G.R. No. 230138 - St. Mary's Academy of Caloocan City, Inc. vs. Henares

Case Summary (G.R. No. 230138)

Factual Background

In July 2013, Commissioner Jacinto-Henares issued RMO No. 20-2013, setting guidelines for processing tax exemption applications and for re-validating tax exemption rulings and certificates for corporations listed under Section 30 of the National Internal Revenue Code. In August 2013, the Commissioner issued RMC No. 52-2013, which clarified the validity of unused and unissued principal and supplementary receipts or invoices printed before January 18, 2013. The circular set deadlines for the validity of such receipts and invoices, and required taxpayers to secure new authority to print after the dates specified.

On November 13, 2013, Detablan wrote to St. Mary’s Academy, informing it of its failure to apply for new authority to print. He reminded the academy that its receipts were no longer valid as of October 31, 2013 and that issuing receipts starting November 1, 2013 without authority violated the National Internal Revenue Code. Detablan also demanded payment of penalties should the academy fail to present its new authority to print.

St. Mary’s Academy replied that it was a non-stock, non-profit educational institution and claimed that it was “exempt from taxes and duties.” It relied on Revenue Ruling No. 159-98, which it understood to state that such educational institutions were exempt from issuance of receipts and sales invoices printed with permission and the stamp of the Bureau of Internal Revenue. Even assuming such ruling might be revoked, the academy maintained that it was not required to apply for new authority to print because, in its view, authority to print was only required for entities engaged in business.

Detablan referred the matter to Florendo, who responded that the academy was not exempt from applying for new authority to print. Florendo explained that the requirement extended not only to principal receipts and invoices but also to supplementary documents such as delivery receipts, collection receipts, and other related documents issued by the academy. He characterized the requirement as intended for recording, monitoring, and control. Florendo also insisted that the academy needed to renew its tax exemption application under RMO No. 20-2013.

Initiation of Case and Relief Sought

St. Mary’s Academy filed a petition before the Regional Trial Court of Quezon City, seeking injunction and prohibition against Commissioner Jacinto-Henares, Detablan, Florendo, and the Republic. It alleged that as a non-stock, non-profit educational institution, all its assets and revenues “actually, directly, and exclusively used for educational purposes” were exempt from internal revenue taxes. It added that it was not engaged in business and was therefore not required to secure authority to print receipts and invoices. It also asserted that the Bureau of Internal Revenue required it to surrender and destroy official receipts and apply for a new authority to print, and that when it did not comply, the Bureau allegedly imposed a penalty of P10,000.00 for non-registration and P20,000.00 for every receipt printed without authority. It prayed that RMC No. 52-2013 and RMO No. 20-2013, insofar as they applied to non-stock, non-profit educational institutions, be declared unconstitutional and illegal.

Respondents’ Defenses

The respondents argued that the challenged issuances were issued pursuant to the Commissioner’s rule-making power. They contended that injunction and prohibition were inapplicable remedies because they apply to acts done in the exercise of judicial, quasi-judicial, or ministerial functions. They further prayed for dismissal for lack of merit and for violation of the doctrine of exhaustion of administrative remedies. The Republic, through the Office of the Solicitor General, also argued that the petition was premature because, at the time of filing, no sanction had been imposed on St. Mary’s Academy.

RTC Proceedings: Preliminary Injunction and a Merits Ruling

On June 26, 2014, the Regional Trial Court issued an Order granting a prayer for preliminary injunction. It found that St. Mary’s Academy did not need to apply for authority to print because it was not subject to internal revenue taxes and was not engaged in business. It also ruled that Commissioner Jacinto-Henares lacked authority to amend provisions of the National Internal Revenue Code by requiring additional documents before a tax-exempt entity could enjoy its tax-exempt status.

After a motion for reconsideration and further proceedings, on October 10, 2014, the Regional Trial Court issued a Resolution declaring the issuances unconstitutional and illegal insofar as they applied to non-stock and non-profit educational institutions. It ruled that RMO No. 20-2013 was UNCONSTITUTIONAL and RMC No. 52-2013 was ILLEGAL insofar as it ran counter to Sections 237 and 238 of the National Internal Revenue Code.

Court of Appeals Disposition

After denial of reconsideration, respondents appealed. In an August 31, 2016 Decision, the Court of Appeals granted the appeal and set aside the Regional Trial Court’s order and resolution. It dismissed St. Mary’s Academy’s petition.

The Court of Appeals reasoned first that Commissioner Jacinto-Henares acted in a rule-making capacity under Section 4 of the National Internal Revenue Code and not in any judicial, quasi-judicial, or ministerial capacity. Consequently, it held that exhaustion of administrative remedies did not apply because the principle is tied to quasi-judicial action by an administrative agency.

The Court of Appeals further held that the petition should be dismissed even on procedural grounds. It relied on Rule 58 for injunction and Rule 65 for prohibition to explain that such remedies are generally unavailing when the acts sought to be enjoined had already been accomplished, as with the issuance of the administrative rules or circulars. It also noted that a writ of prohibition is directed against judicial, quasi-judicial, and ministerial acts, but the assailed issuances were issued pursuant to the Commissioner’s quasi-legislative power.

Issues Raised Before the Supreme Court

St. Mary’s Academy filed the Petition. It argued that the Court of Appeals resolved the case on procedural grounds and failed to address substantive issues. On procedure, it maintained that the Court of Appeals should have dismissed the appeal because there was no genuine issue of fact, and it asserted that respondents had only belatedly raised exhaustion of administrative remedies to create the appearance of factual issues. It claimed that because only questions of law were involved, the proper remedy should have been a direct Rule 45 petition.

On substantive grounds, the academy insisted that it properly invoked courts’ expanded judicial review powers. It argued that even if the Commissioner issued regulations in quasi-legislative power, courts could still correct grave abuse of discretion through an action for injunction and prohibition. It also argued that the challenged issuances eroded its constitutional tax exemption as a non-stock, non-profit educational institution under Article XIV, Section 4(3) of the Constitution.

Specifically, the academy contended that RMC No. 52-2013 was unconstitutional because it invalidated prior receipts or invoices, required all institutions including tax-exempt educational institutions to apply for new authority to print, and assumed that the applying entity was already subject to internal revenue taxes, thereby compelling the institution to prove tax exemption status. It also asserted that it faced substantial penalties for receipts printed without authority, and it invoked Commissioner of Internal Revenue v. VG. Sinco to argue that the Commissioner could not impose additional requirements before a non-stock, non-profit educational institution could enjoy tax exemption. As to RMO No. 20-2013, it argued that renewal of tax exemption rulings and the filing of applications imposed additional requirements beyond what the Constitution required, since it already filed an annual information return from which the Bureau could assess whether it continued to qualify.

Jurisdictional Issue: The Wrong Forum

Before addressing constitutionality and validity, the Supreme Court focused on a threshold matter: whether the Regional Trial Court had jurisdiction over a petition that questioned the constitutionality and validity of RMO No. 20-2013 and RMC No. 52-2013. The Supreme Court held that although the use of injunction and prohibition to challenge administrative tax issuances could be proper, the filing forum was not.

The Court emphasized that the Regional Trial Court lacked authority to rule on the validity or constitutionality of the Commissioner’s administrative issuances pertaining to the enforcement of the National Internal Revenue Code. It treated jurisdiction as the power and authority conferred by law, and it recognized that jurisdictional defects could be raised at any stage.

The Governing Law and Jurisprudence on Exclusive Tax Appeals Jurisdiction

The Supreme Court relied on Republic Act No. 1125, as amended by Republic Act No. 9282, particularly Section 7, to conclude that questions on the validity of tax issuances by the Commissioner fall within the exclusive domain of the Court of Tax Appeals.

It then traced prior rulings. In Blaquera v. Rodriguez, a taxpayer sought to enjoin collection and levy in the Court of First Instance, but the Court held the proper forum was the Court of Tax Appeals under Section 7. In Commissioner of Internal Revenue v. Leal, a taxpayer filed a prohibition before the Regional Trial Court to assail a revenue memorandum order and circular; again, the Court applied Section 7 and declared the Regional Trial Court ruling void for lack of jurisdiction. In Asia International Auctioneers v. Parayno, a taxpayer questioned a revenue memorandum circular in the Regional Trial Court, and the Court refused to rule on the merits, stating that having declared the lower

Case Syllabus (G.R. No. 230138)

Parties and Procedural Posture

St. Mary’s Academy of Caloocan City, Inc. (St. Mary’s Academy) filed a Petition for Review on Certiorari assailing the Court of Appeals’ Decision and Resolution that set aside the Regional Trial Court’s orders in Civil Case No. R-QZN-13-06083-CV.
The respondents were Hon. Kim Jacinto S. Henares, as Commissioner of Internal Revenue, Hon. Gerardo R. Florendo, as Regional Director, BIR Revenue Region No. 5, Hon. Rebe D. Detablan, as Revenue District Officer, BIR Revenue District No. 27 (Caloocan City), and the Republic of the Philippines.
St. Mary’s Academy had filed before the Regional Trial Court of Quezon City a Petition for Injunction and Prohibition directed against the Commissioner and other BIR officials.
The Regional Trial Court initially granted preliminary injunction, then later declared RMO No. 20-2013 unconstitutional and RMC No. 52-2013 illegal.
The Court of Appeals granted the respondents’ appeal, set aside the Regional Trial Court’s orders as null and void, dismissed St. Mary’s Academy’s petition, and denied reconsideration.
St. Mary’s Academy’s Petition before the Supreme Court challenged the Court of Appeals’ approach and its refusal to decide substantive constitutional issues.

Key Factual Allegations

In July 2013, the Commissioner issued Revenue Memorandum Order No. 20-2013 (RMO No. 20-2013), which set guidelines on processing tax exemption applications and re-validation of tax exemption rulings and certificates of corporations listed under Section 30 of the National Internal Revenue Code.
In August 2013, the Commissioner issued Revenue Memorandum Circular No. 52-2013 (RMC No. 52-2013), which clarified the validity of unused and unissued principal and supplementary receipts or invoices printed before January 18, 2013.
RMC No. 52-2013 imposed deadlines for the validity of the receipts and invoices and required taxpayers to secure new authority to print beyond those dates.
On November 13, 2013, Detablan informed St. Mary’s Academy of its alleged failure to apply for new authority to print, reminded it that its receipts were no longer valid as of October 31, 2013, and demanded payment of penalties if it failed to show new authority to print.
St. Mary’s Academy responded that it was a non-stock, non-profit educational institution exempt from taxes and duties, and invoked Revenue Ruling No. 159-98 stating that such institutions were exempt from the issuance of receipts and sales invoices printed with BIR permission and stamp.
St. Mary’s Academy maintained that even if Revenue Ruling No. 159-98 were revoked, it was not compelled to apply for a new authority to print because the requirement was allegedly only for entities doing business.
Florendo replied that the requirement covered not only principal receipts and invoices but also supplementary documents such as delivery receipts, collection receipts, and other related documents, and that the requirement served recording, monitoring, and control purposes.
Florendo also insisted that St. Mary’s Academy had to renew its tax exemption application as a non-stock, non-profit educational institution under RMO No. 20-2013.
St. Mary’s Academy alleged that it had to surrender and destroy its official receipts and apply for a new authority to print, and it claimed that the Bureau imposed penalties of P10,000.00 for non-registration and P20,000.00 for every receipt printed without authority.

Issues Raised in the Case

The Supreme Court first confronted the threshold jurisdictional issue of whether the Regional Trial Court had authority to rule on the constitutionality and validity of Commissioner of Internal Revenue administrative issuances.
The underlying substantive issues urged by St. Mary’s Academy were whether RMC No. 52-2013 and RMO No. 20-2013 were constitutional and valid as applied to non-stock, non-profit educational institutions.
St. Mary’s Academy argued that the Court of Appeals improperly decided on procedural grounds and failed to resolve constitutional questions.
St. Mary’s Academy contended that courts had expanded judicial review powers under the 1987 Constitution, including the power to correct grave abuse of discretion even if the challenged act was not done in a judicial, quasi-judicial, or ministerial capacity.
St. Mary’s Academy argued that it could seek relief through injunction and prohibition despite the Commissioner’s alleged quasi-legislative issuance of the regulations and circulars.

Statutory and Do