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Tax Case Digest: CIR v. San Miguel Corporation G.R. No. 180740/G.R. No. 180910, November 11, 2019

CIR v. San Miguel Corporation
G.R. No. 180740/G.R. No. 180910, November 11, 2019

SC Second Division
Hernando, J.:

Lessons Applicable: unauthorized administrative legislation, prescription period for refund
Laws Applicable:

FACTS:

January 1, 1997: Republic Act (RA) No. 8240 took effect adopting a specific tax system instead of the ad valorem tax system imposed on, among others, fermented liquor. As a result, fermented liquors were specifically subjected to excise taxes in accordance to the schedule in Section 140 of RA 8240 (renumbered to Section 143 under RA 8424)
December 16, 1999: Secretary of Finance, upon recommendation of the CIR, issued RR No. 17-99 to implement 12% increase on excise tax, among others, fermented liquors by January 1, 2000.
January 10, 2003: SMC filed a claim for tax refund or credit of excise tax it paid on its Red Horse Beer product from January 11, 2001 to December 31, 2000 in the amount of 94,494,801.96 php equivalent to the difference before the effectivity of RA 8240 and the new rate imposed under Section 145 of RA 8424 .
Without waiting for the CIR to act on its administrative claim for tax refund or credit, SMC filed a Petition for Review before the CTA
CTA 1st Division: Approved SMC’s claim for tax refund or credit for its excess excise tax payment from March 1, 2001 to December 31, 2002 in the amount of 88,090,531.56 (excluded prescribed claim for January to February 2001).
SMC filed a Motion for Reconsideration (MR) for the prescribed claim for January to February 2001 arguing that under the Advance Payment or Deposit scheme authorized by Section 11.1(2)(b) of RR No. 2-97, the filing of the returns and supporting documents may be submitted even a week after the actual removals.
CTA 1st Division denied MR: Though due date of tax payment is not always the reckoning point for purposes of prescription, SMC failed to present its excise tax returns for January 1, 2001 to February 28, 2001 to prove the dates they were actually filed.
CIR and SMC filed a Petition for Review with the CTA En Banc
CTA en Banc: Denied since SMC claim is barred by prescription based on Section 229 and 130(A)(2) of the Tax Reform Act of 1997 since it failed to present the proof of the exact amount it paid for the period February 1 to 23, 2001.
CIR filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court with the CTA En Banc

ISSUES:
1.    W/N Section 1 of RR 17-99 is valid
2.    W/N SMC is entitled claim has prescribed

HELD: Petitions are denied.

1.    NO.

As correctly contended by SMC, CIR v. Fortune Tobacco Corporation (G.R. Nos. 167274-75, July 21, 2008) declaring Section 1 of RR No. 17-99 as unauthorized administrative legislation applies. In this case, the provision is not supported by the plain wording of Section 143 of the Tax Code on fermented liquor just like Section 145 of the same Code on cigars and cigarettes in the above-mentioned case.
Moreover, in CIR v. San Miguel Corporation (G.R. No. 184428, November 23, 2011) which involved the same parties herein and similar claim for refund of SMC for excess excise tax payments on its Red Horse beer product paid from May 22 to December 31, 2004.

2. Yes.

In CIR v. Meralco (G.R. No. 181459, June 9, 2014), the court ruled that the two (2)-year prescriptive period under Section 229 of the Tax Reform Act of 1997 applies and that the six (6)-year period for actions based on solutio indebiti under Art. 1145 of the Civil Code. The first element of solution indebiti where payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment is lacking. Moreover, it is inapplicable since the Tax Code is a special law which explicitly provides for a mandatory period for claiming a refund for taxes erroneously paid. Generalia specialibus non derogant.
Neither can the claim be excepted from the two (2)-year prescription period based on equity considerations when there is clear statutory law governing the matter.
It is a basic rule of evidence that each party must prove its affirmative allegation. The burden rests upon SMC to present evidence that its prescribed returns for the excise taxes on its Red Horse beer product for February 2001 were actually filed after the removal of the said products from the place of production or later than February 24, 2001. Yet, it failed to present a definitive computation of the excise taxes on its Red Horse Beer product which it had paid from February 24 to 28, 2001 and which would still have been within the prescriptive period.
Only questions of law may be raised under Rule 45 of the Rules of Court. The sufficiency of a claimant’s evidence and the determination of the amount of refund are questions of fact which are for the judicious determination by the CTA of the evidence on record. Rule finds greater significance with respect to the findings of specialized courts such as the CTA because of the very nature of its functions, which is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, and consequently its conclusions are not lightly set aside unless there has been an abuse or improvident exercise of authority.

Tax Case Digest: People v. Mallari, G.R. No. 197164, December 4, 2019

People v. Mallari
G.R. No. 197164, December 4, 2019

SC Second Division
Hernando, J.

Lessons Applicable: Doctrine of Immutability
Laws Applicable:

FACTS:

October 23, 2007: Revenue Delegation Authority Order (RDAO) No. 202007, Regional Director Alfredo V. Misajon (Misajon) of the Bureau of Internal Revenue (BIR), Revenue Region No. 6 of Manila (BIR Manila) filed a criminal complaint against respondens Benedicta Mallari (Mallari) and Chi Wei-Neng (Wei-Neng), President and General Manager of Topsun Int’l (Topsun) for violation of Section 255 in relation to Sections 253 and 256 of the 1997 National Internal Revenue Code (NIRC) before the Office of the City Prosecutor (OCP) of Manila before the Office of the City Prosecutor.
August 7, 2009: Assistant City Prosecutor of Manila Gideon C. Mendoza (ACP Mendora) found probable cause to indict Mallari and Wei-neng and Information was subsequently filed before the CTA 1st Division.
CTA 1st Division dismissed the criminal complaint for failure of ACP Mendorza to obey a lawful order of the court to submit a certified true copy of the Memorandum of the CIR authorizing Misajon to prosecute.
January 18, 2010 (out of time): Special counsels/prosecutors of the BIR Manila filed their Entry of Appearance with Leave to Admit Attached Motion for Reconsideration maintaining that RD Misajon can sign approval and referral letters to authorize the institution of criminal actions/cases from the regional office with the courts, government agencies, or quasi-judicial bodies under Section 220 of the NIRC in accordance with the delegated authority vested by the CIR to RD under RDAO No. 2-2007. Further, March 27, 2007 Memorandum issued by the CIR gives authority to specific BIR legal offices to prosecute and conduct criminal proceedings with respect to violation of tax laws like in the instant case.
CTA En Banc dismissed Petition for Review on Certiorari under Rule 45 of the Rules of Court affirming CTA 1st Division decision which has already become final.

ISSUE: W/N CTA 1st Division decision which has already become final

HELD: YES. By Doctrine of Immutability, the resolution can no longer be reviewed nor modified even if it is meant to correct an erroneous conclusion of law and facts of the said tax court.

Alleged negligence of special counsel ACP Mendoza bind petitioner.

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