February 2014 Philippine Supreme Court Decisions on Tax Law

Here are select February 2014 rulings of the Supreme Court of the Philippines on tax law:

Tax laws

National Internal Revenue Code; Doctrine of Exhaustion of Administrative Remedies. Taxpayer submits that the requirement to exhaust the 12-day period under Section 112 (c) of the National Internal Revenue Code prior to filing the judicial claim with the Court of Tax Appeals (CTA) is a doctrine of “exhaustion of administrative remedies” and that the non-observance of the same merely results in lack of cause of action which may be waived for failure to timely invoke the same. As the Court opined in San Roque, a petition for review that is filed with the CTA without waiting for the 120-day mandatory period renders the same void. A person committing a void act cannot claim or acquire any right from such void act. Accordingly, taxpayer’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. It is a mere scrap of paper from which taxpayer cannot derive or acquire any right notwithstanding the supposed failure on the part of the Commissioner to raise the issue of non-compliance with the 120-day period in the proceedings before the CTA First Division. Commissioner of Internal Revenue vs. Team Sual Corporation (Formerly Mirant Sual Corporation),  G.R. No. 194105. February 5, 2014

National Internal Revenue Code; excise tax; pacta sunt servanda; Section 135.  Under the basic international law principle of pacta sunt servanda, the state has the duty to fulfill its treaty obligations in good faith. This entails harmonization of national legislation with treaty provisions. Section 135 (a) of the National Internal Revenue Code embodies the country’s compliance with its undertakings under the 1944 Chicago Convention on International Aviation (Chicago Convention), Article 24 (9) of which has been interpreted to prohibit taxation of aircraft fuel consumed for international transport, and various bilateral air service agreements not to impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers or suppliers. In the previous decision of the Court in this case, the Court interpreted Section 135 (a) as prohibiting domestic manufacturer or producer to pass on to international carriers the excise tax it had paid on petroleum products upon their removal from the place of production. Thus, the Court found that there was no basis to refund the excise taxes paid on petroleum products sold to tax-exempt international carriers as “erroneously or illegally paid” tax. The Court maintains that Section 135 (a) prohibits the passing of the excise tax to international carriers who buys petroleum products from local manufacturers/sellers such as the respondent taxpayer. However, there is a need to reexamine the effect of denying the domestic manufactures/sellers’ claim for refund of the excise taxes they already paid on petroleum products sold to international carriers, and its serious implications on the Government’s commitment to the goals and objectives of the Chicago Convention. With the process of declining sales of aviation jet fuel sales to international carriers on account of major domestic oil companies’ unwillingness to shoulder the burden of excise tax, or of petroleum products being sold to said carriers by local manufacturers or sellers at still high prices, the practice of “tankering” (i.e., carriers filling their aircraft as full as possible whenever they landed outside a jurisdiction that imposes tax on fuel to avoid paying tax) would not be discouraged. This does not augur well for the Philippines’ growing economy and the booming tourism industry. Worse, the Government would be risking retaliatory action under several bilateral agreements with various countries. Evidently, construction of the tax exemption provision in question should give primary consideration to its broad implications on the country’s commitment under international agreements. In view of the foregoing the Court held that respondent, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Section 135 (a) of the NIRC. Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497. February 19, 2014.

National Internal Revenue Code; value-added tax; refund of input value-added tax; prescriptive period for judicial and administrative claims. Section 112([C]) of the National Internal Revenue Code (NIRC) clearly provides that the Commissioner of Internal Revenue (CIR) has “120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit],” within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120–day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days. In this case, the taxpayer filed an administrative claim for refund with the Bureau of Internal Revenue on March 11, 2002 and the petition for review with the CTA on April 1, 2002. As held by the Court in Commissioner of Internal Revenue v Aichi Forging Company of Asia, Inc., the phrase “within two years… apply for the issuance of a tax credit certificate or refund” refers to applications for refund or credit filed with the CIR and not to appeals made to the CTA.

Moreover, in Commissioner of Internal Revenue v. San Roque Power Corporation, the Court emphasized that the 120–day period that is given to the CIR within which to decide claims for refund/tax credit of unutilized input value-added tax is mandatory and jurisdictional. The Court categorically held that the taxpayer–claimant must wait for the 120–day period to lapse, should there be no decision fully or partially denying the claim, before a petition for review may be filed with the CTA. Otherwise, the petition would be rendered premature and without a cause of action. Consequently, the CTA does not have the jurisdiction to take cognizance of a petition for review filed by the taxpayer–claimant should there be no decision by the CIR on the claim for refund/tax credit or the 120–day period had not yet lapsed.  Commissioner of Internal Revenue vs. Team Sual Corporation (Formerly Mirant Sual Corporation), G.R. No. 194105. February 5, 2014

Local Government Code; taxes vs. fees. Section 5, Article X of the 1987 Constitution provides that “[e]ach local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government.” Consistent with this constitutional mandate, the Local Government Code (LGC) grants the taxing powers to each local government unit. Specifically, Section 142 of the LGC grants municipalities the power to levy taxes, fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides for the scale of taxes on business that may be imposed by municipalities while Section 147 of the same law provides for the fees and charges that may be imposed by municipalities on business and occupation. The LGC defines the term “charges” as referring to pecuniary liability, as rents or fees against persons or property, while the term “fee” means “a charge fixed by law or ordinance for the regulation or inspection of a business or activity.” In this case, the Municipality issued Ordinance No. 18, which is entitled “An Ordinance Regulating the Establishment of Special Projects,” to regulate the “placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus, and provide for the correction, condemnation or removal of the same when found to be dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s].” It was also envisioned to address the foreseen “environmental depredation” to be brought about by these “special projects” to the Municipality. Pursuant to these objectives, the Municipality imposed fees on various structures, which included telecommunications towers. As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the “placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other apparatus” listed therein, which included petitioner’s telecommunications tower. Clearly, the purpose of the assailed Ordinance is to regulate the enumerated activities particularly related to the construction and maintenance of various structures. The fees in Ordinance No. 18 are not impositions on the building or structure itself; rather, they are impositions on the activity subject of government regulation, such as the installation and construction of the structures. Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects, which included “cell sites” or telecommunications towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue–raising. While the fees may contribute to the revenues of the Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes. Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and petitioner is questioning the constitutionality of the same, the CTA correctly dismissed the petition for lack of jurisdiction. Smart Communications, Inc. v. Municipality of Malvar, Batangas,  G.R. No. 20442. February 18, 2014

Tax Procedure

Rules of Court; Rule 65 and Rule 45. Petitioners availed of the wrong remedy when they filed the special civil action for certiorari under Rule 65 of the Rules of Court with the Court in assailing the resolutions of the Court of Appeals (CA) which dismissed their petition filed with the said court and their motion for reconsideration of such dismissal. There is no dispute that the assailed resolutions of the CA are in the nature of a final order as they disposed of the petition completely. It is settled that in cases where an assailed judgment or order is considered final, the remedy of the aggrieved part is appeal. Hence, in the instant case, petitioner should have filed a petition for review on certiorari under Rule 45, which is a continuation of the appellate process over the original case. A special civil action for certiorari under Rule 65 is an original or independent action based on grave abuse of discretion amounting to lack of excess of jurisdiction and it will lie only if there is no appeal or any other plain, speedy and adequate remedy in the ordinary course of law. It cannot be a substitute for a lost appeal. In accordance with the liberal spirit pervading the Rules of Court and in the interest of substantial justice, the Court has treated a petition for certiorari as a petition for review on certiorari, particularly (1) if the petition for certiorari was filed within the reglementary period within which to file a petition for review on certiorari, (2) when errors of judgment are averred, and (3) when there is sufficient reason to justify the relaxation of the rules. Considering that the present petition was filed within the 15-day reglementary period for filing a petition for review on certiorari under Rule 45, that an error of judgment is averred, and because of the significance of the issue on jurisdiction, the Court deemed it proper and justified to relax the rules and treat the petition for certiorari as a petition for review on certiorari.  The City of Manila, etc. et al. v. Hon. Caridad H. Grecia-Cuerdo etc., et al, G.R. No. 175723. February 4, 2014

Republic Act No. 1125; Court of Tax Appeals; jurisdiction over petitions for certiorari. While it is clearly stated that the Court of Tax Appeals (CTA) has exclusive appellate jurisdiction over decisions, orders or resolutions of the Regional Trail Courts (RTCs) in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction, there is no categorical statement under Republic Act No. (RA) 1125 as well as the amendatory RA 9282, which provides that the CTA has jurisdiction over petitions for certiorari assailing interlocutory orders issued by the RTC in local tax cases filed before it. The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of appellate jurisdiction. Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original jurisdiction, the power to issue, among others, a writ of certiorari, whether or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of BP 129.  While there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides that judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. On the strength of said constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.  The City of Manila, etc. et al. v. Hon. Caridad H. Grecia-Cuerdo etc., et alG.R. No. 175723. February 4, 2014.

 Republic Act No. 1125, as amended; Court of Tax Appeals; jurisdiction. Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282, created the Court of Tax Appeals (CTA). Section 7, paragraph (a), sub–paragraph (3) of the law vests the CTA with the exclusive appellate jurisdiction over “decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction.” The question now is whether the trial court resolved a local tax case in order to fall within the ambit of the CTA’s appellate jurisdiction This question, in turn, depends ultimately on whether the fees imposed under Ordinance No. 18 are in fact taxes. Smart Communications, Inc. v. Municipality of Malvar, Batangas G.R. No. 20442. February 18, 2014

(Caren thanks Carlos P. Garcia for assisting in the preparation of this post.)

Advertisements