G.R. No. 144696 - Commissioner of Internal Revenue vs. Philippine Global Communications, Inc.

Commissioner of Internal Revenue (petitioner) is challenging the claim of Philippine Global Communications, Inc. (respondent), a telecommunications company operating under a legislative franchise granted by Republic Act No. 4617.
Under Section 117(b) of Presidential Decree No. 1158 (as amended by the 1977 National Internal Revenue Code), respondent was originally liable to pay a 3% franchise tax on its gross receipts from telephone/telegraph systems and radio/broadcasting services.

In 1994, Republic Act No. 7716 – the Expanded Value Added Tax (E-VAT) Law – was enacted, which amended Section 117 of the Tax Code.
Section 12 of the E-VAT Law amended the Tax Code by deleting the 3% franchise tax requirement for telephone/telegraph systems and radio/broadcasting stations, thereby exempting telecom companies from the franchise tax.
Section 21 of the E-VAT Law provided for its effectivity fifteen (15) days after complete publication. Although the law was published in national newspapers on May 12, 1994, it was officially published in the Official Gazette on August 1, 1994; thus, it became effective on May 28, 1994.

On June 30, 1994, the Supreme Court, in the consolidated case Tolentino et al. v. Secretary of Finance, issued a Temporary Restraining Order (TRO) enjoining the enforcement and/or implementation of the E-VAT Law.
The TRO, which applied to the entire law, was later lifted on October 30, 1995.

Despite the passage of the E-VAT Law, respondent continued to pay the 3% franchise tax during the period from the 2nd quarter of 1994 until the 4th quarter of 1995.
The total amount paid by respondent was P70,795,150.51, itemized by quarter.
Respondent claimed that with the effective and self-operative tax exemption under the E-VAT Law, it was no longer obliged to pay the 3% franchise tax, and therefore, sought a refund of the tax paid.

The Bureau of Internal Revenue (BIR) failed to act on respondent’s refund claim.
Respondent then filed a petition for review with the Court of Tax Appeals (CTA), which granted the refund based on its interpretation that the express amendment by deletion rendered the tax exemption self-operative.
The CTA held that the TRO only suspended the implementation of provisions requiring BIR action and did not affect self-operative provisions such as the tax exemption.
The Court of Appeals later affirmed the CTA decision, leading to the present petition for review before the Supreme Court.

Revenue Memorandum Circular No. 27-94 directed cessation of certain procedures related to the registration and implementation of the E-VAT Law while the TRO was in effect.
On January 1, 1996, following the issuance of Revenue Regulation No. 7-95, the 3% franchise tax was completely abolished for telecommunications companies and replaced by a 10% value-added tax on the sale of services.

Whether the respondent, a telecommunications corporation, was obligated to pay the 3% franchise tax under Section 117(b) of the Tax Code during the period in which the enforcement/implementation of the E-VAT Law was suspended by a Temporary Restraining Order.
Whether the self-operative tax exemption, derived from the express amendment by deletion in the E-VAT Law, took immediate effect despite the suspension of the law’s implementation by the TRO.
Whether refunding the franchise tax paid during the period from the 2nd quarter of 1994 to the 4th quarter of 1995 would create a “vacuum” in the tax collection system by leaving no tax liability for that period.