Duty Free Philippines v. Bureau of Internal Revenue
REITERATIONFacts
The Antecedents: Duty Free Philippines (DFP), established by the Ministry of Tourism through the Philippine Tourism Authority (PTA) pursuant to Executive Order No. 46, sought clarification regarding its exemption from expanded withholding tax under Revenue Regulation No. 6-94. DFP contended that as a tax-exempt entity, it should not be subjected to the 1.5% expanded withholding taxes on certain income payments withheld by credit card companies. DFP also inquired about the procedure for refunding accumulated withholding taxes amounting to P1.8 million as of December 31, 1994. The Bureau of Internal Revenue (BIR), through BIR Ruling No. 136-95, denied this request, opining that Executive Order No. 93 had withdrawn all tax and duty incentives for government and public entities, including DFP. Subsequently, BIR Ruling No. 38-2002 further denied DFP's reconsideration, asserting that DFP, as a division of PTA, was subject to income tax, citing provisions of the Tax Code and the limited scope of its VAT exemption. Procedural History: Following the BIR's denial of its request for refund and subsequent rulings, DFP appealed to the Department of Finance (DOF) in December 2002. The DOF, through a Resolution dated April 11, 2003, affirmed the BIR's rulings. Despite further requests for reconsideration being denied by the DOF, several assessment notices for deficiency income tax and VAT from 1999 to 2002, totaling P1,452,785,087.64, were issued by the BIR. DFP protested these assessments, but its protests were denied. Consequently, DFP filed a Petition for Review with the Court of Tax Appeals (CTA) on July 4, 2005. The CTA Special First Division, in its Decision dated June 4, 2010, ruled that DFP was not a tax-exempt entity and found it liable for aggregate tax deficiencies of P1,036,956,477.90, plus interests. The CTA also found that DFP had not fully complied with the requirements for tax amnesty under Republic Act No. 9480. DFP and the intervenor Department of Tourism filed motions for reconsideration, which were denied by the CTA Special First Division in a Resolution dated June 9, 2011, particularly noting DFP's failure to submit its Statement of Assets, Liabilities and Networth (SALN). The Petition: Duty Free Philippines (petitioner) filed a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure directly with the Supreme Court, assailing the Decision and Resolution of the CTA Special First Division. Petitioner argued that the CTA erred in dismissing its Petition for Review and requiring payment of deficiency taxes and interests. The grounds raised included claims that DFP is a mere merchandising system, that its tax-exempt status derived from EO 46 and PD 564 (as amended by PD 1400) was not revoked by subsequent decrees, that it is exempt from income tax under Section 32(B)(7)(b) of the National Internal Revenue Code, that its sales of services are VAT-exempt, and that it should be tax-exempt on equitable grounds. Petitioner also contended that the CTA improperly ruled on the validity of its tax amnesty availment. The respondent BIR, in its Comment, raised the issue of the mode of appeal, arguing that petitioner should have first elevated the case to the CTA en banc before coming to the Supreme Court.
Issue(s)
Whether the Supreme Court has jurisdiction to directly review the decision of a Division of the Court of Tax Appeals (CTA) when Republic Act No. 9282 is in effect. Whether Duty Free Philippines is exempt from income tax and expanded withholding taxes; Whether Duty Free Philippines is liable for deficiency income tax and VAT; Whether Duty Free Philippines validly availed of the tax amnesty under Republic Act No. 9480.
Ruling
The Petition is denied due to a procedural infirmity. The Supreme Court lacks jurisdiction to directly review the decision of a Division of the CTA when the appeal should have been filed with the CTA en banc.
Ratio Decidendi
On the Jurisdiction of the Supreme Court: The Court reiterated its long-standing rule that jurisdiction is conferred by the Constitution or statute. With the enactment of Republic Act No. 9282, which elevated the rank of the CTA to a collegiate court, the appellate procedure for decisions of CTA Divisions was amended. Section 18 of R.A. No. 1125, as amended by R.A. No. 9282, mandates that a party adversely affected by a resolution of a CTA Division on a motion for reconsideration or new trial must file a petition for review with the CTA en banc. Only a decision or ruling of the CTA en banc may be elevated to the Supreme Court via a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure. Therefore, a direct appeal from a CTA Division's decision to the Supreme Court under Rule 45, without first going through the CTA en banc, is procedurally flawed and deprives the Supreme Court of jurisdiction. The Court emphasized that an appeal is a statutory right that must be exercised in the manner prescribed by law, and failure to comply with procedural rules can lead to the loss of the right to appeal. On the Substantive Issues: Given the procedural infirmity, the Court found no need to further discuss the substantive issues raised by the parties regarding Duty Free Philippines' tax exemption, liability for deficiency taxes, and tax amnesty availment.
Main Doctrine
A direct appeal from a decision of a Division of the Court of Tax Appeals (CTA) to the Supreme Court under Rule 45 of the 1997 Rules of Civil Procedure is procedurally infirm; such appeals must first be filed with the CTA en banc.