Taxation Digest: CIR v. T Shuttle Services (G.R. No. 240729, August 24, 2020)

CIR v. T Shuttle Services 

G.R. No. 240729, August 24, 2020

Laws and Regulations: Sec. 228 of the NIRC, Section 3 of RR 12-99, RMO 40-2019
Doctrine: Limitation on Presumption of Registered Mail

•    July 15, 2009: CIR issued to respondent a Letter of Notice (LN) No. 057-RLF-07-00-00047 informing it of the discrepancy found after comparing its tax returns for CY 2007 with the RELIEF and Third-Party Matching under the Tax Reconciliation System
•    July 24, 2009: LN was received and signed by a certain Malou Bohol
•    January 12, 2010: CIR issued Letter of Authority (LOA) No. 200800044533 AND nic
•    March 29, 2010: CIR issued a PAN for IT and VAT
•    July 20, 2010: CIR issued a FAN for IT and VAT
•    November 28, 2012: RDO issued a PCL requesting respondent to pay the assessed tax liability within 10 days from notice
•    January 23, 2013: RDO issued a FNBS giving respondent the last opportunity to settle its tax liability within 10 days from notice
•    March 20, 2013: T Shuttle sent a letter to the RDO and the collection officers stating that: (1) it is not aware of any pending liability for CY 2007 (2) Mr. B. Benitez, who signed and received the preliminary notices, was a disgruntled rank-and-file employee not authorized to receive the notices; and (3) Mr. B. Benitez did not forward the notices to it. It also requested a grace period of 1 month to review its documents.
•    April 2, 2013: RDO denied the requested 1-month grace period.
•    April 19, 2013: T Shuttle protested the FNBS: (1) not liable for IT (2) exemp from VAT as common carrier (3) service of the NIC was invalid (4) did not receive the PAN and FAN prior to the issuance of the FNBS.
•    April 23, 2013: constructively served with WDL
•    May 2, 2013: filed a Petition for Review (With Prayer for Preliminary Injunction and Issuance of a Temporary Restraining Order) with the CTA
•    August 22, 2013: CIR prayed for the denial of the petition for review (1) due process was observed (2) failed to timely protest FAN and to submit within the prescribed period of 60 days supporting documents (3) presumption of the propriety and exactness of tax assessments
•    CTA Division: granted
•    MR of CIR in CTA Division: denied
•    CTA En Banc: affirmed the ruling of the CTA Division that the CIR failed to prove that the PAN and the FAN were properly and duly served upon and received by T Shuttle and failure to demand payment of the taxes due within a specific period

ISSUES:
1.    W/N Due Process Observed
2.    W/N FAN is void for not containing definite due date

HELD: petition for review on certiorari is DENIED

1.    NO.
•    As can be gleaned from the above provisions (due process requirement in Section 228 of the NIRC, Section 3 of RR 12-99 dated September 6, 1999), service of the PAN or the FAN to the taxpayer may be made by registered mail. Under Section 3(v), Rule 131 of the Rules of Court, there is a disputable presumption that "a letter duly directed and mailed was received in the regular course of the mail." However, the presumption is subject to controversion and direct denial, in which case the burden is shifted to the party favored by the presumption to establish that the subject mailed letter was actually received by the addressee.
•    In view of respondent's categorical denial of due receipt of the PAN and the FAN, the burden was shifted to the CIR to prove that the mailed assessment notices were indeed received by respondent or by its authorized representative.  As ruled by the CTA En Banc, the CIR's mere presentation of Registry Receipt Nos. 5187 and 2581 was insufficient to prove respondent's receipt of the PAN and the FAN. It held that the witnesses for the CIR failed to identify and authenticate the signatures appearing on the registry receipts; thus, it cannot be ascertained whether the signatures appearing in the documents were those of respondent's authorized representatives. It further noted that Revenue Officer Joseph V. Galicia (Galicia), the CIR's witness, had in fact admitted during cross-examination that he was uncertain whether the PAN and FAN were actually received by respondent.
•    As can be gleaned from RMO 40-2019 dated May 30, 2019, a detailed record of all assessment notices issued by the CIR is required. Notably, among the details to be recorded by the Chief of the Assessment Division or the Head of the Reviewing Office are the "[n]ame of [t]axpayer/[p]erson who received the assessment notice" and, more importantly, the "[p]osition/designation/relationship to the taxpayer, if not served to the taxpayer named in the assessment notice."  While RMO 40-2019 was not yet in force at the time the questioned PAN and FAN in the case were issued, the fact of such subsequent issuance of RMO 40-2019 by the CIR gives the Court all the more reason to affirm, if only for consistency and uniformity, the CTA En Banc's finding.

2.    Yes. Question of fact which this Court will not entertain in the present appeal under Rule 45.

Tax Case Digest: Chevron Holdings, Inc. v. CIR, CTA EB No. 1895/1896, March 9, 2020

Chevron Holdings, Inc. v. CIR
CTA EB No. 1895/1896, March 9, 2020.

CTA En Banc
Castaneda, Jr., J.:

Lessons Applicable: filing of the complete supporting documents by the taxpayer in connection with an administrative claim for VAT refund
Laws Applicable: Section 112 (C) of the NIRC of 1997

FACTS:

• October 31, 2013: Chevron Holdings, Inc. (CHI) filed with the Department of Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) an administrative claim for refund or issuance of TCC for unutilized input VAT for the 1st quarter of CY 2012 in the total amount of P16,165,791.62.
• January 16, 2014: CHI filed with DOF-OSS an administrative claim for refund or issuance of TCC for unutilized input VAT for the 2nd quarter of CY 2012 in the total amount of P19,732,044.98.
• February 17 and 27, 2014: CHI submitted additional documents required under the First Notice attached to the Letter of Authority (LOA) No.  LOA-311-2013-0000050327 dated November 28, 2013.
• March 14, 2014: CHI received LOA No. LOA-411-2014-00000015 dated March 10, 2014.
• Due to CIR’s inaction on its administrative claims for refund, it filed a Petition for Review on March 28, 2014 for CTA Case No. 8790 and June 13, 2014 for CTA Case No. 8835.
• January 18 and July 10, 2018: CTA 1st Division issued the assailed decision
• August 14, 2018: CHI filed its Petition for Review in CTA EB No. 1895 and CIR filed his Petition for Review in CTA EB No. 1896. 

ISSUES:
1.    W/N CTA has jurisdiction
2.    W/N CHI is entitled to its entire refund claim.

HELD: Dismissed.
1.    NO.  CHI complied with the thirty (30) day period from the request of the BIR dated February 7, 2014 when it submitted its last batch of supporting documents on February 27, 2014.  But, failed to observe the unqualified provision of law regarding the 120-day period which commences from the taxpayer’s submission of complete documents.  In other words, while Chevron’s due process were observed following the pronouncement of the Supreme Court in the Total case, Chevron completely disregarded the BIR’s right to be afforded opportunity to review its claims.  Thus, Chevron’s haste in elevating the instant case to the CTA is a blatant violation of the doctrine of exhaustion of administrative remedies as pronounced in the San Roque case.

• Subject provision works to protect both the taxpayer and the BIR from belated resolution of the claim and from prematurity of elevating the same to the proper courts, respectively.
• To be sure, it is the taxpayer who ultimately determines when complete documents have been submitted for the purpose of commencing and continuing the running of the 120-day period.  Nevertheless, the Supreme Court also emphasized that the forgoing benefit given to taxpayer is not unbridled and, as such, is subject to limitations.  Hence, based on the above-quoted portion of Pilipinas Total Gas, the filing of the complete supporting documents by the taxpayer in connection with an administrative claim for VAT refund is subject to the following rules:

a.    Upon filing of his application for tax credit or refund for excess creditable input taxes, the taxpayer-claimant is given thirty (30) days within which to complete the required documents within thirty (30) days from request of the investigation/processing unit. 
b.    If in the course of the investigation and processing of the claim, additional documents are required for the proper determination of the legitimate amount of the claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the investigation/processing unit.  Notice of the request for the submission of additional supporting document is required.
c.    It is only upon the submission of the taxpayer that the 120-day period would begin to run.
d.    In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section 112 (A) of the NIRC.

2.    NO.

• Chevon’s presentation of its clients’ (1) SEC Certificates of Non-Registration (2) screenshots of Chevron Subsidiary governance website and (3) Service Agreements, may have sufficed to prove that they were foreign corporations.  However, these pieces of evidence are insufficient to prove that they are doing business outside the Philippines.
• Even if RMC No. 42-03 allows out-of-period claims of input VAT, the same cannot be adhered to, as it contravenes Section 110 (A)(2) of the NIRC OF 1997, as amended.  It is clear from the foregoing provision that for purchases of goods, the corresponding input value added taxes of which is creditable to the purchaser upon the issuance of the corresponding invoice.  On the other hand, for purchases of services, the corresponding input value added taxes of which is creditable to the purchaser upon payment of compensation, rental, royalty or fee, that is, upon the date of official receipt.  Section 110 (A) is explicit – upon consummation, in the case of domestic purchases of goods, and upon payment, in the case of purchases of services.  It does not provide any qualification.

Tax Case Digest: Lennie De Sagun et al. v. CIR, CTA Case No. 9084, March 11, 2020

Lennie De Sagun et al. v. CIR
CTA Case No. 9084. March 11, 2020.

CTA Third Division
Modesto-San Pedro, J.:

FACTS:

• February 2014: 2 Filipino ADB employees, on their own, and on behalf of other Filipino ADB employees, questioned its legality of the RMC 31-13 issued on April 12, 2013 which provides that only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax with the RTC of Mandaluyong
• RTC: Declared section 2 (d) (1) RMC 31-13 void for being issued without legal basis, in excess of authority and/or without due process of law, and in the absence of legislation and/or regulation to the contrary
• Lennie De Sagun et al. filed their administrative claim for refund using the Decision of the RTC to prove that their payment of income tax for taxable years 2012 and 2013 are erroneous.
• Lennie De Sagun et al. filed a Petition for Review

ISSUES:
1.    W/N RTC Mandaluyong has no jurisdiction.
2.    W/N NIRC and RMC 31-13 intended to impose income tax on resident Filipino citizens who are ADB employees.
3.    W/N RMC 31-13 should be prospectively applied.
4.    W/N evidence presented is sufficient for the entitlement of refund.

HELD: NO. Denied.
1.    NO. RTC Mandaluyong has no jurisdiction to decide on the validity or constitutionality of RMC 31-13.  Consequently, its Decision is a nullity.  Assuming it has jurisdiction and its Decision is valid, the same is still not binding upon this Court.  It must be stressed that only decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction and these decisions become judicial precedents to be followed in subsequent cases by all courts of the land. 

2.    YES.

• Based on Section 23 (A) and related Sections 24, and 32 (A)(1) of the NIRC provides that income of a resident Filipino citizen, whether derived from sources within or outside the Philippines are subject to tax.
• A perusal of RMC 31-13 would reveal that CIR merely exercised his power to interpret the pertinent provisions of the NIRC in relation to the RP-ADB Agreement.  Section 45 (b) of the RP-ADB Agreement: (B) Exemption from taxation on or in respect of the salaries and emoluments paid by Bank subject to the power of the Government to tax its nationals”

3.    YES.   To retroactively apply RMC 31-13 would be prejudicial to the Filipino ADB officers and employees would be prejudicial to the Filipino ADB officers and employees as they may be issued deficiency income tax assessments for compensation which at the time of payment was declared tax-exempt by CIR.  Consequently, the retroactive application of RMC 31-13 will violate Section 246 of NIRC. 

• CIR issued contradictory rulings causing confusion among them prior to finally settling the issue in RMC 31-13 on April 12, 2013, to wit:

a.    March 11, 1999: Former CIR issued a ruling that ADB Filipino employees holding managerial and technical position are subject to a preferential rate of 15%
b.    January 29, 2001: BIR, through its Regional Director (RD) which had the jurisdiction over ADB, issued an opinion stating that salaries and emoluments received by ADB officers and staff are exempt from taxation
c.    February 6, 2013: Chief Legal Division of Revenue Region No. 7, Amado Rey B. Pagarigan issued an opinion that the Filipino employees in ADB are subject to the preferential tax rate of 15% on their compensation income.

• When the Filipino ADB officers and employees received their 2012 salaries and emoluments, CIR’s position then was that their compensation was tax-exempt.  Xxx They cannot be faulted for believing that they were exempt from paying income tax for such belief was brought about by an opinion by CIR himself, who, after all, is in charge of implementing the country’s tax laws.
• Although it can be argued that RMC 31-13 is a mere interpretation of existing law and should be applied even to compensation for TY 2012, the Court finds that it should only be applied prospectively in the interest of justice and equity. 

4.    NO.  Without adequate proof that a prior administrative claim for refund was lodged before the present Petition was institution, petitioners claim for tax refund CANNOT prosper.

• Before a refund claim under Section 229 of the NIRC can be granted, a taxpayer/claimant must 1st prove that he or she has filed an administrative claim with CIR prior to filing suit with this Court.
• Section 3 of Rule 130 of the Rules of Court provides that no documentary evidence is admissible as proof of its content without presenting its original.  
• Proof of the following facts: 1. Filing an administrative claim for refund and 2. Content of administrative refund claim were mere photocopies

• As an exception is the best evidence rule under Section 2 of Rule 130 of the Rules of Court.  Consequently, before a copy may be admitted as proof of the contents of a document, its execution or existence, and the cause of its unavailability (which should be without bad faith on the part of the offeror) must be first be established. 
• In this case, petitioner’s witness did not testify on matters proving 1. The execution or existence of the original administrative claims for refund 2. Cause of the unavailability of these documents which is not due to the bad faith of petitioners.  In fact, she did not adduce any testimony at all identifying these documents.  Worse, these documents have not been marked considering that these were neither included in the Pre-trial Brief nor Pre-trial order.  – inadmissible

• It may be pointed out that the presentation of the originals of the administrative claims for refund is unnecessary since the truth of its contents is not in issue but only the fact of (prior execution of the administrative claim before the filing of the present Petition) is needed to be proved, hence, parol evidence is allowed. Nonetheless, petitioner’s counsel still failed to offer as evidence the copies of the administrative claims for refund in the Formal Offer of Evidence.

Tax Case Digest: Macquarie Offshore Services v. CIR CTA Case No. 9722, March 12, 2020.

Macquarie Offshore Services v. CIR
CTA Case No. 9722, March 12, 2020.

CTA Second Division
Mindaro-Grulla, J.:

Lessons Applicable: VAT refund claim, zero-rated sales
Laws Applicable: Section 112 (A) and (C) of the NIRC of 1997, Sections 106(A)(2)(1) and (2); 106(B) and 108(B)(1) and (2)

FACTS:

• June 29, 2017: Macquarie Offshore Services Pty Ltd. (Philippines Branch) (MOS) filed with the BIR an Application for Tax Credits / Refunds with corresponding Checklist of Mandatory Requirements for Claims for VAT Credit/Refund, and the letter dated June 29, 2017, applying for refund of its alleged excess and unutilized input VAT in the total amount of P85,098,492.89 for the 1st to 4th quarters of the FY 2016.
• November 24, 2017: MOS filed the instant Petition for Review

ISSUE: W/N  VAT credit or claim should be allowed

HELD: Denied.

NO.

• Based on Section 112 (A) and (C) of the NIRC of 1997, as amended by RA 9337, jurisprudence has laid down certain requisites which the taxpayer-applicant must comply with to successfully obtain a credit/refund of input VAT – classified into certain categories, to wit:

1.    As to the timeliness of the filing of the administrative and judicial claims: - met

• a.    Claim is filed with the BIR within 2 years after the close of the taxable quarter when the sales were made – filed June 29, 2017
• b.    In case of full or partial of the Commissioner to act on the said claim within a period of 120 days, the judicial claim has been filed with this Court, within 30 days from receipt of the decision or after the expiration of the said 120-day period – filed on November 24, 2017

2.    With reference to the taxpayer’s registration with the BIR

• a.    Taxpayer is a VAT-registered person – met since BIR Payment Forms, standing alone, may be considered as evidence of VAT registration

3.    In relation to the taxpayer’s output VAT

• a.    Taxpayer is engaged in zero-rated or effectively zero-rated sales
• b.    For zero-rated sales under Sections 106(A)(2)(1) and (2); 106(B) and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations
• Essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), under Section 108(B)(2) of the NIRC of 1997:
• 1)    The services fall under any of the categories under Section 108(B)(2) or simply, the services rendered should be other than “processing, manufacturing or repacking goods. - met
• 2)    Services must be performed in the Philippines by a VAT-registered person
• 3)    Recipient of the services is a foreign corporation, and the said corporation is            doing business outside the Philippines or is a non-resident person not engaged in business who is outside the Philippines when the services were performed; -    not met since the documents presented: (1) Certification of Non-Registration of Company issued by the SEC, (2) Certificate/Articles of Foreign Incorporation/Registration and (3) Minor Services Agreements, standing alone is inadequate proof that its client is a non-resident doing business outside the Philippines.
• 4)    The payment for such services should be in acceptable foreign currency    accounted for in accordance with BSP rules

4.    As regards taxpayer’s input VAT being refunded
a.    Input taxes are not transitional input taxes
b.    Input taxes are due or paid
c.    Input taxes have not been applied against output taxes during and n the succeeding quarters
d.    Input taxes claimed are attributable to zero-rated or effectively zero-rated sales.  However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the sales volume

Tax Case Digest: Jones Lang Lasalle (Philippines), Inc. v. CIR, CTA Case No. 9590, March 12, 2020

Jones Lang Lasalle (Philippines), Inc. v. CIR
CTA Case No. 9590, March 12, 2020.

CTA Third Division
Uy, J:

Lessons Applicable: CTA Jurisdiction, Prescription, Due Process
Laws Applicable: RA 1124, as amended by RA 9282,  Section 3 (a) (1), Rule 4, under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99

FACTS:

• September 3, 2009: Commissioner of Internal Revenue (CIR) issued a Letter Notice informing Jones Lang Lasalle (Philippines), Inc. (JLL) that a computerized matching on the information/data provided by 3rd-party sources against its declarations per income/VAT/percentage withholding tax returns, disclosed discrepancies for calendar year 2007.
• May 11, 2010: CIR issued Letter of Authority (LOA).  
• May 31, 2010: CIR issued an undated Notice for Informal Conference.  
• October 8, 2010: CIR issued the Preliminary Assessment Notice (PAN).
• October 19, 2011: CIR issued a FAN.
• September 19, 2016: JLL filed a letter stating that the deficiency VAT assessment for VY 2007 and Collection Letter should be cancelled.
• May 8, 2017: JLL received a Final Notice Before Seizure (FNBS) dated February 28, 2017.
• JLL filed a petition for Review (With Urgent Motion for the Issuance of an Order to Suspend the Collection of Tax)

ISSUES:
1.    W/N CTA has jurisdiction to act on the Petition for Review
2.    W/N period to assess has already prescribed.
3.    W/N due process requirements under NIRC and its regulations has been complied with.

HELD: Granted.
1.    YES. Issuance of the subject FBNS constitutes the final decision of CIR that is appealable before the CTA.

• Jurisdiction over the subject matter or nature of an action is fundamental for a court to act on a given controversy.  CTA being a court of special jurisdiction can take cognizance only of matters that are clearly within its jurisdiction.
• Based on RA 1124, as amended by RA 9282 and Section 3 (a) (1), Rule 4 of the Revised Rules of the CTA, the jurisdiction of the CTA is not limited to decisions of the CIR involving disputed assessments.  The second part thereof also includes “other matters” arising under the NIRC or other laws administered by the BIR.  
• Jurisdiction of the CTA to rule on “other matters arising under the NIRC or other laws administered by the BIR” include among others, the validity of the warrant of distraint and levy and waiver of statute of limitations.
• Moreover, the term “other matters” pertain to matters directly related to disputed assessments or refunds or internal revenue taxes, fees or other charges, penalties imposed in relation thereto.

• CIR v. Isabela Cultural Corporation (G.R. No. 135210, July 11, 2001):  FBNS which indicates that the taxpayer was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy, constitutes the CIR’s final decision.

2.    NO. Section 11 of RA 1125 as amended, provides that any party adversely affected by a decision or ruling of the CIR may file an appeal with the CTA 30 days after the receipt of such decision or ruling.  Since FBNS was received on May 8, 2017, thus it has until June 7, 2017 or 30 days, to appeal and challenge its validity with the CTA.  Hence, May 15, 2017 was within the 30-day period.

3.    NO. Failure to strictly comply with the notice requirements prescribed under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99 is tantamount to denial of due process.  

• If there exists sufficient basis to assess the taxpayer, the CIR or his authorized representative is mandated to issue a PAN.  Thereafter, a formal letter of demand and an assessment notice shall be issued by the CIR or his duly authorized representative.  The use of the word “shall” in these legal provisions indicates the mandatory nature of the requirements laid down therein.  Thus, it is essential for CIR to establish and prove that the requisite assessment notices were fully served to the taxpayer within the prescription period. 
• Tax assessment, due process requires that the taxpayer must actually receive the assessment.  
• If the taxpayer denies having received the assessment notices, it is incumbent upon respondent to prove by competent evidence that the assessment notices were indeed received by the taxpayer.  
• It is basic in the rule of evidence that bare allegations unsubstantiated by evidence, are not equivalent proof.  
• BIR was fully informed of the change in address in accordance to Section 11 of RR No. 12-8531.  Court notes that the new address was likewise indicated in the documents issued by the BIR in the BIR records.  Evidently, BIR had knowledge of the change of address and should have sent the PAN and FAN to its new address.  But, they were sent to the old address.  While it appears that BIR did indeed issued the assessment notices, it failed to present evidence to refute JLL’s claim that it did not receive said assessment notices.  Consequently, there was no valid service of assessment notices to petitioner. 

Tax Case Digest: JG Summit Holdings, Inc. v. CIR, CTA Case No. 9147, March 12, 2020

JG Summit Holdings, Inc. v. CIR
CTA Case No. 9147, March 12, 2020.

CTA Second Division
Bacorro-Villena, J.:

Lessons Applicable: filed out of time
Laws Applicable: Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 of NIRC

FACTS:
•    May 14, 2010: CIR issued a Letter of Authority (LOA) No. LOA-127-2020-00000012.
•    April 2, 2012: JG Summit Holdings, Inc. (JGSHI) executed a Waiver of the Defense of Prescription (1st WDP) extending CIR right to assess until December 31, 2012
•    December 31, 2013: JGSHI executed a 2nd WDP extending CIR right to assess until December 31, 2013.
•    January 16, 2013: JGSHI executed a 3rd WDP extending CIR right to assess until June 30, 2014.
•    November 4, 2013: JGSHI received a Preliminary Assessment Notice (PAN) adjusting its tax liabilities to P5,840,180,957.23.
•    February 27, 2014: Final Assessment Notice (FAN) and Formal Letter of Demand (FLD) for deficiency taxes amounting to P6,001,075,046.14.
•    March 12, 2014: JGSHI filed its protest to the FLD with a request for investigation.
•    December 5, 2014: JGSHI received Final Decision on Disputed Assessment (FDDA) amounting to P6,546,206,763.32.
•    December 22, 2014: JGSHI filed a request for reconsideration with CIR
•    August 20, 2015: CIR denied JGSHI’s request through the assailed Revised Final Decision on Disputed Assessment (RFDDA)
•    September 18, 2015: JGSHI’s filed a Petition for against the RFDDA

ISSUES: W/N the 30-day reglementary period for filing an appeal with the Court should begin to run from its receipt of RFDDA.

HELD: Dismissed for lack of jurisdiction
•    NO. With the procedure of appeal already clearly laid down, a resort to a request for reconsideration (with the CIR) did not then toll the running of the reglementary period within which petitioner’s appeal must be elevated to this Court.  In relying on the possibility that CIR might reconsider her previous decision, it waived its remedy of appeal before this Court.

•    PAGCOR v. CIR (G.R. No. 208731, January 27, 2016): Following the verba legis doctrine, the law must be applied exactly as worded since it is clear, plain, and unequivocal.15 A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options xxx To further clarify the three options: A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative.
•    Wordings of the CIR’s denial of its request could not amend or alter what is provided in the law (i.e.  If you disagree, you may appeal this final decision…)  - To note, same wordings in the FDDA and RFDDA.

Taxation Case Digest: Association of International Shipping Lines v. Sec. of Finance (2020)

Association of International Shipping Lines v. Sec. of Finance
G.R. No. 222239, January 15, 2020
SC First Division
Lazara-Javier, J.

Lessons Applicable: Res judiciata, Petition for Declaratory Relief, Income tax and VAT on demurrage and detention fees, Interpretative and internal rule

Laws Applicable: CA 55, RA 9337, RMC 31-2008

FACTS:

• July 1, 2005: Republic Act No. 9337 (RA 9337) was enacted amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the 1997 National Internal Revenue Code, as amended. (NIRC)

• January 30, 2008: Commissioner of Internal Revenue (CIR) Lilian Hefti issued Revenue Memorandum Circular No. 31-2008 (RMC 31-2008) seeking to clarify certain provisions of the NIRC with portions, to wit:  
• Q-3: Are on-line international sea carriers subject to VAT?
• A-3:    No. On-line international sea carriers  are  not  subject  to  VAT  they  being subject to percentage tax under Title V of the Tax Code. xxx However, if these on-line international sea carriers engage in other transactions not exempt under Section 119 of the Code, they shall be liable to the twelve percent (12%) VAT on these transactions. 

 

• Q-4: Are demurrage fees collected by on-line international sea carriers due to delay by the shipper in unloading their inbound cargoes subject to tax?
• A-4: Yes, Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line carrier. Said other line of business may likewise be subject to VAT or percentage tax applying   the   rule   on   threshold   discussed   in   the   succeeding paragraph.

 

• Q-5: Are detention fees and other charges collected by international sea carriers subject to tax?
• A-5: Detention fees and other charges relating to outbound cargoes and inbound  cargoes  are  all  considered  Philippine-sourced  income  of the international  sea  carriers  they  being  collected  for  the  use  of property  or  rendition  of  services  in  the  Philippines, and are subject to the Philippine income tax under the regular rate, and to the Value added  tax,  if  the  total  annual  receipts  from  all  the  VAT-registered activities   exceeds   one   million   five   hundred   thousand pesos (P1,500,000.00).  However, if the total annual gross receipts do not exceed one million five hundred thousand pesos, said taxpayer is liable to pay the 3% percentage tax.

• Q-14: Are sales of goods, supplies, equipment, fuel and services to persons engaged in international shipping operations subject to VAT? 
• A-14: The sale of goods, supplies, equipment, fuel and services (including leases of property) to the common carrier to be used in its international sea transport operations is zero-rated.  Provided,  that  the same 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 xxx

• Q-34: Are commission incomes received by the local shipping agents from their foreign principals subject to VAT?
• A-34: The  commission  income  or  fees  received  by  the  local  shipping agents   for   outbound   freights/fares   received   by   their   foreign principals which are on-line international sea carriers ( touching any port in the Philippines as part of their operation) shall be zero-rated pursuant to the provisions of Section 108(B)(4) of the Code.  Said provision does not require that payments of the commission income or fees for “services rendered to persons engaged in international shipping operations, including leases of property for use thereof,” be paid in acceptable foreign currency in order that such transaction may be zero-rated. On the other hand, commission income or fees received   by   the   local   shipping   agents   pertaining   to   inbound freights/fares     received     by     their     foreign     principals/on-line international sea carriers or pertaining to freights/fares received by off-line international sea carriers shall be subject to VAT at 12%.

• December 6, 2010: Petitioners Association of International Shipping Lines, Inc. (AISL), APL Co. Pte. Ltd. (APL) and Maersk-Filipinas, Inc. (Maersk) sought to nullify RMC No. 31-2008 via a petition for declaratory relief under Civil Case No. Q-09-64241 praying for the issuance of a writ of preliminary injunction enjoining then CIR and her agents from implementing, enforcing or acting pursuant to or on the basis of the challenged provisions of RMC 31-2008 and render judgment declaring these challenged provisions void.
• It alleged that RMC 31-2008 was void as it imposed regular tax rate of 30% and 12% VAT on the demurrage and detention fees collected by international shipping carriers from shippers or consignees for delay in the return of containers, on the domestic portion of services to persons engaged in international shipping operations, and on commission income received by local shipping agents from international shipping carriers or in connection with inbound shipments.

• May 18, 2012: RTC branch 98 in Civil Case No. Q-09-64241 declared as invalid the challenged provisions of RMC 31-2008 insofar as it subjects demurrage and detention fees to the regular corporate income tax under Section 28(A)(1) and 12% VAT.

•  March 7, 2013: RA 10378 was enacted amending Section 28 (A)(3)(a) of the NIRC which reads:
• Being incidental to the trade or business of the international carrier, demurrage fees should instead form part of the Gross Philippine Billings (GPB) subject to 2.5% tax under Section 28 (A)(1)(3b) of the NIRC and the same does not expressly impose 12% VAT on the domestic portion of the services rendered by international carriers.

• December 4, 2013: Petitioners initiated a petition for declaratory relief challenging Section 4.4 of RR 15-2013 (implementing rules of RA 10378) and impleading both the Secretary of Finance and CIR.
• 4.4) Taxability   of   Income   Other   Than   Income   from International Transport Services. —All items of income derived by international carriers that do not form part of Gross Philippine Billings as defined under these Regulations shall be subject to tax under the pertinent provisions of the NIRC, as amended. 

•  Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines, is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line carrier.
• Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered Philippine-sourced income of international sea carriers they being collected for the use of property or rendition of services in the Philippines, and are subject to the Philippine income tax under the regular rate.

• September 15, 2015: RTC dismissed the petition for declaratory relief

1.    granted the motion for judicial notice of the existence of RMC 31-2008, May 18, 2012 RTC Order in Civil Case No. Q-09-64241 and the enactment of RA 10378 – all these being official acts of different branches of government
2.    Declared that it had no jurisdiction over the petition for declaratory relief pursuant to CA 55 which removed from RTC the authority to rule on cases involving one’s liability for tax, duty, or charge collectible under any law administered by the Bureau of Customs (BOC) or BIR
3.    Ruled against res judicata because:
a.    res judicata does not give rise to a cause of action for the purpose of initiating a complaint
b.    RA 10378 constituted a supervening event which negated the application of res judicata
c.    there is no similarity of parties, subject matters, and cause of action
d.    it found RR 15-2013 to be reasonable tax regulation and an interpretative issuance, the effectivity of which does not require a public hearing nor prior registration with the UP Law Center.  

• January 8, 2016:  Petitioners’ partial motion for reconsideration was denied
•  Petitioners, on pure questions of law, sought for Supreme Court’s discretionary appellate jurisdiction to review.  They reiterated the arguments raised in their petition for declaratory relief.  

ISSUES
1.    Does res judicata apply in this case?
2.    Is a petition for declaratory relief proper for the purpose of invalidating RR 15-2013?
3.    Is RR 15-2013 a valid rule?

HELD: Denied
1.    NO. Res judicata applies in the concept of “bar by prior judgment” if the following requisites concur:
a.    Former judgment or order must be final
b.    Judgment or order must be on the merits
c.    Decision must have been rendered by a court having jurisdiction over the subject matter and the parties – not met since while RMC 31-2008 which is the subject of Civil Case No. Q-09-64241 and RR 15-2013 subject of the present case both treat demurrage and detention fees to be within the prism of regular corporate income tax rate, they emanate from different authority. Moreover, the judgment in Civil Case No. Q-09-64241 which only binds the CIR cannot serve as a judicial precedent for the purpose of precluding the Secretary of Finance from promulgating a similar issuance on the same subject.  It also cannot be judicial precedent to be followed in subsequent cases by all courts in the land as it is rendered by RTC and not SC.
d.    There must be, between the 1st and 2nd action, identity of parties of subject matter and of cause of action – not met since RTC branch 98 in Civil Case No. Q-09-64241 is only binding on herein petitioners and the CIR as lone respondent.  However, in this case, although the petitioners are the same, the respondents are the CIR and the Sec. of Finance.

• CIR issued RMC 31-2008 on January 30, 2008 under the auspices of Section 4 of the NIRC while Sec. of Finance issued RR 15-2013 on September 20, 2013 in obedience to the legislative directive under Section 5 of RA 103778 and pursuant to his rule-making power under Section 244 of the NIRC.  Both were issued pursuant to their separate powers and prerogatives granted by law.

2.    No. Since there is no actual case involved in a petition for declaratory relief, it cannot be the proper vehicle to invoke the power of judicial review to declare a state as invalid or unconstitutional. As decreed in DOTR v. PPSTA (G.R. No. 230107, July 24, 2018), the proper remedy is certiorari or prohibition. 

• Nonetheless, the court held in Diaz et al v. Secretary of Finance, et al (G.R. No. 193007, July 19, 2011): “But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good. The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority. xxx Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite.”

3.    Yes. RR 15-2013 is a valid interpretative and internal issuance for the guidance of all internal revenue officers and others concerned.  It merely sums up the rules by which international carriers may avail of preferential rates or exemption from income tax on their gross revenues derived from the carriage of persons and their excess baggage based on the principle of reciprocity or an applicable tax treaty or international agreement to which the Philippines is a signatory.  As such it need not pass through a public hearing or consultation, get published nor registered with UP Law Center for its effectivity. 

• In treating demurrage and detention fees as regular income subject to regular income tax rate, the Secretary of Finance relied on Section 23(A)(I)(3a) of NIRC, as amended by RA 10378, which is still in effect since not amended by Tax Reform for Acceleration and Inclusion (TRAIN) law.
• Under 55 15-2013, demurrage and detention fees are not deemed within the scope of GPB.  GPB covers gross revenue derived from transportation of passengers, cargo and/or mail originating from the Philippines up to the final destination.  Any other income, therefore, is subject to the regular income tax rate.  When the law is clear, there is no other recourse but to apply it regardless of its perceived harshness.  Dura lex sed lex.
• Exclusion of demurrage and detention fees from the preferential rate of 2.5% is proper since they are not considered income derived from transportation of persons, goods and/or mail, in accordance with the rule expressio unios est exclusion alterius.
• Demurrage and detention fees fall within the definition of “gross income” - acquired in the normal course of trade or business 
• Demurrage fees – rent payment for the vessel
• Detention fees – use of container

Corporate Law and Negotiable Instruments Law Case Digest: Llorente v. Star City Pty Ltd. (2020)

First Division
Llorente v. Star City Pty Ltd.(2020)
G.R. No. 212050/G.R. No. 212216, January 15, 2020
Caguioa, J.


Lessons Applicable: Capacity to Sue, Jurisdiction of RTC, Isolation Transaction Rule, Bank Drafts, Drawer Liability, Effect of Stop Payment Order

Laws Applicable: Sec. 150 of RA 11232, Section 84 of the NIL

FACTS:
•    Star City Pty Limited (SCPL) operates as a casino in Sydney, New South Wales, Australia and claims that it is not doing business in the Philippines and is suing for an isolated transaction. 
•    November 25, 2002: It filed a complaint for collection of sum of money with prayer for preliminary attachment against Llorente, who was a patron of its Star City casino and Equitable PCI Bank (EPCIB).
•    July 12, 2000: Llorente negotiated two (2) Equitable PCI bank drafts with check numbers 034967 and 034968 worth 150,000 USD each or for the total amount of 300,000 USD in order to play in the Premium Programme of the casino.
•    The Premium Programme offers the patron a 1% commission rebate on his turnover at the gambling table and a .10% rebate for complimentary expense
•    Before upgrading Llorente to this programme, SCPL contracted 1st EPCIB to check the status of the subject drafts    
•    After Llorente confirmed that the same were issued on clear funds without any stop payment orders, his front money account in the casino was credited with 300,000 USD
•    July 18, 2000: SCPL deposited the drafts with Tomas Cook Ltd.
•    August 1, 2000: SCPL received the advise of Bank of New York about the “Stop Payment Order” (SPO) prompting it to make several demands upon Llorente who refused to pay
•    August 30, 2000: SCPL sought settlement from EPCIB which denied it on the ground of the SPO by LLorente and no notice of dishonor was given.
•    January 28, 2003: RTC granted the issuance of writ of preliminary attachment based on the indicative acts of Llorente of his intention to avoid his obligation and defraud SCPL (i.e. leaving hotel premise without informing SPCL his whereabouts, failing to pay for services availed of, requesting SPO despite availing of services, failure to communicate for the settlement of his obligations)
•    Llorente alleged that he caused the SPO because of SCPL’s commission of fraud and unfair gaming practices during his stay in the casino from July 12 to July 17, 2000.  He also sought the dismissal of the case on the ground of lack of legal capacity to sue since the “isolated transaction rule” only covers transaction which occurred in the Philippines when the same occurred in Australia.
•    EPCIB in its answer also alleged lack of personality to sue before the Philippine courts and denied that it unjustifiably and maliciously refused to settle the obligation since it merely complied with Llorente’s instruction.  Moreover, it stated that SCPL has no action against it since there was no privity of contract between them.  It also filed a cross-claim against Llorente since it already reimbursed the face value of the subject drafts, it is relieved of all liabilities under said drafts.
•    RTC: Found SPCL to have legal capacity to sue and held Llorente (as payee of the drafts and indorser who signed on its back) and EPCIB (as drawer of the drafts) solidarily liable for the value of the drafts.
•    CA: Denied Llorante’s appeal but partially granted EPCIB’s discharhing it from any responsibility considering that it already paid Llorente
•    CA denied both Llorente’s motion for reconsideration and SCPL’s partial motion for reconsideration
•    Llorente and SCPL filed an instant Rule 45 petitions for review on certiorari

ISSUES:
1.    W/N SCPL has the capacity to sue
2.    W/N Philippine courts have jurisdiction over the case
3.    W/N EPCIB should be liable as drawer

HELD:
1.    YES.

• Sec. 150 of RA 11232 (Revised Corporation Code of the Philippines) (RCC) which became effective on February 23, 2019 (reproduction of Sec. 133 of BP 68) provides:
• SEC.  150. Doing  Business  Without  a  License.–No  foreign  corporation  transacting business  in  the  Philippines  without  a  license,  or  its  successors  or  assigns,  shall  be  permitted  to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws

• While the RCC grants to foreign corporations with Philippine license the right to sue in the Philippines, the Court, in the long line of cases under the regime of the Corporation Code has held that a foreign corporation not engaged in business in the Philippines may not be denied the right to file an action in the Philippines court for an isolated transaction. 
• The issue on whether a foreign corporation which does not have license to engage in business the Philippines can seek redress in Philippine courts depends on whether it is doing business or it merely entered into an isolated transaction – qualifying circumstance essential part of the plaintiff’s capacity to sue (as a matter of pleading and procedure) should be affirmatively pleaded  
• In the case at bar, SCPL alleged in its complaint that it is not doing business in the Philippines and is suing upon a singular and isolated transaction and appointed Jimeno, Jalandoni and Cope Law Offices as its attorney-in-fact.  The latter is irrelevant to its capacity to sue.
• Moreover, Llorente in his answer pleaded an affirmative relief for damages from SCPL by way of counterclaim – contrary to his position that plaintiff has no capacity to sue and admitted the capacity of plaintiff to be subject of judicial process.  It would be unfair to allow it to be sued and not allowing it to sue on an isolated transaction here.

2.    Yes.

• Complaint is for civil case for collection of sum of money which under BP 129 Section 19 RTCs have jurisdiction – above 400,000 in Metro Manila
• Amount demanded: 300,000 USD plus legal interest from date of 1st demand on December 20, 2000 until full payment is 

• Criminal case territorial jurisdiction involving checks: any of the places where the check is drawn, issued, delivered or dishonored has jurisdiction – subject drafts drawn by EPCIB, a Philippine bank

3.    Yes.

• CA recognized SCPL as a holder in due course and it did not overturn the finding of the RTC that the subject demand/bank drafts are negotiable instruments.  In effect, 2 demand/bank drafts drawn by EPCIB with Llorante as the payee are negotiable instruments.
• A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other.  It is an order by 1 person, say the buyer of goods, address to a person having in possession funds of such buyer, ordering the addressee to pay the purchase price to the seller of the goods.  Where the order is made by 1 bank to another = bank drafts – negotiable instruments governed by the provisions of Negotiable Instruments Law (NIL)

•  Both RTC and CA recognized EPCIB as the drawer of the subject demand/bank drafts. 
• Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.
• When the bank, as the drawer of a negotiable check, signs the instrument its engagement is then as absolute and express as if it were written on the check and a dual promise is implied from the issuance of the check:

•  Bank upon which it is drawn will pay the amount thereof
• If such bank should fail to make the payment, the drawer will pay the same to the holder
• Drawing a check = drawer admits the existence of the payee and his then capacity to endorse; impliedly represents that he (payee) has funds or credits available for its payment in the bank which it is drawn; engages that if the bill is not paid by the drawee and due proceedings on dishonor are taken by the holder, he will upon demand pay the amount of the bill together with the damages and expenses accruing to the holder by reason of the dishonor of the instrument; and if the drawee refuses to accept a bill drawn upon him, becomes liable to pay the instrument according to his original undertaking
• Liability of the drawer is secondary = after acceptance – conditional upon proper presentment and notice of dishonor, and, in case of a foreign bill of exchange, protest unless such conditions are excused or dispensed with. 
• Section 84 of the NIL: When instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder, subject to the provision of the NIL

• GR: Effect of countermand or stopping of payment by the drawer - Relation between the drawer and the payee = as if the instrument had been dishonored and notice thereof given to the drawer
• drawer of a bill (including a draft or check) may by notice to the drawee prior to acceptance or payment countermand his order and command the drawee not to pay, in which case the drawee is obliged to refuse to accept or pay  Drawer’s conditional liability is changed to one free from the condition > like that of the maker of a promissory note due on demand – liable on the instrument if he has no sufficient defense

•  EX: Draft drawn by 1 bank upon another and bought and paid for by a remitter, as the equivalent of money or as an executed sale of credit by the drawer, is not subject to rescission or countermand so as to avoid the drawer’s liability thereon.
• Right to stop payment cannot be exercised so as to prejudice the rights of holders in due course without rendering the drawer liable on the instrument to such holders

1. Liability of EPCIB as the drawer cannot be abrogated by the Indemnity Agreement because bank drafts are negotiable instruments nor can it argue that it has no privity of contract.  Its secondary liability under Section 61 of the NIL became primary when the payment of the subject demand/bank drafts had been stopped which had the same effect as if the instruments had been dishonored and notice thereof was given to the drawer pursuant to Section 84 of the NIL.
2. If EPCIB is made liable on the subject demand/bank drafts, it has a recourse against the indemnity bond.  In effect, the indemnity bond required by EPCIB is in effect an admission of his liability to SCPL and Llorente’s citing exceeding his obligation to pay as reason for the SPO weakens his allegation of fraud and unfair gaming practice against SCPL.
3. Unjust enrichment cannot apply to SPCL since party who received the benefit was Llorente.  Any payment to SCPL arising from the subject demand/bank drafts by EPCIB and/or Llorente can never be by mistake.
• Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises
• Art. 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause.

• Both Llorente and EPCIB are individually and primarily liable as endorser and drawer of the subject demand/bank drafts, repectively – SPCL may proceed to collect the damages awarded simultaneously or alternatively provided it is not more than the damages awarded
• 300,000 USD with interest at the legal rate of 12% per annum from date of extrajudicial demand against EPCIB: August 30, 2002) (that was made subsequent to the extrajudicial demand against Llorente) and 6% per annum from July 1, 2013 until full payment and the payment for attorney’s fees equivalent to 5% of the amount of demand with interest of 6% per annum from finality of Decision until full payment    

• Art. 1207. xxx There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
• No contract nor does NIL provide for solidary obligation under the liability of the drawer