Title
Global Medical Center of Laguna, Inc. vs. Ross Systems International, Inc.
Case
G.R. No. 230112
Decision Date
May 11, 2021
Construction dispute over withheld 2% CWT on progress billings; SC upheld CA ruling, denied RSII's claim for additional payment, ordered GMCLI to issue BIR Form 2307 for tax credit.
construction dispute
mode of appeal
arbitration

Case Summary (G.R. No. 230112)

Factual Background

GLOBAL MEDICAL CENTER OF LAGUNA, INC. (GMCLI) engaged ROSS SYSTEMS INTERNATIONAL, INC. (RSII) to construct a hospital under a written construction contract priced at P248,500,000 with progress billings and a fifteen percent down payment. Section 9 of the contract made taxes on services for RSII's account and the contract contained an arbitration clause requiring exhaustion of arbitration before court resort. RSII submitted Progress Billing No. 15 on April 12, 2015 claiming cumulative accomplishment of 79.31% equivalent to P197,088,497.00 inclusive of VAT. GMCLI evaluated the accomplishment at 78.84% and assessed Progress Billing No. 15 at P7,043,260.00. GMCLI later discovered it had not withheld CWT on Progress Billings Nos. 1 to 14. On April 29, 2015 it withheld two percent CWT not only on Progress Billing No. 15 but on the cumulative amount of Progress Billings Nos. 1–15, resulting in a payment of P3,101,491.00 to RSII for Progress Billing No. 15. RSII protested and demanded payment of an alleged balance of P4,884,778.92.

Proceedings before the CIAC

RSII filed a complaint and request for arbitration with the CIAC on August 6, 2015. After conferences, presentation of evidence and the parties’ supplemental drafts, the CIAC promulgated its Final Award dated May 10, 2016. The CIAC held that it had jurisdiction as a construction dispute. It ruled that GMCLI lacked authority to withhold and remit the two percent CWT on the cumulative amount of Progress Billings Nos. 1–15 because withholding must occur at the time each payment is made pursuant to Revenue Regulation No. 2-98. The CIAC nevertheless denied RSII’s claim for the release of P4,884,778.92, reasoning that RSII failed to avoid a double payment as it had not yet paid income taxes on the subject receipts at the time of GMCLI’s remittance and that RSII had the last clear chance to prevent loss. The CIAC denied moral damages and attorney’s fees and ordered arbitration costs apportioned between the parties.

Proceedings before the Court of Appeals

RSII filed a petition under Rule 43 before the Court of Appeals to set aside the CIAC award on the ground that it was entitled to release of the withheld amount and to attorney’s fees. In its Decision of October 28, 2016, the Court of Appeals partially granted RSII’s petition. The CA affirmed the CIAC on jurisdiction and on GMCLI’s lack of authority to withhold the cumulative CWT, but modified the relief by awarding RSII P1,088,214.83 as the balance collectible after deducting the 2% CWT on Progress Billings Nos. 1–15 and prior payments. The CA denied GMCLI’s claim for moral damages. Motions for reconsideration were denied by CA Resolution dated February 21, 2017.

Consolidated Petitions and Issues Presented to this Court

Both parties filed consolidated petitions for review on certiorari under Rule 45. GMCLI sought reinstatement of the CIAC award in toto and partial modification of the CA decision. RSII contended it was entitled not only to the P1,088,214.83 affirmed by the CA but also to P3,815,996.50 representing the 2% CWT allegedly improperly withheld on Progress Billings Nos. 1–14, or alternatively, that GMCLI should be ordered to issue BIR Form 2307 (Certificate of Creditable Tax Withheld at Source). The consolidated issues distilled by the Court were whether RSII is entitled to the release of the withheld amounts in addition to the P1,088,214.83 and whether GMCLI may be ordered to furnish BIR Form 2307.

The Supreme Court’s Disposition

The Supreme Court en banc PARTIALLY GRANTED the petitions. The CA Decision dated October 28, 2016 was PARTIALLY REVERSED with respect to RSII’s entitlement to P1,088,214.83. The Court REINSTATED the CIAC Final Award dated May 10, 2016 with MODIFICATION ordering GMCLI to furnish RSII the pertinent BIR Form 2307, consistent with Section 2.57.3 of Revenue Regulation No. 2-98. The Court also promulgated a clarified rule on the proper modes of judicial review of CIAC arbitral awards. That rule is given prospective application and does not disturb appeals already pending in the Court of Appeals.

Overarching Legal Framework Adopted by the Court

The Court undertook a three-pronged analysis. First, it revisited the historical and doctrinal limits of judicial review over CIAC awards, tracing the original design of E.O. 1008, the procedural expansions effected by Revised Administrative Circular No. 1-95 and Rule 43, and the legislative and administrative re-alignments effected by R.A. 9285 and the Special ADR Rules (A.M. No. 7-11-08-SC). Second, it harmonized those enactments with constitutional constraints on the Court’s appellate jurisdiction, Congress’s power to apportion jurisdiction, and the Court’s rule-making power under Art. VIII and Art. VI. Third, it resolved the tax law dispute in accordance with the RR No. 2-98 framework on the Creditable Withholding Tax.

Reasoning on the Extent and Mode of Judicial Review

The Court reasserted E.O. 1008’s original design that CIAC awards are final and unappealable except on questions of law appealable to the Supreme Court. It recognized that subsequent procedural instruments such as Revised Administrative Circular No. 1-95 and Rule 43 had broadened appellate review to permit appeals to the Court of Appeals on questions of fact. The enactment of R.A. 9285 and promulgation of the Special ADR Rules realigned the law towards deference to CIAC factual findings and restored the exclusive, narrow channel for judicial review that privileges questions of law. The Court reconciled this body of law with the Constitution and concluded that E.O. 1008 and R.A. 9285 validly sustain direct resort to the Supreme Court on pure questions of law without contravening constitutional limits, because the Court’s appellate jurisdiction over such questions was already in place prior to the 1987 Constitution and did not increase the Court’s jurisdiction in a manner requiring the Court’s prior advice and concurrence under Art. VI, Sec. 30.

The Two-Track Remedy and Its Limits

The Court announced a two-track remedial regime for CIAC awards going forward. First, challenges that present pure questions of law may be appealed directly and exclusively to the Supreme Court by a petition for review on certiorari under Rule 45. A question of law is one that the Court can resolve without reweighing evidence or reassessing witness credibility. Second, factual challenges are exceptional and are cognizable only in two narrowly defined circumstances: (a) when they attack the integrity of the arbitral tribunal—i.e., allegations corresponding to the grounds in Section 24 of R.A. 876 such as corruption, fraud, evident partiality, arbitrator misconduct, disqualification, or excess of powers—or (b) when they allege that the arbitral tribunal committed a violation of the Constitution or positive law in the conduct of the arbitration. In these exceptional circumstances the appropriate remedy is a special civil action for certiorari under Rule 65, to be filed in the Court of Appeals; factual review by the CA is permitted only upon sufficient and demonstrable showing that the tribunal’s integrity was compromised or that its conduct was unconstitutional or illegal. The Court further directed that Rule 19.7 of the Special ADR Rules, which broadly proscribes certiorari on arbitral merits, be read to allow the narrow Rule 65 recourse described above, and that prior instruments or rules inconsistent with this calibration be deemed amended prospectively. The Court expressly abandoned prior jurisprudence to the contrary and made the new delimitation prospective in application.

Application of the Review Rules to the Present Case

Applying those demarcations, the Court found the consolidated petitions presented a pure question of law concerning the legal effect of a withholding agent’s belated withholding and remittance of the two percent CWT. The CA, in contrast, had improperly engaged in factfinding and modified the CIAC’s mathematical computations in circumstances where the issues had not been properly raised for such factual reconsideration before it. The Court therefore concluded that the CA had misapplied its appellate function and reinstated the CIAC award, subject to the modification requiring issuance of BIR Form 2307.

Tax Law Analysis and Relief

On the substantive tax point the Court affirmed the CIAC’s conclusion that GMCLI had no authority to belatedly withhold and remit the two percent CWT on the cumulative amount of Progress Billings Nos. 1–15 because under Revenue Regulation No. 2-98 the obligation to deduct and withhold arises at the time an income payment is paid or payable, or is accrued or recorded in the payor’s books, whichever is applicable. The Court reiterated that the CWT is an advance, creditable income tax and that withholding agents are required to issue BIR Form 2307 upon withholding so that the payee may claim the credit when filing its income tax return. The Court nevertheless agreed with the CIAC that RSII was not entitled to immediate release of the amounts withheld because, at the time of GMCLI’s remittance, RSII had not yet reported and paid income tax on the payments subject to withholding; the CIAC’s Last Clear Chance analogy mean

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