It pays to know the technicalities

Emotions can get the best of us at times, and “thinking before acting” often saves us from many wild ideas brought about by intense emotion. Tax regulations often inspire such intense emotions, as manifested in comments on social media regarding new tax issuances. Of course such issues are not resolved via social media. Regulations that a taxpayer wishes to question will require the filing of a formal plea before a court. Which brings about the key question: which court should you file a complaint with?

In a recent case, Clark Investors and Locators Association, Inc. (CILA) vs. Secretary of Finance and Commissioner of Internal Revenue (GR No. 200670), the court reminded the public that in filing a case the appropriate court must be determined. The issues to be raised in the complaint must be in line with those issues that a particular court has jurisdiction over. Otherwise, the case will be dismissed on the grounds of improper venue.

In the case at hand, CILA filed a petition for certiorari with a prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction to annul and set aside Revenue Regulation (RR) No. 2-2012. The regulation imposed value-added tax (VAT) and excise tax on importation of petroleum and petroleum products from overseas into the Freeport or Economic Zones, which is said to be contrary to Republic Act (RA) No. 7227 Bases Conversion and Development Act of 1992, as amended.

RA No. 7227 was enacted to convert the Subic military reservation into the Subic Special Economic Zone. This was further extended to include Clark Freeport Zone via the issuance of RA No. 9400. Under these laws, the special economic zone and the Freeport zone can hand out tax incentives such as a preferential gross income tax rate of 5% in lieu of all national and local taxes and exemption from the payment of all taxes and duties on the importation of raw materials, capital, and equipment into the zone.

In 2012, the Department of Finance, (DoF) upon the recommendation of the Bureau of Internal Revenue (BIR), issued RR No. 2-2012 which imposed VAT and excise tax on petroleum products from overseas into the Freeport or Economic Zone. The regulation further stated that the importer may claim a tax credit or refund with the Bureau of Customs subject to favorable endorsement of the BIR after presentation of proof that these are properly classified as 0% VAT.

With this issuance, CILA felt that the exemption from duties and taxes was ignored and in turn it filed a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure as amended, alleging that the respondents acted with grave abuse of discretion in issuing RR 2-2012 since in effect it revoked the tax exemption granted by RA 7227 and RA 9400. In response to such petition, the Office of the Solicitor General (OSG) denied outright the special civil action for certiorari since the respondent was exercising its quasi-legislative (i.e., rule making) powers and not exercising judicial or quasi-judicial powers. This was differentiated by the OSG since a certiorari can only be filed against a public officer exercising judicial or quasi-judicial powers. The case further defined the terms judicial function as the power to determine what the law is and what the legal rights of the parties are and then undertakes to determine these questions and adjudicate upon the rights of the parties while quasi-judicial function is a term which applies to the action, discretion, etc of public administrative officers or bodies required to investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them as basis for their official action and to exercise discretion of a judicial nature.

With these definitions, the case was confirmed to be a quasi-legislative function exercised by the DoF and not judicial or quasi-judicial. This was further backed by Section 244 of the Tax Code which provides that the Secretary of Finance upon recommendation of the Commissioner shall promulgate all the necessary rules and regulations for the effective enforcement of the provisions of this code.

The Court ruled that the case filed should have been a petition for declaratory relief (i.e., a declaration by court of the unconstitutionality and illegality of the questioned rule). It is the Regional Trial Court (RTC) that has jurisdiction over this. It also further emphasized that the Supreme Court, Court of Appeals and the RTC have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunctions, such concurrence does not give the petitioner unrestricted freedom of choice of court of forum. It further explained that the Court has numerous cases to decide and that if all cases were to be entertained including those that are out of jurisdiction, this would cause inevitable delay in the adjudication of cases.

This reminded me of a case in which the banks brought legal action concerning the implementation of RR 4-2011, bringing their filing to the RTC. When I heard of this case, I wondered why it was filed with the RTC and not the SC; now I realize that they have filed their complaint in the proper court.

This case emphasized the jurisdiction of each court and that it pays to know the technicalities. Otherwise, the taxpayer is at risk that his petition will be dismissed for lack of jurisdiction.

Joanna Grace P. Manuel-Bonghanoy is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.

source:  Businessworld