COMMISSIONER OF INTERNAL REVENUE vs. JOSEFINA LEAL (Tax 2)

G.R. No. 113459             November 18, 2002

COMMISSIONER OF INTERNAL REVENUE petitioner,vs. JOSEFINA LEAL, respondent.

FACTS:

Josefina Leal, owner and operator of Josefina’s Pawnshop asked for a reconsideration of both RMO No. 15-91 imposing 5% lending investor’s tax on pawnshops based on their gross income and requiring all investigating units of the Bureau of Internal Revenue (BIR) to investigate and assess the lending investor’s tax due from them; and RMC No. 43-91 that subjecting the pawn ticket to the documentary stamp tax as prescribed in Title VII of the Tax Code. However the same was denied with finality by petitioner in its BIR Ruling.

Consequently, respondent filed with the Regional Trial Court (RTC) a petition for prohibition, seeking to prohibit petitioner from implementing the revenue orders.

Petitioner, through the Office of the Solicitor General, filed a motion to dismiss the petition on the ground that the RTC has no jurisdiction to review the questioned revenue orders and to enjoin their implementation. Petitioner contends that the subject revenue orders were issued pursuant to his power "to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws." Thus, the case falls within the exclusive appellate jurisdiction of the Court of Tax Appeals, citing Section 7 (1) of Republic Act No. 1125.

Howver the RTC, issued an order denying the motion to dismiss, holding that the revenue orders are not assessments to implement a Tax Code provision, but are "in effect new taxes (against pawnshops) which are not provided for under the Code," and which only Congress is empowered to impose.

Petitioner then filed with the Court of Appeals a petition for certiorari and prohibition under Rule 65. Petitioner alleged that in denying the motion to dismiss, the RTC Judge acted without or in excess of his jurisdiction, or with grave abuse of discretion.

The Court of Appeals dismissed the petition "for lack of legal basis" and ruled that "the (RTC) order denying the motion to dismiss is subject to immediate challenge before the Supreme Court (not the Court of Appeals), which is the sole authority to determine and resolve an issue purely of law. Nonetheless, the Court of Appeals resolved the case on the merits, sustaining the RTC ruling that the questioned revenue orders are "new additional measures which only Congress is empowered to impose."

Hence, the instant petition for review on certiorari under Rule 45.

ISSUE:

WHETHER IT IS THE RTC OR THE COURT OF TAX APPEALS WHICH HAS JURISDICTION OVER THE INSTANT CASE.

RULING:

The jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the RTC.

The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of pawnshops. 

Subject matter thereof clearly falls within the exclusive jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125 granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.

Here, respondent Josefina Leal, being a pawnshop owner, is assailing the revenue orders imposing 5% lending investor’s tax on pawnshops issued by petitioner. Clearly then, she should have filed her petition with the Court of Tax Appeals, not the RTC.

DELTA AIR LINES, INC., vs. Sec. of the Department of Finance (Tax 2)

DELTA AIR LINES, INC., Petitioner, -versus HON. SEC. CESAR V. PURISIMA (in his capacity as Sec. of the Department of Finance) and HON. COM. KIM S. JACINTO-HENARES (in her capacity as Incumbent Commissioner of Internal Revenue, Respondents.

CTA EB No. 1113 

(CTA CASE NO. 8360) 

FACTS:

Petitioner, Delta Airlines, Inc., is a foreign company under the laws US. It was licensed by the Securities and Exchange Commission (SEC) to establish a branch office in the Philippines to engage in international air transportation services. 

Respondent Cesar V. Purisima, on the other hand, is the Secretary of the Department of Finance (DOF) with authority to review the CIR's interpretation of the National Internal Revenue Code (NIRC).

Respondent Kim S. Jacinto-Henares is the CIR vested with the power to interpret the provisions of the NIRC of 1997 and other tax laws.

During its operations in the Philippines, petitioner entered into Hotel Room Agreement with The Peninsula Manila (Hotel) under which the latter would provide room accommodations and other hotel services to petitioner's guests including its pilots and cabin crews during 

flight layovers in the Philippines for consideration to be paid by petitioner. 

Petitioner filed with the Law Division of the BIR a Request for VAT Ruling on the application of Section 108 (B)(4) of the NIRC of 1997, as amended, to services rendered to persons engaged in international air transport operations, such as services provided by local suppliers to petitioner for the accommodation/lodging, including meals of its pilots and cabin crews. 

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

XXX XXX XXX 

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero-

percent (0%) rate: 

XXX XXX XXX 

( 4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof;"

Thereafter, petitioner received from respondent CIR, BIR Ruling No. 099-20117 dated April 6, 2011, the pertinent portion of which reads:

"In the instant case, the services provided by the Hotel to its clients engaged in international air transport operations pertain to room accommodations and food and beverage services. As they are rendered within the Hotel's premises, they have no direct connection with the transport of goods or passengers, and as such, they cannot be considered as services directly attributable to the transport of goods and passengers from a Philippine port directly to a foreign port entitled to zero-rating. Such being the case, the sale of the foregoing services by the Hotel is not zero rated, but is appropriately subject to the 12% VAT.

Petitioner elevated the matter for review to respondent Secretary, who eventually sustained BIR Ruling.

Petitioner filed with the Court in Division a Petition for Review impugning BIR Ruling and the letter issued by respondent Secretary.

Respondent CIR averred that BIR Ruling was a valid interpretation of the 1997 NIRC and it would remain to be such unless and until reversed or modified by the respondent Secretary. Moreover, the Court has no jurisdiction to rule on the issue of the validity of RMC No. 46-2008 for failure of petitioner to exhaust all administrative remedies.

Revenue Memorandum Circular (RMC) No. 046-08 dated February 1, 2008 states that the VAT zero-rating "is limited to goods, supplies, equipment, fuel and services pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other port in the Philippines to unload passengers and/or cargoes loaded in and from another domestic port". 

The Court in Division dismissed the Petition for Review on jurisdictional ground. Petitioner moved for reconsideration on but it was denied in the similarly assailed resolution.

Hence, the instant Petition for Review.

ISSUE:

(1) Whether the Court has jurisdiction to rule on the validity of BIR Ruling No. 099-2011, DOF Letter.

(2) Whether the Court has jurisdiction to rule on the validity of Q&A No. 11 of Revenue Memorandum Circular No. 46-2008.

RULING:

(1) YES. The Court's jurisdiction is provided under Section 7(a){l) of Republic Act (RA) No. 112517, as amended by RA No. 928218, which provides that the Court shall exercise exclusive appellate jurisdiction to review by appeal, decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or other laws administered by the Bureau of Internal Revenue. 

In relation thereto, Section 4 of the NIRC of 1997, as amended, provides that the CIR has the power to interpret the NIRC and other tax laws administered by the BIR, subject to the review of the Secretary of Finance.

In light of the foregoing pronouncements by the Supreme Court, it is clear that the Court has the authority to review the rulings or opinions of the CIR which were issued to interpret the provisions of the NIRC and other laws administered by the BIR as it falls under the phrase "other matters" arising under the NIRC or other laws administered by the BIR. Consequently, the Court now has the jurisdiction over the instant Petition for Review insofar as the issue of the validity of BIR Ruling No. 099-2011, DOF Letter dated 

September 8, 2011 and Q&A No. 11 of RMC No. 46-2008, as provided under Sec. 7(a)(1) of the NIRC of 1997, as amended.

(2) NO. With respect to RMC No. 46-2008, respondent CIR was correct when she argued that Court has no jurisdiction to rule on the issue of the validity of Answer 11 of RMC No. 46-2008 for failure of petitioner to exhaust all administrative remedies considering that petitioner did not question or elevate to respondent Secretary the validity of said RMC, as required under Section 4 of the NIRC of 1997, as amended.

Clearly, petitioner should first establish that it had already exhausted all available administrative remedies before seeking judicial recourse. In determining whether petitioner had exhausted all administrative remedies, this Court finds instructive Section 4 of the 1997 NIRC, as amended, which reads: 

"SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of  this Code and other tax laws shall be under 

 the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. 

XXX XXX XXX 

Considering that the subject BIR Ruling interpreted the provisions of the 1997 NIRC, as amended, this Court finds that the said Ruling was issued in the exercise of the Commissioner's power to interpret tax laws. Consequently, the administrative remedy available to petitioner is to appeal the adverse ruling with the Secretary of Finance as provided for under the first paragraph of Section 4 of the 1997 NIRC, as 

amended.

WHEREFORE, the Petition for Review filed by petitioner Delta Air Lines, Inc. is hereby DENIED. Accordingly, the interpretation in BIR Ruling No. 99-2011 dated April 6, 2011, as affirmed by the DOF Letter dated September 8, 2011 pertaining to the interpretation of Section 108(B)(4) of the Tax Code, as amended, is VALID.  Consequently, the sale of services rendered by VAT-registered suppliers for the accommodation/lodging of pilots and cabin crew members of petitioner during flight layovers in the Philippines is subject to twelve percent (12%) VAT.

SECURITIES TRANSFER SERVICES, INC., vs. COMMISSIONER OF INTERNAL REVENUE (Tax 2)

SECURITIES TRANSFER SERVICES, INC., 

Petitioner, -versus- COMMISSIONER OF INTERNAL REVENUE, Respondent.

CTA EB No. 1633 

(CTA CASE No. 8961)

FACTS:

On May 14, 2010, a Letter of Authority of even date was issued authorizing the conduct of tax audit for taxable year 2009 against STSI. 

STSI executed series of Waivers of Defense of Prescription on the following dates: June 21, 2012, July 11, 2012, January 3, 2013, July 19, 2013, September 13, 2013, December 20, 2013 and March 14, 2014.

On June 18, 2014, STSI received a copy of a 

Preliminary Assessment Notice dated June 16, 2014 ("PAN"), issued by the CIR stating that after investigation, STSI has been found liable for deficiency income tax, value-added tax (VAT), withholding tax on compensation (WC), expanded withholding tax (EWT), improperly accumulated earnings tax (IAET), and documentary stamp tax (DST) for the year 2009.

STSI sent a Reply dated July 02, 2014. On July 15, 2014, it received a copy of a Formal Letter of Demand (FLD) dated July 17, 2014 issued by the CIR against STSI for assessments on its deficiency taxes inclusive of interest and penalties amounting to P5Mplus.

On August 12, 2014, STSI filed a protest of even date assailing the foregoing deficiency assessments as indicated in the said FLD. 

On December 2, 2014, STSI was furnished with CIR's Final Decision on Disputed Assessment (FDDA) declaring that it is still liable to pay the deficiency tax assessments 

pertaining to income tax, VAT, WC, EWT, and DST. 

On December 18, 2014, STSI paid WC in some amount and thus, the total deficiency taxes disputed is only P3Mplus representing the remaining disputed deficiency assessments on income tax, VAT, EWT and DST. 

On December 23, 2014, STSI filed a Petition for Review before this Court's Division. On July 20, 2015, STSI filed an Omnibus Motion with the Second Division of this Court praying for an early resolution of the issue of prescription prior to conducting a full-blown trial on the merits of the case, which was granted by the said Division. 

The Second Division issued the assailed Resolution, partially granting STSI's Omnibus Motion on the issue of prescription and ruled that the CIR's right to assess STSI for deficiency VAT for the first quarter of 2009 and deficiency EWT for the months of January to May of 2009 had already prescribed.

On February 8, 2017, STSI filed its Motion for Partial Reconsideration (Re: Resolution dated January 16, 2017). On April 4, 2017, the Second Division issued a Resolution, which denied STSI's Motion for Partial Reconsideration (Re: Decision dated January 16, 2017). Hence, this appeal was 

filed via Petition for Review to this Court En Banc. In its Petition for Review, STSI prays this Court to grant the remaining portion of the Omnibus Motion it filed before the Second Division and finding that the CIR's right to assess all the alleged deficiency taxes in the FLD and FDDA had prescribed and to subsequently declare that the FLD and FDDA are void.

ISSUE:

Whether the petition for review filed before the Court En Banc is proper.

RULING:

NO. Petition for Review readily reveals that it was prematurely filed before the Court En Banc. The assailed resolutions of the Court in Division do not finally dispose the case, as it is an interlocutory order and it still leaves something to be done. 

Section 1, Rule 41 of the Revised Rules of Court, which applies suppletorily to proceedings before the Court of Tax Appeals, expressly provides that no appeal may be taken from an interlocutory order.

Interlocutory is defined as: provisional; interim; temporary; not final. 

The only decision or order which is appealable to the Court En Banc is that which has resolved the case with finality, and in effect terminates or finally disposes of a case, as it leaves nothing to be done by the court as the case has finally been decided on the merits.

In the case at bar, the Court takes judicial notice that the docket in CTA Case No. 8961 is still with the Court's Second Division and still at the trial stage for STSI's presentation of evidence on the remaining tax deficiency assessment. Clearly, the case is still pending and has neither been terminated nor disposed. 

The reason for disallowing an appeal from an interlocutory order is to avoid multiplicity of appeals in a single action, which necessarily suspends the hearing and decision on the merits of the action during the pendency of the appeals. 

Evidently, the proper procedure that STSI should have taken in this case was to await the final termination of the proceedings before the Court in Division, prior to the filing of the instant petition for review,

Therefore, Petition for Review is hereby DISMISSED for being premature, without prejudice to the right to appeal the assailed Resolutions of the Court in Division upon disposition of the entire case on the merits.

MANILA MEDICAL SERVICES, INC., v. COMMISSIONER OF INTERNAL REVENUE (Tax 2)

MANILA MEDICAL SERVICES, INC., (MANILA DOCTORS HOSPITAL), Petitioner, -versus- COMMISSIONER OF INTERNAL REVENUE, Respondent.

CTA Case No. 8907

FACTS:

Petitioner is a domestic corporation. Respondent is the Chief of the Bureau of Internal Revenue (BIR).

Petitioner received a Preliminary Assessment Notice (PAN) dated October 19, 2010, which was duly protested on November 24, 2010 and received by the respondent also on the same day through the Officer-in-Charge (OIC) of the Letter Notice (LN) Task Force of the BIR. 

Petitioner received a FAN dated March 25, 2013 which it protested on April 16, 2013 and received by the respondent through the OIC-Regional Director on April 18, 2013.  Petitioner also filed a supplemental letter dated September 5, 2014 reiterating and further expounding its position against the assessment for the taxable year (TY) 2008. 

On September 12, 2014, a WDL dated September 5, 2014 was received by petitioner demanding the payment of the alleged deficiency IT and VAT including surcharges and interest. 

Thus, petitioner filed the instant petition.

ISSUES:

(1) Whether the Court of Tax Appeals has jurisdiction over the instant petition.

(2) Whether petitioner timely filed the instant petition as the WDL received by it may be considered as respondent's final decision appealable to this Court under Section 228 of the 1997 National Internal  Revenue Code (NIRC), as amended; 

(3) Whether the absence of Letter of Authority renders the conduct  of investigation invalid.

RULING:

(1) YES. The jurisdiction of the CTA regarding internal revenue taxes is provided under Section 7(a)(1) of Republic Act (RA) No. 1125, as amended by RA Nos. 9282 and 9503, which provides: 

"SEC. 7. Jurisdiction. -The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: 

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;"

Similarly, Section 3 (a)( 1) of Rule 4 of the Revised Rules of the Court of Tax Appeals provides for that.

The abovementioned provisions provide that it is not only the respondent's decision on disputed assessments that is appealable before this Court but also other matters arising under the NIRC or other laws administered by the BIR.

The appellate jurisdiction of the CTA is not limited to cases· which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related laws administered by the Bureau of Internal Revenue (BIR)."

In the instant case, the basis for petitioner's filing of the instant petition is respondent's issuance of the WDL. The purpose of the issuance of said WDL is for the enforcement of collection on the alleged assessment by the respondent which is within the provision of NIRC. Thus, it is classified within the "other matters arising under the NIRC or other laws administered by the BIR."

(2) YES. The WDL as issued by the respondent is tantamount to his decision as to the final denial of petitioner's protest on the alleged assessment. It is only upon the receipt of said WDL on September 12, 2014 that the period to appeal shall commence. 

Pursuant to Section 228 of the 1997 NIRC, as amended, petitioner had 30 days or until October 12, 2014 to appeal the final denial of its protest through the issuance of said WDL. Thus, the filing of the instant petition on October 10, 2014, which is within the 30-day prescriptive period to file an appeal,  has given this Court jurisdiction on the instant petition.

(3) YES. LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax.

In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN against MEDICARD. Therefore no LOA was also served on MEDICARD. The LN that was issued earlier was also not converted into an LOA. Hence, the CTA's disregard of MEDICARD's right to due process warrant the reversal of the assailed decision and resolution.

Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such authority, the assessment or examination is a nullity.

COMMISSIONER OF INTERNAL REVENUE v. STANDARD INSURANCE CO., INC. (Tax 2)

G.R. No. 219340, November 07, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. STANDARD INSURANCE CO., INC., Respondent.

FACTS:

Respondent Standard Insurance Co., Inc. received from the Bureau of Internal Revenue (BIR) a Preliminary Assessment Notice (PAN) regarding its liability amounting to P377,038,679.55 arising from a deficiency in the payment of documentary stamp taxes (DST) for taxable year 2011. 

The respondent contested the PAN through its letter but the petitioner nonetheless sent to it a formal letter of demand. Although the respondent requested reconsideration, it received the Final Decision on Disputed Assessment (FDDA) declaring its liability for the DST deficiency, including interest and compromise penalty, totaling P418,830,567.46.

Respondent sought reconsideration of the FDDA, and objected to the tax imposed pursuant to Section 184 of the NIRC as violative of the constitutional limitations on taxation.

Meanwhile, the respondent also received a demand for the payment of its deficiency income tax, value-added tax, premium tax, DST, expanded withholding tax, and fringe benefit tax for taxable year 2012, and deficiency DST for taxable year 2013.

The respondent commenced civil case in the RTC (with prayer for issuance of a temporary restraining order (TRO) or of a writ of preliminary injunction) for the judicial determination of the constitutionality of Section 108 and Section 184 of the NIRC with respect to the taxes to be paid by non-life insurance companies. 

In its petition, the respondent contended that the facts of the case must be appreciated in light of the effectivity of Republic Act (R.A.) No. 10001 entitled An Act Reducing the Taxes on Life Insurance Policies, whereby the tax rate for life insurance premiums was reduced from 5% to 2%; and the pendency of deliberations on House Bill (H.B.) No. 3235 entitled An Act Rationalizing the Taxes Imposed on Non-Life Insurance Policies, whereby an equal treatment for both life and non-life companies was being sought as a response to the supposed inequality generated by the enactment of R.A. No. 10001.

The RTC issued the TRO prayed for by enjoining the BIR, its agents, representatives, assignees, or any persons acting for and in its behalf from implementing the provisions of the NIRC adverted to with respect to the FDDA for the respondent's taxable year 2011, and to the pending assessments for taxable years 2012 and 2013.

Later, the RTC issued the writ of preliminary injunction.

Then RTC rendered the assailed judgment, the respondent, its agents, representatives, or any persons acting on its behalf is hereby permanently enjoined from proceeding with the implementation or enforcement of Sections 108 and 184 of the National Internal Revenue Code against petitioner Standard Insurance Co., Inc. until the Congress shall have enacted and passed into law House Bill No. 3235 in conformity with the provisions of the Constitution.

The petitioner moved for reconsideration of the judgment, however RTC denied the motion for reconsideration.

Hence, the petitioner has appealed directly to the Court.

ISSUE:

WHETHER THE TRIAL COURT GRAVELY ERRED IN GRANTING INJUNCTIVE RELIEF IN FAVOR OF RESPONDENT, THE SAME (I) BEING SPECIFICALLY PROHIBITED BY SECTION 218 OF THE NIRC; AND (II} HAVING BEEN GRANTED WITHOUT FACTUAL OR LEGAL BASIS.

RULING:

Yes. The injunctive relief is not available as a remedy to assail the collection of a tax

The inflexible policy that taxes, being the lifeblood of the Government, should be collected promptly and without hindrance or delay. 

Obeisance to this policy is unquestionably dictated by law itself. Indeed, Section 218 of the NIRC expressly provides that "[n]o court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by th[e] [NIRC]."

Also, pursuant to Section 1115 of R.A. No. 1125, as amended, the decisions or rulings of the Commissioner of Internal Revenue, among others, assessing any tax, or levying, or distraining, or selling any property of taxpayers for the satisfaction of their tax liabilities are immediately executory, and their enforcement is not to be suspended by any appeals thereof to the Court of Tax Appeals unless "in the opinion of the Court [of Tax Appeals] the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer," in which case the Court of Tax Appeals "at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount."

In view of the foregoing, the RTC not only grossly erred in giving due course to the petition for declaratory relief, and in ultimately deciding to permanently enjoin the enforcement of the specified provisions of the NIRC against the respondent, but even worse acted without jurisdiction.