Subic Bay Freeport Chamber of Commerce, Inc. and Benjamin Antonio III vs Department of Fice

G.R. No. 266016
Subic Bay firms challenge VAT zero-rating limits. CTA jurisdiction affirmed, but exhaustion excused, regs invalid.
taxation tax incentives zero rating

Case Digest (G.R. No. 266016)

Facts:

The Subic Bay Freeport Chamber of Commerce, Inc. and Benjamin E. Antonio, III v. Department of Finance, et al., G.R. No. 266016, February 04, 2025, the Supreme Court En Banc, Lopez, J., writing for the Court. Petitioners are Subic Bay Freeport Chamber of Commerce, Inc. (SBFCC) and Benjamin E. Antonio, III; respondents are the Department of Finance (DOF), Department of Trade and Industry (DTI), Bureau of Internal Revenue (BIR), Revenue District Office No. 19 — Subic Bay Freeport Zone (RDO No. 19), and the Subic Bay Metropolitan Authority (SBMA).

Under Republic Act No. 7227 (Bases Conversion Development Act of 1992), the Subic Bay Freeport Zone (SBFZ) is a separate customs territory and the SBMA registers and issues tax-exemption certificates to qualified enterprises. SBFCC registered with the SBMA as a freeport enterprise and obtained a Certificate of Registration and Tax Exemption.

On March 26, 2021, Republic Act No. 11534 (CREATE Act) was enacted; Sections 294(E) and 295(D) provide that registered business enterprises (RBEs) enjoy VAT exemption on importation and VAT zero-rating on local purchases of goods and services directly and exclusively used in their registered project or activity. The CREATE Act defines RBEs and distinguishes between Registered Export Enterprises (REEs) and Domestic Market Enterprises (DMEs).

The DOF and DTI issued the CREATE IRR, and DOF/BIR later issued implementing issuances. Rule 2, Section 5 of the CREATE IRR and subsequent amendments to Rule 18, Section 5, together with DOF Revenue Regulations No. 21-2021 and BIR Revenue Memorandum Circulars (RMC) Nos. 24-2022 and 49-2022, were interpreted and applied by respondents to limit VAT zero-rating on local purchases to REEs, excluding DMEs. The BIR issuances specifically advised that VAT zero-rating applies only to REEs and that DMEs are not entitled to zero-rating on local purchases; DMEs would instead treat VAT passed on by suppliers as cost.

On February 2023 petitioners filed a Petition for Declaratory Relief (with application for TRO/PI) in the Regional Trial Court (RTC), Olongapo City (Branch 97), alleging that the CREATE IRR (Rule 18, Section 5) and the DOF/BIR issuances were unconstitutional and ultra vires because they excluded DMEs from VAT zero-rating contrary to the CREATE Act. The RTC, in an Order dated March 16, 2023, dismissed the petition for lack of jurisdiction, reasoning that the Court of Tax Appeals (CTA) has exclusive jurisdiction to determine the constitutionality or validity of tax laws, regulations, and BIR issuances and that the petition thus belonged to the CTA (citing Banco De Oro v. Republic and related authority).

Petitioners then filed a Petition for Review on Certiorari under Rule 45 with the Supreme Court, challenging the RTC’s dismissal and seeking declaration of invalidity of Rule 18, Section 5 of the CREA...(Pro-only)

Issues:

  • Do petitioners have legal capacity (standing) to challenge the DOF/BIR issuances and the CREATE IRR provision they assail?
  • Should the Court dismiss the petition for failure to exhaust administrative remedies and because the Court of Tax Appeals has exclusive jurisdiction over validity of tax laws and revenue issuances?
  • Are Rule 18, Section 5 of the CREATE IRR, Revenue Regulations No. 21-2021, RMC No. 24-2022, and RMC No. 49-2022 valid insofar as they limit VAT zero-rating on local purchases to Registered Export Enterprises (REEs) and exclude Domestic Market Enterprises (DMEs)?
  • Did the subsequent amendment to Rule 18, Section 5 and...(Pro-only)

Ruling:

  • (Pro-only)

Ratio:

  • (Pro-only)

Doctrine:

  • (Pro-only)
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