QUEZON CITY and the OFFICE OF THE CITY TREASURER OF QUEZON CITY v. SKY CABLE CORPORATION

;- ~ REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY Second Division QUEZON CITY and the OFFICE CTA AC NO. 295 OF THE CITY TREASURER OF [RTC Civil Case No. R-QZN-21- QUEZON CITY, 08820-CV] Petitioners, Members: -versus- RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES, JJ Promulgated: SKY CABLE CORPORATION, OCTO B 2024 / Respondent. y 'f:Y.~-~. X ------------------------------------------.-----------------------------------------: ?------------------------------ X DECISION MODESTO-SAN PEDRO, J.: The Case Before the Court is a Petition for Review,1 filed on July 3, 2023 by petitioners Quezon City and the Office of the City Treasurer against respondent Sky Cable Corporation, praying that the Court reverse and set aside the Decision,2 dated January 20, 2023 ("Assailed Decision"), and Order,3 dated May 24, 2023 ("Assailed Order"), both promulgated by Branch 104 of the Regional Trial Court of Quezon City ("RTC"). The Assailed Decision granted the complaint filed by respondent and ordered petitioner to refund erroneously paid local taxes to respondent. The Assailed Order denied petitioner's Motion for Reconsideration for lack of merit/' Rollo Vol. I, pp. 5-20. !d. at 27-32. !d. at 34-37.

DECISION CTA AC NO. 295 Page 2 of13 The Parties4 Petitioner Quezon City is a duly constituted public corporation, organized and existing under and by virtue of Commonwealth Act No. 502, as amended. Petitioner Office of the City Treasurer of Quezon City is a duly constituted department of the Quezon City Government and is mandated to implement Quezon City Ordinance No. SP-91, Series of 1993, as amended, also known as the Quezon City Revenue Code (" QCRC'). Respondent is a domestic corporation duly organized and existing under the laws of the Philippines, with principal office at the 6th Floor, ELJ Communications Center, Mother Ignacia St., Quezon City. The Facts On April 5, 2021, petitioners issued Business Tax Bill No. 1768237, assessing respondent for local business taxes ("LBT") for the 2nd quarter of 2021. 5 Respondent paid the total amount assessed on April 20, 2021 , and petitioners accordingly issued Official Receipt No. A3COR8732533-3 , as proof of payment, and a business permit for calendar year 2021. 6 Respondent then filed a protest against the assessment with a claim for refund or credit on May 20, 2021, but petitioners did not act on the same. As such, respondent filed a complaint before the RTC for the cancellation of assessment and for a refund or credit for the erroneously paid taxes. 7 After petitioners filed their Answer on December 16, 2021 , the parties moved, during Pre-Trial, to dispense with the trial, as (a) no factual issues were involved; (b) only legal issues were raised; and (c) the parties admitted all offered evidence. The RTC then granted the motion, and the parties filed their respective Memoranda., 4 See Petition for Review, p. 3, id. at 7. See Petition for Review, p. 5, id. at 9. 6 !d. See Petition for Review, pp. 5-6, id. at 9-10. See Petition for Review, p. 6, id. at I0.

DECISION CTA AC NO. 295 Page 3 of13 The RTC issued the Assailed Decision on January 2, 2023. Petitioners filed a Motion for Reconsideration against the same on February 21, 2023 , but this was denied in the Assailed Order, which petitioners received on June 8, 2023.9 Aggrieved, petitioners filed the instant Petition for Review on July 3, 2023. After order, 10 respondent filed its Comment (on Petition for Review dated 03 July 2023) 11 via registered mail on August 18, 2023. The Court then directed the parties to file their respective Memoranda,12 with petitioners filing their Memorandum 13 on October 25, 2023 , and respondent filing its Memorandum 14 via registered mail on November 3, 2023. Accordingly, the Court submitted this case for decision through a Minute Resolution, 15 dated November 15, 2023 . Hence, this Decision. Arguments ofthe Parties Petitioners raise the following arguments: 1) In granting respondent' s complaint, the RTC indirectly but effectively nullified Section 23 ofthe QCRC;16 2) The QCRC must prevail over the Local Government Code ("LGC') as the RTC failed to harmonize the two and as special laws must prevail over general ones; 17 3) As it paid LBT without complaint in previous years, respondent is estopped from now questioning the validity of the QCRC; 18 and 4) Given the foregoing, respondent failed to prove that it is entitled to any tax refund or credit. 19 Respondent counters the above with these contentions/ 9 See Petition for Rev iew, pp. 6-7 , id. at I0-11 ; see also Order, dated May 24, 2023, p. I, id. at 34. 10 See Resolution, dated July 26, 2023, Rollo, p. 120. I I /d. at1 2 1-139. 12 See Resolution, dated September II , 2023, id. at 145. 13 !d. at 146-165 . 14 !d. at 166-191. 15 /d. , unpaginated . 16 See Petition for Review, pp. 8-14, id. at 12-18 ; see also Memorandum for the Petitioners, pp. 5-1 2, id. at 150-157. 17 See Petition for Revi ew, pp. 14-15, id. at 18-1 9; see also Memorandum for the Petition ers, pp. 12-14, id. at 157-159. 18 See Petition for Review, pp. 15-17, id. at 19-2 1; see also Memorandum for the Petition ers, pp. 14-1 5, id. at 159-160. 19 See Petition for Review, pp. 17-18, id. at 21-22; see also Memorandum for Petitioners, pp. 15-16, id. at 160-161.

DECISION CTA AC NO. 295 Page 4 of13 1) The RTC correctly held that petitioners' application of Section 23 ofthe QCRC was erroneous;20 2) There is no conflict between the LGC and the QCRC, and even if such a conflict existed, the LGC limits the taxing powers of local governments and must thus prevail;21 3) Respondent is not estopped from questioning the assailed assessment as it correctly availed of the proper remedies;22 and 4) Respondent is entitled to a tax refund. 23 The Ruling ofthe Court The Petition for Review is bereft of merit. The Court has jurisdiction over this case Before delving into the merits, the Court must first determine whether it has jurisdiction over this case. Section 7(a)(3) ofRepublic Act No. 1125, as amended ("CTA Law"), grants this Court appellate jurisdiction over rulings of the RTC in local tax cases: SEC. 7. Jurisdiction. - The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (3) Decisions, orders or resolutions of the Regional Trial Coutts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; Meanwhile, under Rule 4, Section 3(a)(3) of the Revised Rules of the Court of Tax Appeals, as amended ("RRCTA"), the Court in Division can take cognizance of appeals from rulings of the RTC in the exercise of the latter's original jurisdiction: SEC. 3. Cases within the jurisdiction of the Court in Division. - The Court in Division shall exercise)' 20 See Comment, pp. 1-6, id. at 121-126; see also Memorandum, pp. 6-11 , id. at 171-176. 21 See Comment, pp. 7-12, id. at 127-132; see also Memorandum, pp. 11-16, id. at 176-181. 22 See Comment, pp. 12-14, id. at 132-134; see also Memorandum , pp. 16-21 , id. at 181-186. 23 See Comment, pp. 14-18, id. at 134-13 8; see also Memorandum , pp. 2 1-24, id. at 186-189.

DECISION CTA AC NO. 295 Page 5 of13 (a) Exclusive original or appellate jurisdiction to review by appeal the following: (3) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their original jurisdiction; Finally, Rule 8, Section 3(a) of the RRCTA provides a 30-day prescriptive period for these kinds of appeals: SEC. 3. Who may appeal; period to file p etition. - (a) A party adversely affected by a decision, ruling or inaction of ... a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling ... The present Petition for Review was filed to assail the Decision and Resolution rendered by the RTC in the exercise of its original jurisdiction. It thus falls under Section 7(a)(3) of the CTA Law and Rule 3, Section 3(a)(3) ofthe RRCTA. As to the timeliness of the Petition's filing, petitioners received the Assailed Order on June 8, 2023 , giving them until July 7, 2023 within which to file the Petition. As they filed it on July 3, 2023, the Petition was timely filed, and this Court properly acquired jurisdiction over the case. Unfortunately, the Petition's timely filing is not enough to save it from its fatal lack of merit. Section 23 of the QCRC must be read within the larger context of Section 150 o[the LGC Given that the controversy stems from a perceived conflict between the LGC and the QCRC, quoting the relevant provisions of the two laws here before summarizing the parties' competing interpretations of the same would help clarify the issue. Section 150(a) and (b) ofthe LGC states: SECTION 150. Situs of the Tax. - (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outletf

DECISION CTA AC NO. 295 Page6of13 elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal offices and the taxes due shall accrue and shall be paid to such city or municipality. (b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: (1) Thirty percent (3 0%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and (2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. (Italics supplied.) Meanwhile, Section 23(a)(J) ofthe QCRC provides: SECTION 23. Situs of the Tax.- a) All business establishments such as factories, assembly plants, plantations, farms and project offices which are found in Quezon City shall be subjected to the following sales allocation and situs of tax: 1) Thirty percent (30%) of all sales or receipts recorded in the principal office shall be taxable by the locality where it is located while seventy percent (70%) thereof shall be taxable by the locality where the factory, plant, plantation, farm or project is actually located. Notably, both the LGC and the QCRC distinguish between two kinds of offices: principal offices and non-principal offices based in a different locality from that of the principal office ("outside offices"). The LGC also identifies two subcategories of outside offices: branches or sales outlets ("branches"), which record their sales and pay 100% of the local taxes due on said sales to their respective localities, and "manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations" ("factories or similar"), whose sales are subjected to the allocation identified in Section 150(b) of said law. The issue here arose when petitioners applied Section 23(a)(J) of the QCRC to respondent by imposing a 30% tax on the sales of its outside offices as respondent's principal office is located in Quezon City. Respondent does not agree with this, arguing that its outside offices fall under the first sentence of Section 150(a) ofthe LGC, not Section 23(a)(J) ofy

DECISION CTA AC NO. 295 Page 7 of13 the QCRC. Petitioners counter that the imposed tax is clearly provided by the latter provision, and that to claim otherwise would be an attack on the QCRC, which, being a special law, must prevail over the LGC. Petitioners ' argument is untenable. The QCRC lacks critical details provided in the LGC, and reading the former without the latter would inadvertently create a tax exemption. Sections 23(a) and (1) of the QCRC are clearly based on Sections 150(a) and (b). This can be seen, for example, in how the QCRC borrows the 30% and 70% sales allocation from the LGC and even uses a very similar list as the latter, echoing the identification of "factories," "assembly plants"/ "assemblers," "plantations," and "project offices." Both also apply the 30% allocation to the locality of the "principal office" and the 70% to the factories or similar. Indeed, the QCRC uses the general term "locality" as used by the LGC, rather than the more specific and appropriate "Quezon City." The QCRC also seems to lack certain details provided by the LGC. For example, the QCRC does not include a requirement for the principal office to record the sales of its non-branch outside offices, unlike the LGC. It is thus unclear from where the QCRC gained the assumption that principal offices would record the sales and receipts of its outside offices comes or in what instances a principal office would be allowed to not record the sales of its outside offices-a confusion dispelled if the QCRC is read in the wider context of the LGC. From the above, it would seem perfectly sensible to interpret the QCRC through the lens of the LGC in order to supplement the lacks and ambiguities of the former. An important lack in the QCRC, however, is the lack of a provision imposing a tax on branches that (a) record their own sales; and (b) are located in Quezon City. Recall that Section 23(a) (J) of the QCRC applies to "all sales or receipts recorded in the principal office." That qualifier restricts this specific subsection from covering sales not recorded in the principal office. However, Section 23 lacks any mention of such sales. What would happen, then, if a branch is located in Quezon City and records its own sales, which are not recorded in the taxpayer's principal office? If the QCRC is read in isolation, as petitioners insist, then said sales would be completely exempt from any local taxes.f

DECISION CTA AC NO. 295 Take the following hypothetical situation. A taxpayer's principal office is located in Makati City, but it operates a branch in Quezon City. As its operations are not limited to Quezon City, it falls at least partially under the LGC, whose requirements on recording sales it follows to a fault. The sales it makes through its Quezon City branch are recorded in said branch but not in its Makati City principal office. On one hand, Makati City will be unable to impose any local taxes on said sales. Nothing in the LGC allows a local government to tax sales made by and recorded in a branch located elsewhere. On the other hand, Quezon City will also be unable to impose any local taxes of its own. As discussed, nothing in the QCRC allows Quezon City to tax sales not recorded in the principal offices. Its only provision on the matter clearly specifies "sales or receipts recorded in the principal office." Reading the QCRC in isolation and claiming that it is not clarified by the LGC would thus be disastrous. It would produce an unjustified tax exemption for any business operating a branch in Quezon City, simply because the QCRC is silent on the matter. The above is not an issue, however, if the QCRC is applied together with the relevant provisions of the LGC. Under such an application, Quezon City would be able to tax 100% of the sales made by and recorded in the Quezon City branch, following the first sentence of Section 150(a) of the LGC. This Court cannot condone an interpretation of the law that produces an unwarranted tax exemption. And given that refusing to allow the suppletory application of the LGC to the QCRC results in such an exemption, We cannot permit petitioners' interpretation and application of the QCRC. Considering that (1) the QCRC lacks critical details included in the LGC; (2) Section 23(a)(l) ofthe QCRC is clearly based on Section 150(b) of the LGC; and (3) refusing to apply the LGC with the QCRC creates an unwarranted tax exemption, Section 23(a)(J) of the QCRC must be understood as being equivalent to Section 150(b) ofthe LGC. The allocation thus applies to factories or similar but not to branches. As the 30% tax collected by petitioners was imposed on sales made by respondent's branches, said collection was improper. Respondent is thus entitled to the refund granted by the RTC.f

' DECISION CTA AC NO. 295 Petitioners ' arguments are premised on the correctness of their interpretation of the law and must thus be rej_ected The Court has found that petitioners' interpretation and application of the QCRC were fatally flawed. However, petitioners' arguments regarding collateral attacks, the prioritization of special laws, and estoppel are all based on the assumption that said interpretation is correct. Their arguments thus hold no water. First, in arguing that respondent and the RTC are guilty of attacking the law, petitioners assume that their interpretation of the QCRC is the same as the code itself. It is not, as discussed above. As the LGC must be suppletorily applied to the QCRC, petitioners' version of the latter is a misinterpretation of the law. Consequently, neither respondent nor the RTC performed any collateral attack on the QCRC; they merely refuted a misinterpretation of the same. Even assuming arguendo that the QCRC can be read in isolation, petitioners failed to even attempt to defend their interpretation of the same. They simply quoted the law and then acted as if their idiosyncratic reading of the same is beyond dispute. This is, however, false. Even if one were to restrict oneself to the QCRC and ignore the LGC, petitioners' version of the QCRC is not the only interpretation possible. Other defensible interpretations, even ones incompatible with that of petitioners, are possible. As such, petitioners' own version cannot automatically be taken as the correct one. This is so especially because, to repeat, petitioners did not even bother to establish or argue the correctness of their interpretation beyond treating the same as a given. In short, even if the QCRC is read in isolation, petitioners' interpretation of it is not equivalent to the law. We are thus not convinced that respondent or the RTCeffectively nullified the QCRC rather than simply argued against a misinterpretation of the same. The two actions are not commensurate. Second, even if respondent paid LBT in the past, petitioners failed to show that such LBT was assessed in accordance with their current interpretation of the QCRC. In other words, petitioners did not show that respondent previously paid taxes imposed on 30% of the sales made by their branches outside of Quezon City (which would, in effect, be an admission that petitioners have been imposing incorrect assessments upon respondent for years). Without proof to the contrary, the Court must assume that (a) petitioners correctly assessed respondent in previous years; and (b) respondent paid the correctly assessed LBT. This would not contradict_r

DECISION CTA AC NO. 295 PagelO of13 respondent's current claim or estop it from assailing incorrectly assessed LBT. Petitioners' argument thus crashes before it even leaves the ground. Third, petitioners' argument that special laws must prevail against general laws sees no application here. The imposition of taxes on 30% of the sales made by respondent's branches is not a special law. As already found, it is an erroneous application of the law. Consequently, it cannot prevail over any law or any correct interpretation of such. In any event, and as found by the RTC, the two laws can be sensibly harmonized. Consequently, no conflict arises between the two, and there is no need to determine which must prevail over the other. We thus find all of petitioners' arguments to be unsuccessful. All that is left is to ensure that respondent is actually entitled to a refund, following both the QCRC and the LGC. Respondent was not liable for the tax collected by petitioners and is thus entitled to a refjmd First, a correction: while both respondent and the RTC observed that civil cases generally rest on a preponderance of evidence,24 this rule is not applicable here. Claims for tax refunds are in the nature of exemptions and are thus strictly construed against the claimants. As such, claimants must substantially prove their entitlement to the refund sought.25 To review, respondent's claim is based on three major allegations: (a) it paid, to petitioners, taxes imposed under Section 23(a)(J) of the QCRC; (b) its branches outside of Quezon City should fall under the first sentence of Section 150(a) of the LGC and not Section 150(b) of the LGC and Section 23(a)(J) of the QCRC; and (c) it is thus entitled to refund. To determine the truth of (c), respondent's entitlement to the refund sought, We must first see if respondent sufficiently proved both (a) and (b). Anent (a), the parties agree, and the RTC found, that respondent paid the LBT in question. Respondent thus sufficiently proved that it paid the taxes for which it now seeks a refund.f 24 See Order, dated May 24, 2023 , p. 4, RTC Records Vol. 2, p. 659. 25 See Commissioner of Internal Revenue v. CE Casecnan Water and Energy Company, Inc., G.R. No. 212727, February I, 2023 ; see also Taihei Alltech Construction (Ph il.), inc. v. Commissioner of Internal Revenue, GR. No. 258791 , December 7, 2022; see also Team Energy Corporation v. Commissioner of Internal Revenue, G.R. Nos. 197663 & 197770, March 14, 20 18; see also Coca-Cola Bottlers Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 222428, February 19, 20 18; see also CBK Power Company Limited v. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 20 14.

DECISION CTA AC NO . 295 Page 11 of1 3 In order to prove (b), respondent would have to prove that the offices it operates outside of Quezon City are branches. After all, if said outside offices were not branches, then the sales made outside Quezon City would fall under the second sentence of Section 150(a) of the LGC, meaning that petitioners should have collected taxes due on 100% of the sales made in said offices. Alternatively, if said outside offices were not branches but factories or similar, then these would fall under Section 150(b) of the LGC and Section 23(a) of the QCRC. The tax would thus have been correctly collected, and respondent would not be entitled to a refund of the same. How, then, can a taxpayer prove that its non-principal offices are branches? The Implementing Rules and Regulations of the Local Government Code of1991 ("IRRLGC') provides an answer. Article 243(a)(2) ofthe IRRLGC defines a branch as follows: (2) Branch or Sales Office - a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as a sales office. From the above, a branch is an office that serves "as an extension of the principal office" by conducting the operations of the business of the latter. The second sentence clarifies that offices that merely display products but do not actually store or sell these are not branches, while the third sentence adds that even a warehouse can be a branch so long as it accepts orders and/or issues sales invoices. As such, the important characteristic of a branch is that it is engaged in the sale of the services or products of the principal office.26 Respondent had earlier presented proof before the RTC that all of its outside offices were engaged in sales as "cable television services."27 As such services are conducted as the main business of respondent's principal office, it thus proved that its outside offices are branches. Given that respondent's outside offices are branches, the sales made by said branches are taxable under the first sentence of Section 150(a) of the LGC, but not under either the second sentence of said provision or the pair of Section 150(b) ofthe LGC and Section 23(a)(J) ofthe QCRC. Finally, given that the sales made by respondent's branches are taxable under Section 150(a) ofthe LGC, they should not have been deemed liable to pay the excess amount assessed via Section 23(a)(J) ofthe QCRC.y 26 See also The Municipality ofBakun v. Luzon Hydro Corporation, CTA AC No. I00, November 8, 2013. 27 See Certification, Exhibit " P", RTC Records Vol. I, p. 73.

DECISION CTA AC NO. 295 Page 12 of1 3 In sum, respondent is entitled to the refund sought. The RTC did not err in ruling so. As an aside, We note that respondent also raised the issue of double taxation before both the RTC and this Court.28 It claims to have paid local taxes on the same set of sales twice: once to the localities where its branches are based, then to Quezon City. To fully substantiate such a claim, respondent would have to offer evidence that it actually paid LBT to localities other than Quezon City. It should have shown that, for example, it paid Pasig City the correct amount of LBT due from the very same sales that petitioners would further tax themselves. It offered no such evidence, however. The Court thus cannot simply accept that the sales of its branches were taxed twice. Fortunately for respondent, its claim for refund is not solely based on its allegation of double taxation. Respondent has already proven that it paid taxes for which it was never actually liable. For the specific purposes of its claim, this is enough to prove that respondent is, indeed, entitled to a refund, regardless of whether it has proven payment of local taxes to other localities. To conclude, We see no serious error in the ruling of the RTC and, thus, no compelling reason to grant the present Petition. ACCORDINGLY, the instant Petition for Review, filed on July 3, 2023, is hereby DENIED for lack of merit. The assailed Decision, dated January 20, 2023, and assailed Order, dated May 24, 2023, both rendered by the Regional Trial Court of Quezon City, are hereby AFFIRMED. SO ORDERED. MARIARO WE CONCUR: L. ~ l"'--� MA. BELEN M. RINGPIS-LIBAN Associate Justice c<bAosso~cia~te~J.~R:77E~ S 28 See Complaint, pp. 18-19, id. at 18-19; see also Memorandum Ex Abundante ad Cautelam, pp. 16-17, RTC Records Vol. 2, pp. 492-493 ; see also Comment (On Petition for Review dated 03 July 2023 ), p. 12, Rollo, p. 132.

i DECISION CTA AC NO. 295 ATTESTATION I attest that the conclusion in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court' s Division. ~ . ~ ._, '-- MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice