ESTOCONING v. PEOPLE OF THE PHILIPPINES [G.R. No. 231298, October 7, 2020]

 CASE DIGEST

ESTOCONING v. PEOPLE OF THE PHILIPPINES

[G.R. No. 231298, October 7, 2020]

FIRST DIVISION, LEONEN, J.

 

Expanded Senior Citizens Act (RA 9994); Philippine Cooperative Code (RA 9520); Tax-Exempt Cooperatives; 20% Senior Citizen Discount; Tax Deduction Mechanism; Due Process; Cooperative Dealings with Members; Criminal Liability of Cooperative Officers; 

A statutory discount privilege designed to operate through a tax deduction cannot be imposed, without qualification, upon an entity that has no taxable income against which such a deduction could ever be applied. Where a special law confers tax exemption on cooperatives meeting defined capital and reserve thresholds — in recognition of their non-profit, member-service character and constitutionally favored status — a general law mandating a discount recoverable solely as a tax deduction cannot be read to override that exemption absent clear legislative intent. To compel a tax-exempt cooperative to absorb the discount outright, with no mechanism to recoup the loss, would be confiscatory and a deprivation of property without due process of law. Cooperatives, whose earnings revert to their members and whose transactions are not conducted for profit in the manner of ordinary commercial establishments, are not similarly situated to for-profit sellers for purposes of this scheme, and penal statutes must be strictly construed in favor of the accused.

 

Roberto A. Estoconing was a professor at Silliman University and the General Manager of the Silliman University Cooperative, which operated a canteen selling food and beverages to both members and non-members. 

The cooperative was a primary multi-purpose cooperative registered with the Cooperative Development Authority on January 11, 2010, and received a Certificate of Tax Exemption from the Bureau of Internal Revenue on May 15, 2012, certifying it as a cooperative transacting business with both members and non-members with accumulated reserves and undivided net savings of not more than Ten Million Pesos, and entitling it to several tax exemptions including exemption from income tax on income from its registered operations. 

An Information was filed charging Estoconing with violation of Republic Act No. 7432, as amended by Republic Act No. 9994 (the Expanded Senior Citizens Act), alleging that as General Manager of the canteen he willfully, unlawfully, and criminally refused to give the 20% senior citizen discount to a bona fide senior citizen on soft drinks purchased on eight separate occasions between March 30, 2011 and September 22, 2011, despite the buyer having identified himself as a senior citizen. 

The Municipal Trial Court in Cities of Dumaguete City convicted him, imposing an indeterminate penalty of two years as minimum to three years as maximum and a fine of PHP 50,000.00. The Regional Trial Court affirmed in toto. 

The Court of Appeals dismissed his petition and upheld the conviction, holding that the Expanded Senior Citizens Act applied to cooperatives absent an express exemption. Estoconing elevated the case to the Supreme Court.

 

 

Whether a cooperative registered and tax-exempt under Republic Act No. 9520 is obliged to grant the 20% senior citizen discount mandated by Republic Act No. 9994.

NO. Because the cooperative was a tax-exempt entity under its Certificate of Tax Exemption from the Bureau of Internal Revenue, it could not have availed of a tax deduction to offset any portion of the senior citizen discounts it would have issued to its clients, whether member or non-member. The discount scheme under Republic Act No. 9994 presupposes that the establishment granting the discount can recoup its cost through a deduction against taxable income; a cooperative with no taxable income from which to deduct cannot be held to the same mandatory terms as taxable private establishments.

 

 

Whether compelling a tax-exempt cooperative to grant the discount, with no corresponding tax relief, would be confiscatory and a deprivation of property without due process.

YES. To insist that the cooperative was nevertheless mandated to issue the 20% discount would have been confiscatory and a deprivation of private property without due process of law. The tax exemption already granted under Republic Act No. 9520 would be rendered illusory if the cooperative were still forced to absorb the discount outright with no means of recovery. Imposed in that manner, the obligation crosses from permissible regulation into an uncompensated taking.

 

 

Whether a cooperative's dealings with its own members differ in character from an ordinary commercial establishment's dealings with the buying public, so as to warrant different treatment.

YES. The Court emphasized the distinct, non-profit and member-service character of cooperatives, noting that whatever is earned reverts to the members, and that their existence is one of service to their members rather than the pursuit of profit. This member-oriented character, together with the constitutional and statutory policy favoring cooperatives, distinguishes a cooperative's transactions from those of a for-profit commercial establishment and justifies not treating the two identically under the Expanded Senior Citizens Act.

 

 

Whether the prosecution proved beyond reasonable doubt that Estoconing was criminally liable for refusing to grant the discount.

NO. The Court held that the prosecution was unable to establish beyond reasonable doubt that the cooperative was even obligated to issue a 20% senior citizen discount. There being doubt as to whether the cooperative was legally bound to grant it, the element of unlawful refusal could not be established, and there was no valid basis to hold its General Manager criminally liable. Acquittal was accordingly warranted.

 

DISPOSITION: The Petition was GRANTED. The Decision and Resolution of the Court of Appeals were REVERSED and SET ASIDE, and petitioner Roberto A. Estoconing was ACQUITTED.




CLICK HERE TO READ FULL TEXT

PEOPLE V. CONSEBIDO [G.R. No. 258563, April 2, 2025]

 CASE DIGEST

PEOPLE V. CONSEBIDO

[G.R. No. 258563, April 2, 2025]

EN BANC, Inting, J.

 

Prescription of Tax Offenses; Tolling of Prescription; Filing of Complaint with the DOJ; Willful Failure to File VAT Return.

 

For violations of the National Internal Revenue Code (NIRC), the five-year prescriptive period under Section 281 generally begins from the date of the commission of the offense. Where the violation is not known at the time of its commission, prescription begins from the date of its discovery. The filing of the criminal complaint before the Department of Justice for preliminary investigation (not when the case reaches the court) interrupts the running of the prescriptive period. However, the Discovery Rule does not apply where the Bureau of Internal Revenue, through reasonable diligence and the records readily available to it, could have discovered the violation at the time it was committed. 

 

Ulysses Palconit Consebido, doing business as Seven Digit Construction and Supplies, was charged with Willful Failure to File a Quarterly Value-Added Tax (VAT) Return for the third quarter of taxable year 2008, in violation of Sections 255 and 114 of the National Internal Revenue Code (NIRC). The Bureau of Internal Revenue (BIR) filed a Joint Complaint-Affidavit before the Department of Justice (DOJ) on January 30, 2014, and an Information was eventually filed before the Court of Tax Appeals (CTA) on March 18, 2019. 

The CTA Second Division dismissed the Information on the ground of prescription, holding that the five-year prescriptive period under Section 281 of the NIRC had already lapsed before the filing of the Information. The CTA En Banc affirmed, relying on Lim, Sr. v. Court of Appeals, which interpreted Section 281 to require that the Information be filed within five years from the discovery of the offense. The People, through the Office of the Solicitor General, elevated the case to the Supreme Court. 

 

 

Issue No. 1: Whether or not the Court of Tax Appeals erred in dismissing the Information on the ground of prescription.

NO. The Supreme Court affirmed the dismissal of the Information. The Court clarified that although the filing of a criminal complaint before the DOJ interrupts the running of the prescriptive period under Section 281 of the NIRC, such interruption could no longer benefit the prosecution because the offense had already prescribed before the complaint was filed. 

The alleged failure to file the quarterly VAT return occurred on October 25, 2008, the statutory deadline for filing the return. Since the complaint before the DOJ was filed only on January 30, 2014, more than five years had already elapsed. Consequently, the offense had already prescribed even before the commencement of the preliminary investigation. 

 

Issue No. 2: Whether or not the Discovery Rule applied so that prescription should be reckoned only from January 30, 2014, when the BIR allegedly discovered the violation.

NO. The Court held that the Discovery Rule was inapplicable. The Discovery Rule applies only where the commission of the tax offense could not reasonably have been discovered at the time it occurred. In this case, the BIR had sufficient means to determine that Consebido failed to file his quarterly VAT return because:

• he was a VAT-registered taxpayer;
• he was legally required to file monthly and quarterly VAT returns;
• his transactions involved payments by the Provincial Government of Palawan, which was itself required to withhold and report VAT; and
• the BIR's Electronic Filing and Payment System readily allowed verification of taxpayers who failed to file required returns. 

Given these readily available records, the BIR could have discovered the omission immediately upon the expiration of the filing deadline. Hence, prescription should be reckoned from October 25, 2008, not from the date the BIR actually filed its complaint. 

 

 

Issue No. 3: Whether or not preliminary investigation before the Department of Justice interrupts the running of the prescriptive period for violations of the National Internal Revenue Code.

YES. The Supreme Court revisited and clarified its earlier ruling in Lim, Sr. v. Court of Appeals. The Court observed that the literal interpretation adopted in Lim, Sr. produced an absurd result because prescription would both begin and be interrupted upon the institution of proceedings. To harmonize Section 281 of the NIRC, the Court adopted the reasoning in People v. Duque and Panaguiton, Jr. v. DOJ, holding that prescription begins from the commission of the offense, or from its discovery if previously unknown, while the filing of the complaint for preliminary investigation interrupts its running. Accordingly, the Court clarified that the filing of the complaint before the DOJ tolls the prescriptive period for criminal violations of the NIRC.

 

 

Issue No. 4: Whether or not the Court modified existing jurisprudence on the interruption of prescription in criminal cases.

YES. The Court announced an important doctrinal clarification. It held that henceforth, the filing of a criminal complaint before the prosecution office interrupts the running of the prescriptive period even for offenses covered by the 2022 Rules on Expedited Procedures in the First Level Courts. Consequently, the Court expressly abandoned the contrary rulings in Republic v. Desierto and Corpus, Jr. v. People, insofar as they required the filing of the Information in court before prescription could be interrupted for offenses governed by summary or expedited procedures. The Court, however, ruled that this new interpretation shall apply prospectively, in keeping with the rule that laws on prescription must be liberally construed in favor of the accused.

 

 

 CLICK HERE TO READ FULL TEXT

Re: In the Matter of Clarification of Exemption from Payment of All Court and Sheriff’s Fees of Cooperatives Duly Registered [A.M. No. 12-2-03-0, March 13, 2012]

 CASE DIGEST

Re: In the Matter of Clarification of Exemption from Payment of All Court and Sheriff’s Fees of Cooperatives Duly Registered

 [A.M. No. 12-2-03-0, March 13, 2012]

EN BANC, PEREZ, J.

 

Cooperatives; Court and Sheriff’s Fees; Rule 141; Judicial Rule-Making Power; Fiscal Autonomy of the Judiciary

 

The statutory exemption granted to cooperatives under Republic Act No. 6938, as amended by Republic Act No. 9520, cannot exempt cooperatives from the payment of legal fees imposed under Rule 141 of the Rules of Court. The authority to promulgate rules on pleading, practice, and procedure—including the imposition, assessment, and collection of legal fees—is vested exclusively in the Supreme Court under Article VIII, Section 5(5) of the 1987 Constitution. Any legislative grant of exemption that diminishes legal fees collected under Rule 141 impairs the Judiciary's constitutionally guaranteed fiscal autonomy and is therefore constitutionally infirm. 

 

Perpetual Help Community Cooperative (PHCCI), a cooperative duly registered under Republic Act No. 9520, filed a petition before the Supreme Court requesting the issuance of an order clarifying and implementing the statutory exemption of cooperatives from the payment of court and sheriff's fees. 

PHCCI relied on Section 6, Article 61 of Republic Act No. 9520, which substantially reproduced the exemption previously granted under Article 62(6) of Republic Act No. 6938. The provision exempts cooperatives from the payment of all court and sheriff's fees payable to the Philippine Government in connection with actions brought under the Cooperative Code or actions instituted by the Cooperative Development Authority to enforce obligations contracted in favor of cooperatives. 

PHCCI alleged that despite this statutory exemption and previous Supreme Court issuances, including A.M. No. 03-4-01-0 and Office of the Court Administrator Circular No. 44-2007, trial courts continued to assess filing fees and other legal fees against cooperatives whenever they instituted judicial actions. It cited its experience before the Municipal Trial Court in Cities of Dumaguete City, where the Executive Judge declined to implement the claimed exemption and advised that the matter be brought before the Supreme Court for a definitive ruling of nationwide application. 

The petition thus squarely presented the question of whether cooperatives remained exempt from the payment of legal fees under Rule 141 of the Rules of Court notwithstanding Republic Act No. 9520. 

 

Whether or not cooperatives duly registered under Republic Act No. 9520 remain exempt from the payment of legal fees and court fees under Rule 141 of the Rules of Court.

NO. The Supreme Court denied the petition and categorically ruled that cooperatives are no longer exempt from the payment of legal fees imposed under Rule 141. 

The Court first clarified that the "court fees" referred to in Republic Act No. 9520 encompass the legal fees imposed under Rule 141, including filing fees, docket fees, appeal fees, mediation fees, sheriff's fees, stenographer's fees, and commissioners' fees. More significantly, the Court held that subsequent jurisprudence had superseded the earlier recognition of statutory exemptions. It relied principally on Re: Petition for Recognition of the Exemption of the Government Service Insurance System (GSIS) from Payment of Legal Fees (A.M. No. 08-2-01-0), where the Court declared that the assessment and collection of legal fees form part of the Supreme Court's constitutional authority to promulgate rules concerning pleading, practice, and procedure. Since the 1987 Constitution removed Congress' former power to repeal, alter, or supplement procedural rules promulgated by the Court, legislative enactments purporting to exempt particular entities from legal fees imposed under Rule 141 may no longer prevail over the Rules of Court. 

The Court likewise reiterated its earlier ruling in Baguio Market Vendors Multi-Purpose Cooperative v. Cabato-Cortes, where it rejected a cooperative's claim of exemption from legal fees in an extrajudicial foreclosure proceeding, and its subsequent Resolution involving the National Power Corporation, where similar legislative exemptions from legal fees were likewise denied. These decisions consistently recognized that the constitutional allocation of powers prevents Congress from modifying procedural rules governing the assessment of legal fees. 

Accordingly, the Court declared that cooperatives may no longer invoke either Republic Act No. 6938 or Republic Act No. 9520 as a basis for exemption from the payment of legal fees imposed under Rule 141. To ensure uniform implementation nationwide, the Court directed the Office of the Court Administrator to issue a circular clarifying that cooperatives are not exempt from the payment of legal fees prescribed under the Rules of Court. Consequently, the petition of PHCCI was DENIED.

 


CLICK HERE TO READ FULL TEXT

Baguio Market Vendors MPC v. Hon. Iluminada Cabato-Cortes [G.R. No. 165922, February 26, 2010]

 CASE DIGEST

Baguio Market Vendors MPC  v. Hon. Iluminada Cabato-Cortes

[G.R. No. 165922, February 26, 2010]

SECOND DIVISION, CARPIO, J.

 

Cooperatives; Exemption from Court and Sheriff’s Fees; Extrajudicial Foreclosure; Rule 141; Exclusive Rule-Making Power of the Supreme Court

 

The exemption from court and sheriff’s fees granted to cooperatives under Article 62(6) of Republic Act No. 6938 is limited to: (1) actions brought under the Cooperative Code; and (2) actions brought by the Cooperative Development Authority to enforce obligations in favor of cooperatives. It does not extend to a cooperative’s petition for extrajudicial foreclosure under Act No. 3135. Moreover, the imposition and regulation of legal fees form part of pleading, practice, and procedure, over which the Supreme Court has exclusive rule-making authority under the 1987 Constitution. Congress may no longer repeal, alter, or supplement such procedural rules.

 

Baguio Market Vendors Multi-Purpose Cooperative (BAMARVEMPCO) is a credit cooperative organized under Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines. In 2004, BAMARVEMPCO, acting as mortgagee, filed with the Clerk of Court of the Regional Trial Court of Baguio City a petition for the extrajudicial foreclosure of a real estate mortgage under Act No. 3135, as amended. Under Section 7(c), Rule 141 of the Rules of Court, petitions for extrajudicial foreclosure are subject to the payment of legal fees computed on the basis of the mortgagee’s claim. 

BAMARVEMPCO invoked Article 62(6) of Republic Act No. 6938 and claimed exemption from the payment of foreclosure fees. The provision exempts cooperatives from the payment of court and sheriff’s fees payable to the Philippine Government in connection with actions brought under the Cooperative Code or actions brought by the Cooperative Development Authority to enforce obligations contracted in favor of cooperatives. 

Executive Judge Iluminada Cabato-Cortes denied the request for exemption. She relied on Section 22, Rule 141, which exempts only the Republic of the Philippines, its agencies and instrumentalities, and certain actions instituted by local government treasurers or assessors. Since cooperatives were not included among the exempt entities, the trial court held that BAMARVEMPCO remained liable for the prescribed foreclosure fees. 

The Office of the Solicitor General supported BAMARVEMPCO’s position. It argued that Article 62(6), being substantive law, should prevail over Section 22, Rule 141, which it characterized as procedural. It also maintained that legal fees collected by the Judiciary remained fees payable to the Philippine Government because the Judiciary forms part of the government. 

The Court’s Office of the Chief Attorney opposed the petition. It maintained that the power to impose and regulate judicial fees is an exclusively judicial function under the 1987 Constitution and that Congress may no longer interfere with the Supreme Court’s rule-making authority over pleading, practice, and procedure. 

 

Whether or not BAMARVEMPCO’s petition for extrajudicial foreclosure was exempt from the payment of legal fees under Article 62(6) of Republic Act No. 6938.

NO. The Supreme Court denied the petition and held that Article 62(6) did not apply to BAMARVEMPCO’s extrajudicial foreclosure proceeding. The Court ruled that the exemption under Article 62(6) is expressly confined to two classes of actions:

1. actions brought under the Cooperative Code; and
2. actions brought by the Cooperative Development Authority to enforce the payment of obligations contracted in favor of cooperatives. 

BAMARVEMPCO’s petition did not fall under either category. The proceeding was not an action brought under Republic Act No. 6938 but a petition for extrajudicial foreclosure under Act No. 3135. Neither was it an action instituted by the Cooperative Development Authority on behalf of a cooperative. Thus, the statutory exemption could not be invoked.

The Court emphasized that exemptions must be applied strictly according to the terms of the law. Since the language of Article 62(6) was specific and limited, it could not be expanded to include all judicial or quasi-judicial proceedings initiated by cooperatives. 

The Supreme Court further discussed the constitutional allocation of rule-making powers. Article VIII, Section 5(5) of the 1987 Constitution removed Congress’ authority to repeal, alter, or supplement procedural rules promulgated by the Supreme Court. Consequently, the power to issue rules concerning pleading, practice, procedure, and legal fees became the exclusive domain of the Judiciary. 

Thus, even assuming that Article 62(6) of the Cooperative Code (RA 9520) could be interpreted broadly as exempting cooperatives from legal fees, such legislative exemption could not override Rule 141 insofar as it concerns court fees imposed pursuant to the Supreme Court’s exclusive constitutional authority. 

The Court rejected the distinction drawn by the trial court regarding whether the fees accrued to the National Treasury or to a special fund. The decisive point was not the destination of the fees but the nature of legal fees as an integral component of judicial procedure governed by the Supreme Court’s constitutional rule-making power. 

Accordingly, the Supreme Court DENIED the petition and AFFIRMED the Orders of the Executive Judge of the Regional Trial Court of Baguio City requiring BAMARVEMPCO to pay the prescribed extrajudicial foreclosure fees.




CLICK HERE TO READ FULL TEXT

 

Dumaguete Cathedral Credit Cooperative v. CIR [G.R. No. 182722, January 22, 2010]

 CASE DIGEST

Dumaguete Cathedral Credit Cooperative v. CIR

[G.R. No. 182722, January 22, 2010]

SECOND DIVISION, DEL CASTILLO, J

 

Cooperatives; Final Withholding Tax; Interest on Members’ Savings and Time Deposits; Preferential Tax Treatment; Liberal Construction in Favor of Cooperatives and Their Members

 

A duly registered cooperative is not required to withhold the 20% final tax on interest paid on the savings and time deposits of its members. Such deposits are neither currency bank deposits nor deposit substitutes contemplated under Section 24(B)(1) of the National Internal Revenue Code. The preferential tax treatment granted to cooperatives extends to their members and must be liberally construed in their favor, consistent with the State policy of fostering cooperatives as instruments of social justice and economic development. 

 

Dumaguete Cathedral Credit Cooperative (DCCCO) is a credit cooperative duly registered with and regulated by the Cooperative Development Authority. It was established to increase the income and purchasing power of its members, encourage savings and thrift, mobilize capital, and extend loans to members for provident and productive purposes.

In November 2001, the Bureau of Internal Revenue authorized an examination of DCCCO’s books of accounts and accounting records for all internal revenue taxes covering taxable years 1999 and 2000. The audit resulted in the issuance of pre-assessment notices for deficiency withholding taxes involving, among others, the honoraria and per diems of the cooperative’s Board of Directors, security and janitorial services, legal and professional fees, commissions, and interest paid on the savings and time deposits of its members. 

DCCCO agreed to pay the withholding taxes relating to the honoraria, compensation, security and janitorial services, commissions, and professional fees. It subsequently availed itself of the BIR’s Voluntary Assessment and Abatement Program and paid the corresponding amounts. It disputed, however, the assessment relating to the interest on its members’ savings and time deposits. 

On April 24, 2003, the BIR issued formal demand letters and assessment notices requiring DCCCO to pay deficiency withholding taxes, inclusive of penalties, amounting to approximately ₱1.489 million for 1999 and ₱1.463 million for 2000. DCCCO protested the assessments before the Commissioner of Internal Revenue. When the Commissioner failed to act within the prescribed 180-day period, DCCCO filed a Petition for Review before the Court of Tax Appeals. 

The CTA First Division partially granted the petition. It cancelled the assessments relating to the honoraria, per diems, security and janitorial services, commissions, and professional fees, but affirmed the assessments for deficiency withholding taxes on interest paid on the members’ savings and time deposits. It ordered DCCCO to pay ₱1,280,145.89 for 1999 and ₱1,357,881.14 for 2000, plus 20% delinquency interest. 

The CTA En Banc affirmed. It ruled that Section 24(B)(1) of the NIRC, in relation to Revenue Regulations No. 2-98, imposed a 20% final tax on interest from currency bank deposits, deposit substitutes, trust funds, and “similar arrangements.” It considered the members’ deposits with DCCCO as falling within the phrase “similar arrangements,” thereby requiring the cooperative to withhold the final tax. 

DCCCO elevated the case to the Supreme Court. It argued that Section 24(B)(1) applied only to banking transactions and not to members’ deposits maintained with a cooperative. It relied on BIR Ruling No. 551-888 and BIR Ruling DA-591-2006, which declared that cooperatives were not required to withhold tax on interest paid on the savings and time deposits of their members. It further invoked the preferential tax treatment granted to cooperatives and their members under Republic Act No. 6938, as amended by Republic Act No. 9520. 

 

Whether or not DCCCO was liable for deficiency withholding taxes on the interest paid on the savings and time deposits of its members for taxable years 1999 and 2000, together with the corresponding delinquency interest.

NO. The Supreme Court granted the petition and held that DCCCO was not liable for the assessed deficiency withholding taxes and delinquency interest. 

The Court first sustained DCCCO’s reliance on BIR Ruling No. 551-888, which expressly declared that cooperatives are not required to withhold taxes on interest paid on the savings and time deposits of their members. The Court rejected the CTA’s interpretation that the ruling applied only when the members’ funds were deposited in a bank. Nothing in the language of the ruling imposed such a qualification. Instead, it categorically stated that because the interest contemplated by the tax provision referred to interest paid by banks on currency deposits and deposit substitutes, cooperatives were not the entities required to withhold the corresponding tax. 

This interpretation was reiterated in BIR Ruling DA-591-2006, which clarified that members’ deposits with cooperatives are neither currency bank deposits nor deposit substitutes. Consequently, the 20% final withholding tax under Sections 24(B)(1) and 27(D)(1) of the NIRC did not apply to the interest derived from such deposits. 

The Court emphasized that interpretations issued by administrative agencies tasked with implementing a law are entitled to great weight and consideration, unless they clearly conflict with the governing statute, the Constitution, or other laws. In this case, the BIR rulings were consistent with the constitutional and statutory policy favoring cooperatives.

The Court further ruled that Section 24(B)(1) of the NIRC must be read together with the Cooperative Code of the Philippines. Under Republic Act No. 6938, duly registered cooperatives that transact only with their members are exempt from government taxes and fees. Cooperatives transacting with both members and non-members are likewise not subject to tax on their transactions with members. 

Although the earlier Cooperative Code expressly referred to the exemption of cooperatives, the Court held that the exemption necessarily extended to their members. Cooperatives exist primarily for the benefit of their members, with the objective of increasing their income, savings, investments, and productivity. To limit the exemption solely to the cooperative entity while taxing the transactions of its members would defeat the very purpose of the cooperative system. 

The Court also noted that Republic Act No. 9520 expressly retained and clarified the exemption. Article 61 of the amended Cooperative Code provides that transactions of members with their cooperative shall not be subject to taxes and fees, including final taxes on members’ deposits. This amendment confirmed the prior administrative interpretation that Section 24(B)(1) of the NIRC did not apply to deposits maintained by cooperative members. 

The Court treated the amendment as legislative approval of the BIR’s long-standing interpretation. Under the principle of legislative approval of administrative construction by reenactment, the reenactment or amendment of a law substantially consistent with an existing executive interpretation indicates congressional adoption of that interpretation.

Finally, the Court invoked Article XII, Section 15 of the Constitution, which recognizes cooperatives as instruments of social justice and economic development. It likewise referred to the constitutional policy of promoting social justice and creating economic opportunities based on self-reliance. An interpretation exempting cooperative members from the final tax on their deposits was therefore more consistent with both the letter and spirit of the Constitution. 

Accordingly, the Supreme Court GRANTED the petition, REVERSED AND SET ASIDE the Decision and Resolution of the CTA En Banc, and CANCELLED the assessments for deficiency withholding taxes on the interest from the savings and time deposits of DCCCO’s members for taxable years 1999 and 2000, including the corresponding 20% delinquency interest.

 CLICK HERE TO READ FULL TEXT

Commissioner of Internal Revenue v. Philex Mining Corp., G.R. No. 230016, [November 23, 2020]

 CASE DIGEST

COMMISSIONER OF INTERNAL REVENUE V. PHILEX MINING CORP.

G.R. No. 230016, [November 23, 2020]

SECOND, LOPEZ, M.V

 

Value Added Tax; VAT mandatory compliances; VAT Refund

 

While the tax law requires mandatory compliance with the keeping of subsidiary journals and the filing of monthly value-added tax (VAT) declarations, the Court will not deny the request for refund on the sole basis that the taxpayer failed to comply with these requirements when the law does not provide for its compliance by the taxpayer to be entitled for refund. The Court may not construe a statute that is free from doubt; neither can we impose conditions or limitations when none is provided for. 

 

Philex Mining Corporation, a VAT-registered taxpayer engaged in mining, sought a refund of ₱51,734,898.99 for unutilized input VAT attributed to its zero-rated sales during the second and third quarters of taxable year 2010. The Commissioner of Internal Revenue (CIR) contested the refund claim, asserting that Philex Mining failed to comply with the accounting requirements of maintaining subsidiary sales and purchase journals and filing monthly VAT declarations.

 

Whether Philex Mining is entitled to a refund of unutilized input VAT despite its alleged non-compliance with subsidiary journal-keeping and monthly VAT declaration filing requirements. 

YES. The Court ruled in favor of Philex Mining, holding that the absence of subsidiary sales and purchase journals and monthly VAT declarations is not sufficient to deny the refund. The Court emphasized that the Tax Code does not explicitly require compliance with these specific accounting requirements as a condition for a refund. It clarified that strict construction is required for tax exemptions, but tax statutes should be construed strictly against the taxing authority and liberally in favor of the taxpayer. 

In this case, Philex Mining's refund claim was granted, stating that the taxpayer had sufficiently proven its entitlement to the refund. The absence of subsidiary sales journal, subsidiary purchase journal, and monthly VAT declarations is not sufficient to deprive Philex Mining of its right to a refund. The Court maintained that Philex Mining adequately demonstrated its entitlement to the refund by providing the necessary documents such as official receipts, quarterly VAT returns, and import entry declarations. In all, Philex Mining's failure to maintain subsidiary sales and purchase journals or to file the monthly VAT declarations should not result in the outright denial of its claim for refund or credit of unutilized input VAT attributable to its zero-rated sales.

 

 

CLICK TO VIEW FULL TEXT

Commissioner of Internal Revenue v. Commission on Elections, G.R. Nos. 244155 & 247508, [May 11, 2021]

 CASE DIGEST

Commissioner of Internal Revenue v. Commission on Elections

 G.R. Nos. 244155 & 247508, [May 11, 2021]

EN BANC, LOPEZ, M.V

 

Withholding taxes from the purchase of COMELEC of the Electronic Voting Machines; Deficiency Tax Assessment; Liability of withholding agent

 

One may be exempt from the obligation to pay income tax but may still be liable for withholding the tax on income payments made to taxable entities. The first is based on personal tax liability, while the second is premised on its duty as a withholding agent to withhold the taxes paid to the payee.

  

The Commission on Elections (COMELEC) entered into a contract with Smartmatic Sahi Technology, Inc. and Avante International Technology, Inc. for the lease of electronic voting machines for the August 2008 elections. COMELEC did not withhold Expanded Withholding Tax (EWT) on payments to the suppliers, believing it was exempt under Section 126 of Republic Act No. 8436. Following a BIR investigation, COMELEC received deficiency EWT assessments, leading to a dispute. The COMELEC contends trial it is exempt from all taxes, direct or indirect, personal or impersonal, relative to the conduct of automated elections as authorized by law. The CTA Division partly granted COMELEC's petition but found it not liable for deficiency interest. The CIR appealed, arguing COMELEC's liability. The CTA En Banc affirmed the Division's decision. COMELEC filed a petition with the Supreme Court, disputing its tax liability and procedural matters related to the case.

 

 

[PROCEDURAL] Whether or not the CTA has exclusive appellate jurisdiction to decide the dispute between the COMELEC and the BIR on the deficiency tax assessment.

YES. The CTA has exclusive appellate jurisdiction to decide the dispute between the COMELEC and the BIR on the deficiency tax assessment; PD No. 242 does not apply. PD No. 242 is not the law applicable for the settlement or adjudication of disputes, claims, and controversies between a constitutional office, like the COMELEC, and a government office, agency, or bureau, such as the BIR. Accordingly, the COMELEC, being a constitutional office independent from the three branches of the government, is not required to go through the procedure prescribed in PD No. 242 and EO No. 292; instead exclusive appellate jurisdiction of the CTA shall apply. Since the issue here is the disputed assessment for deficiency basic EWT for the year 2008 against the COMELEC, arising from its failure to withhold the tax on income payments made to Smartmatic and Avante under the lease contracts, the CTA has the exclusive appellate jurisdiction to take cognizance of the COMELEC's petition.

  

 

[PROCEDURAL] Whether or not the COMELEC properly filed its petition for review with the CTA En Banc without first filing a motion for reconsideration of the CTA Division's Amended Decision.

YES. The Amended Decision is a mere clarification, a correction at best, of the amount due from the COMELEC. In the instant case, the Amended Decision of the CTA Division is not a "new" decision, but a reiteration of the Decision dated August 2, 2016. It was not based on a re-evaluation or re-examination of documentary exhibits presented by the parties. The CTA Division, without any modification, repeated in toto its discussion and ruling in the original decision. Accordingly, we hold that the COMELEC properly brought an appeal to the CTA En Banc without first seeking to reconsider the Amended Decision of the CTA Division.

  

 

[SUBSTANTIVE] Whether or not the COMELEC is exempt from the obligation to withhold EWT.

NO. The withholding tax is not an internal revenue or local tax, but a mode of collecting income tax in advance. Therefore, unless the income recipient is exempt from income tax, the payor is generally required to deduct, and withhold EWT on income payments made. Here, the lease contract payments to Smartmatic and Avante are not exempt from the requirement of withholding under Section 2.57.5 of Revenue Regulations. Smartmatic and Avante also do not enjoy exemption from payment of income tax under any provision of law. On the other hand, the COMELEC's exemption from taxes and import duties on the lease of election voting machines is distinct from its liability as a withholding agent for the government. One may be exempt from the obligation to pay income tax but may still be liable for withholding the tax on income payments made to taxable entities. The first is based on personal tax liability, while the second is premised on its duty as a withholding agent to withhold the taxes paid to the payee. Therefore, the COMELEC is not exempt from the obligation to withhold EWT for the lease of electronic voting machines.

  

 

[SUBSTANTIVE] Whether the COMELEC is liable for the deficiency basic EWT on the income payments made to Smartmatic and Avante for the lease contracts.

YES.  Tax Code makes the agent personally liable for the tax not withheld, or not accounted for and remitted, and applicable penalties. The COMELEC admitted that it did not withhold EWT on the payments made to Smartmatic and Avante for the lease contracts. It failed to perform its duty as a withholding agent required to deduct, withhold and remit the tax to the government. Consequently, the COMELEC becomes personally liable for deficiency tax equivalent to the amount not withheld. Therefore, Commission on Elections is ORDERED TO PAY the amount of P30,645,542.62, representing the deficiency basic expanded withholding tax for the taxable year 2008 but  COMELEC is not liable for any deficiency interest.

 

CLICK TO READ FULL TEXT HERE

Chevron Holdings, Inc. v. Commissioner of Internal Revenue, G.R. No. 215159, [July 5, 2022]

CASE DIGEST

CHEVRON HOLDINGS, INC. V. COMMISSIONER OF INTERNAL REVENUE

 G.R. No. 215159, [July 5, 2022]

EN BANC, LOPEZ, M.V

 

Value Added tax; Input Tax on Zero-rates Sales; Substantiation of Unutilized Input VAT not required for VAT Refund on Zero-rated Sales; 

There is nothing in the law and rules that mandate the taxpayer to deduct the input tax attributable to zero-rated sales from the output tax from regular twelve percent (12%) VAT-able sales first and only the "excess" may be refunded or issued a tax credit certificate. The crediting of input taxes, including input tax attributable to zero-rated sales, from the output tax should be discretionary to the taxpayer. The taxpayers are entitled to segregate and refund the full amount of input VAT that is attributable to their zero-rated sales.

  

Chevron Holdings for the taxable year 2006, rendered services to both foreign and Philippine affiliates, with zero-rated and 12% VAT sales, respectively. The company incurred input taxes, a portion of which was attributable to zero-rated sales. Due to substantial input taxes carried forward from previous quarters, these credits were not offset against output taxes. Seeking a refund, Chevron Holdings filed a claim in 2008 for unutilized input VAT related to services provided to foreign affiliates. The Commissioner of Internal Revenue (CIR) did not act on the claim, leading to Chevron's petition. 

The CTA En Banc ruled that the input tax carry-over of P56,564,096.7726 reported in the Quarterly VAT Return for the first quarter cannot be validly applied against the output tax for the year 2006 because Chevron Holdings failed to present VAT invoices or receipts to prove its existence. After comparing the reported output taxes from the substantiated input taxes, the CTA En Banc observed that there was no excess input VAT that may be the subject of a claim for refund or tax credit for the second, third, and fourth quarters of 2006, thus, only P15,085.24 shall be refundable according to CTA. 

 

Whether the request for refund of unutilized input VAT from zero-rated requires that the taxpayer have 'excess' input VAT from the output VAT of the quarter of claim.

NO.  The SC En Banc held that it would not deny the request for refund of unutilized input VAT from zero-rated sales on the ground that the taxpayer does not have 'excess' input VAT from the output VAT of the quarter of claim since the law does not require it. There is nothing in the law and rules that mandate the taxpayer to deduct the input tax attributable to zero-rated sales from the output tax from regular twelve percent (12%) VAT-able sales first and only the "excess" may be refunded or issued a tax credit certificate. The crediting of input taxes, including input tax attributable to zero-rated sales, from the output tax should be discretionary to the taxpayer as it is the taxpayer who is more interested in reducing its output tax payable. Also, to require entities engaged in zero-rated transactions to charge their input tax from zero-rated sales against their output VAT from regular twelve percent (12%) VAT-able sales would defeat the very object of the tax measure, which is to generate more income for the government.

  

Whether or not the Substantiation of Unutilized Input VAT is required for the entitlement to a refund of unused or unutilized input VAT from zero-rated sales. 

NO. The taxpayer is not required to substantiate its excess input tax carried over from the previous quarter as it is not a requirement for entitlement to a refund of unused or unutilized input VAT from zero-rated sales. The SC En Banc held that the CTA erred in requiring the taxpayer to substantiate its excess input tax carried over from the previous quarter before it may be utilized. The Tax Code merely requires that the input tax claimed for refund "has not been applied against the output tax." Taxpayers can now fully claim the input VAT of the current quarter that is attributable to its zero-rated sales. It need not subtract its current output VAT from the current input VAT before it may refund what remains. The unutilized input vat of the prior quarters may now be utilized to pay for the current quarter’s output tax without the need for substantiation.

 

 

 FULL TEXT HERE

 

 

  

National Power Corp. v. Province of Pampanga, G.R. No. 230648 (Resolution), [October 6, 2021])

 CASE DIGEST

NATIONAL POWER CORPORATION V. PROVINCE OF PAMPANGA

 G.R. No. 230648 (Resolution), [October 6, 2021])

FIRST, LOPEZ, M.V

 

Local Taxation; Tax Assessment need not state provision of

Ordinance; Nullity of the Assessment Letter 

The tax assessment which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests, and penalties. 

 

The case involves the National Power Corporation (NPC), a government-owned corporation, receiving an Assessment Letter from the Provincial Treasurer of the Province of Pampanga, demanding payment of local franchise tax. NPC, relying on the Electric Power Industry Reform Act (EPIRA Law), argued that it was no longer subject to franchise tax as its power generation was not considered a public utility operation requiring a franchise. The notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment.

NPC appealed to the Regional Trial Court (RTC) after the Provincial Treasurer failed to act on the protest, for failure of the assessment to state the exact legal basis for the tax. The RTC ruled in favor of the Province of Pampanga, stating that NPC, despite EPIRA Law modifications, remained liable for franchise tax due to its power generation and supply activities. The Court of Tax Appeals (CTA) upheld this decision but remanded the case to the RTC for further proceedings due to insufficient details in the Assessment Letter. NPC properly filed to petition for review on certiorari under Rule 45 with the Supreme Court to question the CTA’s decision.

 

 

Whether NPC properly filed to petition for review on certiorari with the Supreme Court to assail the decision of the CTA.

YES. Under RA No. 9282,25 approved on March 30, 2004, the CTA was elevated to the same level and equal rank as the Court of Appeals. Upon its effectivity on April 23, 2004,26 decisions or rulings of the CTA En Banc are now appealable to the Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court. Furthermore, Section 1, Rule 16, of the Revised Rules of the Court of Tax Appeals28 (RRCTA) provides that a party adversely affected by a decision or ruling of the CTA En Banc may appeal by filing with the Supreme Court a verified petition for review under Rule 45 of the Rules of Court. Accordingly NPC properly filed to petition for review on certiorari with this Court.

  

Whether the defense of nullity of assessment was waived as it was raised only upon filing of motion for reconsideration.

NO. The issue of nullity of the Assessment Letter is not deemed waived even if raised only in NPC's motion for reconsideration of the CTA En Banc's Decision The CTA has ample authority to determine compliance by the taxing authority of the due process requirements under the tax laws even though not expressly raised as an issue in the petition filed before them. Indeed, the validity or invalidity of the Assessment Letter is integral to the issue of NPC's liability for local franchise tax under the Provincial Tax Code of 1992 of Pampanga. If the assessment is void, NPC is not liable for the franchise tax.

 

Whether the Assessment Letter's lack of specific details, including the amount of franchise tax, surcharges, interest, and the period covered, violates NPC's right to due process, rendering the assessment null and void.

YES. The Supreme Court ruled in favor of NPC, holding that the Assessment Letter's deficiencies deprived NPC of its right to due process. The Court emphasized that taxpayers must be adequately informed of the basis, amount, and period covered by the assessment to enable them to prepare an intelligent protest or appeal. Verily, taxpayers must be informed of the nature of the deficiency tax, fee, or charge, as well as the amount of deficiency, surcharge, interest, and penalty. Failure of the taxing authority to sufficiently inform the taxpayer of the facts and law used as bases for the assessment will render the assessment void. The Province of Pampanga failed to observe the due process requirements in issuing a deficiency local tax assessment; hence, the assessment is void.

 

 

 CLICK TO READ FULL TEXT OF THE CASE