Commissioner of Internal Revenue v. Ramizo

FIFTEENTH DIVISION [CA-G.R. SP NO. 115530. August 28, 2014.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. Hon. EDWIN B. RAMIZO, in his capacity as Presiding Judge of the Regional Trial Court, National Capital Judicial Region, Pasay City, Branch 114, and PHILIPPINE INTERNATIONAL AIR TERMINALS, CO., INC. (PIATCO) , respondents. DECISION CORALES , J p : This is a Petition for Certiorari, Prohibition, and Mandamus 1 under Rule 65 of the Rules of Court seeking the reversal of the June 16, 2010 Order 2 of the Regional Trial Court (RTC), Branch 114, Pasay City in SCA No. R-PSY-10-02963-CV for prohibition with prayer for the issuance of temporary restraining order (TRO) and/or writ of preliminary injunction (WPI), entitled "Philippine International Air Terminals, Co., Inc. v. Commissioner of Internal Revenue" (the PIATCO Petition). The Antecedents On September 18, 2008, the Bureau of Internal Revenue (BIR) issued Letter of Authority (LOA) No. 00004421 for the examination of the books of accounts and other accounting records of Philippine International Air Terminals, Co., Inc. (PIATCO) for purposes of determining value-added tax (VAT) on its importations for the taxable year 2001. 3 The BIR initially assessed a VAT deficiency of P682,927,427.37 in connection with PIATCO's importations of capital equipment but after an informal conference, the BIR issued on January 23, 2009 a Preliminary Assessment Notice (PAN) 4 for VAT deficiency of P698,710,054.48. PIATCO filed a formal protest against the foregoing assessment. 5 The BIR also issued LOAs for the assessment of PIATCO's VAT for taxable years 2000 and 2002. 6 Based on the BIR's initial assessment, PIATCO allegedly had VAT deficiencies of P51,406,057.47 and P475,914,313.89 for taxable years 2000 and 2002, respectively. A Notice of Informal Conference was subsequently sent to PIATCO 7 followed by two (2) PANs for VAT deficiency of P51,976,782.93 and P477,161,015.16 for the respective taxable year 2000 and 2002. 8 On April 3, 2009, PIATCO filed letters of protest to dispute these assessments 9 which were forwarded for appropriate action to the Revenue District Office No. 51 (RDO 51) in Pasay City. 10 All the foregoing VAT deficiency assessments involved PIATCO's importation of equipment, materials, and supplies for the construction of International Passenger Terminal 3 (PT3) projects at Ninoy Aquino International Airport (NAIA) and were apparently issued in connection with Board Resolution No. 01-284 (PEZA Resolution) of the Philippine Economic Zone Authority (PEZA). The relevant portions of the PEZA Resolution read: 11 IDaEHC WHEREAS, there is a request from the Philippine Air Terminals Co., Inc. (PIATCO) to be allowed to import construction materials tax and duty-free, to be used for the NAIA Passenger Terminal III (PT3); xxx xxx xxx WHEREAS, the PIATCO airport/passenger terminal, while required in the context of the definition of a free trade zone, is a general international airport/passenger terminal that is catering to service the entire country rather than the free trade zone only. Specifically, the airport/passenger terminal will neither house free trade zone enterprises nor exclusively service said enterprises; WHEREAS, considering all the foregoing, and after a thorough review of the matter, the Board decided that PIATCO is not eligible to avail of duty and tax exemption on imported construction materials ; RESOLVED, THEREFORE, that the request of PIATCO for the tax and duty-free importation of construction materials for the PT3 is hereby DENIED . (Emphasis supplied) Subsequently, RDO 51 indorsed PIATCO's letters of protest to Revenue Region No. 8 (RR 8) and sought legal opinions regarding the validity of the LOAs issued to PIATCO; the prescription of BIR's right to assess PIATCO for VAT deficiencies for taxable years 2000, 2001 and 2002; and the VAT-exempt status of PIATCO's importation of capital equipment, spare parts, supplies and raw materials. 12 In a January 29, 2010 Memorandum, 13 the RR8 upheld the validity of the LOAs and ruled that PIATCO's importations are not VAT-exempt. Aggrieved, petitioner filed before the RTC the PIATCO Petition insisting that it is exempt from all national and local taxes, including VAT, and that the period for assessing the same had already lapsed. It prayed, among others, for the issuance of an order restraining the Commissioner of Internal Revenue (CIR) from acting on the PANs, issuing or enforcing Final Assessment Notices (FANs), and further investigating, assessing, or issuing assessment notices on PIATCO's importation of capital equipment, spare parts, supplies, and raw materials. 14 On March 22, 2010, the RTC issued a 20-day TRO enjoining the BIR from issuing the FANs against PIATCO. 15 The BIR moved for reconsideration. 16 On April 13, 2010, the court a quo granted PIATCO's application for the issuance of a WPI. It restrained the CIR or any or all persons acting on its behalf from issuing the FANs against PIATCO or implementing any FANs that might have been issued. 17 Again, the BIR sought reconsideration. 18 The Ruling of the RTC Acting on the pending incidents before it, the RTC issued the assailed June 16, 2010 Order 19 denying BIR's motions for reconsideration of the March 22, 2010 and April 13, 2010 Orders. The court a quo stood firm on its assumption of jurisdiction over the petition. It held that the appellate jurisdiction of the Court of Tax Appeals (CTA) covers only final decisions of the CIR involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC), but these circumstances are not attendant in the case before it considering that the CIR has not yet issued any final decision on PIATCO's case. The RTC added that the case before it does not assail the tax assessment made by the BIR but only questioned the latter's authority to impose taxes on PIATCO despite its PEZA registration; thus, it could take cognizance of the PIATCO petition. For the same reason, the court a quo refused to apply Section 218 of the NIRC which prohibits the issuance of injunction against collection of taxes. 20 DTCSHA With respect to PIATCO's entitlement to WPI, the RTC held that the BIR failed to present countervailing evidence against that submitted by PIATCO to satisfy the requisites for the issuance of injunctive relief. It stressed that based on the evidence so far presented, grave and irreparable injury would result if the WPI would not be issued. Unfazed, the CIR, through the Office of the Solicitor General (OSG), interposed the instant petition anchored on the following grounds: 21 I RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO EXCESS OF JURISDICTION IN ASSUMING JURISDICTION OVER SCA NO. R-PSY-10-02963-CV, THE SUBJECT MATTER OF WHICH FALLS UNDER THE EXCLUSIVE JURISDICTION OF THE COURT OF TAX APPEALS. II RESPONDENT JUDGE LIKEWISE ACTED WITH GRAVE ABUSE OF DISCRETION AND EXCEEDED HIS JURISDICTION IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION DESPITE: 1) A CLEAR WANT OF AUTHORITY PURSUANT TO SECTION 218 OF THE NATIONAL INTERNAL (REVENUE) CODE IN RELATION TO REPUBLIC ACT NO. 1125, AS AMENDED; AND 2) PRIVATE RESPONDENT'S FAILURE TO PROVE THAT IT IS ENTITLED THERETO. The BIR insists that the imposition of VAT deficiencies on PIATCO's importations came within the purview of "disputed assessments" or "other matters arising under the NIRC" which falls within the exclusive jurisdiction of the CTA and not the RTC. It further claims that only the CTA has the exclusive authority to suspend collection of taxes pursuant to Section 11 of R.A. No. 1125. 22 The BIR also faults the RTC for granting a WPI against the issuance of the FANs despite the absence of evidence showing PIATCO's right in esse. According to the BIR, PIATCO is liable for taxes as provided in PEZA's Resolution No. 01-284 and the Concession Agreement between PIATCO and the Philippine government regarding PT3. PIATCO would not suffer irreparable injury because the mere issuance of FANs does not result in the immediate taking and execution of PIATCO's properties. 23 In defense of the the assailed Order, PIATCO argues that the prohibition under Section 218 of the NIRC applies only when the collection is legitimate, otherwise, judicial intervention is justified and necessary. It maintains that the CTA has no jurisdiction over its petition for prohibition considering that the BIR has yet to issue FANs and demand letters for PIATCO's alleged VAT deficiencies. PIATCO reiterates its arguments as to prescription of right to assess VAT deficiencies for taxable years 2000 to 2002 and claims that any doubt as to its tax-exempt status should be resolved in its favor. 24 CScTED This Court's Ruling The petition is meritorious. The hornbook rule is that the nature of the action and which court has original and exclusive jurisdiction over the same is determined by the material allegations of the complaint 25 and the law at the time the action was commenced. 26 Under Section 4 of Republic Act No. 8424, 27 otherwise known as "An Act Amending the National Internal Revenue Code, as Amended, and for Other Purposes," the CIR has jurisdiction to interpret the provisions of the NIRC and to decide disputed assessments, refunds, of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matter arising under the NIRC or other law or portions thereof administered by the BIR. Corollary thereto, the decision of the CIR is appealable to the CTA as provided by Section 7 of Republic Act No. 9282, thus: Sec. 7. Jurisdiction. The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; (3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; (Emphasis supplied) xxx xxx xxx In this case, the issues raised by PIATCO in its petition for prohibition pertain to the authority of the BIR to impose VAT on its importation as well as the correctness and validity of the VAT deficiency assessments. These are matters governed by the NIRC, particularly Sections 105 to 112, thus, the exclusive jurisdiction to resolve any dispute arising from the implementation of the aforesaid provisions lies with the CIR and, in case of appeal, with the CTA. 28 Even if We assume that the BIR committed grave abuse of discretion amounting to lack or excess of jurisdiction in imposing VAT deficiencies on PIATCO which must be restrained by the extraordinary writ of prohibition, such cause of action still falls within the exclusive jurisdiction of the CTA and not the RTC. In City of Manila v. Hon. Grecia-Cuerdo, 29 the Supreme Court held the authority of the CTA to take cognizance of petitions for certiorari questioning interlocutory orders is included in the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction. It clarified that "if a case may be appealed to a particular court or judicial tribunal or body, then said court or judicial tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction." By parity of reasoning, the CTA, and not the RTC, has authority to grant the extraordinary writ of prohibition to prevent the alleged grave abuse of discretion in issuing the VAT deficiency assessments. cDCEIA In assuming jurisdiction over the PIATCO Petition, the RTC ratiocinated that the CIR has not yet rendered a final decision which could be appealed to the CTA. This strained legal reasoning only highlights PIATCO's failure to exhaust all available administrative remedies under Section 228 of the NIRC. 30 PIATCO timely filed a protest after its receipt of the PANs but instead of awaiting for the issuance of the FANs, which can be the subject of an administrative protest and later on appealable to the CTA, it brought the matter to the RTC by filing the PIATCO Petition. Such a premature invocation of judicial intervention is fatal to PIATCO's cause of action. A litigant may not simply go around the authority of the concerned administrative agency and directly seek redress from the courts. Rather, the party with an administrative remedy must not only initiate the prescribed procedure to obtain relief, but also pursue it to its appropriate conclusion, in order to give the administrative agency an opportunity to decide the matter itself correctly. 31 By the same token, courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their competence. With their technical expertise, they are in a better position to make final determinations of litigants' claims and obligations. 32 We cannot also subscribe to PIATCO's postulate that the circumstances of its case fall within the exceptions to the doctrine of exhaustion of administrative remedies because the VAT deficiency assessments are patently illegal. Notably, the March 16, 2009 PAN referred explicitly, and the January 23, 2009 PAN implicitly, to the PEZA Resolution rejecting PIATCO's request for tax exemption. It is beyond cavil that R.A. No. 7916 vests power and authority in the PEZA Board to interpret and implement the laws, rules, and regulations pertaining to special economic zones. 33 Accordingly, its actions in fulfillment of this mandate are accorded great respect and shall ordinarily control the applications of the law by the courts. 34 Similarly, the BIR, in adhering to the PEZA Resolution, cannot be said to have acted without any color of authority. Thus, PIATCO's claim of patent illegality necessarily fails. 35 Furthermore, PIATCO's allegations of violation of due process are unavailing. The essence of due process is simply an opportunity to explain one's side and to seek reconsideration of the action or ruling complained of. 36 Based on the records, PIATCO was given and had actively made use of every opportunity to air its concerns and refute the preliminary assessments. There is no reason to doubt that further opportunities, as prescribed by law and the rules, would subsequently be provided in due course toward the same end. Significantly, it was PIATCO which sought to circumvent the ordinary procedure by filing its petition for prohibition with the RTC. Pursuant to Section 1, Rule 9 of the Rules of Court, the court may motu proprio dismiss the case where it appears from the pleadings or the evidence on record that it has no jurisdiction over the subject matter. 37 The RTC did not only disregard this plain and unambiguous provision of the law but, worse, it issued injunctive relief despite the petitioner's failure to satisfy the requisites therefor. In refuting the validity of the VAT deficiency assessments, PIATCO invoked its alleged tax exemption by virtue of its PEZA registration. It suffices to state that the rights granted under the Certificates of Registration and Tax Exemption of PIATCO are not absolute and unconditional as to constitute right in esse or a right clearly founded on or granted by law or is enforceable as a matter of law. Moreover, it cannot be overemphasized that the WPI against the issuance of the FANs against PIATCO inevitably restrained the collection of taxes. The WPI is therefore a limitation upon the right of the government to its lifeline and wherewithal. It has been held time and again that the enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes, being the lifeblood of the government, should be collected without unnecessary hindrance; hence, every precaution must be taken not to unduly suppress it. 38 DHESca Clearly, the RTC gravely abused its discretion in granting the WPI and issuing its June 16, 2010 Order. Grave abuse of discretion has been defined as "such capricious or whimsical exercise of judgment which is equivalent to lack of jurisdiction" or that arbitrary or despotic exercised of power by reason of passion or personal hostility. It must be so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined, or to act at all, in contemplation of law, as to be equivalent to having acted without jurisdiction. 39 In refusing to dismiss the PIATCO Petition and proceeding to grant the WPI despite the overwhelming evidence of its lack of jurisdiction, the RTC committed a patent and gross evasion of duty or to act in contemplation of law. Indeed, when a court has no jurisdiction over the subject matter, the only power it has is to dismiss the action. 40 WHEREFORE , the instant petition is GRANTED . The June 16, 2010 Order of the Regional Trial Court, Branch 114, Pasay City in SCA No. R-PSY-10-02963-CV is hereby declared NULL and VOID for lack of jurisdiction. Accordingly, PIATCO's Petition for Prohibition with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, docketed as SCA No. R-PSY-10-02963-CV, is hereby DISMISSED . SO ORDERED. Villon and Macalino, JJ., concur. Footnotes 1. Rollo, pages 2-46. 2. Penned by Judge Edwin B. Ramizo, ibid. , pages 48-53. 3. Ibid. , page 54. 4. Ibid. , pages 56-59. 5. See February 27, 2009 and February 5, 2009 letters of PIATCO, ibid. , pages 189-201 and 187-188, respectively. 6. See LOA 2008 00006821 and 00006822, ibid. , pages 61 and 60, respectively. 7. See January 8, 2009 Notices of Informal Conference, ibid. , pages 62-64 and 65, respectively. 8. See March 16, 2009 PANs, ibid. , pages 66-69 and 70-76, respectively. 9. See April 3, 2009 letter, ibid. , pages 202-215. 10. See April 13, 2009 letters of Regional Director Alfredo V. Masajon, ibid. , pages 80 and 81, respectively. 11. See Resolution No. 01-284, ibid. , pages 77-79. 12. See June 30 and July 9, 2009 1st Indorsements and August 20, 2009 letter, ibid. , pages 82, 83 and 84-86, respectively. 13. Ibid. , pages 87-91. 14. See Petition, ibid. , pages 216-253. 15. See March 22, 2010 Order, ibid. , pages 93-95. 16. See Motion for Reconsideration, ibid. , pages 96-105. 17. See April 13, 2010 Order, ibid. , pages 128-132. 18. See Motion for Reconsideration, ibid. , pages 133-156. 19. Supra, at note 2. 20. SEC. 218. Injunction not Available to Restrain Collection of Tax. No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code. 21. See pages 16-17 of the Petition, supra, at note 1. 22. SEC. 11. Who may Appeal; Mode of Appeal; Effect of Appeal. . . . No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be, shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceedings may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. xxx xxx xxx 23. See Petition, supra, at note 1; See also Memorandum of Authorities, rollo, pages 709-734. 24. See Comment and Memorandum, ibid. , pages 654-698 and 782-820, respectively. 25. Hilario v. Salvador, G.R. No. 160384. April 29, 2005. See Del Rosario v. Gerry Roxas Foundation, G.R. No. 170575. June 8, 2011. 26. Spouses Cruz v. Spouses Goli-Cruz, G.R. No. 172217. September 18, 2009. 27. SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. 28. See National Internal Revenue Code, Sections 4 and 228; R.A. 1125, Section 7, as above quoted. See also Commissioner of Internal Revenue v. Hambrecht & Quist, G.R. No. 169225. November 17, 2010. 29. G.R. No. 175723. February 4, 2014. 30. SECTION 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: xxx xxx xxx The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. 31. See Addition Hills v. Megaworld Properties, G.R. No. 175039. April 18, 2012; Asia International v. Parayno, G.R. No. 163445. December 18, 2007. 32. See Delos Reyes v. Flores, G.R. No. 168726. March 5, 2010. 33. Rep. Act No. 7916, Section 12. Functions and Powers of PEZA Board. The Philippine Economic Zone Authority (PEZA) Board shall have the following functions and powers: (a) Set the general policies on the establishment and operations of the ECOZONES, industrial estates, export processing zones, free trade zones, and the like; xxx xxx xxx (e) Issue rules and regulations to implement the provisions of this Act insofar as its powers and functions are concerned; (f) Exercise its powers and functions as provided for in this Act; . . . 34. See Philippine Health v. Commissioner of Internal Revenue, G.R. No. 167330. September 18, 2009. See also Dumaguete Cathedral v. Commissioner of Internal Revenue, G.R. No. 182722. January 22, 2010. 35. See Bangus Fry v. Lanzanas, G.R. No. 131442. July 10, 2003. 36. See Universal Robina v. Laguna Lake, G.R. No. 191427. May 30, 2011. See also Hongkong & Shanghai Banking v. G.G. Sportswear, G.R. No. 146526. May 5, 2006. 37. See Rules of Court, Rule 9, Section 1; Katon v. Palanca, G.R. No. 151149. September 7, 2004. 38. See Republic v. Hon. Caguioa, G.R. No. 168584. October 15, 2007. 39. See Pahlia-Garrido v. Tortogo, G.R. No. 156358. August 17, 2011. 40. Katon v. Palanca, Jr., G.R. No. 151149. September 7, 2004.