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

 

 

 

 

 

 

MRM Asset Holdings 2 Inc. vs. Standard Chartered Bank, G.R. No. 202761 (Resolution), [February 10, 2021]

 CASE DIGEST

MRM ASSET HOLDINGS 2 INC. VS. STANDARD CHARTERED BANK

 G.R. No. 202761 (Resolution), [February 10, 2021]

SECOND, LOPEZ, M.V

 

RTC as rehabilitation court; Judicial Review; Mootness; Moot and Academic Issue

 

A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value or use. The Court will refrain from delving into the merits of the case when legal relief was no longer necessary. Hence, Courts generally decline jurisdiction over such case or dismiss it on the ground of mootness. 

The case involves a complex financial arrangement between Standard Chartered Bank (SCB) and Lehman Brothers Holdings, Inc. (LBHI), leading to loans for Philippine Investment Two (PI Two). Due to LBHI's bankruptcy in the U.S., PI Two underwent rehabilitation. LBHI's bankruptcy triggered rehabilitation proceedings in the Philippines, where SCB intervened. Disputes arose, including SCB's alleged concealment of collaterals and a disagreement over SCB's representation in the Management Committee (ManCom). The Rehabilitation Court issued orders, including one directing SCB to surrender collaterals. The Court of Appeals (CA) later nullified these orders, leading to the current appeal. In CA level, SCB's was excluded from its list of creditor and rehabilitation proceedings are terminated. Despite these events, MRM persisted in seeking the surrender of pledged collaterals.

 

The main issues are whether the CA erred in nullifying the order for SCB to surrender collaterals and in reinstating SCB's membership in the ManCom.

NO. The Supreme Court dismissed the petition as moot and academic. The dissolution of the ManCom, SCB's exclusion as a creditor in the Rehabilitation Plan, and the termination of rehabilitation proceedings rendered the issues moot. The surrender of collaterals was also deemed moot due to a prior CA decision recognizing the sale or transfer of collaterals to another entity. The court declined to pass upon the merits, given the absence of legal relief necessity. The decision emphasized that exceptional circumstances or constitutional issues necessitate addressing moot cases, which were not present in this instance.

CLICK TO VIEW FULL TEXT

Metropolitan Waterworks and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955, [January 13, 2021]

 CASE DIGEST

Metropolitan Waterworks and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955, [January 13, 2021]

SECOND, LOPEZ, M.V 

Local Taxation; Real Property Taxation; Remedies of Taxpayer in Local Tax Disputes (RPT); Exhaustion of Administrative Remedies

 

The tax-exempt status of a government instrumentality is not lost when it grants the beneficial use of its real property to a taxable person; only the exemption of the real property ceases in such case. Indeed, it is a fundamental principle in real property taxation that the assessment of real property shall be based on its actual use. The Court has consistently ruled that while the liability for taxes generally rests on the owner of the real property, personal liability for real property taxes may also expressly rest on the entity with the beneficial use of the real property at the time the tax accrues.

 

The case involves MWSS (Metropolitan Waterworks and Sewerage System) disputing the imposition of real property taxes by Pasay City for the taxable year 2008. Established by RA No. 6234 in 1971, MWSS was granted authority over waterworks and sewerage systems in Metro Manila, Rizal, and part of Cavite. In 1997, under RA No. 8041, MWSS entered a concessionaire agreement with Maynilad to service the West Zone, including Pasay City. Pasay City demanded P166,629.36 in real property taxes, prompting MWSS to protest, claiming exemption as a government instrumentality under the Local Government Code (LGC). The LBAA ruled against MWSS, asserting it is a government-owned corporation (GOCC) and subject to taxation. Despite acknowledging MWSS as a government instrumentality, the CBAA upheld the tax, arguing that MWSS's tax exemption under RA No. 6234 had been withdrawn by Section 234 of the LGC. The CA dismissed MWSS's appeal for failure to exhaust administrative remedies. Hence this petition. 

 

Whether it is correct to dismiss the appeal for failure to exhaust administrative remedies.

NO. The CA erred in dismissing MWSS's appeal solely on the ground of the alleged non-exhaustion of administrative remedies under the LGC. Administrative remedies are inapplicable when the issue presented is a pure question of law. A careful reading of MWSS's arguments and allegations reveals that it is assailing the authority of the city assessor and treasurer to assess and collect real property taxes against it. The issue of whether a local government is authorized to assess and collect real property taxes from a government entity is a pure question of law, which is beyond the LBAA and CBAA's jurisdiction. The protest contemplated under Section 252 of the LGC is required when there is question as to the reasonableness or correctness of the amount assessed, while an appeal to the LBAA under Section 226 is fruitful only where questions of fact are involved. When the very authority and power of the assessor to impose the assessment, and of the treasurer to collect real property taxes are in question, the proper recourse is a judicial action. Thus, despite the alleged non-exhaustion of administrative remedies, the Court gives due course to this petition on the ground that the controversy only involves a question of law.

 

Whether the City of Pasay is authorized to assess and collect real property taxes from MWSS.

NO. MWSS is a government instrumentality with corporate powers, not liable to the local government of Pasay City for real property taxes. The tax exemption that its properties carry, however, ceases when their beneficial use has been extended to a taxable person. The liability to pay real property taxes on government-owned properties, the beneficial or actual use of which was granted to a taxable entity, devolves on the taxable beneficial user. Beneficial use means actual use or possession of the property. Actual use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.

The respondents have not alleged that the beneficial use of any of MWSS’s properties was extended to a taxable person. In the absence of any allegation to the contrary, MWSS’s properties in Quezon City are not subject to the levy of real property taxes. Although there was an allegation that the beneficial use of MWSS's properties in Pasay were given to Maynilad by virtue of a concession agreement, this however, was not proved and was merely based on a sweeping conclusion that when MWSS entered into a concession agreement, all its properties were effectively turned over to the concessionaires for their operations. At any rate, the tax-exempt status of a government instrumentality is not lost when it grants the beneficial use of its real property to a taxable person; only the exemption of the real property ceases in such case.

Indeed, it is a fundamental principle in real property taxation that the assessment of real property shall be based on its actual use. The Court has consistently ruled that while the liability for taxes generally rests on the owner of the real property, personal liability for real property taxes may also expressly rest on the entity with the beneficial use of the real property at the time the tax accrues.

 

 

CLICK TO READ FULL TEXT

Central Bay Reclamation and Development Corp. v. Commission on Audit, G.R. No. 252940, [April 5, 2022]

 CASE DIGEST

Central Bay Reclamation and Development Corp. v. Commission on Audit

G.R. No. 252940, [April 5, 2022]

EN BANC, LOPEZ, M.V

 

Property Reclamation; Inalienable lands of Public Domain; Quantum Meruit Principle in Void Government Contracts

Payment for services rendered on account of the government, although based on a void contract, may be granted on the basis of quantum meruit. The principle of quantum meruit allows recovery of an amount to the extent of the reasonable value of the thing or services rendered.

 

This case revolves around the nullification of an Amended Joint Venture Agreement (JVA) between the Philippine Reclamation Authority (PRA) and Central Bay Reclamation and Development Corporation (Central Bay) regarding the acquisition of reclaimed lands. PRA entered an Amended JVA with Central Bay to develop reclaimed islands known as the "Freedom Islands" and reclaim submerged areas in Manila Bay. The Supreme Court nullified this agreement, citing violations of the Constitution which prohibits private corporations from acquiring alienable land of the public domain. Now, Central Bay sought reimbursement from PRA for costs incurred prior to the nullification, eventually agreeing to a Compromise Agreement transferring reclaimed land to Central Bay's qualified assignee to settle the money claims. The Commission on Audit (COA) disapproves of the Compromise Agreement, as it contravened the letter and intent of the constitutional ban against corporate ownership of land. What cannot be done directly cannot be done indirectly. Thus, COA disallow Central Bay’s money claims. 

 

Whether the COA's disapproval of the Compromise Agreement and disallowance of other money claims were proper. 

Yes. The Supreme Court reiterated that the Compromise Agreement allowing Central Bay to assign the reclaimed land is void. It emphasized that the transfer of land to Central Bay's assignee granted Central Bay beneficial ownership violates the constitutional prohibition banning corporation to acquire alienable land of public domain. As the COA aptly observed, the qualified assignee mentioned in the Compromise Agreement can only acquire rights which Central Bay can lawfully exercise. However, Central Bay is a private corporation that cannot own land in the Philippines. Consequently, Central Bay cannot transfer ownership of any land to another party.

However, the Court held that Central Bay is not precluded to recover from PEA the costs incurred in implementing the agreement prior to its declaration of nullity on a quantum meruit basis. It is settled that payment for services rendered on account of the government, although based on a void contract, may be granted on the basis of quantum meruit. The principle of quantum meruit allows recovery of an amount to the extent of the reasonable value of the thing or services rendered, regardless of any agreement as to the value. Similarly, Central Bay may claim reimbursement for the actual costs it incurred in implementing the Amended JVA, provided that the claim is substantiated by supporting documents.

In sum, the COA did not commit grave abuse of discretion when it disapproved the Compromise Agreement and disallowed the money claims, except the amount of ₱714,937,790.29 that was properly established with documentary evidence. The Court reminds that a contract which violates the Constitution is void, and it will not permit to be done indirectly which, because of public policy, cannot be done directly.

CLICK TO VIEW FULL TEXT

De Lima v. Court of Appeals, G.R. Nos. 199972 & 206118, [August 15, 2022]

 CASE DIGEST

DE LIMA V. COURT OF APPEALS

 G.R. Nos. 199972 & 206118, [August 15, 2022]

SECOND, LOPEZ, M.V 

Gambling licenses; Games and Amusement Board Regulatory Powers 

The Supreme Court ruled that Games and Amusements Board (GAB) had regulatory authority over Meridien's jai alai activities but clarified that it lacked authority within the Cagayan Special Economic Zone and Freeport (CSEZFP). Any enforcement of GAB’s powers and functions inside CSEZFP are enjoined as it were beyond their territorial jurisdiction.

 

Meridien Vista Gaming Corporation (Meridien) was granted a license by the Cagayan Economic Zone Authority (CEZA) to conduct gaming operations, including jai alai, within the Cagayan Special Economic Zone and Freeport (CSEZFP). However, the Office of the Government Corporate Counsel (OGCC) informed CEZA that it lacked the power to authorize jai alai operations without an express legislative franchise. CEZA later revoked the license, citing the absence of an express legislative franchise to authorize jai alai. Meanwhile, Games and Amusements Board (GAB) initiated an investigation into Meridien's jai alai betting stations outside CSEZFP without GAB permits. It discovered Meridien is operating jai alai off-frontons without a permit and issued a Cease-and-Desist Order (CDO). Meridien filed a Complaint for Injunction against the CDO, arguing that GAB had has no regulatory authority over them as they operate under a CEZA-given license. 

 

Whether or not GAB has regulatory authority over Meridien's gaming operations under the CEZA-given authority. 

The Supreme Court ruled that Games and Amusements Board (GAB) had regulatory authority over Meridien's jai alai activities but clarified that it lacked authority within the Cagayan Special Economic Zone and Freeport (CSEZFP). This meant that GAB’s Cease and Desist Order against Meridiens is only valid against its Jai-Alai off-fronton betting stations within Metro Manila and in certain parts of Rizal Province, and no such enforcement is to be validly implemented in Meridien's operations inside the CSEZFP. Any enforcement of GAB’s powers and functions inside CSEZFP are enjoined as it were beyond their territorial jurisdiction.

Examining the text of the assailed CDO, it covers only off-fronton betting stations of Meridien and evidently not the actual conduct and operation of jai alai games inside the CSEZFP. Clearly it was issued for the sole purpose of regulating the off-fronton betting stations outside the economic zone.  In accordance with the purpose of its issuance, the CDO remains to be intended only against off-frontons, was never directed against the holding of Jai Alai games in the CSEZFP. Therefore, CDO is valid.

CLICK TO VIEW FULL TEXT

Metro Laundry Services v. The Commission Proper, G.R. No. 252411 (Resolution), [February 15, 2022]

 CASE DIGEST

METRO LAUNDRY SERVICES V. THE COMMISSION PROPER

G.R. No. 252411 (Resolution), [February 15, 2022]

EN BANC, LOPEZ, M.V

 

Money Claim against COA; Government acquired service under Void Contract; Payment based on Quantum Meruit 

 

Nullity of contract do not preclude payment of government liability based on quantum meruit. The Court partially granted Metro Laundry's petition, setting aside the COA's decision, and directed the COA to determine the reasonable amount for payment to Metro Laundry Services. It also emphasized that this ruling did not preclude any civil, criminal, or administrative actions against the officials responsible for the contract's irregularities. 

Metro Laundry Services won a public bidding to provide laundry services to Ospital ng Maynila Medical Center (OMMC) for the third and fourth quarters of 2010. The contract ended on December 31, 2010, but OMMC extended the services from January 1, 2011, to December 2011 without a written contract due to lack of funds. Metro Laundry's claim for payment was included in the City of Manila's budget for 2013, but remained unsettled despite various justifications and endorsements affirming the debt. The Commission on Audit (COA) eventually denied Metro Laundry's claim due to the irregularities in the extended contract. 

 

Whether the COA properly denied Metro Laundry's money claim due to the irregularities in the extended contract for laundry services provided to OMMC. 

NO. Here, Supreme Court acknowledged the irregularities in the contract, which violated procurement laws. However, it emphasized that the government, represented by OMMC and the City of Manila, acknowledged Metro Laundry's entitlement to payment for the services rendered despite the contract's invalidity.

Various jurisprudence held where compensation was granted to contractors even with void contracts based on quantum meruit. Quantum meruit refers to the reasonable value of services rendered, irrespective of the agreement's value. The Court held that Metro Laundry fulfilled its services without evidence of bad faith or collusion, and the government had benefitted from these services. While acknowledging the contract's nullity, the Court directed the COA to determine the reasonable value of the services provided by Metro Laundry. This determination would be based on evidence presented, considering the conflicting claims regarding the amount owed. The decision remanded the case to the COA for a post-audit to ascertain the precise amount Metro Laundry should receive. But this ruling did not preclude any civil, criminal, or administrative actions against the officials responsible for the contract's irregularities.

CLICK TO READ FULL TEXT