Facts:

The case involves the Commissioner of Internal Revenue (petitioner) and the Philippine Long Distance Telephone Company (PLDT) (respondent). The dispute arose from a claim for tax refund/credit filed by PLDT against the Bureau of Internal Revenue (BIR) concerning taxes paid on the importation of equipment, machineries, and spare parts from October 1, 1992, to May 31, 1994. PLDT, a telecommunications company operating under a franchise granted by Republic Act No. 7082, paid a total of P164,510,953.00 in various taxes, including compensating tax, advance sales tax, and other internal revenue taxes. Additionally, PLDT paid P116,041,333.00 in value-added tax (VAT) for similar importations during the same period.

On March 15, 1994, PLDT sought a confirmatory ruling from the BIR regarding its tax exemption privileges under Section 12 of R.A. 7082, which states that the grantee shall be liable for certain taxes but is exempt from others, specifically mentioning that the 3% franchi...

Facts:

1. Parties Involved:

   • Petitioner: Commissioner of Internal Revenue (CIR).
   • Respondent: Philippine Long Distance Telephone Company (PLDT).

2. Background:

   • PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082, which allows it to operate a telecommunications system in the Philippines.
   • From October 1, 1992, to May 31, 1994, PLDT imported equipment, machineries, and spare parts for its business and paid the Bureau of Internal Revenue (BIR) the following taxes:
     • Compensating tax: P126,713,037.00.
     • Advance sales tax: P12,460,219.00.
     • Other internal revenue taxes: P25,337,697.00.
     • Value-added tax (VAT): P116,041,333.00 (for importations from March 1994 to May 31, 1994).

3. Tax Exemption Claim:

   • On March 15, 1994, PLDT sought a confirmatory ruling from the BIR regarding its tax exemption under Section 12 of R.A. 7082, which states that the 3% franchise tax on gross receipts is "in lieu of all taxes on this franchise or earnings thereof."
   • The BIR issued Ruling No. UN-140-94 on April 19, 1994, confirming that PLDT is exempt from VAT and other taxes on its importations of equipment and machineries necessary for its franchise operations.

4. Tax Refund/Credit Claim:

   • On December 2, 1994, PLDT filed a claim for tax refund/credit of P280,552,286.00, representing taxes paid on importations from October 1992 to May 1994.
   • The claim was filed with the Court of Tax Appeals (CTA) after the BIR failed to act on it.

5. CTA Decision:

   • On February 18, 1998, the CTA granted PLDT’s petition but reduced the refundable amount to P223,265,276.00, excluding taxes paid before December 16, 1992, due to prescription.

6. Appeal to the Court of Appeals (CA):

   • The CIR appealed to the CA, which affirmed the CTA’s decision on September 17, 1999, relying on the doctrine of stare decisis from a previous case involving the same parties and issue.

7. Supreme Court Petition:

   • The CIR filed a petition for review with the Supreme Court, arguing that the "in lieu of all taxes" clause in PLDT’s franchise covers only direct taxes, not indirect taxes like VAT, compensating tax, and advance sales tax.

Issue:

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Ruling:

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Ratio:

1. Tax Exemption Interpretation:

   • Tax exemptions are construed strictly against the taxpayer and liberally in favor of the taxing authority.
   • The phrase "in lieu of all taxes" in Section 12 of R.A. 7082 is qualified by the clause "on this franchise or earnings thereof," indicating that the exemption is limited to direct taxes on PLDT’s franchise or earnings.

2. Direct vs. Indirect Taxes:

   • Direct taxes are those imposed on the person who is intended to bear the burden (e.g., income tax, franchise tax).
   • Indirect taxes are those imposed on goods or services, where the burden can be shifted to another party (e.g., VAT, compensating tax, advance sales tax).
   • The Court ruled that indirect taxes are not covered by the "in lieu of all taxes" provision in PLDT’s franchise.

3. Stare Decisis:

   • The Court rejected blind adherence to stare decisis, emphasizing that the correctness of the law must prevail over precedent.

4. Erroneous Tax Payments:

   • The Court acknowledged that compensating tax and advance sales tax were no longer collectible under the Tax Code during the period in question, as they had been replaced by VAT.
   • Therefore, PLDT was entitled to a refund for these erroneously collected taxes, subject to proof of VAT payment.