Case Digest

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005

FACTS:

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniformp ro v is o authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional.

ISSUES:

1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution.

3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the Constitution.

RULING:

1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.

2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.

3. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.

Tan vs. Del Rosario

237 SCRA 324

Facts:

                Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and different treatment in the professionals which petitioners assail as unconstitutional for being isolative of the equal protection clause in the constitution.

 Issue:

Is the contention meritorious?

Ruling:

                No. uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it is germane to the purpose of the law. It is not limited to existing only and must apply equally to all members of the same class.

                The legislative intent is to increasingly shift the income tax system towards the scheduled approach in taxation of individual taxpayers and maintain the present global treatment on taxable corporations. This classification is neither arbitrary nor inappropriate. 

Tan vs. Del Rosario

237 SCRA 324

Facts:

Petitioner seeks declaration of unconstitutionality of RA7496 (also known as Simplified Net Income Taxation) due to violation of the following constitutional provision:

Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.

Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

The petitioner stressed that it violates the equal protection clause as it only imposed taxes upon one who practice his profession and not to those who are engaged to single proprietorship.

Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws.

Issue:

Whether or not RA 7496 violates the aforestated provision of the constitution

Held:

The SC ruled in the negative. The said law is not arbitrary; it is germane to the purpose of the law and; applies to all things of equal conditions and of same class.

It is neither violative of equal protection clause due to the existence of substantial difference between one who practice his profession alone and one who is engaged to proprietorship. Further, the SC said that RA 7496 is just an amendatory provision of the code of taxpayers where it classifies taxpayers in to four main groups: Individuals, Corporations, Estate under Judicial Settlement and Irrevocable Trust. The court would have appreciated the contention of the petitioner if RA 7496 was an independent law. But since it is attached to a law that has already classified taxpayers, there is no violation of equal protection clause.

CALTEX PHILIPPINES VS CA
G.R. 925585 MAY 8, 1992

FACTS:
In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. Petitioner requested COA for the early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs. COA denied the same.

ISSUE:
Whether or not petitioner can avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement.

RULING:
It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually debtors and creditors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
The oil companies merely acted as agents for the government in the latter’s collection since taxes are passed unto the end-users, the consuming public.

G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

FACTS:

The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126, 000.00, and it was from this commission that the P75, 000.00 promotional fees were paid to the a forenamed individuals.

The petitioner contends that the claimed deduction of P75, 000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees.

ISSUE:

Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns.

RULING:

The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government.

[G.R. No. 153866.  February 11, 2005]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES), respondent.

D E C I S I O N

PANGANIBAN, J.:

Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VAT.  Although export sales are not deemed exempt transactions, they are nonetheless zero-rated.  Hence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT.  Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased.  Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such refund or credit.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002 Decision of the Court of Appeals (CA) in CA-GR SP No. 66093.  The decretal portion of the Decision reads as follows:

“WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit.

The Facts

The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:

“As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:

1.  [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu;

2.  [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office, including, among others, the duty to act and approve claims for refund or tax credit;

3.  [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in computers for export.  Such registration was made on 6 June 1997;

4.  [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No. 97-083-000600-V issued on 2 April 1997;

5.  VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];

6.  An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu;

7.  No final action has been received by [respondent] from [petitioner] on [respondent’s] claim for VAT refund.

“The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the [petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for Review in order to toll the running of the two-year prescriptive period.

“For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:

1.  [Respondent’s] alleged claim for tax refund/credit is subject to administrative routinary investigation/examination by [petitioner’s] Bureau;

2.  Since ‘taxes are presumed to have been collected in accordance with laws and regulations,’ the [respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected x x x;

3.  In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:

“A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund.”

4.  Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer.  This is due to the fact that claims for refund/credit [partake of] the nature of an exemption from tax.  Thus, it is incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit sought.  Failure on the part of the [respondent] to prove the same is fatal to its claim for tax credit.  He who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law.  An exemption from the common burden cannot be permitted to exist upon vague implications;

5.  Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as amended.  As [respondent’s] business is not subject to VAT, the capital goods and services it alleged to have purchased are considered not used in VAT taxable business.  As such, [respondent] is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations.

6.  [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax.’

“On July 19, 2001, the Tax Court rendered a decision granting the claim for refund.”

Ruling of the Court of Appeals

The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66.  This sum represented the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999.

The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916.  Respondent was, therefore, considered exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent preferential tax on gross income earned.  As a VAT-registered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT.

Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95 were applicable.  Having paid the input VAT on the capital goods it purchased, respondent correctly filed the administrative and judicial claims for its refund within the two-year prescriptive period.  Such payments were -- to the extent of the refundable value -- duly supported by VAT invoices or official receipts, and were not yet offset against any output VAT liability.

Hence this Petition.

Sole Issue

Petitioner submits this sole issue for our consideration:

“Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999.”

The Court’s Ruling

The Petition is unmeritorious.