Title

Commissioner of Internal Revenue vs. Seagate Technology

Facts:
The case involves the Commissioner of Internal Revenue (petitioner) and Seagate Technology (Philippines) (respondent).
Seagate Technology is a resident foreign corporation registered with the Securities and Exchange Commission, operating
in the Special Economic Zone in Naga, Cebu. The company was registered with the Philippine Export Zone Authority
(PEZA) on June 6, 1997, under PEZA Certificate No. 97-044, to manufacture recording components primarily for export.
It is also a VAT-registered entity, evidenced by VAT Registration Certification No. 97-083-000600-V issued on April 2,
1997.

Seagate filed an administrative claim for a refund of VAT input taxes amounting to P28,369,226.38 on October 4, 1999,
with the Revenue District Office No. 83 in Talisay, Cebu. The claim included P12,267,981.04 in VAT input taxes that are
the subject of this petition. The petitioner did not take any final action on this claim, prompting Seagate to elevate the case
to the Court of Tax Appeals (CTA) on July 21, 2000, to toll the two-year prescriptive period for tax refund claims.

In the CTA, the petitioner raised several defenses, arguing that Seagate's claim for tax refund was subject to administrative
investigation and that the burden of proof lay with Seagate to demonstrate that the taxes were erroneously collected. The
CTA ruled in favor of Seagate, granting the claim for refund. The Court of Appeals (CA) affirmed this decision, leading to
the present petition for review by the Commissioner of Internal Revenue.

Issue:
The main issue raised in this case is:

 Whether or not Seagate Technology (Philippines) is entitled to a refund or issuance of a Tax Credit Certificate in
the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the
period April 1, 1998, to June 30, 1999.

Ruling:
The Supreme Court ruled that the petition is unmeritorious and affirmed the decision of the Court of Appeals, thereby
granting Seagate Technology the entitlement to the refund or issuance of a Tax Credit Certificate for the input VAT
claimed.

Ratio:
The Court reasoned that as a PEZA-registered enterprise operating within a special economic zone, Seagate is entitled to
the fiscal incentives and benefits provided under relevant laws, including Presidential Decree No. 66 and Executive Order
No. 226. The Court clarified that while Seagate's transactions are not exempt from VAT, they are zero-rated, meaning that
the VAT on capital goods purchased is effectively zero, allowing for a refund of input VAT.

The Court emphasized that the VAT is a tax on consumption, and while Seagate is exempt from direct internal revenue
taxes, it is still entitled to claim input VAT credits. The distinction between exempt entities and exempt transactions is
significant in determining tax liability, but in this case, it ultimately leads to the same conclusion: Seagate is not liable for
VAT on its purchases, and thus, it is entitled to a refund of the input VAT paid.

The Court also noted that Seagate had complied with all necessary requirements for claiming a VAT refund, including
being a VAT-registered entity and filing the claim within the prescriptive period. The ruling reinforced the principle that
tax exemptions and refunds must be interpreted in favor of the taxpayer when the law provides clear grounds for such
claims.

Title
Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue
Case
G.R. No. 193301
Decision Date
Mar 11, 2013

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 Mindanao I and II sought VAT refunds for zero-rated power sales to NPC. SC denied
claims, ruling the two-year prescriptive period starts at quarter-end, not VAT return
filing. Claims for Q1-Q2 2003 time-barred; Q3-Q4 claims inadequately substantiated.

Facts:
The cases G.R. No. 193301 and G.R. No. 194637 involve two partnerships, Mindanao II Geothermal Partnership and
Mindanao I Geothermal Partnership, respectively, both registered as value-added taxpayers with the Bureau of Internal
Revenue (BIR) and accredited as Block Power Production Facilities by the Department of Energy. The disputes arise from
their claims for tax refunds or credits for unutilized input value-added tax (VAT) due to zero-rated sales of electricity
under the Electric Power Industry Reform Act of 2000 (EPIRA). Mindanao II filed claims for the first and second quarters
of 2003, amounting to P3,160,984.69 and P1,562,085.33, respectively, and for the third and fourth quarters, amounting to
P3,521,129.50. Mindanao I filed similar claims for the same periods, totaling P3,893,566.14 for the first quarter,
P2,351,000.83 for the second quarter, and P7,940,727.83 for the third and fourth quarters of 2003. Both partnerships filed
their claims in 2005, alleging that their sales of generated power were zero-rated under the amended National Internal
Revenue Code (NIRC) due to EPIRA. The Court of Tax Appeals (CTA) First Division initially granted partial refunds to
Mindanao II for the third and fourth quarters but denied the claims for the first and second quarters as they were filed
beyond the two-year prescriptive period. The CTA En Banc affirmed this decision, leading to the petitions for review by
both partnerships.

Issue:
1. Did the Court of Tax Appeals err in holding that the claims for the first and second quarters of 2003 had already
prescribed?
2. Was the sale of the fully depreciated Nissan Patrol by Mindanao II an incidental transaction subject to VAT?
3. Did Mindanao II substantially comply with the requirements for a tax refund or credit?
4. Should the doctrine of strictissimi juris on tax exemptions be relaxed in this case?

Ruling:
1. The Court ruled that the claims for the first and second quarters of 2003 had indeed prescribed.
2. The Court found that the sale of the Nissan Patrol was incidental to Mindanao II's VAT zero-rated operations.
3. The Court upheld the CTA's disallowance of certain input VAT claims due to lack of substantiation.
4. The Court ruled that the doctrine of strictissimi juris on tax exemptions could not be relaxed in this case.

Ratio:
The Supreme Court emphasized that the prescriptive period for filing claims for tax refunds or credits under Section
112(A) of the 1997 Tax Code is two years from the close of the taxable quarter when the sales were made. The Court
clarified that the claims for the first and second quarters were filed beyond this period, thus they were denied. The Court
also noted that the sale of the Nissan Patrol, although a one-time transaction, was still considered incidental to Mindanao
II's business operations, which involved generating and selling electricity. Furthermore, the Court upheld the CTA's
findings regarding the lack of substantiation for certain input VAT claims, reiterating that strict compliance with the
requirements for tax refunds is essential. The Court maintained that tax exemptions and refunds must be strictly construed
against the taxpayer, and any relaxation of this doctrine is not warranted in the present case.

Title
Power Sector Assets and Liabilities Management Corp. vs. Commissioner of Internal Revenue
Case
G.R. No. 226556
Decision Date
Jul 3, 2019
PSALM contested BIR's VAT assessment on privatization activities, arguing they are
governmental, not commercial. SC ruled in favor, exempting PSALM from VAT.

Facts:
The case involves the Power Sector Assets and Liabilities Management Corporation (PSALM) as the petitioner and the
Commissioner of Internal Revenue (CIR) as the respondent. The events leading to this case began when the Bureau of
Internal Revenue (BIR) issued a Final Assessment Notice (FAN) on June 9, 2011, alleging that PSALM was liable for a
deficiency value-added tax (VAT) amounting to P10,103,158,715.06 for the taxable year ending December 31, 2008. This
assessment was based on the sale of generating assets, lease of the Naga Complex, and collection of income and
receivables, which the BIR claimed were subject to VAT under Republic Act No. 9337. PSALM, a government-owned
corporation established under Republic Act No. 9136 (the Electric Power Industry Reform Act of 2001), is tasked with

2
managing the sale and privatization of the National Power Corporation's (NPC) assets. PSALM protested the FAN,
arguing that its privatization activities were not subject to VAT as they were part of its original mandate. The CIR denied
the protest, leading PSALM to file a petition for review before the Court of Tax Appeals (CTA).

On December 2, 2014, the CTA Third Division partially granted PSALM's petition, allowing it to claim input tax credits
but ruling that PSALM was liable for deficiency VAT. The CTA found that the enactment of RA 9337 superseded a
previous BIR ruling that had exempted PSALM from VAT. PSALM's liability was computed at P9,566,062,571.44,
including interest and penalties. PSALM's motion for reconsideration was denied, prompting an appeal to the CTA En
Banc, which affirmed the Third Division's decision on May 17, 2016. PSALM subsequently filed a petition for review
before the Supreme Court.

Issue:
The main issues raised in this case are:

1. Are PSALM's privatization activities subject to VAT?

Ruling:
The Supreme Court ruled in favor of PSALM, granting the petition and reversing the decisions of the lower courts. The
Court held that PSALM's sale of generating assets was not subject to VAT, as it was not conducted in the course of trade
or business but rather as a governmental function mandated by law. Consequently, the assessment for deficiency VAT
amounting to P9,566,062,571.44 was cancelled.

Ratio:
The Court's decision was grounded in the interpretation of the relevant provisions of the National Internal Revenue Code
(NIRC) and the Electric Power Industry Reform Act (EPIRA). The Court emphasized that the phrase "in the course of
trade or business" refers to regular commercial activities, which PSALM's actions did not constitute. The sale of NPC's
assets was deemed a governmental function aimed at privatizing these assets to liquidate NPC's financial obligations,
rather than a commercial transaction. The Court also noted that PSALM is not a successor-in-interest of NPC, and thus the
repeal of NPC's VAT exemption under RA 9337 did not extend to PSALM. The ruling was consistent with previous
jurisprudence, particularly G.R. No. 198146, which established that similar privatization activities were not subject to
VAT. The Court concluded that since PSALM's activities were not in pursuit of a commercial or economic activity, the
transactions in question were not subject to VAT, leading to the cancellation of the deficiency assessment.

Title
Commissioner of Internal Revenue vs. Court of Appeals
Case
G.R. No. 125355
Decision Date
Mar 30, 2000
CIR assessed COMASERCO for deficiency VAT in 1988; CA ruled no VAT liability due to
lack of profit motive. SC reversed, holding VAT applies to services rendered regardless
of profit, reinstating CTA's decision.

Facts:
The case involves the Commissioner of Internal Revenue (petitioner) and Commonwealth
Management and Services Corporation (COMASERCO, respondent). The events leading to the
case began when the Bureau of Internal Revenue (BIR) issued an assessment on January 24,
1992, claiming that COMASERCO owed a deficiency value-added tax (VAT) amounting to
P351,851.01 for the taxable year 1988. This assessment was based on COMASERCO's reported
taxable sales of P1,679,155.00, which included a 10% tax due, a 25% surcharge, and interest for
late payment. COMASERCO, a corporation established to provide collection, consultative, and
technical services to its parent company, Philippine American Life Insurance Co. (Philamlife),
filed a letter-protest against the BIR's assessment on February 10, 1992, arguing that it
operated on a "no-profit, reimbursement-of-cost-only" basis and was not engaged in the business
of providing services for profit. Despite reporting a net loss of P6,077.00 for the year 1988, the
BIR maintained its position. On June 22, 1995, the Court of Tax Appeals ruled in favor of the
Commissioner, affirming the assessment with slight modifications. COMASERCO subsequently
appealed to the Court of Appeals, which on May 13, 1996, reversed the Court of Tax Appeals'
decision, declaring that COMASERCO was not liable for VAT due to a lack of legal and factual

3
basis. The Commissioner of Internal Revenue then filed a petition for review on certiorari to the
Supreme Court, contesting the Court of Appeals' ruling.

Issue:
1. Was Commonwealth Management and Services Corporation engaged in the sale of
services, thus making it liable to pay value-added tax (VAT)?

Ruling:
The Supreme Court granted the petition of the Commissioner of Internal Revenue, reversing the
decision of the Court of Appeals and reinstating the ruling of the Court of Tax Appeals, which
affirmed the assessment of deficiency VAT against COMASERCO.

Ratio:
The Supreme Court held that the determination of whether an entity is engaged in business for
VAT purposes does not hinge on the profit motive. The Court emphasized that the term "in the
course of trade or business" encompasses any regular conduct of commercial or economic
activity, regardless of whether the entity is profit-oriented. The Court cited Section 99 of the
National Internal Revenue Code, which states that any person who sells or renders services in
the course of trade or business is subject to VAT. The Court rejected COMASERCO's argument
that it was not engaged in business because it operated on a reimbursement-of-cost basis
without profit. It clarified that VAT applies to the performance of services for a fee, irrespective
of the profit motive. The Court also noted that the law does not exempt non-profit organizations
from VAT liability when they provide services for consideration. The ruling reinforced the
principle that taxes are essential for government revenue, and exemptions must be explicitly
stated in law. Consequently, the services rendered by COMASERCO to Philamlife and its
affiliates were deemed subject to VAT, leading to the reinstatement of the tax assessment.

Title
Diaz vs. Secretary of Finance
Case
G.R. No. 193007
Decision Date
Jul 19, 2011
Petitioners challenged VAT imposition on toll fees, arguing it was a "user's tax" and
unconstitutional. Court ruled tollway operators are franchise grantees; VAT is valid
under NIRC, not impairing contracts. Petition denied.

Facts:
The case involves petitioners Renato V. Diaz and Aurora Ma. F. Timbol against respondents
Secretary of Finance and Commissioner of Internal Revenue. The petition was filed on July 19,
2011, concerning the impending imposition of value-added tax (VAT) on toll fees collected by
tollway operators. The petitioners, both regular users of tollways, sought declaratory relief to
challenge the Bureau of Internal Revenue's (BIR) action, claiming that the VAT would lead to
increased toll fees. Diaz, a former congressman, had a role in the enactment of Republic Act
7716 (the Expanded VAT Law) and Republic Act 8424 (the National Internal Revenue Code).
Timbol had served as Assistant Secretary of the Department of Trade and Industry and as a
consultant for the Toll Regulatory Board. The BIR had previously attempted to impose VAT on
toll fees during President Gloria Macapagal-Arroyo's administration, but this was deferred due
to opposition. However, under President Benigno C. Aquino III, the BIR revived the plan to
impose VAT on toll fees starting August 16, 2010. The petitioners argued that toll fees are not
considered a "sale of services" subject to VAT, but rather a "user's tax," and that imposing VAT
would violate the non-impairment clause of the Constitution. On August 13, 2010, the Court
issued a temporary restraining order (TRO) against the VAT implementation. The government,
represented by the respondents, contended that the NIRC imposes VAT on all services provided
by franchise grantees, including tollway operations, and that the petitioners lacked standing to
invoke the non-impairment clause.

Issue:
1. Can the Court treat the petition for declaratory relief as one for prohibition?
2. Do petitioners Diaz and Timbol have legal standing to file the action?

4
 3. Is the government unlawfully expanding VAT coverage by including tollway operators
and operations under the terms "franchise grantees" and "sale of services"?
4. Does the imposition of VAT on tollway operators constitute a tax on tax, impair the
operators' right to a reasonable return on investment, and is it administratively feasible?

Ruling:
A. The Court treated the petition as one for prohibition rather than declaratory relief, affirming
its jurisdiction over the matter due to its public significance.
B. The Court ruled that petitioners Diaz and Timbol had no legal standing to invoke the non-
impairment clause.
C. The Court held that the government was not unlawfully expanding VAT coverage; tollway
operators are indeed franchise grantees subject to VAT.
D. The Court concluded that the imposition of VAT on tollway operators does not constitute a
tax on tax, does not impair the operators' rights, and is administratively feasible.

Ratio:
The Court justified its decision to treat the petition as one for prohibition based on the
significant implications of the VAT imposition on the public and the government's revenue
efforts. It emphasized that the issues raised warranted judicial intervention to prevent potential
administrative chaos and financial burdens on motorists. Regarding legal standing, the Court
found that petitioners lacked a direct interest in the toll operating agreements, thus could not
invoke the non-impairment clause. On the substantive issues, the Court interpreted Section 108
of the National Internal Revenue Code, which imposes VAT on "all kinds of services," to include
tollway operations as they are services rendered for a fee. The Court clarified that toll fees are
not taxes but charges for the use of facilities constructed and maintained by private operators,
thus VAT on these fees does not constitute a tax on tax. Furthermore, the Court noted that the
administrative feasibility of implementing VAT does not invalidate the tax unless it violates
specific legal provisions, which was not established in this case. The Court ultimately upheld the
legislative intent behind the VAT law, affirming that tollway operators are subject to VAT as
franchise grantees, and any perceived burdens from this imposition should be addressed to
Congress, not the judiciary.

Title
Commissioner of Internal Revenue vs. SM Prime Holdings, Inc.
Case
G.R. No. 183505
Decision Date
Feb 26, 2010
CIR imposed VAT on cinema ticket sales; SM Prime and First Asia contested, arguing it’s
subject to amusement tax, not VAT. CTA ruled in favor, invalidating BIR’s VAT
imposition.

Facts:
The case involves the Commissioner of Internal Revenue (CIR) as the petitioner and SM Prime
Holdings, Inc. and First Asia Realty Development Corporation as the respondents. The events
leading to the case began when the Bureau of Internal Revenue (BIR) issued a Preliminary
Assessment Notice (PAN) to SM Prime on September 26, 2003, for a value-added tax (VAT)
deficiency amounting to P119,276,047.40 for the taxable year 2000. SM Prime filed a letter-
protest on December 15, 2003, but the BIR subsequently issued a Formal Letter of Demand on
December 12, 2003, which was also protested by SM Prime. On September 6, 2004, the BIR
denied the protest and ordered SM Prime to pay a total of P124,035,874.12. Consequently, SM
Prime filed a Petition for Review before the Court of Tax Appeals (CTA), which was docketed as
CTA Case No. 7079.

Similarly, First Asia received a PAN on May 15, 2002, for VAT deficiency on cinema ticket sales
for the taxable year 1999, amounting to P35,823,680.93. After filing a protest and receiving a
denial from the BIR on September 6, 2004, First Asia filed a Petition for Review, which was
docketed as CTA Case No. 7085. First Asia faced additional assessments for the taxable years
2000, 2002, and 2003, leading to further petitions before the CTA, which were consolidated due
to the identical issues raised.

The CTA First Division ruled on September 22, 2006, that the activity of showing films is not
subject to VAT but rather to amusement tax under the Local Government Code (LGC) of 1991.

5
The CIR's motion for reconsideration was denied, prompting the CIR to appeal to the CTA En
Banc, which upheld the First Division's ruling. The CIR then filed a Petition for Review on
Certiorari under Rule 45 of the Rules of Court, seeking to overturn the CTA's decisions.

Issue:
1. Are the gross receipts derived by operators or proprietors of cinema houses from
admission tickets subject to value-added tax (VAT)?
2. Did the CTA En Banc err in ruling that the enumeration of services subject to VAT under
Section 108 of the National Internal Revenue Code (NIRC) is exhaustive?
3. Did the CTA En Banc misinterpret the NIRC to conclude that the showing of motion
pictures is merely subject to amusement tax under the LGC?
4. Is Revenue Memorandum Circular (RMC) No. 28-2001 valid in imposing VAT on cinema
ticket sales?

Ruling:
The Supreme Court ruled in favor of the respondents, affirming the decisions of the CTA En
Banc. The Court held that the gross receipts derived from admission tickets in showing motion
pictures are not subject to VAT under Section 108 of the NIRC. The Court also upheld the CTA's
interpretation that the enumeration of services subject to VAT is not exhaustive and that the
showing of films is subject to amusement tax under the LGC. Furthermore, the Court declared
RMC No. 28-2001 invalid as it imposed VAT contrary to the provisions of the law.

Ratio:
The Supreme Court's decision was grounded in the interpretation of the NIRC and the
legislative intent behind the taxation of cinema operators. The Court emphasized that the
enumeration of services subject to VAT under Section 108 is not exhaustive, as indicated by the
use of terms like "including" and "similar services." The Court clarified that the activity of
showing films does not fall under the definition of "sale or exchange of services" as it is not
explicitly listed in the NIRC. The historical context of amusement taxation was also significant;
the Local Tax Code had transferred the power to impose amusement tax on cinema admissions
to local government units, thereby excluding the national government from levying VAT on such
receipts.

The Court further noted that the legislative history and intent indicated that cinema operators
were not meant to be subjected to both VAT and amusement tax, which would create an
unreasonable tax burden. The invalidation of RMC No. 28-2001 was based on the principle that
administrative issuances cannot override statutory provisions. The ruling reinforced the notion
that tax laws must be clear and unambiguous, and any ambiguity should be resolved in favor of
the taxpayer.

Title
Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue
Case
G.R. No. 179085
Decision Date
Jan 21, 2010
CIR assessed Tambunting Pawnshop for 1999 tax deficiencies. SC ruled no VAT liability due to
deferment, upheld documentary stamp tax on pawn tickets, and deleted surcharges for good faith.

Facts:

The case involves Tambunting Pawnshop, Inc. (petitioner) as the appellant and the Commissioner of Internal
Revenue (respondent) as the appellee. The dispute arose from an assessment notice issued by the respondent on
January 15, 2003, which claimed that the petitioner owed a total of P3,055,564.34 in deficiency value-added tax
(VAT), P406,092.50 in deficiency documentary stamp tax on pawn tickets, P67,201.55 in deficiency withholding
tax on compensation, and P21,723.75 in deficiency expanded withholding tax for the taxable year 1999. The
petitioner protested the assessment, but received no response, prompting it to file a Petition for Review with the
Court of Tax Appeals (CTA) under Section 228 of the National Internal Revenue Code. In its petition, the
petitioner argued that pawnshops are not subject to VAT according to Section 108 of the National Internal
Revenue Code, that it had properly withheld and remitted the correct amount of expanded withholding tax, that it
had already paid the assessed amount for withholding tax on compensation, and that pawn tickets are not subject
to documentary stamp tax based on existing laws and jurisprudence. The First Division of the CTA ruled that the
petitioner was liable for VAT and documentary stamp tax but not for withholding tax on compensation and
expanded withholding tax. The CTA's decision led to a partial grant of the petition, affirming the assessments for
VAT and documentary stamp tax while cancelling the assessments for withholding taxes. The petitioner’s
subsequent Motion for Partial Reconsideration was denied, leading to a Petition for Review before the CTA En

6
Banc, which was also dismissed. This prompted the petitioner to file a Petition for Review on Certiorari before the
Supreme Court.

Issue:

1. Are pawnshops liable to pay value-added tax (VAT) under the National Internal Revenue Code?
2. Are pawn tickets subject to documentary stamp tax?
3. Is the petitioner liable for surcharges and interest on the assessed taxes?

Ruling:

1. The Supreme Court ruled that the petitioner is not liable for VAT for the taxable year 1999.
2. The Court affirmed that pawn tickets are subject to documentary stamp tax.
3. The Court found that the petitioner is not liable for surcharges and interest due to its good faith belief
regarding the tax obligations.

Ratio:

In addressing the first issue, the Court clarified that prior to the implementation of the Expanded Value-Added Tax
(EVAT) Law in 1994, pawnshops were classified as lending investors subject to a different tax regime. However,
subsequent rulings, including the case of Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops, Inc.,
established that pawnshops are considered VAT-able enterprises under the general classification of "sale or
exchange of services." The Court noted that while pawnshops were treated as non-bank financial intermediaries,
the imposition of VAT on them was deferred until January 1, 2003. Therefore, the petitioner was not liable for VAT
for the year 1999.

Regarding the second issue, the Court referenced Section 195 of the National Internal Revenue Code, which
imposes a documentary stamp tax on mortgages or pledges. The Court held that pawn tickets, while not classified
as securities or evidence of indebtedness, are nonetheless proof of the exercise of a taxable privilege in
concluding a contract of pledge, thus making them subject to documentary stamp tax.

On the third issue, the Court acknowledged the petitioner's reliance on previous interpretations by the Bureau of
Internal Revenue and the CTA, which led to its belief that it was not liable for documentary stamp taxes. The
Court ruled that good faith and an honest belief in the non-liability for tax based on prior government
interpretations are valid justifications for waiving the imposition of surcharges and interest.