Taxation 2

TAX DIGESTS ON VALUE

ADDED TAX (VAT)
3 JD-A

Atty. Richard M. Fulleros CPA,

MBA

Tax Digest on Value Added Tax (VAT)

1.

CIR vs. CA (by: Concepcion, Rey Edward)

G.R. No. 125355 (30 Mar. 2000)
FACTS:
Commonwealth Management and Services Corp. (COMASERCO) is an affiliate of Phil. Am. Life Insurance. It
performs collection, consultative and other technical services for Phil Am. It functions as an internal auditor for Phil
Am.
On 24 Jan. 1992, BIR assessed COMASERCO. It has a VAT deficiency in the amount of PhP 351,851.01 for 1988.
COMASERCO argued that it experienced net loss in its operations during 1988 in the amount of P6,077. Thus, it
cannot be subject to VAT.
Court of Tax of Appeals (CTA) affirmed the CIR. Court of Appeals (CA) reversed the CTA. In so ruling, CA cited a
case where the parties are similar, and COMASERCO was held not liable for payment of contractors tax.
Supreme Court (SC) reversed CA.
ISSUE:
Whether COMASERCO is liable to pay VAT?
RULING:
Yes.
Value Added Tax (VAT)
VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of oods or
property, and on the performance of services, even in the absence of profit attributable thereto.
Non-stock, non-profit orrganization or government entity is liable to pay VAT for the sale of goods and services.
In the course of trade or business
It requires the regular condut or pursuit of a commercial or an economic activity, whether or not profit-oriented.
Sales of Services
It is the performance of all kinds of services for others for a fee, remuneration or consideration.
It includes supply of technical advice, assistance with technical management, as in this case.
As long as the entity provides service for a fee, remuneration, or consideration, then the services rendered is subject to
VAT.
Any exemption from the tax must be clearly stated in the language of the law.
Ratio: Lifeblood Doctrine.
Thus, construed strictly against the grantee.

2.

American Express vs. Commissioner

3.

CIR vs. Burmeister and Wain

4.

CIR vs. Magsaysay Lines (Torente, Krishna Thea)

Facts:
National Development Company (NDC) decided to sell its National Marine Corporation (NMC)s shares and five of its
vessels through a public bidding. The sale comes with an agreement that the winning bidder will have to pay 10% VAT on
the value of the vessels.
They entered into a contract of sale with the respondent company, Magsaysay Lines. As per arrangement, an irrevocable
confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as security for the payment of VAT, if
any. Meanwhile, Magsaysay filed a formal request for a ruling on whether or not the sale of the vessels was subject to VAT.
BIR ruled that the sale of the vessels was subject to 10% VAT since NDC was a VAT-registered enterprise and thus, its
transactions incident to its normal VAT registered activities are subject to such tax. Magsaysay filed an MR but was denied
by the BIR. Hence, NDC drew on the letter of credit.
Magsaysay then filed for an appeal and petition for refund before the CTA. CTA granted the petition ruling that the sale was
an isolated transaction not done in the ordinary course of business or trade. CA, after its reversal of its earlier decision,
affirmed such ruling of the CTA. Hence, this petition.
Issue:
Whether or not the sale by NDC of its vessels to Magsaysay Lines was subject to VAT
Ruling:
NO. VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a
fixed percentage. It is not a singular minded tax on every transaction level. Its assessment bears direct relevance to the
taxpayers role or link in production chain. Hence, as affirmed by Section 99 of the tax code, the tax is levied only on the
sale, barter, or exchange of goods or services by persons who engage in such activities- in the course of trade or business.
Transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as
a matter of accident or incident.
In the case at bar, sale of the vessels was not in the ordinary course of business or trade of NDC. Course of trade or business
or doing business connotes regularity of activity. There is no indication that the NDC was created for the primary purpose of
selling real property. CIR didnt even dispute such conclusion. Hence, such sale was not subject to VAT.

5.

CIR vs. Seagate Technology Phils.

6.

Microsoft Phils. Vs. CIR (by: Cario-Rebusta, Jennifer)

Nature of Action:
This is a petition for review on certiorari assailing the Decision dated 24 October 2007 of the Court of Tax Appeals (CTA) En
Banc in CTA EB No. 258, which affirmed the Decision dated 31 August 2006 and Resolution dated 8 January 2007 of the CTA
Second Division in CTA Case No. 6681.

Facts:
Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly registered with the Bureau of Internal
Revenue (BIR). It renders marketing services to Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both
affiliated non-resident foreign corporations. The services are paid for in acceptable foreign currency and qualify as zero-rated
sales for VAT purposes under Section 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended. Section
108(B)(2) states:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(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:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported x x x;
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas(BSP); x x x
On December 27, 2002, Microsoft filed an administrative claim for tax credit of VAT input taxes in the amount of P11,449,814.99
with the BIR. The administrative claim for tax credit was filed within two years from the close of the taxable quarters when the
zero-rated sales were made. Subsequently on April 23, 2003, due to the BIR's inaction, Microsoft filed a petition for review with
the CTA. Microsoft claimed to be entitled to a refund of unutilized input VAT attributable to its zero-rated sales and prayed that
judgment be rendered directing the claim for tax credit or refund of VAT input taxes for taxable year 2001. However, on 16 June
2003, respondent Commissioner of Internal Revenue (CIR) filed his answer and prayed for the dismissal of the petition for
review.
The CTA Second Division, in a Decision dated August 31, 2006, denied the claim for tax credit of VAT input taxes. The CTA
explained that Microsoft failed to comply with the invoicing requirements of Sections 113 and 237 of the NIRC as well as
Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95). The CTA stated that Microsoft's official receipts do not bear the
imprinted word zero-rated on its face, thus, the official receipts cannot be considered as valid evidence to prove zero-rated sales
for VAT purposes. Microsoft filed a motion for reconsideration which was denied by the CTA Second Division in a Resolution
dated 8 January 2007.

A petition for review was then filed with the CTA En Banc but on October 24, 2007, the CTA En Banc denied the petition for
review and affirmed in toto the Decision of the CTA Second Division. Hence, this petition.
Issue:
Whether or not Microsoft is entitled to a claim for a tax credit or refund of VAT input taxes on domestic purchases of goods or
services attributable to zero-rated sales for the year 2001 even if the word zero-rated is not imprinted on Microsoft's official
receipts.

Ruling:
The Court found the petition lack of merit. The Court sees no reason to disturb the CTA's findings since Microsoft failed to
comply with the invoicing requirements of the NIRC and its implementing revenue regulation to claim a tax credit or refund of
VAT input tax for taxable year 2001.
A tax credit or refund, like tax exemption, is strictly construed against the taxpayer. The taxpayer claiming the tax credit or
refund has the burden of proving that he is entitled to the refund or credit, in this case VAT input tax, by submitting evidence that
he has complied with the requirements laid down in the tax code and the BIR's revenue regulations under which such privilege of
credit or refund is accorded.
Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VAT-registered persons state:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.
(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the
information required under Section 237, the following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes
the value-added tax. x x x
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax shall, for each
sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered
receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount
of One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to
value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to
the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the
purchaser.

The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected,
who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period
of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept
and preserved by the issuer, also in his place of business, for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the
provisions of this Section.
Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which must appear on the face of the official
receipts or invoices for every sale of goods by VAT-registered persons. At the time Microsoft filed its claim for credit of VAT
input tax, RR 7-95 was already in effect. The provision states:
Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of goods or properties or services,
issue duly registered receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. the word zero-rated imprinted on the invoice covering zero-rated sales; and
6.

the invoice value or consideration.

xxx
Only VAT-registered persons are required to print their TIN followed by the word VAT in their invoices or receipts and this shall
be considered as a VAT invoice. All purchases covered by invoices other than a VAT invoice shall not give rise to any input tax.
(Emphasis supplied)
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear. A VATregistered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on
domestic purchases for goods or services attributable to zero-rated sales. A VAT invoice is an invoice that meets the requirements
of Section 4.108-1 of RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly states that all purchases covered by invoices
other than a VAT invoice shall not give rise to any input tax. Microsoft's invoice, lacking the word zero-rated, is not a VAT
invoice, and thus cannot give rise to any input tax.
The petition was denied and the Decision of the Court of Tax Appeals En Banc in CTA EB No. 258 was affirmed

7.

CIR vs. Sony Phils. (by: Dacones, Anthony)

FACTS:
IN NOVEMBER 1998, THE COMMISIONER OF INTERNAL REVENUE ISSUED A LETTER OF AUTHORITY
NUMBERED 19734 (LOA 19734) WHICH AUTHORIZED CERTAIN REVENUE EXAMINERS TO EXAMINE SONY
PHILIPPINES BOOKS OF ACCOUNTS REGARDING REVENUE TAXES FOR THE PERIOD 1997 AND UNVERIFIED
PRIOR YEARS.

AFTER THE EXAMINATION OF SAID BOOKS, THE CIR FOUND OUT, AMONG OTHERS, THAT SONY PHILIPPINES
IS LIABLE FOR DEFICIENCY TAXES AND PENALTIES FOR VALUE ADDED TAX AMOUNTING TO 11,141,014.41.

SONY PHILIPPINES CONTESTED SUCH FINDING AS IT ARGUED THAT THE BASIS USED BY THE CIR TO ASSESS
SAID DEFICIENCY WERE THE RECORDS COVERING THE PERIOD OF JANUARY 1998 THROUGH MARCH 1998
WHICH WAS A PERIOD NOT COVERED BY THE LETTER OF AUTHORITY SO ISSUED. THE CIR COUNTERED THAT
THE LOA PHRASE THE PERIOD 1997 AND UNVERIFIED PRIOR YEARS SHOULD BE UNDERSTOOD TO MEAN
THE FISCAL YEAR ENDING ON MARCH 31, 1998.

EVENTUALLY THE CASE REACHED THE COURT OF TAX APPEALS AND THE CTA DECIDED AGREED WITH SONY
PHILIPPINES ON THIS ONE. SO DID THE CTA EN BANC.

ISSUES:
1.

IS PETITIONER LIABLE FOR DEFICIENCY VALUE ADDED TAX?

2.

WAS THE INVESTIGATION OF ITS 1998 FINAL WITHHOLDING TAX RETURN VALID?

HELD:
1.
NO. SONY PHILIPPINES DID AN FACT INCUR EXPENSES SUPPORTED BY VALID VAT INVOICES WHEN IT
PAID FOR CERTAIN ADVERTISING COSTS. THIS IS SUFFICIENT TO ACCORD IT THE BENEFIT OF INPUT VAT
CREDITS AND WHERE THE MONEY CAME FROM TO SATISFY SAID ADVERTISING BILLINGS IS ANOTHER
MATTER BUT DOES NOT ALTER THE VAT EFFECT. IN THE SAME WAY, SONY PHILIPPINES CAN NOT BE DEEMED
TO HAVE RECEIVED THE REIMBURSABLE AS A FEE FOR A VAT-TAXABLE ACTIVITY. THE REIMBURSABLE WAS
COUCHED AS AN AID FOR SONY PHILIPPINES BY SIS IN VIEW OF THE COMPANYS DIRE OR ADVERSE
ECONOMIC CONDITIONS . MORE IMPORTANTLY, THE ABSENCE OF A SALE, BARTER OR EXCHANGE OF
GOODS OR PROPERTIES SUPPORTS THE NON-VAT NATURE OF THE REIMBURSEMENT. THIS WAS
DISTINGUISHED FROM THE COMASERCO CASE WHERE EVEN IF THERE WAS SIMILARITY A REIMBURSEMENTON-COST ARRANGEMENT BETWEEN AFFILIATES, THERE WAS IN FACT AN UNDERLYING SERVICE. HERE, THE
ADVERTISING SERVICES WERE RENDERED IN FAVOR OF SONY PHILIPPINES NOT SIS.
2.
NO. A LETTER OF AUTHORITY SHOULD COVER A TAXABLE PERIOD NOT EXCEEDING ONE YEAR AND
TO INDICATE THAT IT COVERS UNVERIFIED PRIOR YEARS SHOULD BE ENOUGH TO INVALIDATE IT. IN
ADDITION , EVEN IF THE FINAL WITHHOLDING TAX WAS COVERED BY SONY PHILIPPINES FISCAL YEAR

ENDING MARCH 1998, THE SAME FELL OUTSIDE OF THE PERIOD 1997 AND WAS THUS NOT VALIDLY
COVERED BY THE LETTER OF AUTHORITY.

8.

KEPCO Phils. Corp. Vs CIR (by: Suplico, Marie Joyce)

FACTS:
Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered independent power producer engaged in the
business of generating electricity. It exclusively sells electricity to National Power Corporation (NPC), an entity exempt
from taxes under Section 13 of Republic Act No. 6395 (RA No. 6395).[3]
Records show that on , Kepco filed an application for zero-rated sales with the Revenue District Office (RDO) No. 54 of the
Bureau of Internal Revenue (BIR). Kepcos application was approved under VAT Ruling 64-01. Accordingly, for taxable year
2002, it filed four Quarterly VAT Returns declaring zero-rated sales in the aggregate amount of P3,285,308,055.85. In the
course of doing business with NPC, Kepco claimed expenses reportedly sustained in connection with the production and
sale of electricity with NPC. Based on Kepcos calculation, it paid input VAT amounting to P11,710,868.86 attributing the
same to its zero-rated sales of electricity with NPC. The table shows the purchases and corresponding input VAT it paid.hus,
on , Kepco filed before the Commissioner of Internal Revenue (CIR) a claim for tax refund covering unutilized input VAT
payments attributable to its zero-rated sales transactions for taxable year 2002.Two days later, on , it filed a petition for
review before the CTA. n its Answer, respondent CIR averred that claims for refund were strictly construed against the
taxpayer as it was similar to a tax exemption. It asserted that the burden to show that the taxes were erroneous or illegal lay
upon the taxpayer. Thus, failure on the part of Kepco to prove the same was fatal to its cause of action because it was its
duty to prove the legal basis of the amount being claimed as a tax refund. The CTA Second Division likewise disallowed the
P5,170,914.20 of Kepcos claimed input VAT due to its failure to comply with the substantiation requirement. Specifically,
the CTA Second Division wrote:
[i]nput VAT on purchases supported by invoices or official receipts stamped with TIN-VAT shall be disallowed because
these purchases are not supported by VAT Invoices under the contemplation of the aforequoted invoicing requirement. To be
considered a VAT Invoice, the TIN-VAT must be printed, and not merely stamped. Consequently, purchases supported by
invoices or official receipts, wherein the TIN-VAT are not printed thereon, shall not give rise to any input VAT. Likewise,
input VAT on purchases supported by invoices or official receipts which are not NON-VAT are disallowed because these
invoices or official receipts are not considered as VAT Invoices. Hence, the claims for input VAT on purchases referred to in
item (e) are properly disallowed.
ISSUE:
Whether or not petitioner is entitled to the claim for refund on the disallowed portion
RULING:
No. The requirement that the Tax Identification Number (TIN) be imprinted and not merely stamped is a reasonable
requirement imposed by the Bureau of Internal Revenue (BIR). More importantly, the requirement of the appearance of the
words zero-rated on the face of the invoice prevents buyers from falsely claiming input VAT from their purchases when no
VAT was actually paid. The failure to adhere to the said rules will not only expose the taxpayer to penalties but should also
serve to disallow the claim. Finally, the Court disagreed with the portion that invoices and receipts are interchangeable since
the former clearly refer to sale of goods while the latter to services.

9.

AT&T Comm. Serv. Phils vs. CIR

10. Silicon Phils. Inc. Vs. CIR (by: Macapagao, Connie)

Facts:
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the laws of the Republic
of the Philippines, is engaged in the business of designing, developing, manufacturing and exporting advance and large-scale
integrated circuit components or ICs. Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Value Added
Tax (VAT) taxpayer and with the Board of Investments (BOI) as a preferred pioneer enterprise.
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through the One-Stop Shop
Inter-Agency Tax Credit and DutyDrawback Center of the Department of Finance (DOF), an application for credit/refund of
unutilized input VAT for the period October 1, 1998 to December 31, 1998 in the amount of P31,902,507.50, broken down
as follows:
Amount
Tax Paid on Imported/Locally Purchased
Capital Equipment

P 15,170,082.00

Total VAT paid on Purchases per Invoices

Received During the Period for which
this Application is Filed
16,732,425.50
Amount of Tax Credit/Refund Applied For P 31,902,507.50
On November 18, 2003, the CTA Division rendered a Decision partially granting petitioners claim for refund of unutilized
input VAT on capital goods. Out of the amount of P15,170,082.00, onlyP9,898,867.00 was allowed to be refunded because
training materials, office supplies, posters, banners, T-shirts, books, and other similar items purchased by petitioner were not
considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated Value-Added Tax
Regulations).With regard to petitioners claim for credit/refund of input VAT attributable to its zero-rated export sales, the
CTA Division denied the same because petitioner failed to present an Authority to Print (ATP) from the BIR;neither did it
print on its export sales invoices the ATP and the word zero-rated.
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review,docketed as EB Case No. 23.
On September 30, 2005, the CTA En Banc issued the assailed Decision denying the petition for lack of merit.
Issue:

Whether the CTA En Banc erred in denying petitioners claim for credit/ refund of input VAT attributable to its zero-

rated sales

Whether the CTA En Banc erred in ruling that only the amount ofP9,898,867.00 can be classified as input VAT paid on

capital goods.
Ruling:
Credit/refund of input VAT on zero-rated sales

Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated.

To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since the ATP is
not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by
requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or receipts would have no probative
value for the purpose of refund.

Similarly, failure to print the word zero-rated on the sales invoices or receipts is fatal to a claim for credit/refund of

input VAT on zero-rated sales.

All told, the non-presentation of the ATP and the failure to indicate the word zero-rated in the invoices or receipts are

fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in the sales invoices or
receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to print the word zero-rated on its
export sales invoices. Thus, we find no error on the part of the CTA in denying outright petitioners claim for credit/refund of
input VAT attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods
To claim a refund of input VAT on capital goods, Section 112 (B)of the NIRC requires that:
the claimant must be a VAT registered person;

the input taxes claimed must have been paid on capital goods;

the input taxes must not have been applied against any output tax liability; and

the administrative claim for refund must have been filed within two (2) years after the close of the taxable quarter when

the importation or purchase was made.

Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
Capital goods or properties refer to goods or properties with estimated useful life greater that one year and which are treated
as depreciable assets under Section 29 (f)used directly or indirectly in the production or sale of taxable goods or services.
Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training materials, office
supplies, posters, banners, T-shirts, books, and the other similar items reflected in petitioners Summary of Importation of
Goods are not capital goods. A reduction in the refundable input VAT on capital goods from P15,170,082.00 to
P9,898,867.00 is therefore in order.

11. Renato V. Diaz vs. BIR (by: Janda, Louella)

Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the
validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections
of tollway operators. Court treated the case as one of prohibition.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of
"sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll
fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll
fees, its imposition would violate the non-impairment clause of the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway
operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the
imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read
into contracts.

Issue:
May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a service that is
subject to VAT)?

Ruling:
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over
which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway
operator is no different from the service providers under Section 108 who allow others to use their properties or facilities for
a fee.
Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of
VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public
concern. Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction,
operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily
require a special grant of authority from the state.

A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and
expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable
margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government
exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority,
toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

12. PAGCOR vs. BIR (by: Morales, Genie)

FACTS:
The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D. No. 1067-A in 1977. Obviously, it is a
government owned and controlled corporation (GOCC).
In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became effective. Section 27 thereof provides
that GOCCs are NOT EXEMPT from paying income taxation but it exempted the following GOCCs:
1. GSIS
2. SSS
3. PHILHEALTH
4. PCSO
5. PAGCOR
But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was passed. Section 1 thereof excluded
PAGCOR from the exempt GOCCs hence PAGCOR was subjected to pay income taxation. In September 2005, the Bureau
of Internal Revenue issued the implementing rules and regulations (IRR) for R.A. 9337. In the said IRR, it identified
PAGCOR as subject to a 10% value added tax (VAT) upon items covered by Section 108 of the NIRC (Sale of Services and
Use or Lease of Properties).
PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR. PAGCOR avers that the said
provision violates the equal protection clause. PAGCOR argues that it is similarly situated with SSS, GSIS, PCSO, and
PHILHEALTH, hence it should not be excluded from the exemption.
ISSUE:
Whether or not PAGCOR should be subjected to income taxation.
HELD:
Yes. Section 1 of R.A. 9337 is constitutional. It was the express intent of Congress to exclude PAGCOR from the exempt
GOCCs hence PAGCOR is now subject to income taxation.
PAGCORs contention that the law violated the constitution is not tenable. The equal protection clause provides that all
persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed.
When the Supreme Court looked into the records of the deliberations of the lawmakers when R.A. 8424 was being drafted,
the SC found out that PAGCORs exemption was not really based on substantial distinctions. In fact, the lawmakers merely
exempted PAGCOR from income taxation upon the request of PAGCOR itself. This was changed however when R.A. 9337
was passed and now PAGCOR is already subject to income taxation.

Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had overstepped its authority. Nowhere in R.A.
9337 does it state that PAGCOR is subject to VAT. Therefore, that portion of the IRR issued by the BIR is void. In fact,
Section 109 of R.A. 9337 expressly exempts PAGCOR from VAT. Further, PAGCORs charter exempts it from VAT.
To recapitulate, PAGCOR is subject to income taxation but not to VAT.

13. CIR vs. Aichi Forging Company (by: Reyes, Nichali)

FACTS:
Respondent Aichi Forging Company of Asia Inc. is a corporation duly organized and existing under the laws of the Republic
of the Philippines, engaged in the manufacturing, producing, and processing of steel and its by-products. It is registered with
the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) enity and its products, close impression die steel forgings
and tool and dies, are registered with the Board of Investment (BOI) as a pioneer status.
On September 30, 2004, respondent filed a claim for refund or credit of input vat for the period JUly 1, 2002 to September
30, 2002 in the total amount of P3, 891, 123.82 with the petitioner CIR through the Department of Finance (DOF).
Aichi contended that they are entitled for a refund because they generated and recorded zero-rated sales in the amount of
P131,791,399.00 which was paid pursuant to Sec. 106 (A) (2)(a)(1), (2) and (3) of the NIRC. That for the above stated
period, they incurred and paid input VAT Amounting to P3,912,088.14 from purchases and importation attributable to its
zero-rated sales.
On the other hand, CIR contended that Aichi must prove that the claim was filed within the two year period prescribed in
SEc. 229 of the Tax Code.
The Court of TAx Appeals rendered its decision partially granting Aichi's claim for refund or credit. For a VAT registered
entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of 1997 provides:
Sec. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero rated sales. Any VAT-registered person, whose sales are zero rated or effectively zero
rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refuind of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax.
The CTA finds that the first three requirements have been complied with the Aichi. As regards the fourth requirement, the
Court finds that there are some documents and claims of AIchi thar are baseless and have not been satisfactorily
substantiated.
Then, CIR filed a Motion for Reconsideration before the CTA second division, however, it was denied. CTA En BAnc
affirmed the second division decision. Hence, this is petition.

Issue:
WON Aichi's claim for tax refund or credit were filed within two year prescriptive period provided in the NIRC.

Ruling:
The SC reversed the decision of CTA En Banc on the grounds that the unutilized input VAT must be claimed within two
years. It is clear that Sec. 112 (A) of the NIRC providing a two-year prescriptive period reckoned from the close of the
taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the
instant case, and not to the other actions which refer to erroneous payment of taxes.

CTA En Banc erroneously apllied Secs. 114 (A) and 229 of the NIRC in computing the two-year prescriptive period for
claiming refund or credit of unutilized input VAT. Thus, the two year period should be reckoned from the close of the taxable
quarter when the sales were made.

14. Fort Bonifacio Development Corp. Vs. CIR (by: Sanchez, Cherry Mae)
Facts:
Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development and sale of real property. In
1995, Fort Bonifacio Development Corporation purchased from the national government a portion of the Fort Bonifacio
reservation. On January 1, 1996, the enactment of RA 7716 extended the coverage of VAT to real properties held primarily
for sale to customers or held for lease in the ordinary course of trade or business. Thus, FBDC sought to register by
submitting to BIR an inventory of all its real properties, the book value of which aggregated to about P71 B.
In October 1996, FBDC started selling Global City lots to interested buyers. For the first quarter of 1997, it paid the
output VAT by making cash payments to the BIR and credited its unutilized input tax credit on purchases of goods and
services. Realizing that its 8% transitional input tax credit was not applied in computing its output VAT for the first quarter
of 1997, FBDC filed with the BIR a claim for refund of the amount erroneously paid as output VAT for the said period.
The CTA denied refund on the ground that the benefit of transitional input tax credit comes with the condition that
business taxes should have been paid first. It contends that since FBDC acquired the Global City property under a VAT-free
sale transaction, it cannot avail of the transitional input tax credit. The CTA likewise pointed out that under RR 7-95,
implementing Section 105 of the old NIRC, the 8% transitional input tax credit should be based on the value of the
improvements on land such as buildings, roads, drainage system and other similar structures, constructed on or after January
1, 1998, and not on the book value of the real property.

Issues:
1. WON prior payment of taxes is required in availing of the transitional input tax credit
2. WON the transitional input tax credit applies only to the value of improvements

Held:
1.

No. First, nothing in Sec 105 of the NIRC indicates that prior payment of taxes is necessary to avail of the transitional

input tax credit. Clearly, all it requires is for the taxpayer to file a beginning inventory with the BIR. Courts cannot limit the
application or coverage of a law nor can it impose conditions not provided therein because to do so constitutes judicial
legislation.
Second, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per se
but a tax credit.
Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus
returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from ones total tax liability.

It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus, unlike a tax
refund, prior payment of taxes is not a prerequisite to avail of a tax credit.
2.

No. Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the improvement of

the real properties, is a nullity. The 8% transitional input tax credit should not be limited to the value of the improvements on
the real properties but should include the value of the real properties as well.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of
transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived
from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayers income by
affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is
yet unable to credit input VAT payments.
Hence, since FBDC is entitled to the 8% transitional input tax credit which is more than sufficient to cover its output
tax for the first taxable quarter, the amount of VAT output taxes erroneously paid must be refunded.

15. CIR vs. Benguet Corp.

16. CIR vs. SM Prime Holdings (by: Novilla, Bryan Jundecef)

Facts:
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) are domestic
corporations duly organized and existing under the laws of the Republic of the Philippines. Both are engaged in the business
of operating cinema houses, among others.
Both received Preliminary Assessment Notice that they have VAT deficiencies. Subsequently they received They paid under
protest. It was denied. Respondents contended they are not subject to pay VAT because they are not included in the
enumeration provided in Section 105 of the NIRC.
Respondents' Arguments

Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross receipts
of proprietors or operators of cinemas/theaters derived from public admission are not among the services subject to VAT.
Respondents insist that gross receipts from cinema/theater admission tickets were never intended to be subject to any tax
imposed by the national government. According to them, the absence of gross receipts from cinema/theater admission tickets
from the list of services which are subject to the national amusement tax under Section 125 of the NIRC of 1997 reinforces
this legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on which the deficiency assessments were
based is an unpublished administrative ruling.
Petitioner's Arguments

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because it
covers all sales of services unless exempted by law. He claims that the CTA erred in applying the rules on statutory
construction and in using extrinsic aids in interpreting Section 108 because the provision is clear and unambiguous. Thus, he
maintains that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale of service, is
subject to VAT.
Issue:
Whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT.
Held:
No.A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale or exchange of services"
subject to VAT is not exhaustive. The words, "including," "similar services," and "shall likewise include," indicate that the
enumeration is by way of example only.

What is Vatable is The lease of motion picture films, films, tapes and discs; This, however, is not the same as the showing or
exhibition of motion pictures or films. As pointed out by the CTA En Banc:
"Exhibition" in Black's Law Dictionary is defined as "To show or display. x x x To produce anything in public so that it may
be taken into possession" (6th ed., p. 573). While the word "lease" is defined as "a contract by which one owning such
property grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic payment
of a stipulated price, referred to as rent .
Hence it is not subject to VAT.

17. CIR vs. Philippines American Accident Insurance (by: Isidoro, Justin Jeric)
FACTS:
Respondents are domestic corporations licensed to transact insurance business in the country. From Aug. 1971 to Sep. 1972,
respondents paid the BIR under protest the 3% tax imposed on lending investors by Sec. 195-A4 of Commonwealth Act No.
466, the NIRC applicable at that time.
Respondents sent a letter-claim to CIR seeking a refund of the taxes amounting to P29,595.02, but the latter did not give any
response, and so each respondent filed a petition for review with the CTA. Respondents argued that they were not lending
investors and as such, were not subject to the 3% lending investors tax under sec 195-A.
CTA ruled that respondents were not taxable on their lending transactions indenpendently of their insurance business and
were entitled to their refund. In its decision it also stated that respondents are not taxable as lending investors because the
term lending investors does not embrace insurance companies. CIR appealed to CA, CA affirmed CTAs decision.

ISSUE:
Whether on not insurance companies are subject to 3% percentage tax as lending investors under sec. 182 (A)(3)(DD) and
195-A, respectively in relation to sec. 194(U) all of the NIRC

HELD:
No. SC ruled that respondents are not liable to the 3% percentage tax. The definition of lending investors under CA No. 466
does not include insurance companies. The court also said that when a company is taxed on its main business, it is no longer
taxable further for engaging in an activity or work which is merely a part of, incidental to and is necessary to its main
business.
CA No. 466 do not require companies to pay double percentage and fixed taxes.
They merely tax lending investors and not the lending activities. It is against the doctrine of strict implementation of tax
impositions