Tax Exemption Challenges and the CTA's Exclusive Jurisdiction Over BIR Issuances

The Supreme Court has clarified a critical point for taxpayers challenging Bureau of Internal Revenue (BIR) regulations: the proper forum is the Court of Tax Appeals (CTA), not the regional trial courts. In St. Mary's Academy Caloocan City, Inc. v. Henares (G.R. No. 230138, January 13, 2021), the Court settled the jurisdictional question definitively, affecting how tax-exempt institutions and all taxpayers must pursue their remedies.

The Dispute: A School's Tax Exemption Challenged

St. Mary's Academy Caloocan City, a non-stock, non-profit educational institution, faced demands from the BIR to apply for new authority to print receipts and to renew its tax exemption ruling. The BIR acted under Revenue Memorandum Order No. 20-2013 (RMO No. 20-2013) and a related revenue memorandum circular issued in the same period, which set guidelines for tax exemption applications and imposed deadlines on the validity of unused receipts and invoices.

The school argued that as a constitutionally tax-exempt institution, it was not required to secure these permits. When the BIR insisted, the school filed a petition for injunction and prohibition before the Regional Trial Court (RTC) of Quezon City, asking the court to declare the BIR issuances unconstitutional and illegal.

The RTC's Overreach and the CA's Reversal

The RTC initially granted a preliminary injunction and later declared RMO No. 20-2013 unconstitutional and the related circular illegal as applied to non-stock, non-profit educational institutions. The RTC reasoned that the BIR Commissioner had no authority to impose additional requirements beyond the National Internal Revenue Code.

On appeal, the Court of Appeals (CA) reversed, ruling that the RTC's orders were null and void. The CA held that injunction and prohibition were improper remedies because the BIR Commissioner acted in a quasi-legislative, not judicial, capacity when issuing the regulations.

The Supreme Court's Ruling: Jurisdiction Lies with the CTA

The Supreme Court denied the school's petition, but on different grounds. The Court ruled that the RTC never had jurisdiction in the first place. Under Section 7 of Republic Act No. 1125, as amended by Republic Act No. 9282, the CTA exercises exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue involving "other matters arising under the National Internal Revenue Code."

The Court explicitly held that the CTA has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules, and regulations, and other administrative issuances of the Commissioner of Internal Revenue. This principle, first established in Blaquera v. Rodriguez (103 Phil. 511 [1958]) and Commissioner of Internal Revenue v. Leal (440 Phil. 477 [2002]), was reaffirmed in Banco de Oro v. Republic (793 Phil. 97 [2016]) and COURAGE v. Commissioner of Internal Revenue (835 Phil. 298 [2018]).

The Court noted that British American Tobacco v. Camacho (584 Phil. 489 [2008]) briefly deviated from this rule by allowing regular courts to hear constitutional challenges to tax issuances. However, Banco de Oro resolved this conflict and reverted to the earlier doctrine, which now prevails.

Why the Forum Matters

The Court emphasized that jurisdiction is conferred by law and may be raised at any stage of the proceedings. A ruling issued by a court without jurisdiction is void. Because the school filed its case in the wrong forum, the RTC's declaration of unconstitutionality was a nullity, and the CA correctly set it aside—even if for different reasons.

The Court also noted that before the Supreme Court exercises its review powers, especially on constitutional questions involving a co-equal branch of government, the case must first be heard on both law and facts by the appropriate trial court. The law has determined that court to be the CTA.

Practical Takeaways

• File tax cases in the CTA. Taxpayers questioning BIR assessments, refunds, or the validity of revenue issuances must bring their cases to the Court of Tax Appeals, not the regional trial courts.
• Jurisdictional errors are fatal. A case filed in the wrong court is void, and any ruling issued is a nullity, regardless of the merits of the taxpayer's arguments.
• Tax exemption claims still require substantiation. While non-stock, non-profit educational institutions enjoy constitutional tax exemptions, the BIR may impose reasonable requirements for recording, monitoring, and control purposes.
• Check the prevailing doctrine. The Supreme Court resolved the conflict between British American Tobacco and earlier rulings in favor of the CTA's exclusive jurisdiction. Taxpayers should rely on the current rule.
• Exhaust administrative remedies first. Before resorting to judicial action, taxpayers should pursue available administrative remedies, as premature filings may be dismissed.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.