. The Commoner Lending
Corporation, Inc. and applied its ruling to all kinds of taxes. In that case, the Court held
that the mortgagor who failed to redeem the property within the one- year reglementary
period is liable to reimburse the foreclosing mortgagee for the corresponding Capital
Gains Tax (CGT) and Documentary Stamp Tax (DST). This is because after the expiration
of the redemption period, there is actual transfer of title from the mortgagors to the
foreclosing mortgagee requiring the payment of such taxes. Corollarily, in Supreme
Transliner, Inc. v. BPI Family Savings Bank, Inc., the Court ruled that there is no actual
transfer of the mortgaged real property until after the expiration of the one-year
redemption period. In the interim, the mortgagor is given the option whether or not to
redeem the real property. The issuance of the Certificate of Sale does not by itself
transfer ownership. In that case, the mortgagors exercised their right of redemption

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before the expiration of the statutory one-year period. The foreclosing mortgagee is not
liable to pay CGT and DST. Hence, the inclusion of the said charges in the total
redemption price was unwarranted.

In both cases, the issues pertain to reimbursement of CGT and DST and not real
estate taxes. In any event, as intimated earlier, the payment of real estate taxes is based
on the actual or beneficial use and possession of the property independent of ownership.
The real estate taxes that the BPI paid must be included as part of the redemption price.
However, the RTC excluded these expenses so as not to give premium to BPI's void action
of consolidating ownership before the redemption period expired. Nevertheless, this
ruling has no legal basis. At most, BPI's premature consolidation of ownership will only
result in the reinstatement of LCL's certificates of title. The effect cannot be extended to
the forfeiture of BPI's right of reimbursement for the real estate taxes paid, lest it
undermines the principle of unjust enrichment.
To be sure, any unpaid real estate tax is chargeable against the taxable person
who had actual, or beneficial use and possession of the property regardless of whether
he or she is the owner. Here, LCL retained the use and control of the mortgaged
properties and must be held liable for real estate taxes. To impose the taxes upon BPI
which is neither the owner nor the beneficial user of the properties would not only be
contrary to law but also unjust.
In sum, the redemption price must be computed based on the principal obligation
of P3,000,000.00 or the amount due under the mortgage deed with interest at the rate
of 17% per annum specified in the mortgage contract. In addition to the principal and
interest, the redemption price must include the expenses of foreclosure, i.e., Judicial
Commission, Publication Fee, and Sheriffs Fee. Lastly, LCL is ordered to reimburse BPI
the amount representing the payment of real estate taxes. Considering the absence of
sufficient records to arrive at the exact figures, it is proper to remand the case to the
RTC for computation of the redemption price and for reception of further evidence solely
for such purpose.

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Pedro D. Dusol And Maricel M. Dusol v. Emmarck A. Lazo, G.R. No.
200555, January 20, 2021

SUBJECT: LABOR LAW, PARTNERSHIP

DOCTRINE:
1. The existence of a partnership is established when it is shown that: (a)
two or more persons bind themselves to contribute money, property, or
industry to a common fund; and (b) they intend to divide the profits among
themselves.

2. To determine whether an emp loyment relationship exists, the following

elements are considered: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the employer's power
to control the employee's conduct. The most important e lement is the
employer's control of the employee's conduct, not only as to the result of the
work to be done, but also as to the means and methods to accomplish it.
However, the power of control refers merely to the existence of the power, and
not to the actual exercise thereof.

Facts:
In 1993, Pedro started working as the caretaker and only employee of Ralco
Beach Resort then operated by the parents of Emmarck. He worked from 5AM to 9PM,
including weekends and holidays, and was given an allowance of P100.00 per week,
which was later increased to P239.00 in 2001. Sometime in 1995, Pedro was also asked
to work in the fishpond business owned by the parents of Emmarck. They agreed that
Pedro will be compensated based on the income from the harvests. After two harvest
seasons, Emmarck’s parents discontinued it because the business was not profitable.
Pedro continued to serve as caretaker.
In 2001, Pedro married Maricel and in 2007 Maricel was employed by Emmarck
to manage the store in the resort. She was paid P1,000.00 a month and entitled to 15%
commission on the rentals collected from the cottages and rest house. She worked from
5AM to 9PM every day.
In 2008, Emmark notified Pedro and Maricel that he will be leasing out Ralco
Beach because it was not profitable. Thus, their services are no longer needed. Due to
this, Pedro and Maricel no longer reported for work.
Subsequently, they filed a complaint asserting that they were illegally dismissed
and deprived of procedural due process. Emmarck denied the employment relationship
with Pedro and Maricel and asserted that they were his industrial partners. He explained
that Pedro became an industrial partner of his mother in the fishpond business with an
agreement to be entitled to 1/3 of the total harvest made and weekly allowance of

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P230.00, and he merely adopted this arrangement when he took over the business.
Similarly, Maricel was taken in as an industrial partner to manage the store who was
entitled to the monthly allowance and commission and was also allowed to sell anything
in the store with the profits solely belonging to her. Emmarck claimed that their receipt
of the share in the profits was in their capacity as business partners and that he had
no power to dismiss them because the existence of a partnership relationship depends
on the viability of the business. He stressed that he had no control over Pedro and
Maricel, and did not control or guide them since he left the entire business operation to
them.
The Labor Arbiter (LA) dismissed the complaint for lack of jurisdiction because
Pedro and Maricel failed to prove that they were Emmarck’s employees. Aggrieved, they
appealed to the NLRC. The NLRC granted the appeal and ruled that they were employees
by applying the four-fold test. Emmarck moved for reconsideration, but was denied. He
filed a petition for certiorari with the CA. The CA reversed and set aside the NLRC’s
Resolutions. The CA relied on the control test and ruled that they were not employees
because Emmarck did not have the power to control them. Pedro and Maricel moved for
reconsideration, but was denied, hence this Petition for Review on Certiorari under
Rules 45 of the Rules of Court assailing the CA decision.
By way of exception, even if a petition for review on certiorari is not proper, the
SC exercised its equity jurisdiction because there is a conflict among the factual findings
of the LA and the CA as opposed to that of the NLRC.
Issue:
Whether or not a partnership relationship exists.

Ruling:
NO. The existence of a partnership is established when it is shown that: (a) two
or more persons bind themselves to contribute money, property, or industry to a
common fund; and (b) they intend to divide the profits among themselves. Under Article
1769 of the Civil Code, the receipt of a person of a share of the profits of a business is a
prima facie evidence that he is a partner in the business, but no such inference shall
be drawn if such profits were received in payment as wages of an employee or rent to a
landlord. In addition, the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right of
interest in any property from which the returns are derived. In this case, there is no
proof that a partnership existed between Pedro or Maricel, and Emmarck. They rendered
their services and received compensation sourced from rentals and sales of the resort.
Emmarck’s allegation that Pedro was his industrial partner is inconsequential because
Pedro’s complaint and claims were for his services rendered.

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Kaizen Builders, Inc. v. Court Of Appeals, G.R. No. 226894, September 03,
2020

SUBJECT: MERCANTILE LAW – COMMENCEMENT ORDER (FRIA)

SUMMARY OF ISSUE IN THIS CASE : The Court discusses the effect of a

Commencement Order and the its effect such as the mandatory consolidation
of cases with regards to claims.

Facts:
In 2004, Ofelia Ursais (Ofelia) purchased from Kaizen Builders, Inc. (Kaizen
builders) (formerly Megalopolis Properties, Inc.) a house and lot situated in White Pine
Street, Camp 7, Baguio City.[3] In 2007, the parties executed a contract to sell where
Kaizen Builders bought back from Ofelia the property for P2,700,000.00 and swapped
it with another house and lot in Kingstone Ville, Camp 1, Baguio City. They deducted
from the price the P300,000.00 unpaid balance of Ofelia in White Pine property and the
P2,200,000.00 value of Kingstone Ville property. The remaining P200,000.00 shall be
paid in cash. Later, the parties replaced the contract to sell with another agreement
where Ofelia invested the P2,200,000.00 in Kaizen Builders' development of the
Kingstone Ville project.[4] In 2008, however, the parties rescinded the investment
agreement where Ofelia received P320,000.00 from Kaizen Builders. The parties then
stipulated that the amount of P380,000.00 will be paid on installment basis while the
remaining P1,500,000.00 shall bear an interest of 1.5% or P22,500.00 per month.
Despite repeated demands, Kaizen Builders stopped remitting the monthly interest
beginning November 2009 and refused to deliver the P380,000.00.[6] In 2011, Ofelia
filed against Kaizen Builders and its chief executive officer Cecille F. Apostol (Cecille) a
complaint for sum of money before the Regional Trial Court (RTC) docketed as Civil Case
No. 7426-R.[7] On May 8, 2013, the RTC in its Decision[8] ordered Kaizen Builders and
Cecille solidarity liable to pay Ofelia. Ofelia sought partial reconsideration claiming that
the RTC failed to include the P3 80,000.00 and the payment of monthly interest up to
the present. Later, Ofelia died and was substituted by her heirs. On November 15, 2013,
the RTC granted the motion and amended its Decision. Aggrieved, Kaizen Builders and
Cecille elevated the case to the CA docketed as CA-G.R. CV No. 102330.
Meantime, Kaizen Builders filed before the special commercial court a petition for
corporate rehabilitation docketed as Special Proceedings Case No. 2466-R. On August
12, 2015, the rehabilitation court issued a Commencement Order[12] which
consolidated all legal proceedings by and against Kaizen Builders and suspended all
actions for the enforcement of claims against it. Accordingly, Kaizen Builders and Cecille
moved to consolidate the appealed case with the rehabilitation proceedings. On
December 8, 2015, however, the CA denied the motion and explained that the appeal
would not affect the rehabilitation case since the two proceedings involved different

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parties, issues and reliefs.[13] Unsuccessful at a reconsideration,[14] Kaizen Builders
and Cecille filed a Petition for Certiorari and Prohibition[15] under Rule 65 before this
Court docketed as G.R. No. 226894. They argued that the CA acted with grave abuse of
discretion in denying the motion for consolidation and prayed that the proceedings
before the CA be suspended within the duration of the rehabilitation case. ]Dissatisfied,
Kaizen Builders and Cecille filed a Petition for Review on Certiorari[19] under Rule 45
docketed as G.R. No. 247647 on the ground that the CA committed reversible error in
holding them liable to pay Ofelia's heirs.

Issue:

Whether or not the CA erred in denying the motion for rehabilitation and holding
Kaizen to pay Ofelia despite the commencement order.

Ruling:
Yes, the CA erred in denying the motion for rehabilitation and holding
Kaizen to pay Ofelia despite the commencement order.
To achieve these objectives, Sections 16 and 17 of RA No. 10142 authorizes the
rehabilitation court to issue a Commencement Order that includes a Stay Order, which
have the effects of suspending all actions for the enforcement of claims against the
debtor and consolidating the resolution of all legal proceedings by and against it. An
essential function of corporate rehabilitation is the mechanism of suspension of all
actions and claims against the distressed corporation.[27] Notably, RA No. 10142 makes
no distinction as to the claims that are suspended once a Commencement Order is
issued. Apropos is Section 4(c) which provides an allencompassing definition of the term
"claim,":
thus:
SECTION 4. Definition of Terms. — As used in this Act, the term:

(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not
limited to: (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from acts done in the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors or third parties
from filing cases against the directors and officers acting in their personal capacities.
(Emphases supplied.)

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 The Commencement Order shall direct all creditors to file their claims with the
rehabilitation court at least five days before the initial hearing.[29] A creditor whose
claim is not listed in the schedule of debts and liabilities and who fails to file a notice of
claim in accordance with the Commencement Order but subsequently files a belated
claim shall not be entitled to participate in the rehabilitation proceedings but shall be
entitled to receive distributions arising therefrom.[30] The 2013 Financial Rehabilitation
Rules of Procedure or A.M. No. 12-12-11-SC echoed the manner of filing the creditors'
claims.

Verily, the reason behind the imperative nature of a stay order in relation to the
creditors' claims cannot be downplayed. The indiscriminate suspension of actions for
claims is intended to expedite the rehabilitation of the distressed corporation. It enables
the management committee or the rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extrajudicial interference that might unduly hinder or
prevent the rescue of the debtor company. To allow such other actions to continue would
only add to the burden of the management committee or rehabilitation receiver, whose
time, effort and resources would be wasted in defending claims against the
corporation.[31] Corollarily, the date when the claim arose, or when the action was filed,
has no bearing at all in deciding whether the action or claim is suspended. The stay
order embraces all phases of the suit,[32] except in those instances expressly mentioned
in Section 18 of RA No. 10142.
In Lingkod Manggagawa sa Rubberworld, Adidas-Anglo v. Rubberworld (Phils.)
Inc., [33] this Court affirmed the CA's finding that the Labor Arbiter and the National
Labor Relations Commission committed grave abuse of discretion when they proceeded
with the unfair labor practice case that the petitioner filed against the respondent
despite the Securities and Exchange Commission's suspension order. In that case, the
decisions and orders of the labor tribunals are void and could not have achieved a final
and executory status.
Likewise, in La Savoie Development Corp. v. Buenavista Properties, Inc., [35] the
respondent filed a complaint for termination of contract and recovery of property with
damages against petitioner before the RTC of Quezon City. Meantime, the petitioner filed
rehabilitation proceedings before the RTC of Makati City which issued a suspension
order. The petitioner then informed the RTC of Quezon City about the order but it had
already decided the complaint. Thereafter, the judgment became final and executory.
Later, the RTC of Makati City approved a rehabilitation plan which reduced the penalty
stated in the decision of the RTC of Quezon City. Undaunted, the respondent questioned
the reduction of penalty and argued that the RTC of Makati City cannot amend the final
decision of the RTC of Quezon City. The respondent insisted that the cram down power
of the rehabilitation court is irrelevant and inapplicable. In that case, we held that a
decision rendered in violation of a stay order did not attain finality.
Here, it is undisputed that Kaizen Builders filed a petition for corporate
rehabilitation. Finding the petition sufficient in form and substance, the rehabilitation

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court issued a Commencement Order on August 12, 2015 or during the pendency of the
appeal in CA-G.R. CV No. 102330. Yet, the CA proceeded with the case and rendered
judgment. On this point we find grave abuse of discretion. To reiterate, the
Commencement Order ipso jure suspended the proceedings in the CA at whatever stage
it may be, considering that the appeal emanated from a money claim against a
distressed corporation which is deemed stayed pending the rehabilitation case.
Moreover, the appeal before the CA is not one of the instances where a suspension order
is inapplicable. The CA should have abstained from resolving the appeal.[36] Taken
together, the CA clearly defied the effects of a Commencement Order and disregarded
the state policy to encourage debtors and their creditors to collectively and realistically
resolve and adjust competing claims and property rights.[37] Applying the
pronouncements in Lingkod Manggagawa sa Rubberworld and La Savoie Development
Corp., the CA's Resolution dated December 8, 2015 and Decision dated October 1, 2018
in CA-G.R. CV No. 102330 are void for having been rendered with grave abuse of
discretion and against the provisions of a mandatory law. With findings warranting the
grant of the petition for certiorari and prohibition in G.R. No. 226894, there is no more
reason for this Court to decide the petition for review in G.R. No. 247647 sans a valid
judgment.

Other doctrine and principles cited:

Republic Act (RA) No. 10142 or the Financial Rehabilitation and Insolvency Act of
2010

Republic Act (RA) No. 10142 or the Financial Rehabilitation and Insolvency Act
of 2010 statutorily defined "rehabilitation" as the restoration of the debtor to a condition
of successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated.[21] Case law explains that rehabilitation is an attempt to
conserve and administer the assets of an insolvent corporation in the hope of its
eventual return from financial stress to solvency.[22] A corporate rehabilitation case is
a special proceeding in rem[23] where the basic issues concern the viability and
desirability of continuing the business operations of the distressed corporation.[24] The
purpose is to enable the company to gain a new lease on life and allow its creditors to
be paid their claims out of its earnings.[25] The rationale is to resuscitate businesses in
financial distress because assets are often more valuable when so maintained than they
would be when liquidated.
Lingkod Manggawa and La Savoie Case.

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 In Lingkod Manggagawa sa Rubberworld, Adidas-Anglo v. Rubberworld (Phils.)
Inc., [33] this Court affirmed the CA's finding that the Labor Arbiter and the National
Labor Relations Commission committed grave abuse of discretion when they proceeded
with the unfair labor practice case that the petitioner filed against the respondent
despite the Securities and Exchange Commission's suspension order. In that case, the
decisions and orders of the labor tribunals are void and could not have achieved a final
and executory status, thus: Given the factual milieu obtaining in this case, it cannot be
said that the decision of the Labor Arbiter, or the decision/dismissal order and writ of
execution issued by the NLRC, could ever attain final and executory status. The Labor
Arbiter completely disregarded and violated Section 6(c) of Presidential Decree 902-A,
as amended, which categorically mandates the suspension of all actions for claims
against a corporation placed under a management committee by the SEC. Thus, the
proceedings before the Labor Arbiter and the order and writ subsequently issued by the
NLRC are all null and void for having been undertaken or issued in violation of the SEC
suspension Order dated December 28, 1994. As such, the Labor Arbiter's decision,
including the dismissal by the NLRC of Rubberworld's appeal, could not have achieved
a final and executory status.
Acts executed against the provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity. The Labor Arbiter's decision in
this case is void ab initio, and therefore, non-existent. A void judgment is in effect no
judgment at all. No rights are divested by it nor obtained from it. Being worthless in
itself, all proceedings upon which the judgment is founded are equally worthless. It
neither binds nor bars anyone. All acts performed under it and all claims flowing out of
it are void. In other words, a void judgment is regarded as a nullity, and the situation is
the same as it would be if there were no judgment. It accordingly leaves the party-
litigants in the same position they were in before the trial.[34] (Emphases supplied;
citations omitted.)Likewise, in La Savoie Development Corp. v. Buenavista Properties,
Inc., [35] the respondent filed a complaint for termination of contract and recovery of
property with damages against petitioner before the RTC of Quezon City. Meantime, the
petitioner filed rehabilitation proceedings before the RTC of Makati City which issued a
suspension order. The petitioner then informed the RTC of Quezon City about the order
but it had already decided the complaint. Thereafter, the judgment became final and
executory. Later, the RTC of Makati City approved a rehabilitation plan which reduced
the penalty stated in the decision of the RTC of Quezon City. Undaunted, the respondent
questioned the reduction of penalty and argued that the RTC of Makati City cannot
amend the final decision of the RTC of Quezon City. The respondent insisted that the
cram down power of the rehabilitation court is irrelevant and inapplicable. In that case,
we held that a decision rendered in violation of a stay order did not attain finality, viz.:
We see no reason not to apply the rule in Lingkod in case of violation of a stay order
under the Interim Rules. Having been executed against the provisions of a mandatory
law, the QC RTC Decision did not attain finality.

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 Necessarily, we reject respondent's contention that the Rehabilitation Court
cannot exercise its cram-down power to approve a rehabilitation plan over the
opposition of a creditor. Since the QC RTC Decision did not attain finality, there is no
legal impediment to reduce the penalties under the ARRP. Further, we have already held
that a court-approved rehabilitation plan may include a reduction of liability. x x x.
(Emphasis supplied.)

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Pioneer Insurance & Surety Corporation v. TIG Insurance Company,
successor by merger to Clearwater Insurance Company, G.R. No. 256177,
June 27, 2022

SUBJECT: MERCANTILE LAW

DOCTRINE: The illegality or immorality of the award must reach a certain

threshold such that, enforcement of the same would be against our state’s
fundamental tenets of justice and morality or would blatantly be injurious to
the public or the interests of the society.

Facts:
Clearwater entered into SK100 agreement with insurance and reinsurance
companies, one of which was Pioneer. Based on agreement, Pioneer agreed to assume
Clearwater’s 1% share of the interests and liabilities. Pioneer failed to pay Clearwater
the outstanding balance. The arbitration clause in SK100 agreement states that any
dispute arising out of it shall be submitted to the decision of a board of arbitration in
New York. Consequently, Clearwater initiated the arbitration proceedings in New York
but Pioneer did not participate in the scheduled hearing. The panel issued the Final
Award ordering Pioneer to pay Clearwater. Pioneer failed to pay and argued that the
arbitral award is contrary to public policy or the Philippine Constitution because
Clearwater’s claim was not supported with sufficient evidence, and failed to clearly state
the facts and law in which they are based. Pioneer also asserted Clearwater’s verification
and certification against forum shopping.
Clearwater filed a verified Petition for confirmation, recognition, and enforcement
of the arbitral award before the RTC. RTC dismissed the issues raised by Pioneer and
granted Clearwater’s petition. Pioneer filed a Petition for Review before the CA which
affirmed the decision of RTC.
Issue:
Whether or not the US Board of Arbitrator’s final award shall not be enforced.
Ruling:

No. Clearwater’s attachment of an affidavit authorizing its legal counsel to sign

verification and certification instead of secretary’s certificate is sufficient to comply with
the procedural requirements. The Court adopts the majority and narrow approach in
determining whether enforcement of an award is contrary to public policy. Mere errors
in the interpretation of the law or factual findings would not suffice to warrant refusal
of enforcement under public policy ground. The illegality or immorality of the award
must reach a certain threshold such that, enforcement of the same would be against
our state’s fundamental tenets of justice and morality or would blatantly be injurious to
the public or the interests of the society.

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Commissioner of Internal Revenue v. East Asia Utilities, G.R. No. 225266,
November 16, 2020

SUBJECT: TAXATION

DOCTRINE: As the amendment in RR No. 11-2005 now stands, the enumeration

of allowable deductions was only made by way of example or illustration of
the nature and type of expenses that may be deducted from a PEZA -registered
enterprise’s gross income for purposes of computing the 5% GIT. The maxim
expressio unius est exclusio alterius does not apply.

Facts:
East Asia Utilities is a domestic corporation registered with the Philippine
Economic Zone Authority (PEZA) as an ECOZONE Utilities Enterprise at the Mactan
Economic Zone and West Cebu Industrial Park-Special Economic Zone. Under PEZA
Certificate of Board Resolution dated January 28, 2000, East Asia Utilities is entitled to
the incentives under Sections 24 and 42 of Republic Act (RA) No. 7916, as amended,
such as payment of the special five percent (5%) tax on gross income in lieu of national
and local taxes.
On July 17, 2009, East Asia Utilities received a Preliminary Assessment Notice
(PAN) from the Commissioner of Internal Revenue 7 (CIR) assessing it for deficiency tax
in the amount of P5,892,780.71. East Asia Utilities filed a reply to the PAN on August
3, 2009.
On September 17, 2010, East Asia Utilities received the Final Decision on
Disputed Assessment (after receipt and protest to Preliminary Assessment Notice and
Final Assessment Notice) assessing it for deficiency income tax in the reduced amount
of P2,791,894.70, inclusive of increments. The deficiency arose from the CIR’s
disallowance of East Asia Utilities’ claimed costs and expenses.
On October 15, 2010, East Asia Utilities filed a Petition for Review before the CTA
Division, praying that the assessment be cancelled.

After trial, the CTA Division rendered its Decision finding East Asia Utilities liable
for deficiency income tax in the reduced amount of P612,406.94. The CTA Division held
that the amendment of Revenue Regulations (RR) No. 2-2005 by RR No. 11-2005
rendered the enumeration of allowable deductions from gross income of a PEZA-
registered enterprise, such as East Asia Utilities, no longer exclusive. The criteria for
determining the deductibility of an expense for computing the 5% Gross Income Tax
(GIT) is the direct relation of the item in the rendition of PEZA-registered services. The
CTA Division held that the word “included” as used in RR No. 11-2005 necessarily
conveys the idea of non-exclusivity of the enumeration of allowable deductions and that
the principle of expressio unius est exclusio alterius does not apply.

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 Undaunted, the CIR, through the Litigation Division of the Bureau of Internal
Revenue (BIR), interposed an appeal to the CTA En Banc in its Petition for Review dated
September 4, 2014. East Asia Utilities filed its Comment on October 23, 2014.

On February 3, 2016, the CTA En Banc affirmed the CTA Division’s findings and
conclusion.
On July 22, 2016, the CIR filed its Petition for Review on Certiorari.

Issue:
Whether the Enumeration of direct costs deductible from a PEZA-registered
enterprise’s gross income in RR. No. 11-2005 is not exclusive.

Ruling:
YES. Under Section 24[52] of RA No. 7916[53] (PEZA Law), a PEZA-registered
enterprise, such as East Asia Utilities, is entitled to the special tax of 5% on gross income
earned within the ECOZONE in lieu of all national and local taxes. Gross income refers
to “gross sales or gross revenues derived from business activity within the ECOZONE,
net of sales discounts, sales returns and allowances and minus costs of sales or direct
costs but before any deduction is made for administrative expenses or incidental losses
during a given taxable period.”
Thereafter, the BIR issued RR No. 2-2005 which states that for purposes of
computing the total five percent (5%) tax rate imposed by Republic Act No. 7916, the
cost of sales or direct cost shall consist only of the following cost or expense items which
shall be computed in accordance with Generally Accepted Accounting Principles (GAAP):
xxx xxx xxx
For ECOZONES under RA No. 7916 —
xxx xxx xxx
2. ECOZONE Developer/Operator, Facilities, Utilities and Tourism Enterprises:
— Direct salaries, wages or labor expense
— Service supervision salaries
— Direct materials, supplies used
— Depreciation of machinery and equipment used in registered activities
— Financing charges associated with fixed assets used in registered activities the
amount of which were not capitalized

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 — Rent and utility charges for buildings and capital equipment used in
undertaking registered activities.

By using the phrase "shall consist only of the following cost or expense item," RR
No. 2-2005 restricted the allowable deductions from gross income of a PEZA-registered
enterprise to the enumerated cost and expenses.

Later, the BIR issued RR No. 11-2005 revoking Section 7 of RR No. 2-2005 and
removing the exclusivity of the enumeration of cost or expense that is allowed as a
deduction from gross income where part of the Section 3 provides: For purposes of
computing the total five percent (5%) tax rate imposed, the following direct costs are
included in the allowable deductions to arrive at gross income earned for specific types
of enterprises.

As the amendment in RR No. 11-2005 now stands, the enumeration of allowable

deductions was only made by way of example or illustration of the nature and type of
expenses that may be deducted from a PEZA-registered enterprise’s gross income for
purposes of computing the 5% GIT. The maxim expressio unius est exclusio alterius does
not apply. Besides, the BIR should not have issued RR No. 11-2005 and deleted the
phrase “shall consist only of the following cost or expense item” and changed it to “the
following direct costs are included in the allowable deductions” if it did not intend to
remove the restriction on the expenses that may be deducted. The deletion of the
restrictive word “only” is also consistent with Section 24 of the PEZA Law that costs and
expenses directly related to the enterprise’s PEZA-registered activity and are not
administrative, marketing, selling and/or operating expenses or incidental losses shall
be allowed as deduction from gross income. Accordingly, the CTA En Banc did not err
in examining the nature and type of each of the expenses East Asia Utilities claimed as
deductions vis-à-vis their relation to East Asia Utilities’ PEZA-registered activities in
computing the correct amount of tax deficiency.

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Commissioner of Internal Revenue v. Filminera Resources Corporation,
G.R. No. 236325, September 16, 2020

SUBJECT: TAXATION LAW – VAT REFUND

SUMMARY OF ISSUE IN THIS CASE: The Court corrected the CTA in appreciating
the evidence presented by Filminera in claiming that as BOI Registered entity
supplier that their sales to PGRC is a Zero -Rated Sale for a certain period.

Facts:
On July 5, 2007, Filminera Resources and Philippine Gold Processing and
Refining Corporation (PGPRC), a domestic corporation registered with the BOI, entered
into an Ore Sales and Purchase Agreement. For the third and fourth quarters of the
fiscal year (FY) ending June 30, 2010, Filminera Resources' sales were all made to
PGPRC. On March 30, 2012 and June 29, 2012, Filminera Resources filed its amended
quarterly VAT returns for the third and fourth quarters, respectively. On the same dates,
Filminera Resources filed administrative claims for refund or issuance of TCC of its
unutilized input VAT attributable to its zero-rated sales for the third and fourth
quarters. Thereafter, on August 16, 2012 and November 23, 2012, Filminera Resources
filed separate petitions for review before the CTA. On September 25, 2014, the CTA
Division denied Filminera Resources' petitions on the ground of insufficiency of
evidence. The CTA Division held that Filminera Resources failed to prove that its sales
to PGPRC during the third and fourth quarters of FY 2010 qualify as export sales subject
to the zero percent (0%) rate under Section 106(A)(2)(a)(5) of the 1997 National Internal
Revenue Code, as amended by Republic Act No. 9337 (1997 NIRC), and Section 4.106-
5(a)(5) of Revenue Regulations (RR) No. 16-2005. On May 25, 2015, the CTA Division
amended its Decision on petitioner's motion for reconsideration dated September 25,
2014. Considering that the validity period of the BOI Certification covered the period
subject of the claims for refund, the CTA Division concluded that Filminera Resources'
sales were zero-rated. Hence, the CIR filed the instant petition before this Court. The
CIR maintains that the BOI Certification dated January 27, 2010 does not satisfy the
conditions imposed by law and the rules for the sales made to PGPRC be considered as
zero-rated sales. The certification merely provides that the period covered is from
January 1 to December 31, 2009, and does not state that PGPRC exported 100% of its
products from January 1 to June 30, 2010, which are the period subject of the claims
for refund. Further, it was impossible for the BOI to certify that PGPRC exported its
entire products from January 1 to June 30, 2010 because the certification was issued
only on January 27, 2010. Lastly, the extension of the certification's validity period until
December 31, 2010 was intended to give taxpayers an extended period to avail of the
benefits of zero-rating.

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Issues:

1. Whether or not the questions/issues brought forward by the CIR are purely
questions of law.

2. Whether or not the sales made PGPRC during the third and fourth quarters of
FY 2010 qualify for zero-rating making Filminera entitled to the VAT refund.

Ruling:

1. Yes, the questions/ issues brought forward by the CIR are purely questions
of law.

It is well-settled that only questions of law may be raised in a Petition for Review
on Certiorari under Rule 45 of the Rules of Court. Questions of fact are generally
proscribed. As applied to claims for refund of taxes, a question of law may be
distinguished from a question of fact, as follows:
xxx the proper interpretation of the provisions on tax refund that does not call
for an examination of the probative value of the evidence presented by the parties-
litigants is a question of law. Conversely, it may be said that if the appeal essentially
calls for the re-examination of the probative value of the evidence presented by the
appellant, the same raises a question of fact. Often repeated is the distinction that there
is a question of law in a given case when doubt or difference arises as to what the law
is on a certain state of facts; there is a question of fact when doubt or difference arises
as to the truth or falsehood of alleged facts.[40] (Italics supplied.)

The CIR asserts that the BOI Certification issued on January 27, 2010 merely
established that PGPRC exported 100% of its products for the period from January 1 to
December 31, 2009. It does not prove that PGPRC similarly exported its entire products
during the period subject of the claims for refund -the third and fourth quarters of FY
2010 or from January 1 to June 30, 2010. The BOI Certification, therefore, does not
satisfy one of the conditions imposed under the 1997 NIRC that the BOI-registered
buyer exported 100% of its products. Also, the extension of the validity period of the
certification until December 31, 2010 is intended to give the seller-taxpayer an extended
period to avail of the benefits of zero-rating and does not apply to subsequent sales not
identified in the certification.

Essentially, the issue is whether the sales made to PGPRC for the third and fourth
quarters of the FY ending June 30, 2010 are zero-rated export sales based on the
certification issued by the BOI on January 27, 2010. This is a question of law which
does not burden the Court to examine the probative value of the BOI Certification
presented. The petition mainly requires us to determine the scope of the BOI
Certification and the period when PGPRC exported 100% of its products. These are
questions well within the bounds of a Rule 45 Petition.

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 2. No, the sales made to PGPRC during the third and fourth quarters of FY
2010 DO NOT qualify for zero-rating; Filminera Resources is NOT entitled to a
refund or credit of input VAT attributable to such sales.

Accordingly, sales made to a BOI-registered buyer are export sales subject to the
zero percent rate if the following conditions are met: (1) the buyer is a BOI-registered
manufacturer/producer; (2) the buyer's products are 100% exported; and (3) the BOI
certified that the buyer exported 100% of its products. For this purpose, the BOI
Certification is vital for the seller-taxpayer to avail of the benefits of zero-rating. The
certification is evidence that the buyer exported its entire products and shall serve as
authority for the seller to claim for refund or tax credit.
Under Section 112(A)[59] of the 1997 NIRC, the seller may claim a refund or tax
credit for the input VAT attributable to its zero-rated sales subject to the following
conditions: (1) the taxpayer is VAT-registered; (2) the taxpayer is engaged in zero-rated
or effectively zero-rated sales; (3) the claim must be filed within two years after the close
of the taxable quarter when such sales were made; (4) the creditable input tax due or
paid must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output tax; and (5) in case of zero-
rated sales under Section 106(A)(2)(a)(l) and (2),[60] Section 106(B)[61] and Section
108(B)(l) and (2)[62] of the 1997 NIRC, the acceptable foreign currency exchange
proceeds have been duly accounted for in accordance with Bangko Sentral ng Pilipinas
rules and regulations.[63]
The first and third requisites have been established before the CTA. Filminera
Resources is a VAT-registered taxpayer that filed administrative and judicial claims for
refund within the period prescribed by law.[64] Meanwhile, the fifth requisite is not
applicable.[65]
As for the second requisite, Filminera Resources failed to prove that its sales to
PGPRC for the third and fourth quarters of FY 2010 are export sales. We reiterate that
without the certification from the BOI attesting actual exportation by PGPRC of its entire
products from January 1 to June 30, 2010, the sales made during that period are not
zero-rated export sales. The second requisite not having been met, there is no need for
us to discuss the fourth requirement.

In fine, Filminera Resources Corporation is not entitled to a refund or the

issuance of tax credit certificate in the amount of P111,579,541.76, representing its
unutilized input value-added tax attributable to zero-rated sales for the third and fourth
quarters of the fiscal year ending June 30, 2010.

Facts/Observation considered by the court in disallowing Filminera’s VAT refund

with regard to the second requisite:

The CTA En Banc noted that the certification was valid from January 1 to
December 31, 2010. Considering that the period of the claim for refund (January 1 to

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June 30, 2010) was within the validity period of the certification, the CTA En Banc
concluded that Filminera Resources' sales for the third and fourth quarters of FY 2010
were zero-rated.
We do not agree.

First. A plain reading of the certification shows that PGPRC exported a total of
3,820,982.5 grams, or 100% of its total sales volume/value, from January 1 to
December 31, 2009. However, nothing in the certification shows that PGPRC similarly
exported its entire products for the third and fourth quarters of FY 2010, or from
January 1 to June 30, 2010. Without the certification from the BOI that the products
sold to PGPRC during the third and fourth quarters of FY 2010 were actually exported
and consumed in a foreign country, the sales cannot be considered export sales.
Second. The validity period of the BOI certification should not be confused with
the period identified in the certification when the buyer actually exported 100% of its
products. It must be remembered that taxpayers with zero-rated sales may claim a
refund or tax credit for the VAT previously charged by the suppliers (i.e., the input tax)
because the sales had no output tax. However, to be entitled for the refund or tax credit,
the taxpayer must not only prove the existence of zero-rated sales, but must also prove
that the zero-rated sales were issued valid invoice or official receipts pursuant to
Sections 113 (A) and (B), and 237 of the 1997 NIRC, in relation to Section 4.113-1(B) of
RR No. 16-2005. In Revenue Memorandum Circular No. 42-2003,[54] the BIR clarified
that if the claim for refund or tax credit 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. the term "zero-rated sale" shall be written or printed prominently on
the invoice or receipt, the claim for refund or tax credit shall be denied.

To ensure compliance with invoicing requirements, Section 3 of RMO No. 09-00

requires the BOI-registered buyer to furnish its suppliers with a copy of the BOI
Certification attesting that it exported 100% of its products. The certification having
been issued by the BOI, there is a presumption that it was issued in the regular
performance of official duties. Thus, the supplier can rely on the certification and accord
zero-rating status to sales made to the BOI-registered buyer while the BOI certification
is valid. Consequently, the seller would be able to comply with the invoicing
requirements. The BOI-registered buyer must, however, actually export its products. To
be sure, the certification contains a proviso that the attestation of 100% exportation by
the BOI-registered buyer will be revoked in case of non-compliance with any of the
specified grounds, particularly, the failure to export its entire products.

Third. The validity period of the certification is intended to accord zero-rating

status to sales made during the extended period, but not as proof that PGPRC exported
its entire products during the same period. This is logical since the BOI can attest to
the actual exportation only after the end of the taxable year. As in this case, the
certification issued by the BOI on January 27, 2010 is not relevant for purposes of

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treating the sales made to PGPRC from January 1 to December 31, 2009 zero-rated.
When the certification was issued on January 27, 2010, Filminera Resources had
already classified its sales as zero-rated. Instead, the certification serves as authority
for Filminera Resources to accord zero-rating status to sales made to PGPRC within one
year from validity, or from January 1 to December 31, 2010. The BOI Certification is
clear:
Since the [firm's] accounting reporting period ends every 30th day of June, its
succeeding application should be filed within fifteen (15) days from the end of the said
fiscal year period in order that the BOI Certification to be issued shall be valid for
a period of one (1) year effective from the date of the start of the new fiscal
year.[57] (Emphasis supplied.) In order for the sales made to PGPRC during the third
and fourth quarters of FY 2010 qualify as zero-rated sales, the BOI must still certify
that PGPRC actually exported its entire product from January 1 to December 31, 2010.
The BOI Certification dated January 27, 2010 failed to ascertain this fact.
Other doctrine and principle cited.
Cross Border Doctrine - Export Sales.
The tax treatment of export sales is based on the Cross Border Doctrine and
Destination Principle of the Philippine VAT system. Under the Destination Principle,
goods and services are taxed only in the country where these are consumed.[43] In this
regard, the Cross Border Doctrine mandates that no VAT shall be imposed to form part
of the cost of goods destined for consumption outside the territorial border of the taxing
authority.[44] Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT; while, those destined for use or consumption within
the Philippines shall be imposed with VAT. Plainly, sales of export products to another
producer or to an export trader are subject to zero percent rate provided the export
products are actually exported and consumed in a foreign country.
In Revenue Memorandum Circular No. 74-99,[45] the Bureau of Internal Revenue
(BIR) clarified that sales made to PEZA-registered enterprises qualify for zero-rating
pursuant to the cross- border doctrine. The ECOZONE [46] is treated as a separate
customs territory such that the buyer is treated as an importer and is imposed the
corresponding import taxes and customs duties on his purchase of products from within
the ECOZONE. While ECOZONE enterprises are not necessarily manufacturer-
exporters of products, taken as a whole, all their integrated activities eventually
translate into manufactured products which are either actually exported to foreign
countries, in which case, no VAT shall form part of the export price; or actually sold to
buyers from the customs territory, in which case, the regular VAT shall be paid by the
buyers.
The BIR similarly applied the cross-border doctrine to.sales made by VAT-
registered suppliers to BOI-registered enterprises whose products are 100% exported.

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Commissioner of Internal Revenue v. Philex Mining Corporation, G.R. No.
230016, November 23, 2020

SUBJECT: TAXATION LAW – VAT REFUND

SUMMARY OF ISSUE IN THIS CASE: Here, the Court clarified that the CIR
cannot add any other requirement other than those indicated in the VAT law
in relation to claiming of VAT refund.

Facts:
On March 31, 2015, the CTA Division partly granted Philex Mining's petitions. It
held that Philex Mining timely filed its administrative and judicial claims for a refund
within the period prescribed under Sections 112 (A) and (C) of the 1997 National Internal
Revenue Code (NIRC), as amended (Tax Code), and that it attached to the Claimant
Information Sheets the required documents to support its claims. CIR appealed this
decision up to the Supreme Court claiming Philex Mining did not comply with the
requirement of Section 4.113-3 of Revenue Regulations (RR) No. 16-2005 to keep,
preserve, and maintain subsidiary sales and purchase journals. Likewise, Philex Mining
failed to prove that it filed the monthly VAT declarations required under Section 114 (A)
of the Tax Code, as implemented by Section 4.114-1 of RR No. 16-2005. The CIR opines
that prior compliance with these requirements is a condition sine qua non in claiming
unutilized zero-rated input VAT because the subsidiary journals and monthly VAT
declarations will assist the CIR and the courts in determining whether Philex Mining
incurred input taxes in connection with its zero-rated sales and whether the input taxes
were not applied against any output tax liability.

Issue:
Whether or not CIR is correct in assailing Philex Mining’s refund.

Ruling:
No, the CIR is not correct.
The language used in Section 110 is plain, clear, and unambiguous. To be
creditable, the input taxes must be evidenced by validly issued invoices and/or official
receipts containing the information enumerated in Sections 113 and 237. The law does
not require that subsidiary journals where the sales and purchases (and the output
taxes and their corresponding input taxes) were recorded, are also kept. Indeed, courts
may not, in the guise of interpretation, enlarge the scope of a statute and include therein

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situations not provided nor intended by the lawmakers. To do so would be to do violence
to the language of the law and to invade the legislative sphere.
In all, Philex Mining's failure to maintain subsidiary sales and purchase journals
or to file the monthly VAT declarations should not result in the outright denial of its
claim for refund or credit of unutilized input VAT attributable to its zero-rated sales.
These are not part of the requirements for Philex Mining to be entitled thereto. Section
112 (A) of the Tax Code is very clear; no construction or interpretation is needed. The
Court may not construe a statute that is free from doubt; neither can we impose
conditions or limitations when none is provided for. While tax refunds are in the nature
of tax exemptions and are construed strictissimi juris against the taxpayer, tax statutes
shall be construed strictly against the taxing authority and liberally in favor of the
taxpayer, for taxes, being burdens, are not to be presumed beyond what the statute
expressly and clearly declares. Verily, the CTA did not err in ruling that the absence of
subsidiary sales journal, subsidiary purchase journal, and monthly VAT declarations is
not sufficient to deprive Philex Mining of its right to a refund.

Other Case Doctrine/s Cited

JMVL compared this case to a list of cases and how it differed from each other:
In Western Mindanao Power Corp., the CTA denied the taxpayer's claim for a refund
because the taxpayer's official receipts do not contain the word "zero-rated." In
sustaining the CTA, we ruled that the failure to print the phrase "zero-rated" on the
VAT official receipts was fatal to the claim for refund of input VAT on zero-rated
sales.

In Bonifacio Water Corp. v. Commissioner of Internal Revenue, the taxpayer

indicated in its official receipts a name not approved by the Securities and Exchange
Commission (SEC). The Court ruled that the absence of official receipts issued in a name
approved and authorized by the SEC was tantamount to non-compliance with the
substantiation requirements under the law. Thus: From the foregoing, it is clear that
petitioner must show satisfaction of all the documentary and evidentiary requirements
before an administrative claim for refund or tax credit will be granted. Perforce, the
taxpayer claiming the refund must comply with the invoicing and accounting
requirements mandated by the Tax Code, as well as the revenue regulations
implementing them.

In Sitel Phils. Corp. v. Commissioner of Internal Revenue, the invoices and official
receipts issued by the taxpayer-claimant were not imprinted with its TIN followed by the
word "VAT." We ruled that the invoices and official receipts cannot be considered as VAT
invoices or official receipts that would give rise to any creditable input VAT in favor of
Sitel. The NIRC requires that the creditable input VAT should be evidenced by a VAT

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invoice or official receipt, which may only be considered as such when the TIN-VAT is
printed thereon, as required by Section 4.108-1 of RR 7-95.
In the foregoing cases, the issue was limited to non-compliance with the
invoicing requirements. The Court's statement that accounting requirements must be
complied with in addition to the invoicing requirements to entitle the claimant for refund
or credit is, at best, merely an obiter dictum that is not binding as a precedent. An obiter
dictum is an opinion expressed by a court upon some question of law, which is not
necessary to the decision of the case before it. It is a remark made, or opinion expressed,
by a judge, in his decision upon a cause, "by the way," that is, incidentally or collaterally,
and not directly upon the question before him, or upon a point not necessarily involved
in the determination of the cause, or introduced by way of illustration, or analogy or
argument. In all these cases, the taxpayer's failure to maintain subsidiary journals
was not raised as an issue.

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KEPCO Philippines Corporation v. Commissioner of Internal Revenue,
G.R. No. 225750-51, July 28, 2020

SUBJECT: TAXATION LAW – COMPROMISE AGREEMENT

FACTS:

On September 8, 2009, KEPCO received Preliminary Assessment Notice

for alleged deficiency income tax, value-added tax (VAT), expanded withholding tax, and
final withholding tax (FWT) for taxable year 2006. On October 30, 2009, Petitioner
received Final Letter of Demand (FLD) for deficiency VAT in the amount of
P159,640,750.79 and for deficiency FWT in the amount of P124,286,821.11. Petitioner
later filed its protest to the Final Letter of Demand.

On June 25, 2010, Petitioner filed its petition before the CTA Division. On
December 6, 2013, the CTA Division partly granted petitioner's petition and canceled
the deficiency FWT assessment and the compromise penalties. Petitioner was ordered
to pay deficiency VAT plus interest and surcharges. Petitioner and respondent
subsequently filed motions for reconsideration but were denied for lack of merit.

Aggrieved petitioner elevated the case to the CTA En Banc; while the CIR filed his
Petition for Review on May 22, 2014. After consolidation and the filing by the parties of
their comments and memorandum, the CTA En Banc rendered its Decision dismissing
petitioner's petition in CTA Case No. 8112 for being filed out of time, and granting the
respondent's petition.
On December 28, 2017, Petitioner filed a Manifestation that it entered into a
compromise agreement with the respondent on its tax assessments for the taxable years
2006, 2007 and 2009. Petitioner paid a total of P134,193,534.12 for the taxable year
2006 evidenced by the attached the Certificate of Availment issued by the respondent
on December 11, 2017 certifying that the National Evaluation Board (NEB) approved
Petitioner's application for compromise settlement for deficiency taxes for taxable years
2006, 2007 and 2009. Petitioner moved that the case be declared closed and terminated.
In compliance with this Court's Resolution dated February 14, 2018, the OSG
filed its Comment on July 20, 2018 opposing Petitioner's manifestation and motion. The
OSG contend that the compromise agreement is not valid because (1) it failed to allege
and prove any of the grounds for a valid compromise under Section 3 of Revenue
Regulations (RR) No. 30-2002; (2), the CTA did not yet issue any adverse Decision
against Petitioner, hence, there is no "doubtful validity" to speak of as a ground for a
valid compromise pursuant to Section 228 of RR No. 8-2004; and (3), Petitioner did not
pay in full the compromise amount upon filing of the application in violation of Section
230 of RR No. 9-2013.

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 The OSG posits that the respondent improperly arrogated unto himself the NEB’s
power to decide on the offer of compromise when the Respondent accepted Petitioner's
additional payment of P16,661,759.20 before the NEB could approve or reject
Petitioner's original application. Further, the OSG manifests that it is entitled to collect
5% success fee in case of government approved compromise agreements, pursuant to
Section 11(i) of Republic Act (RA) No. 9417.

Issues:
1. Whether or not the compromise agreement is invalid as it failed to allege and
prove any of the grounds for a valid compromise under Section 3 of Revenue
Regulations No. 30-2002?
2. Whether or not there was already any Adverse Decision against Petitioner?
3. Whether or not Petitioner needed to pay in full the compromise amount?

4. Whether or not the OSG can still question the validity of the compromise
agreement between Petitioner and Respondent?
5. Whether or not the OSG is entitled to the 5% success fee pursuant to Section
11(i) of Republic Act No. 9417?

Ruling:
1. No. The compromise agreement entered into by Petitioner and
Respondent is supported by valid grounds Section 3 of Revenue Regulations No.
30-2002.
The power of the CIR to enter into compromise agreements for deficiency taxes is
explicit in Section 204(A) of the 1997 National Internal Revenue Code, as amended (1997
NIRC). The respondent may compromise an assessment when a reasonable doubt as to
the validity of the claim against the taxpayer exists, or the financial position of the
taxpayer demonstrates a clear inability to pay the tax. In this regard, the BIR issued
Revenue Regulation No. 30-2002, as amended by Revenue Regulation No. 08-2004,
which enumerates the bases for acceptance of the compromise settlement on the ground
of doubtful validity. Petitioner's case falls under paragraph e – the assessment became
final because KEPCO failed to appeal the inaction or "deemed denial" of the respondent
to the CTA within 30 days after the expiration of the 180-day period and there is reason
to believe that the assessment is lacking in legal and/or factual basis.

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 2. Yes, there was already an adverse decision against Petitioner anchor
under the ground of doubtful validity of the compromise settlement.
Section 7(a)(2) of RA No. 928242 provides that the "inaction" of the CIR or his
failure to decide a disputed assessment within the 180-day period is "deemed a denial"
of the protest. Section 3(a)(2), Rule 4 of the Revised Rules of the CTA further clarifies
that "that in case of disputed assessments, the inaction of the [CIR] within the 180-
period under [Section] 228 of the [1997 NIRC] shall be deemed a denial for purposes of
allowing the taxpayer to appeal his case to the [CTA]." Clearly, the inaction is deemed
an adverse decision of the CIR on the administrative protest. Thus, for purposes of
determining whether taxpayers may already appeal to the CTA, the inaction of the CIR
within 180 days shall be deemed denial or an adverse decision of the CIR. Noting that
when KEPCO filed its protest to the FLD on November 26, 2009, the CIR had 180 days
or until May 25, 2010 to act on the protest. Thereafter, Petitioner may elevate its protest
to the CTA within 30 days from the lapse of the 180-day period, or until June 24, 2010.
But Petitioner failed to appeal the inaction or deemed denial or adverse decision of the
CIR on June 24, 2010, the assessment for deficiency VAT and FWT for taxable year 2006
became final, executory and demandable.
Petitioner only elevated their case to the CTA on June 25, 2010 or a day late
rendering the case to be dismissed by the CTA En Banc

3. No, Petitioner need not pay the full amount of the compromise
agreement.

The records show that Petitioner paid P143,891,831.9046 representing 40% of

the basic tax assessed for taxable years 2006, 2007 and 2009 when it applied for
compromise on January 19, 2017. For TY 2006, which is the subject of the instant case,
Petitioner paid P40,963,870.6348 (40% of basic deficiency VAT of P102,409,676.58) and
P31,783,857.5449 (40% of basic deficiency FWT of P79,459,643.84) on January 19,
2017. Notably, the minimum compromise amount under Section 204(A)50 of the 1997
NIRC and Section 451 of RR No. 30-2002 is 40% of the basic tax assessed. Petitioner
complied with the requirement of payment of the compromise offer as a pre-condition
for the processing of the application.

4. The OSG can no longer question the validity of the compromise

agreement.
The compromise agreement has the force of law between the parties and no party
may discard unilaterally the compromise agreement. Under Section 8.1 of RMO No. 39-
86, upon payment of the compromise amount, the tax "case is already closed." The

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Solicitor General, who withdrew as counsel for the BIR, maintains that the compromise
agreement is valid.
The dissenting opinion of Justice Carpio in PNOC v. Court of Appeals is
enlightening:A compromise agreement constitutes a final and definite settlement of the
controversy between the parties. A compromise agreement, even if not judicially
approved, has the effect of res judicata on the parties. Article 2037 of the Civil Code
provides:A compromise has upon the parties the effect and authority of res judicata; but
there shall he no execution except in compliance with a judicial compromise.
Accordingly, we rule that the compromise settlement between Petitioner and
Respondent is valid. As such, there is nothing left for us to do but to declare the case
closed and terminated.

5. The OSG is entitled to the 5% success fee pursuant to Section 11(i) of

Republic Act No. 9417.
Finally, records show that the OSG acted as counsel for the BIR in the case
proceedings before the CTA Division in CTA Case No. 8112. Consistent with R.A. No.
9417,66 the OSG is entitled to 5% of the total deficiency tax liabilities of Petitioner but
only for taxable year 2006. The deficiency tax liabilities of KEPCO for taxable years 2007
and 2009 are not the subject matter of the present petition.

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Metropolitan Waterworks and Sewerage System v. Central Board of
Assessment Appeals, The Pasay City Local Board of Assessment Appeals,
The Pasay City Treasurer and City Assessor, G.R. No. 215955, January 13,
2021

SUBJECT: REMEDIAL LAW; TAXATION LAW

DOCTRINE:

REMEDIAL LAW- Administrative remedies are inapplicable when the

issue presented is a pure question of law (doctrine exhaustion of
administrative remedies)

TAXATION LAW – MWSS is a government instrumentality with corporate

powers, not liable to the local government of Pasay City for real property
taxes. The tax exemption that its properties carries, however, ceases when
their beneficial use has been extended to a taxable person. The liability to
pay real property taxes on government -owned properties, the beneficial or
actual use of which was granted to a taxable ent ity, devolves on the taxable
beneficial user. (BENEFICIAL OWNER RULE)

FACTS:
To insure an uninterrupted and adequate supply and distribution of
potable water for domestic and other purposes and the proper operation and
maintenance of sewerage systems, RA No. 62344 was made to law on June 19, 1971
which created MWSS. MWSS was vested with the power to exercise supervision and
control over all waterworks and sewerage systems within Metro Manila, Rizal, and a
portion of Cavite.
In 1997, pursuant to RA No. 80417 (The National Water Crisis Act of 1995),
MWSS entered into a concessionaire agreement with Maynilad Water Services, Inc.
(Maynilad) to service the West Zone of the Metropolitan Area that includes Pasay City.
On February 21, 2008, MWSS received Real Property Tax Computations from the
Pasay City Treasurer for taxable year 2008, demanding payment of real property taxes
in the total amount of P166,629.36. On the same day, MWSS filed a Protest addressed
to the Pasay City Mayor. MWSS argued that it is a public utility and a government
instrumentality, and its properties and facilities are exempt from real property tax under
Section 133(o)and Section 234(a) of the Local Government Code of 1991.

Due to inaction on the part of the Pasay City Treasurer, MWSS filed an appeal to
theLocal Board of Assessment Appeals. The LBAA observed MWSS's non-compliance
with Section 252 of the LGC for failure to file protest with the city treasurer that made
the assessment final and not appealable. Nonetheless, the LBAA ruled that the MWSS

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is a government-owned or controlled corporation (GOCC), not a government
instrumentality. Hence, the doctrine of tax exemption is not applicable. When the MWSS
entered into a concessionaire agreement with Maynilad, the actual use of its real
properties was turned over to a taxable person. Therefore, the assessment of real
property taxes against the MWSS was "reasonable and collectible."

MWSS filed an appeal to the Central Board of Assessment Appeals (CBAA). It

affirmed the assessment's finality, not for failure to comply with Section 252 of the LGC,
but for failure to question the legality of the assessment before the city assessor in
accordance with Section 226 of the LGC. CBAA acknowledged that MWSS is a
government instrumentality, recognized under RA No. 10149. As such, it cannot be
subjected to local taxes, fees and charges as provided under Section 133(o) of the LGC.
However, this is not relevant since the collections involved are real property taxes.
Instead, Section 40(a) of PD 464 as embodied under Section 234(a) of the LGC should
apply. CBAA ruled that the common limitation on the taxing power of the local
government under Section 133(o) should not affect the imposition of real property taxes.
Besides, MWSS 's tax exemption under its Charter (RA No. 6234) had already
been withdrawn by Section 234 of the LGC.
MWSS appealed the CBAA's ruling to the CA. CA dismissed MWSS's appeal for
failure to exhaust administrative remedies as provided under Sections 206 and 252 of
the LGC, requiring proof of exemption and payment under protest.

Issue:

Whether or not the City of Pasay is authorized to assess and collect real property
taxes from MWSS.

Ruling:

MWSS is a government instrumentality with corporate powers, not liable to the

local government of Pasay City for real property taxes. The Court explained that with
the issuance of Executive Order No. 596 as well as the passage of RA No. 10149, the
Executive and the Legislative Branches have explicitly classified MWSS as a government
instrumentality with corporate powers. The tax exemption that its properties carries,
however, ceases when their beneficial use has been extended to a taxable person. The
liability to pay real property taxes on government-owned properties, the beneficial or
actual use of which was granted to a taxable entity, devolves on the taxable beneficial
user. Beneficial use means actual use or possession of the property. Actual use refers
to the purpose for which the property is principally or predominantly utilized by the
person in possession thereof.

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 The respondents have not alleged that the beneficial use of any of MWSS’s
properties was extended to a taxable person. In the absence of any allegation to the
contrary, MWSS’s properties in Quezon City are not subject to the levy of real property
taxes. Although there was an allegation that the beneficial use of MWSS's properties in
Pasay were given to Maynilad by virtue of a concession agreement, this however, was
not proved and was merely based on a sweeping conclusion that when MWSS entered
into a concession agreement, all its properties were effectively turned over to the
concessionaires for their operations. The Court cannot make a judicious determination
of such factual matter due to the insufficiency of evidence on records. At any rate, the
tax-exempt status of a government instrumentality is not lost when it grants the
beneficial use of its real property to a taxable person; only the exemption of the real
property ceases in such case. The LGC also leaves no room for interpretation on the
corresponding liability of the taxable beneficial user for the payment of real property
taxes on a government instrumentality property.
Indeed, it is a fundamental principle in real property taxation that the assessment
of real property shall be based on its actual use. The Court has consistently ruled that
while the liability for taxes generally rests on the owner of the real property, personal
liability for real property taxes may also expressly rest on the entity with the beneficial
use of the real property at the time the tax accrues.

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Chevron Holdings, Inc. (Formerly Caltex Asia Limited) v. Commissioner of
Internal Revenue, G.R. No. 215159, July 05, 2022

SUBJECT: TAXATION LAW - VAT REFUND

SUMMARY OF ISSUE: Here the Court clarified in determining if a company has

“excess input vat over output vat” does not necessarily mean that the output
vat must first be offset with input vat.

FACTS:

Chevron Holdings is a corporation organized under the laws of the State

of Delaware, United States of America. It is licensed by the Securities and Exchange
Commission (SEC) to transact business in the Philippines as a Regional Operating
Headquarter (ROHQ) that will provide the following services to its affiliates, subsidiaries,
or branches in the Asia-Pacific, North American, and African Regions: general
administration and planning, business planning and coordination, sourcing and
procurement of raw materials and components, corporate finance advisory services,
marketing control, and sales promotion, training and personnel management, logistics
services, research and development services, and product development, technical
support and maintenance, data processing and communications, and business
development.
It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer. For
the taxable year 2006, Chevron Holdings rendered services to its affiliates in the
Philippines and abroad. The services rendered to foreign affiliates were subjected to the
zero percent (0%) rate, while those rendered to its Philippine affiliates to the regular
twelve percent (12%) rate. It also incurred input taxes on purchases of goods and
services concerning these services. On March 28, 2008, Chevron Holdings filed an
administrative claim for refund or issuance of a tax credit certificate on the unutilized
input VAT attributable to the sale of services to its foreign affiliates. The Commissioner
of Internal Revenue (CIR) failed to act on the claim; hence, on April 24, 2008, Chevron
Holdings filed a Petition for Review before the CTA Division for the refund or credit of
excess input VAT for the first quarter of 2006 in the amount of P5,391,252.04. On July
23, 2008, Chevron Holdings again filed a Petition for Review for the refund or credit of
P31,411,704.68 excess input VAT for the second to fourth quarters. The two cases were
consolidated, and thereafter, a trial ensued.The CTA En Banc ruled that only
P9,081,815.00 was valid input VAT. It disallowed the P774,415.38 for having no
supporting VAT invoices or official receipts and the P25,883,884.54 for failure to comply
with the invoicing requirements under the Tax Code.

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 After comparing the reported output taxes from the substantiated input taxes,
the CTA En Banc observed that there was no excess input VAT that may be the subject
of a claim for refund or tax credit for the second, third, and fourth quarters of 2006,
while the excess input tax of P807,609.07 for the first quarter shall be allocated to
Chevron Holding's valid zero-rated sales; thus, only P15,085.24 shall be refundable.

Unsatisfied, Chevron Holdings filed the instant petition before the Court. Chevron
Holdings insists that sales made to its non-resident foreign affiliates qualify for VAT
zerorating. It proffers that Section 108 (B)(2) of the Tax Code enumerates two (2)
kinds of zero-rated customers; those engaged in business; and those not engaged in
business in the Philippines. In both cases, the customers must be outside the Philippines
when the services were performed. Thus, as long as the taxpayer-claimant proved that
its customers were located outside the Philippines when the services were performed,
the transaction shall be deemed zero-rated. The fact of doing business inconsequential.
Chevron Holdings avers that for the year 2006, it rendered services to foreign affiliates
located outside the Philippines when the services were performed.
Further, Chevron Holdings repeats that while the Certificate of Inward
Remittance does not reflect the payment of P10,025,869.35, the JP Morgan Insight
Information Manager Summary/Long Description Reports prove that Chevron Holdings
received the inward remittances in acceptable foreign currency. Thus, the
P10,025,869.35 amount should be admitted as part of its zero-rated sales.Anent the
disallowance of P55,784,357.71 on excess input taxes carried over from previous
quarters, Chevron Holdings argues that the parties already stipulated that Chevron
Holdings declared the amount in its Amended Quarterly VAT Return for the fourth
quarter of 2005. It was, thus, erroneous for the CTA En Banc to require it to substantiate
the amount. Besides, Section 112 (A) of the Tax Code does not require substantiation of
carried-over input taxes as a condition for the refund of excess input taxes incurred
within the period of the claim. Chevron Holdings also faults the CTA in charging against
the output taxes the validated input taxes and ruling that only if there exist excess input
taxes from the output taxes that it may be entitled to a refund. Chevron Holdings avers
that the Tax Code allows the taxpayer to refund the unutilized input taxes attributable
to zero-rated rates and not apply them against its output tax liabilities.

Finally, Chevron Holdings posits that the CTA En Banc should have allowed the
amount of P24,598,395.58 as input VAT because there was no intrinsic evil in not
indicating the VAT as a separate item. The CIR previously mandated in Revenue
Regulations (RR) No. 8-99[33] that the amount appearing on the sales invoice or receipt
shall be deemed inclusive of VAT.

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Issues:

1. Whether or not Chevron Holdings' sale of services to its foreign affiliates

qualified as zero-rated?

2. Whether or not the amount of Php 10,025,869.35 was inwardly remitted in

acceptable foreign currency?

3. Whether or not the CTA En Banc erred in disallowing part of Chevron’s VAT
refund for non compliance of invoicing requirement?

4. Whether or not the CTA En Banc erred in finding that the unutilized input tax
should be first applied to output tax in order for the excess to be refunded?

Ruling:
1. No, NOT all Chevron Holdings' sale of services to its foreign affiliates qualified as
zero-rated.

To qualify for VAT zero-rating, Section 108 (B)(2) requires the concurrence of
four conditions: first, the services rendered should be other than "processing,
manufacturing or repacking of goods;" second, the services are performed in the
Philippines; third, the service-recipient is (a) a person engaged in business conducted
outside the Philippines; or (b) a non-resident person not engaged in a business which is
outside the Philippines when the services are performed; and, fourth, the services are paid
for in acceptable foreign currency inwardly remitted and accounted for in conformity with
BSP rules and regulations.

The first and second requisites are undisputed. As an ROHQ, Chevron Holdings
performs services to its affiliates in the Asia-Pacific, North American, and African
Regions, such as general administration and planning, business planning and
coordination, sourcing and procurement of raw materials and components, corporate
finance advisory services, marketing control, and sales promotion, training and
personnel management, logistics services, research and development services, and
product development, technical support and maintenance, data processing and
communications, and business development. Certainly, the services it renders in the
Philippines are not in the same category as "processing, manufacturing or repacking of
goods."
Anent the third requisite, the Court emphasized in Commissioner of Internal
Revenue v. Deutsche Knowledge Services Pte. Ltd.[42] that for sales to a non-resident
foreign corporation to qualify for zero-rating, the following must be proved: "(1) that their
client was established under the laws of a country, not the Philippines or, simply, is not
a domestic corporation; and (2) that it is not engaged in trade or business in the
Philippines. To be sure, there must be sufficient proof of both of these components:

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showing not only that the clients are foreign corporations, but also are not doing
business in the Philippines."
Therefore, the taxpayer-claimant must present, at the very least, both the SEC
Certificates of Non-Registration – to prove that the affiliate is foreign; and the Articles or
Certificates of Foreign Incorporation, printed screenshots of US SEC website showing
the state/province/country where the entity was organized, or any similar document –
to prove the fact of not engaging in trade or business in the Philippines at the time the
sales are rendered.
The Court agrees with the observation of the CTA En Banc that some foreign
affiliate clients were not adequately supported by these two documents. The Court
accords the CTA's factual findings with the utmost respect, if not finality,[45] absent
any showing of grave abuse of discretion considering that the CTA is in the best position
to analyze the documents presented by the parties. We do not find any abuse of
discretion here.

2. No, the amount of Php 10,025,869.35 was inwardly remitted was NOT in
acceptable foreign currency.
As regards the fourth condition, in Intel Technology Philippines, Inc. v.
Commissioner of Internal Revenue, the Court stressed that the certification of inward
remittances proves the fact of payment in acceptable foreign currency and accounted
for under the rules and regulations of the BSP. In this case, however, apart from the JP
Morgan Reports, which Chevron Holdings readily admitted to being a mere "online
application," and VAT zero-rated Receipts, Chevron Holdings failed to substantiate the
inward remittance of the proceeds of P10,025,869.35 sales duly accounted for in
conformity with BSP rules. Accordingly, we uphold the disallowance of the amount of
P10,025,869.35 as a zero-rated sale.

3. No, the CTA En Banc did not err in disallowing part of Chevron’s VAT refund for
non compliance of invoicing requirements. Section 4.113-1 of RR No. 16-2005, in
relation to Section 113 (B)(2) of the Tax Code, requires the VAT to be separately
indicated in the invoice or official receipt, viz.:
Section 4.113-1. Invoicing Requirements. — x x x

(B) Information contained in VAT invoice or VAT official receipt. — The

following information shall be indicated in VAT invoice or VAT official
receipt: x x x

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 (2) The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount includes the
VAT; Provided, That:

(a) The amount of tax shall be shown as a separate item in

the invoice or receipt; x x x.
Failure to comply with the invoicing requirements is sufficient ground to deny
the claim for refund of tax credit. The reason for this is simple – only a VAT invoice or
official receipt can give rise to input tax; without input tax, there is nothing to
refund.[52] Therefore, considering that input taxes in the amount of P24,598,395.58
were not shown as a separate item in the invoice or official receipts, these cannot be
considered valid input taxes that may be refunded or credited in favor of Chevron
Holdings.

4. Yes, the CTA En Banc erred in finding that the unutilized input tax should be
first applied to output tax in order for the excess to be refunded.
The CTA charged the substantiated and validated input taxes against the output
taxes, and only after finding that there existed excess input taxes from the output taxes
did the CTA conclude that Chevron Holdings might be entitled to a refund. It seemed
that the tax court required Chevron Holdings to substantiate its prior quarters' excess
input taxes so that there would be a sufficient amount to cover its output tax liability,
and, only after the output tax had been paid or "covered" that the CTA allowed a refund.
The Court cannot adhere to this view. Thus, the input tax attributable to zero-
rated sales may, at the option of the VAT-registered taxpayer, be:
(1) charged against output tax from regular 12% VAT-able sales, and any
unutilized or "excess" input tax may be claimed for refund or the issuance of tax
credit certificate; or
(2) claimed for refund or tax credit in its entirety. It must be stressed that the
remedies of charging the input tax against the output tax and applying for a
refund or tax credit are alternative and cumulative.
Furthermore, the option is vested with the taxpayer-claimant. It goes without
saying that the CTA, and even the Court, may not, on its own, deduct the input tax
attributable to zero-rated sales from the output tax derived from the regular twelve
percent (12%) VAT-able sales first and use the resultant amount as the basis in
computing the allowable amount for refund. The courts cannot condition the refund of
input taxes allocable to zero-rated sales on the existence of "excess" creditable input
taxes, which includes the input taxes carried over from the previous periods, from the
output taxes. These procedures find no basis in law and jurisprudence.

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 The law and rules are clear and need no interpretation. The taxpayer only needs
to prove non-application or non-charging of the input-VAT subject of the claim. There
is nothing in the law and rules that mandate the taxpayer to deduct the input tax
attributable to zero-rated sales from the output tax from regular twelve percent (12%)
VAT-able sales first and only the "excess" may be refunded or issued a tax credit
certificate. To reiterate, these remedies accorded by law to the taxpayer are alternatives.
Requiring taxpayers to prove that they did not charge the input tax claimed for refund
against the output tax is one thing; requiring them to prove that they have "excess"
input tax after offsetting it from output tax is another. The former is essential to the
entitlement of the refund under Section 112 (A); the latter is not. The reason is that a
taxpayer who enjoyed a lower (or zero) output tax payable because it deducted the input
tax from zero-rated sales from the output tax cannot benefit twice by applying for the
refund or tax credit of the same input tax used to reduce its output tax liability. Proof
of non-charging the input tax subject to the refund or credit against the output tax is
to avert double recovery. The foregoing interpretation is consistent with Section 110 (C)
of the Tax Code and Section 4.110-5 of RR No. 16-2005 which prescribe the method for
computing the total creditable input tax chargeable against the output tax.

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NATIONAL POWER Corporation v. The Province Of Pampanga and Pia
Magdalena D. Quibal, G.R. No. 230648, October 06, 2021

SUBJECT: TAXATION – LOCAL TAX ASSESSMENT (DUE PROCESS)

REMEDIAL LAW – APPELLATE JURISDICTION (CTA – SC)

SUMMARY OF ISSUE IN THIS CASE: In this case the Court discussed the validity
of a local tax assessment.

FACTS:
NPC is a government-owned and controlled corporation created by virtue of
Republic Act (RA) No. 6395, as amended. On June 26, 2009, NPC received an
Assessment Letter dated June 24, 2009 from the Provincial Treasurer of the Province of
Pampanga demanding payment of local franchise tax. In said letter it merely quoted the
provision tax ordinance for Franchise Tax with no amount mentioned as to its assessed
deficiency taxes. NPC protested the assessment, arguing that, with the effectivity of RA
No. 9136 or the Electric Power Industry Reform Act (EPIRA Law) in 2001, its power
generation is no longer considered a public utility operation requiring a franchise. Thus,
NPC can no longer be regarded as a business subject to a franchise tax under Section
137 of the Local Government Code of 1991. The Provincial Treasurer failed to act on the
protest; hence, NPC appealed to the RTC. NPC invoked its exemption under the EPIRA
Law and pointed out in its Reply that the Assessment Letter failed to comply with the
formal requirements under the LGC as it does not bear any computation of the alleged
franchise tax liability. tOn July 23, 2013, the RTC rendered a Decision in favor of the
Province of Pampanga and declared NPC liable for the franchise tax which was affirmed
by the CTA Division and En Banc. Presiding Justice Roman G. Del Rosario and Associate
Justice Lovell R. Bautista (in the CTA En Banc appeal) dissented, stating that the
Assessment Letter lacked details required by Section 195 of the LGC, such as the
amount of the deficiency tax. The assessment violates NPC's right to due process of law
and must be cancelled for being void. On October 12, 2016, NPC moved to reconsider
the September 9, 2016 Decision, essentially adopting the dissenting opinion.On March
17, 2017, the CTA En Banc denied NPC's motion[23] holding that the defense of violation
of due process based on a void assessment is deemed waived for having been belatedly
raised.In any case, the essence of the right of due process is an opportunity to be heard.
Here, NPC was able to protest the assessment before the Provincial Treasurer and
question the imposition of franchise tax before the tax court. NPC, therefore, was allowed
to explain its side. Hence, this petition. NPC reiterates that it was deprived of its property
without due process of law because the Assessment Letter lacked details required under
Section 195 of the LGC. In response, the Province of Pampanga argues that NPC's
petition should not have been filed with the Supreme Court but to the Court of Appeals
under Rule 43 of the Rules of Court. In any case, the petition did not raise any new

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question of law that has not already been considered and passed upon by the CTA En
Banc.

Issues:
1. Whether or not the Province of Pampanga’s argument is correct that NPC
should have appealed first to the Court of Appeals under Rule 43 of ROC.
2. Whether or not the CTA En Banc was correct in saying that it cannot review
on appeal arguments regarding the violation of due process in the assessment
which was raised only for the first time.
3. Whether or not the Province of Pampanga’s assessment letter was in violation
of the due process requirement in local assessment of taxes.

Ruling:
1. Province of Pampanga’s argument is NOT correct.
Under RA No. 9282, approved on March 30, 2004, the CTA was elevated to the
same level and equal rank as the Court of Appeals. Upon its effectivity on April 23, 2004,
decisions or rulings of the CTA En Banc are now appealable to the Supreme Court via
a petition for review on certiorari under Rule 45 of the Rules of Court. Furthermore,
Section 1, Rule 16, of the Revised Rules of the Court of Tax Appeals[(RRCTA) provides
that a party adversely affected by a decision or ruling of the CTA En Banc may appeal
by filing with the Supreme Court a verified petition for review under Rule 45 of the Rules
of Court.
Accordingly, NPC properly filed to petition for review on certiorari with this Court.

2. The CTA is INCORRECT.

At the onset, we hold that the issue of nullity of the Assessment Letter is not
deemed waived even if raised only in NPC's motion for reconsideration of the CTA En
Banc's Decision. The CTA has ample authority to determine compliance by the taxing
authority of the due process requirements under the tax laws even though not expressly
raised as an issue in the petition filed before them. Section 1, Rule 14 of the RRCTA
provides that in deciding the case, the CTA may not limit itself to the issues stipulated
by the parties but may also rule upon related issues necessary to achieve an orderly
disposition of the case.

The CTA, in the exercise of its appellate jurisdiction to review decisions on local
taxes cases, may not limit itself to the issues stipulated by the parties but may also rule

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upon related issues necessary to achieve an orderly disposition of the case. It has been
said that where the issues already raised also rest on other issues not specifically
presented, as long as the latter issues bear relevance and close relation to the former
and as long as they arise from matters on record, the Court has the authority to include
them in its discussion of the controversy as well as to pass upon them. In fact, an
appellate court has an inherent authority to review unassigned errors (i) which are
closely related to an error properly raised, or (ii) upon which the determination of the
error properly assigned is dependent, or (iii) where the Court finds that consideration of
them is necessary in arriving at a just decision of the case.
Indeed, the validity or invalidity of the Assessment Letter is integral to the issue
of NPC's liability for local franchise tax under the Provincial Tax Code of 1992 of
Pampanga. If the assessment is void, NPC is not liable for the franchise tax.

3. Yes, Province of Pampanga’s assessment letter was in violation of the due

process requirement in local assessment of taxes.
A final assessment notice provides for the amount of tax due with a demand for
payment. This is to determine the amount of tax due to a taxpayer. However, due process
requires that taxpayers be informed in writing of the facts and law on which the
assessment is based in order to aid the taxpayer in making a reasonable protest. To
immediately ensue with tax collection without initially substantiating a valid
assessment contravenes the principle in administrative investigations "that taxpayers
should be able to present their case and adduce supporting evidence.". Without doubt,
the mandate of providing the taxpayer with notice of the facts and laws used as bases
for the assessment is not to be mechanically applied. The purpose of this requirement
is to adequately inform the taxpayer of the basis of the assessment to enable him to
prepare for an intelligent or "effective" protest or appeal of the assessment or decision.
Thus, substantial compliance with the law is allowed if the taxpayer is later fully
apprised of the basis of the deficiency taxes assessment, which enabled him to file an
effective protest.
Here, the Assessment Letter hardly complies with the requirements of Section
195 of the LGC and implementing rules that will enable NPC to file an effective protest.
The letter quoted provisions of the Tax Ordinance of the Province of Pampanga imposing
franchise tax and penalties for non- payment or late payment. Glaringly absent,
however, are the amount of the alleged deficiency tax, surcharges, interest, and
penalties. The period covered by the assessment was not also indicated. Although
Section 195 of the LGC does not expressly require the taxable period to be stated in the
notice of assessment, the period is important to determine compliance with the
prescriptive period when the Provincial Treasurer is authorized by law to assess and
collect deficiency taxes.

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 How can NPC intelligently question the assessment when the notice merely
quoted provisions of the Tax Ordinance on how the franchise tax is computed, the basis
of the computation, i.e., gross receipts, and the applicable rate? The notice did not even
indicate the taxable period covered by the assessment. It bears stressing that the
Province of Pampanga cannot simply leave to NPC the determination of its purported
liability. The LGC authorizes the local treasurer to examine the taxpayer's books of
accounts and pertinent records to ascertain, assess, and collect the correct amount of
taxes. The Province, therefore, had all the means and authority to gather sufficient
information to determine the correct amount of taxes due from the taxpayer.

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