G.R. No. 203160 - Commissioner of Internal Revenue vs. Covanta Energy Philippine Holdings, Inc.

Case Summary (G.R. No. 203160)

Petitioner

Commissioner of Internal Revenue (CIR) — challenged CTA rulings that cancelled VAT and MCIT deficiency assessments against CEPHI and affirmed CEPHI’s entitlement to tax amnesty privileges; contended that CEPHI’s SALN and submissions failed to comply with R.A. No. 9480 requirements and that the CIR may question compliance at any time.

Respondent

Covanta Energy Philippine Holdings, Inc. (CEPHI) — filed protests against deficiency assessments for taxable year 2001 (VAT, EWT, MCIT), subsequently filed petitions with the CTA to cancel and withdraw those assessments, and later informed the CTA that it availed of the tax amnesty under R.A. No. 9480 and submitted supporting documents and an amended SALN with schedules.

Key Dates and Procedural Milestones

Formal assessments issued: December 6, 2004 (VAT and EWT) and January 11, 2005 (MCIT).
Letters of Protest filed: January 19, 2005 (VAT and EWT); February 16, 2005 (MCIT).
Petitions filed with CTA: October 10, 2005 (VAT and EWT, CTA Case No. 7338); November 9, 2005 (MCIT, CTA Case No. 7365).
CEPHI advised it availed of tax amnesty and submitted supplemental documents: October 7, 2008.
CTA Second Division decision partially granting petitions: July 27, 2010 (cancelled VAT and MCIT; remitted EWT liability of P131,791.02 plus interest and surcharge).
CTA Second Division denial of reconsideration: December 13, 2010.
CTA en banc denied CIR’s petition for review: March 30, 2012; denial of en banc reconsideration: August 16, 2012.
Supreme Court decision denying the petition: January 24, 2018.

Applicable Law and Implementing Rules

Constitution applicable: 1987 Philippine Constitution (decision date post-1990).
Primary statute: Republic Act No. 9480 — Tax Amnesty for national internal revenue taxes for taxable year 2005 and prior years.
Implementing rules: Department of Finance Department Order No. 29-07 (Rules and Regulations to Implement R.A. No. 9480).
Relevant Internal Revenue Code provisions cited for interest and surcharges: Sections 249(B) and 249(C) of the NIRC of 1997 (as applied by CTA in interest computations).

Factual Background and Disputed Assessments

The CIR issued deficiency assessments for CEPHI for taxable year 2001: VAT P465,593.21; EWT P288,903.78; MCIT P467,801.99. CEPHI filed protests and later petitions with the CTA seeking cancellation and withdrawal. After trial and submission of evidence, CEPHI informed the CTA it had availed of the R.A. No. 9480 tax amnesty and submitted the SALN and supporting schedules.

CTA Second Division Ruling

The CTA Second Division found that VAT and MCIT deficiency assessments should be cancelled and withdrawn because CEPHI availed of the tax amnesty and complied with its requirements. The Second Division held that tax amnesty did not extend to withholding agents’ withholding tax liabilities, therefore ordering CEPHI to pay deficiency EWT of P131,791.02 (including 25% surcharge) plus deficiency and delinquency interest computed under NIRC Section 249(B) and 249(C). The Second Division denied the CIR’s motion for reconsideration.

CTA En Banc Ruling

On appeal, the CTA en banc denied the CIR’s petition for review and affirmed the Second Division’s cancellation of VAT and MCIT assessments and the limited liability for EWT. The en banc held that absent any evidence showing CEPHI’s net worth was understated by at least 30%, there is a presumption that the SALN and related submissions are correct, thereby entitling CEPHI immediately to the privileges and immunities of the tax amnesty.

Issue Raised by CIR

The CIR’s sole legal contention was that CEPHI’s SALN failed to comply with R.A. No. 9480 because certain columns — Reference and Basis for Valuation — were left blank in the SALN (original and amended), and that this omission disqualified CEPHI from enjoying tax amnesty protections. The CIR also asserted that there is no time limit for the BIR or CIR to challenge compliance with amnesty requirements.

Statutory and Regulatory Standards for Availment of Amnesty

R.A. No. 9480 and DOF Dept. Order No. 29-07 set a clear method of availment: filing Notice of Availment, SALN as of December 31, 2005, and the Tax Amnesty Return with the appropriate BIR office; payment of the amnesty tax and submission of Acceptance of Payment Form, Notice of Availment, SALN and Tax Amnesty Return to the RDO; completion of filing and payment requirements is deemed full compliance. The rules explicitly provide that upon full compliance the taxpayer is immediately entitled to the immunities and privileges of the tax amnesty. However, the immunities are subject to a resolutory condition: they cease if the taxpayer’s net worth as declared in the SALN is proven to be understated by 30% or more, and specific mechanisms and timeframes (e.g., third-party proceedings within one year) are provided to overcome the statutory presumption of correctness.

Court’s Analysis of CEPHI’s SALN and Supporting Documents

The Court examined CEPHI’s original and amended SALN and found that, although the Reference and Basis for Valuation columns were left blank on the form itself, CEPHI attached Schedules 1 to 7 to both the original and amended SALNs which contained the specific descriptions and valuation details required by R.A. No. 9480 and its implementing rules. The Court observed that the SALN form’s Reference and Basis for Valuation fields are intended to capture the specific description of declared assets, and that cross-referencing to attached schedules that provide the required information constitutes compliance. Accordingly, the Court concluded the SALN and its attachments satisfied statutory requirements.

Presumption of Correctness and Burden of Proof

Under R.A. No. 9480 (Section 4) and DOF rules, the SALN submitted by an amnesty applicant is presumed true and correct. This presumption may be overturned only if the party challenging the declaration proves that the taxpayer’s net worth was understated by at least 30% through either (a) third-party proceedings instituted within one year from filing, or (b) findings or admissions in congressional, administrative, or judicial proceedings. The Court found no evidence on record — no timely third-party challenge nor any findings/admissions — demonstrating a 30% understatement of CEPHI’s net worth. The CIR offered only bare allegations without the specified proof required to rebut the statutory presumption.

Reliance on Precedent Regarding Conditions of Amnesty

The Court relied on its prior discussion in CS Garment, Inc. v. CIR to distinguish suspensive and resolutory conditions in the tax amnesty context: fulfillment of statutory filing and payment requirements is a suspensive condition that entitles the taxpayer to immediate rights (immunities and privileges), whereas underdeclaration of net worth by 30% constitutes a resolutory condition that, if established within the mechanisms set by statute, extinguishes those immunities. The Court reiterated that amnesty privileges are not absolute but are subject to the statutory resolutory condition and its prescribed proof mechanisms.

Treatment of Withholding Tax Liability (EWT)

The CTA rulings and the Supreme Court affirmed that the tax amnesty under R.A. No. 9480 does not extend immunities to withholding agents with respect to their withholding tax liabilities (per R.A. No. 9480, Section 8(1)). Consequently, even though VAT and MCIT assessments were cancelled by reason of the amnesty, CEPHI remained liable for the assessed deficiency EWT of P131,791.02 (including 25% surcharge) and for applicable deficiency and delinquency interest as computed by the CTA under Sections 249(B) and 249(C) of the NIRC.

Court’s F

Case Syllabus (G.R. No. 203160)

Case Citation and Nature of Proceeding

G.R. No. 203160; 824 Phil. 411; Second Division; Decision penned by Reyes, Jr., J.; January 24, 2018.
Petition for review on certiorari under Rule 45 of the Rules of Court, seeking reversal and setting aside of the Court of Tax Appeals (CTA) en banc Decision dated March 30, 2012 and Resolution dated August 16, 2012 in CTA EB Case No. 713.
The petition was filed by the Commissioner of Internal Revenue (CIR) against respondent Covanta Energy Philippine Holdings, Inc. (CEPHI).

Factual Antecedents

On December 6, 2004, the CIR issued Formal Letters of Demand and Assessment Notices against CEPHI for deficiency VAT and expanded withholding tax (EWT) for taxable year 2001.
The deficiency assessments were P465,593.21 (VAT) and P288,903.78 (EWT), totaling P754,496.99 for 2001.
CEPHI filed two Letters of Protest on January 19, 2005, protesting the VAT and EWT assessments.
CIR issued another Formal Letter of Demand and Assessment Notice on January 11, 2005, assessing CEPHI for deficiency minimum corporate income tax (MCIT) of P467,801.99 for taxable year 2001.
CEPHI filed a Letter of Protest for the MCIT assessment on February 16, 2015.
The protests remained unacted upon by the CIR.
CEPHI filed petitions before the CTA seeking cancellation and withdrawal of the deficiency assessments: on October 10, 2005 (CTA Case No. 7338 for VAT and EWT) and on November 9, 2005 (CTA Case No. 7365 for MCIT).
CIR filed Answers on December 6, 2005 (for CTA Case No. 7338) and January 10, 2006 (for CTA Case No. 7365); the cases were consolidated on motion of the CIR.
After submission of formal offers of evidence by the parties, CEPHI filed a Supplemental Petition on October 7, 2008, informing the CTA that it availed of the tax amnesty under R.A. No. 9480 and submitted a Supplemental Formal Offer of Evidence with documents relevant to the tax amnesty.
The CTA required memoranda and the case was submitted for decision upon compliance.

Relief Sought and Primary Contention on Appeal

CIR sought review of the CTA en banc decision canceling and withdrawing the deficiency VAT and MCIT assessments, contending CEPHI failed to comply with requirements of R.A. No. 9480 (the tax amnesty law).
CIR argued CEPHI’s documentary submissions, particularly the Statement of Assets, Liabilities and Net worth (SALN), failed to comply with R.A. No. 9480 because the Reference and Basis of Valuation columns were left blank.
CIR also contended there is no period of limitation in challenging CEPHI’s compliance with the requirements of the tax amnesty program.

CTA Second Division Ruling (July 27, 2010) and Reconsideration (Dec 13, 2010)

CTA Second Division partially granted CEPHI’s petitions with respect to deficiency VAT and MCIT for 2001, canceling and withdrawing those assessments.
The Second Division ruled tax amnesty does not extend to withholding agents with respect to their withholding tax liabilities; accordingly, CEPHI was held liable for deficiency EWT.
CTA Second Division ordered CEPHI to pay P131,791.02 representing deficiency EWT, including a 25% surcharge.
The decision also ordered:
- Deficiency interest at 20% per annum on the basic deficiency EWT of P29,415.00 from November 16, 2005 until full payment (Section 249(B), NIRC of 1997).
- Delinquency interest at 20% per annum on P131,791.02 and on the accrued 20% deficiency interest computed from January 10, 2005 until full payment (Section 249(C), NIRC of 1997).
CIR’s motion for reconsideration was denied by the CTA Second Division on December 13, 2010 for lack of merit.

Appeal to CTA En Banc (January 4, 2011) and CTA En Banc Decision (March 30, 2012)

CIR elevated the matter to the CTA en banc pursuant to R.A. No. 1125, as amended by R.A. Nos. 9282 and 9503.
The sole issue presented to the CTA en banc was whether the CTA Second Division erred in upholding the validity of CEPHI’s tax amnesty.
The CTA en banc denied CIR’s petition for review on March 30, 2012 and affirmed the July 27, 2010 Decision and December 13, 2010 Resolution.
The CTA en banc reiterated cancellation and withdrawal of deficiency VAT and MCIT for 2001, and maintained CEPHI’s obligation to pay P131,791.02 for deficiency EWT plus the prescribed interest and surcharge.
The CTA en banc held that absent any evidence that CEPHI’s net worth was underdeclared by at least 30%, there is a presumption of compliance with the tax amnesty law, entitling CEPHI to immediate enjoyment of tax amnesty privileges.

CTA En Banc Denial of Reconsideration (August 16, 2012)

On April 23, 2012, CIR moved for reconsideration of the CTA en banc decision; the motion for reconsideration was denied on August 16, 2012 for lack of merit.

Petition to the Supreme Court and CIR’s Reiterated Arguments

CIR elevated the matter to the Supreme Court, again assailing the validity of CEPHI’s tax amnesty.
CIR reiterated that CEPHI’s failure to fill the Reference and Basis for Valuation columns in the SALN (original and amended) disqualified CEPHI from the tax amnesty program.
CIR alleged there is no period of limitation to challenge compliance with the tax amnesty requirements.

Legal Framework Applied (R.A. No. 9480 and DOF Department Order No. 29-07)

R.A. No. 9480: An act granting an amnesty on all unpaid internal revenue taxes imposed by the national government for taxable year 2005 and prior years; governs the tax amnesty program.
R.A. No. 9480 permits a taxpayer to avail of the program by complying with documentary submissions to the BIR and paying the applicable amnesty tax.
DOF Department Order No. 29-07 sets implementing rules and regulations; Rule III, Section 6 prescribes method of availment:
- Documents to file: Notice of Availment, SALN as of December 31, 2005, Tax Amnesty Return in forms prescribed by the BIR.
- Place of filing: Residents file with the RDO/Large Taxpayer District Office with jurisdiction; non-residents file with the Commissioner’s office or RDO.
- RDO may assist taxpayers in accomplishing forms and computing taxable base and amnesty tax payable, but may not look into, question, or examine veracity of the entries in the Tax Amnesty Return, SALN, or other submitted documents.
- Payment of amnesty tax and full compliance: acceptance of payment forms, submission of Acceptance of Payment Form, Notice of Availment, SALN and Tax Amnesty Return to the RDO only after complete payment; compl
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