INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. v. THE CITY OF MANILA, LIBERTY M. TOLEDO AND GABRIEL ESPINO AND THE CITY OF MANILA

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY En Bane INTERNATIONAL CONTAINER CTA EB NO. 277 TERMINAL SERVICES, INC., (CTA AC No. 11) Petitioner, Present: -versus- DEL ROSARIO, P.J., CASTANEDA, JR., UY, THE CITY OF MANILA, LIBERTY RINGPIS-LIBAN, M. TOLEDO, in her capacity as the MANAHAN, TREASURER OF MANILA and BACORRO-VILLENA, and GABRIEL ESPINO, in his capacity as MODESTO-SAN PEDRO, JJ. RESIDENT AUDITOR OF MANILA, and the CITY COUNCIL OF Promulgated: MANILA, Respondent. X ------------------------------------------------------------------------------------------------------------------- AMENDED DECISION MODESTO-SAN PEDRO, J.: The Case On 5 July 2019, this Court received a Transmittal Letter from the Supreme Court with attached copies of the following: (a) photocopy of the Decision, rendered by the Supreme Court on 17 October 2018, entitled "International Container Terminal Services, Inc., vs. The City of Manila, Liberty M. Toledo, in her capacity as Treasurer of Manila and Gabriel Espino, in his capacity as Resident Auditor ofManila, and City Councilor ofManila", and docketed as G.R. No. 185622 and (b) photocopy ofthe Entry of Judgment, stating that the abovementioned Supreme Court Decision had become final and executory and had been recorded in the Book of Entries of Judgment on 22 January 2019. The dispositive portion of the Supreme Court Decision reads, as follows: J

AMENDED DECISION CTA EBNO. 277 (CTA AC No. 11) Page 2 of12 "WHEREFORE, the Petition for Review on Certiorari is GRANTED. The September 5, 2008 Decision and December 12, 2008 Resolution ofthe Court of Tax Appeals En Bane in C.T.A. EB No. 277 are hereby REVERSED and SET ASIDE. The Court of Tax Appeals En Bane is DIRECTED to proceed with the resolution on the merits ofC.T.A. EB No. 277 with due and deliberate dispatch. SO ORDERED." Prior to this case reaching the Supreme Court, this Court En Bane initially denied the present Petition for Review and affirmed the Decision, dated 17 May 2006, of the Court of Tax Appeals ("CTA") Second Division, which ruled that petitioner is not entitled to a refund of erroneously and/or illegally paid taxes for the succeeding periods of the third (3rd) quarter of taxable year ("TY") 1999. On 17 February 2020, this Court received petitioner's Manifestation and Urgent Motion to Resolve Petition for Review. After consideration, this Court resolves to NOTE petitioner's Manifestation and GRANT the Urgent Motion to Resolve Petition for Review. The Parties Petitioner, International Container Terminal Services, Inc. ("ICTSI"), is a corporation duly organized and existing under the laws of the Republic of the Philippines, with office address at ICTSI Administrative Building, Manila International Container Terminal, MICT South Access Road, Port Area, Manila. 1 Respondent, City ofManila, is a public corporation created and existing pursuant to law. On the other hand, respondents Liberty M. Toledo and Gabriel Espino were the Treasurer and Resident Auditor, respectively, of the City of Manila when this case was instituted. Meanwhile, respondent the City Council of Manila is the law-making body of the City of Manila, vested by law with the power and authority to appropriate funds, among others.j� 1 Records, p. 3. 2 Ibid.

AMENDED DECISION CTA EBNO. 277 (CTA AC No. II) The Facts In International Container Terminal Services, Inc., vs. The City of Manila, Liberty M. Toledo, in her capacity as Treasurer of Manila and Gabriel Espino, in his capacity as Resident Auditor of Manila, and City Councilor of Manila, the Supreme Court found for petitioner, ICTSI, as follows: 3 "If the taxpayer receives an assessment and does not pay the tax, its remedy is strictly confined to Section 195 of the Local Government Code. Thus, it must file a written protest with the local treasurer within 60 days from the receipt of the assessment. If the protest is denied, or if the local treasurer fails to act on it, then the taxpayer must appeal the assessment before a court of competent jurisdiction within 30 days from receipt of the denial, or the lapse of the 60-day period within which the local treasurer must act on the protest. In this case, as no tax was paid, there is no claim for refund in the appeal. If the taxpayer opts to pay the assessed tax, fee, or charge, it must still file the written protest within the 60-day period, and then bring the case to court within 30 days from either the decision or inaction of the local treasurer. In its court action, the taxpayer may, at the same time, question the validity and correctness of the assessment and seek a refund ofthe taxes it paid. 'Once the assessment is set aside by the court, it follows as a matter of course that all taxes paid under the erroneous or invalid assessment are refunded to the taxpayer.' On the other hand, if no assessment notice is issued by the local treasurer, and the taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax, fee, or charge has been illegally collected from him, then Section 196 applies. Here, there is no dispute on the refund of P6,224,250.00, representing the additional taxes paid for the first three (3) quarters of 1999, as ordered by the Court of Tax Appeals Second Division in its May 17, 2006 Decision on the basis that there was a direct double taxation. The controversy here pertains to petitioner's entitlement to a refund ofthe taxes paid subsequent to the third quarter of 1999, which was denied by the Court of Tax Appeals Second Division on the ground that petitioner failed to comply with the requirements of Section 195. When petitioner raised the applicability of Section 196 to the claim for refund of these subsequent payments, the Court of Tax Appeals Second Division, as affirmed by the Court of Tax Appeals .f En Bane, held that Section 196 cannot apply as petitioner previously anchored its claims under Section 195 .. 3 G.R. No. 185622, 17 October 2018.

AMENDED DECISION CTA EB NO. 277 (CTA AC No. II) XXX XXX XXX The nature of an action is determined by the allegations in the complaint and the character ofthe relief sought. Here, petitioner seeks a refund of taxes that respondents had collected. Fallowing City of Manila [v. Cosmos Bottling Corp.], refund is available under both Sections 195 and 196 ofthe Local Government Code: for Section 196, because it is the express remedy sought, and for Section 195, as a consequence of the declaration that the assessment was erroneous or invalid. Whether the remedy availed of was under Section 195 or Section 196 is not determined by the taxpayer paying the tax and then claiming a refund. What determines the appropriate remedy is the local government's basis for the collection of the tax. It is explicitly stated in Section 195 that it is a remedy against a notice of assessment issued by the local treasurer, upon a finding that the correct taxes, fees, or charges have not been paid. The notice of assessment must state 'the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties.' ... XXX XXX XXX No such precondition is necessary for a claim for refund pursuant to Section 196. Here, no notice of assessment for deficiency taxes was issued by respondent City Treasurer to petitioner for the taxes collected after the first three (3) quarters of 1999... XXX XXX XXX The 'assessments' from the fourth quarter of 1999 onwards were Municipal License Receipts; Mayor's Permit, Business Taxes, Fees & Charges Receipts; and Official Receipts issued by the Office of the City Treasurer for local business taxes, which must be paid as prerequisites for the renewal of petitioner's business permit in respondent City of Manila. While these receipts state the amount and nature of the tax assessed, they do not contain any amount of deficiency, surcharges, interests, and penalties due from petitioner. They cannot be considered the 'notice of assessment' required under Section 195 of the Local Government Code. When petitioner paid these taxes and filed written claims for refund before respondent City Treasurer, the subsequent denial of these claims should have prompted resort to the remedy laid down in Section 196, specifically the filing of a judicial case for the recovery ofthe allegedly erroneous or illegally collected tax within the two (2)- year period.f

AMENDED DECISION CTA EB NO. 277 (CTA AC No. II) Petitioner appealed the denial of the protest against respondent City Treasurer's assessment and the action against the denial of its claims for refund. For both issues, petitioner's arguments are based on the common theory that the additional tax under Section 21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G) of Manila Ordinance No. 7807, is illegal double taxation. Hence, their joinder in one (1) suit was legally appropriate and avoided a multiplicity ofsuits. XXX XXX XXX A tax refund or credit is in the nature of a tax exemption, construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Claimants of a tax refund must prove the factual basis of their claims with sufficient evidence. To be entitled to a refund under Section 196 of the Local Government Code, the taxpayer must comply with the following procedural requirements:first, file a written claim for refund or credit with the local treasurer; and second, file a judicial case for refund within two (2) years from the payment of the tax, fee, or charge, or from the date when the taxpayer is entitled to a refund or credit. As to the first requirement, the records show that the following written claims for refund were made by petitioner: In its June 17, 2003 Letter to the City Treasurer, it claimed a refund of P27,800,674.36 for taxes paid from the fourth quarter of 1999 up to the second quarter of2003. In its August 18, 2005 Letter to the City Treasurer, it claimed a refund ofP14,190,092.90 for taxes paid for the third quarter of2003 up to the second quarter of2005. In her September 1, 2005 Response to the August 18, 2005 Letter, City Treasurer Liberty M. Toledo denied the claim... XXX XXX XXX Thereafter, petitioner sent its January 10, 2007 Letter to the City Treasurer claiming a refund of taxes paid for the third quarter of 2005 until the fourth quarter of 2006, pursuant to the Court of Tax Appeals Second Division May 17, 2006 Decision. As for the taxes paid thereafter and were not covered by these letters, petitioner readily admits that it did not make separate written claims for refund, citing that 'there was no further necessity' to make these claims. It argues that to file further claims before respondent City Treasurer would have been 'another exercise in futility' as it f would have merely raised the same grounds that it already raised in its June 17, 2003 Letter... XXX XXX XXX

AMENDED DECISION CTAEBN0.277(CTAACNo.ll) The doctrine of exhaustion of administrative remedies requires recourse to the pertinent administrative agency before resorting to court action. This is under the theory that the administrative agency, by reason of its particular expertise, is in a better position to resolve particular issues ... XXX XXX XXX Nonetheless, the failure to exhaust administrative remedies is not always fatal to a party's cause. This Court has admitted of several exceptions to the doctrine ... XXX XXX XXX If the party can prove that the resort to the administrative remedy would be an idle ceremony such that it will be absurd and unjust for it to continue seeking relief that evidently will not be granted to it, then the doctrine would not apply ... XXX XXX XXX As correctly pointed out by petitioner, the filing of written claims with respondent City Treasurer for every collection of tax under Section 21 (A) of Manila Ordinance No. 7764, as amended by Section 1(0) of Ordinance No. 7807, would have yielded the same result every time. This is bolstered by respondent City Treasurer's September 1, 2005 Letter, in which it stated that it could not act favorably on petitioner's claim for refund until there would have been a final judicial determination ofthe invalidity of Section 21 (A). Further, the issue at the core of petitioner's claims for refund, the validity of Section 21 (A) of Manila Ordinance No. 7794, as amended by Section 1(0) ofManila Ordinance No. 7807, is a question of law. When the issue raised by the taxpayer is purely legal and there is no question concerning the reasonableness of the amount assessed, then there is no need to exhaust administrative remedies. Thus, petitioner's failure to file written claims of refund for all of the taxes under Section 21 (A) with respondent City Treasurer is warranted under the circumstances. Similarly, petitioner complied with the second requirement under Section 196 of the Local Government Code that it must file its judicial action for refund within two (2) years from the date of payment, or the date that the taxpayer is entitled to the refund or credit. Among the reliefs it sought in its Amended and Supplemental Petition before the Regional Trial Court is the refund of any and all subsequent f payments of taxes under Section 21 (A) from the time ofthe filing of its Petition until the finality of the case.. . XXX XXX XXX

AMENDED DECISION CTAEBN0.277(CTAACNo.11) As acknowledged by respondent City Treasurer in her September 1, 2005 Letter, petitioner's entitlement to the refund would only arise upon a judicial declaration of the invalidity of Section 21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G) of Manila Ordinance No. 7807. This only took place when the Court of Tax Appeals En Bane dismissed respondents' Petition for Review of the May 17, 2006 Decision of the Court of Tax Appeals Second Division, rendering the judgment on the invalidity of Section 21 (A) final and executory on July 2, 2007. Therefore, the judicial action for petitioner's claim for refund had not yet expired as of the filing of the Amended and Supplemental Petition." Following these guidelines enunciated in the Supreme Court Decision, dated 17 October 2018, this Court En Bane has been ordered by the High Court to rule on the merits ofthe present case with due and deliberate dispatch. Hence, this Decision. The Issue Following the directive from the Supreme Court Decision, dated 17 October 2018, this Court En Bane is tasked to factually determine and rule on the merits whether petitioner, ICTSI, is entitled to a refund of illegally and/or erroneously paid local business taxes ("LBT"). The Ruling of the Court En Bane The instant Petition is granted. Petitioner is entitled to a full refund of the erroneously and/or illegally paid LBT for the first three (3) quarters of TY 1999. There is no dispute that petitioner is entitled to a grant of refund of erroneously and/or illegally paid LBT for the first three (3) quarters of TY 1999. The CTA Second Division, indeed, aptly found that the City of Manila committed direct double taxation when it imposed LBT under Section 21 (A) ofManila Ordinance No. 7794, as amended by Section 1(G) of Ordinance No. 7807 (((Section 21 (A)''), in addition to the business tax already imposed under Section 18 of Manila Ordinance No. 7794, as amended (uSection 18''J.f

AMENDED DECISION CTA EBNO. 277 (CTA AC No. II) As direct double taxation was committed when LBT was imposed under Section 21 (A) on top ofthe business tax already imposed under Section 18, the excess LBT paid by petitioner, ICTSI, based on Section 21 (A) is an erroneously and/or illegally paid tax which should be refunded accordingly. Following a detailed examination and scrutiny ofthe records ofthe case (which include, among others, official receipts representing payment of the illegally and/or erroneously imposed LBT),4 this Court En Bane agrees with the finding by the CTA Second Division that petitioner is entitled to a full refund of erroneously and/or illegally paid LBT in the amount of Php6,224,250.00 for the first three (3) quarters ofTY 1999. Petitioner is similarly entitled to a full refund of the erroneously and/or illegally paid LBT for the succeeding periods beyond the third (3rd) quarter ofTY 1999. As to petitioner's claims for refund of erroneously and/or illegally paid LBT for the succeeding periods beyond the third (3rd) quarter ofTY 1999, the Supreme Court, in the Decision, dated 17 October 2018, ruled that the applicable provision in determining the propriety of such claims is Section 196 of the Local Government Code ("LGC''), considering that no notice of assessment was issued for these periods. On this note, the High Court laid several distinctive guidelines to assist this Court En Bane in determining the amount of tax refund to be granted. First, the Supreme Court ruled that there is no need to comply with the requisite of a prior administrative claim of refund (filed before the local treasurer) as it would be a futile effort, considering that respondents would just deny the same. In fact, respondents have manifested their intention to continuously deny petitioner's claim for refund in their 1 September 2005 Response Letter. Second, the judicial case for refund should have been filed within two (2) years from the payment of the tax, fee, or charge, or from the date when the taxpayer is entitled to a refund or credit. In this case, the judicial claim shall be considered made from the filing of the Amended and Supplemental Petition for Review with the Regional Trial Court, i.e., 11 July 2003. Moreover, the Supreme Court declared that petitioner became entitled to a refund or credit only when the invalidity of Section 21 (A) was judicially pronounced, and became final and executory. This took place when this Court En Bane dismissed respondents' Petition for Review of the 17 May 2006 j- 4 See Exhibit "A", RTC Docket, p. 191.

AMENDED DECISION CTA EBNO. 277 (CTA AC No. 11) Decision of the CTA Second Division, rendering the judgment on the invalidity of Section 21 (A) final and executory only on 2 July 2007. Following this, the High Court ruled that the judicial action for petitioner's claim for refund had not yet expired as of the filing of the Amended and Supplemental Petition since petitioner only became entitled to the present refund (i.e., 2 July 2007) after such judicial claim has already been filed (i.e., 11 July 2003).5 Following these guidelines, petitioner is fully entitled to its claim for refund of erroneously and/or illegally paid taxes for the periods succeeding the third (3rd) quarter ofTY 1999. A thorough examination of the official receipts submitted by petitioner and made part of the judicial records would show that petitioner is entitled to a refund of erroneously and/or illegally paid taxes for the periods succeeding the third (3rd) quarter ofTY 1999 in the total amount ofPhp57,865,901.68, as follows: Exhibit/Annex Taxable Period License Receipt Taxes Paid per Date paid 4th quarter ofTY 1999 Number Section 21 (A) 19 October 1999 Exhibit B ofRTC 1st quarter of TY 2000 Php2,074,750.00 13 January 2000 Docket6 2nd quarter of TY 2000 SML-A-177276 Php2,605,000.00 3rd quarter of TY 2000 L-A-110239 Php2,605,000.00 19 April 2000 Exhibit C of RTC 4th quarter of TY 2000 Php2,606, 000.00 19 July 2000 Dockee 1st quarter of TY 200 1 SML-B-020564 Php2,605,000.00 19 October 2000 2nd quarter of TY 2001 SML-B-072598 Php 1,521,988.95 16 January 2001 Exhibit D ofRTC 3rd quarter ofTY 2001 SML-B-141877 Php 1,521,988.95 19 Apri1200 1 Docket8 4th quarter of TY 2001 Php 1,521,988.95 18 July 2001 1st quarter of TY 2002 L-A-142856 Php 1,521,988.95 18 October 200 1 Exhibit E ofRTC 2nd quarter of TY 2002 SML-B-206857 Php1,440,211.30 18 January 2002 Docket9 SML-B-191566 Phpl,440,211.30 17 April 2002 SML-B-209945 Exhibit F of RTC MLA(b )0039562 ---' D o c k e t 10 MLAs 0004165 Exhibit G of RTC Docket 11 Exhibit H of RTC Docket 12 Exhibit I of RTC Docket 13 Exhibit J of RTC Docket 14 Exhibit K ofRTC D o c k e t 15 Exhibit L ofRTC D o c k e t 16 5 International Container Terminal Services, Inc. v. The City of Manila; Liberty M. Toledo, in her capacity as Treasurer of Manila; Gabriel Espino, in his capacity as Resident Auditor of Manila; and the City Council of Manila, G.R. No. 185622, 17 October 2018. 6 RTC Docket, p. 192. 7 /d., p. 193. 8 /d.,p.194. 9 /d., p. 195. 10 !d., p. 196. II fd., p. 197. 12 /d.,p.198. 13 /d., p. 199. 14 /d., p. 200. 15 !d., p. 201. 16 !d., p. 202.

AMENDED DECISION CTA EB NO. 277 (CTA AC No. II) Exhibit M of RTC 3rd quarter ofTY 2002 MLAs 0037389 Php I ,440,211.30 18 July 2002 D o c k e t 17 4th quarter ofTY 2002 MLAs 0052594 Php I ,440,211.30 16 October 2002 Ist quarter of TY 2003 MLAs 0092841 Php I,728,561.43 17 January 2003 Exhibit N ofRTC 2nd quarter of TY 2003 MLAs 0065867 Phpl,728,561.93 21 April 2003 D o c k e t 18 3rd quarter of TY 2003 MLAs 0084721 Phpl,728,561.93 4th quarter ofTY 2003 MLAs 0103475 Phpl,728,561.93 17 July 2003 Exhibit 0 ofRTC Ist quarter of TY 2004 Phpl,786,724.17 20 October 2003 D o c k e t 19 MLA(b) Phpl,786,724.17 16 January 2004 2nd quarter of TY 2004 0121746 Exhibit P of RTC MLA(s) Php I,786,724.17 20 April 2004 Docket20 3rd quarter ofTY 2004 0106453 Phpl,786,724.17 16 July 2004 Exhibit Q ofRTC 4th quarter of TY 2004 MLA(s) Docket21 0147940 Phpl ,793,036.16 15 October 2004 1st quarter ofTY 2005 Exhibit R ofRTC MLA(s) Phpl,793,036.16 20 January 2005 Docket22 2nd quarter of TY 2005 0147656 Phpl,793,036.16 19 April 2005 Exhibit S of RTC 3rd quarter of TY 2005 O.R.No. Docket23 0004871 Phpl,793,036.16 18 July 2005 4th quarter ofTY 2005 Annex D of Motion Ist quarter of TY 2006 O.R.No. Php I ,968,022.0 I 19 October 2005 for Partial 0043668 19 January 2006 Reconsideration - O.R.No. CTA Second 0050624 Division24 O.R.No. Annex E of Motion 0079522 for Partial O.R.No. Reconsideration - 0079486 CTA Second Division25 Annex F of Motion for Partial Reconsideration - CTA Second Division26 Annex G of Motion for Partial Reconsideration - CTA Second Division27 Annex H of Motion for Partial Reconsideration - CTA Second Division28 Annex I ofMotion for Partial Reconsideration - CTA Second Division29 Annex J of Motion for Partial Reconsideration - CTA Second Division30 Annex K of Motion for Partial 17 !d., p. 203. 18 !d., p. 204. 19 !d., p. 205. 20 !d., p. 206. 21 !d., p. 304. 22 !d., p. 305. 23 !d., p. 306. 24 Annex "D", Petition for Review, Records, p. 168. 25 !d., p. 169. 26 !d., p. 170. 27 !d., p. 171. 28 Id., p. 172. 29 !d., p. 173. 30 !d., p. 174.

AMENDED DECISION CTAEBN0.277(CTAACNo. II) Pagellofl2 Reconsideration - 2nd quarter of TY 2006 O.R.No. Php 1,968,022.01 19 April 2006 CTA Second 3rd quarter of TY 2006 0121362 Division31 4th quarter ofTY 2006 Php1,968,022.01 20 July 2006 1st quarter of TY 2007 O.R.No. Php1,968,022.01 19 October 2006 Annex L of Motion 0149699 Php2,207, 987.05 18 January 2007 for Partial 2nd quarter of TY 2007 O.R. No. 162138 Php2,207 ,987.05 19 April2007 Reconsideration - O.R. No. Php57,865,901.68 CTA Second 0178297 Division32 O.R.No. 0208250 Annex G of Petition for Review - CTA En TOTAL Banc33 Annex H of Petition for Review - CTA En Banc34 Annex I of Petition for Review - CTA En Banc35 Annex D of petitioner's Manifestation and Motion for Extension of Time to File Comment36 ------ All in all, petitioner is entitled to a refund oferroneously and/or illegally paid LBT under Section 21 (A) in the total amount of Php64,090,151.68, computed as follows: Taxable Period Taxes Paid per Section 21 (A) First 3 quarters of TY 1999 Php6,224,250.00 57,865,901.68 Succeeding periods Total Php64,090,151.68 WHEREFORE, in view of the foregoing, the present Petition for Review is hereby GRANTED. Accordingly, respondents are ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of Php64,090, 151.68, representing erroneously and/or illegally paid LBT. SO ORDERED. 31 Id., p. 175. 32 !d., p. 176. 33 Annex "G", Petition for Review, Records, p. 200 34 Annex "H", id., p. 201 35 Annex "I", id., p. 202. 36 Annex "D", Manifestation and Motion for Extension of Time to File Comment, id., p. 295.

AMENDED DECISION CTAEBN0.277(CTAACNo.11) WE CONCUR: (On leave) ROMAN G. DEL ROSARIO Presiding Justice CJ.ua.hWt; C- ~~"~� iUANITO C. CASTANEDA:, JR. Associate Justice ERL~P.UY Associate Justice ~. ~ --1(.___ MA. BELEN M. RINGPIS-LIBAN Associate Justice c~--;-.~ CATHERINE T. MANAHAN Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, 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. ~~fiJ c.~~/ (_2_ JUANITO C. CASTANECf>A, JR. Acting Presiding Justice/