St. Mary's Academy Caloocan City, Inc. vs. Henares

The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules, regulations, and other administrative issuances of the Commissioner of Internal Revenue, notwithstanding the general jurisdiction of regional trial courts over constitutional questions.

St. Mary's Academy of Caloocan City operates as a non-stock, non-profit educational institution. In 2013, the Bureau of Internal Revenue (BIR) issued new regulations affecting tax-exempt entities: Revenue Memorandum Order No. 20-2013 established guidelines for processing tax exemption applications and re-validation of tax exemption rulings, while Revenue Memorandum Circular No. 52-2013 set deadlines for the validity of unused receipts or invoices printed before January 18, 2013, requiring taxpayers to secure new authority to print thereafter. The BIR subsequently demanded that St. Mary's Academy comply with these regulations, threatening penalties for non-compliance including P20,000.00 for every receipt printed without authority. The Academy maintained that as a non-stock, non-profit educational institution whose assets and revenues are actually, directly, and exclusively used for educational purposes, it was exempt from internal revenue taxes and from the requirement to secure authority to print receipts under existing revenue rulings.

• Nature of the Institution: St. Mary's Academy of Caloocan City is a non-stock, non-profit educational institution claiming exemption from internal revenue taxes under Article XIV, Section 4(3) of the Constitution and Revenue Ruling No. 159-98, which exempts such institutions from the issuance of receipts and sales invoices printed with BIR permission.
• The Assailed Regulations: In July 2013, Commissioner Jacinto-Henares issued RMO No. 20-2013 providing guidelines for processing tax exemption applications and re-validation of tax exemption rulings. In August 2013, she issued RMC No. 52-2013 clarifying that unused and unissued receipts or invoices printed before January 18, 2013, would no longer be valid after specified deadlines, requiring taxpayers to secure new authority to print.
• BIR Enforcement Actions: On November 13, 2013, Revenue District Officer Detablan wrote to St. Mary's Academy informing it of its failure to apply for new authority to print and reminding it that under RMC No. 52-2013, its receipts were no longer valid as of October 31, 2013. He demanded payment of penalties for non-registration (P10,000.00) and for every receipt printed without authority (P20,000.00).
• Administrative Exchanges: St. Mary's Academy responded asserting its tax-exempt status and exemption from authority-to-print requirements. Regional Director Florendo rejected this position, explaining that the requirement covered supplementary receipts (delivery receipts, collection receipts) for recording and control purposes, and insisted on compliance with RMO No. 20-2013 for tax exemption renewal.
• RTC Proceedings: St. Mary's Academy filed a Petition for Injunction and Prohibition alleging that the regulations eroded its constitutional tax exemption. The RTC granted preliminary injunction and subsequently declared RMO No. 20-2013 unconstitutional and RMC No. 52-2013 illegal as applied to non-stock, non-profit educational institutions.
• Appellate Proceedings: The Court of Appeals reversed, holding that injunction and prohibition were improper remedies because the acts sought to be enjoined had already been accomplished and the writ cannot issue against quasi-legislative acts.

• Jurisdiction of the Regional Trial Court: Petitioner argued that the Court of Appeals should have dismissed the appeal for raising no genuine issue of fact, as respondents only belatedly raised exhaustion of administrative remedies on appeal. Since only questions of law were involved, the proper remedy was a Rule 45 petition directly to the Supreme Court.
• Expanded Judicial Review: Petitioner maintained that the Regional Trial Court properly exercised jurisdiction under the Constitution's expanded powers of judicial review, which allow courts to determine grave abuse of discretion even when the act complained of was not done in judicial, quasi-judicial, or ministerial functions. This power extends to petitions for prohibition, not merely certiorari.
• Hierarchy of Courts: Petitioner asserted that it filed before the RTC pursuant to the doctrine of hierarchy of courts, acting prudently in case factual issues arose.
• Substantive Unconstitutionality: Petitioner maintained that RMC No. 52-2013 is unconstitutional as applied to non-stock, non-profit educational institutions because it assumes applicants are already subject to internal revenue taxes and requires them to prove exemption. The penalty of P20,000.00 per transaction would impose millions in liability.
• Prior Rulings: Petitioner cited Commissioner of Internal Revenue v. VG. Sinco and Department of Finance Order No. 137-87 to establish that the CIR cannot impose additional requirements before exempt institutions enjoy their status, and that such institutions are exempt from authority-to-print requirements.
• Superfluous Requirements: Regarding RMO No. 20-2013, petitioner argued that requiring renewal applications for tax exemption rulings is impermissible because the Constitution requires no such additional requirements. The annual information return already suffices to safeguard government interests.
• Clear Legal Right: Petitioner asserted it had demonstrated a clear and unmistakable right to tax exemption that was at risk of violation, making injunction proper.

• Strict Construction of Tax Exemptions: Respondents argued that tax exemptions are strictly construed against claimants, and their enjoyment may be regulated to ensure only entitled entities receive exempt status.
• No Amendment of Law: Respondents maintained that the questioned issuances did not amend, alter, or modify the National Internal Revenue Code but merely provided frameworks for recording, monitoring, and controlling receipts issued by all entities, whether taxable or tax-exempt.
• Policy Decision: Respondents characterized the issuances as policy decisions implementing tax laws, which fall outside judicial review powers.
• No Erosion of Tax Exemption: Respondents contended that the issuances did not erode petitioner's tax-exempt status but merely required substantiation of claims through documentary submissions for monitoring purposes, enabling the State to examine compliance with constitutional requirements.
• Reasonable Regulations: Respondents argued the regulations are reasonable measures to prevent abuse of tax-exempt status by requiring renewal of exemption rulings.
• No Clear Legal Right: Respondents asserted that injunction is improper where the right asserted is dubious or disputed, and petitioner failed to show a clear legal right requiring protection.

• Jurisdiction: Whether the Regional Trial Court had jurisdiction to rule on the constitutionality and validity of revenue issuances by the Commissioner of Internal Revenue.
• Constitutional Validity: Whether RMO No. 20-2013 and RMC No. 52-2013 are constitutional and valid as applied to non-stock, non-profit educational institutions.

• Jurisdiction: The Regional Trial Court did not have jurisdiction to rule on the validity or constitutionality of the Commissioner of Internal Revenue's administrative issuances. Under Section 7 of Republic Act No. 1125, as amended by Republic Act No. 9282, the Court of Tax Appeals has exclusive jurisdiction to review by appeal decisions of the Commissioner involving disputed assessments, refunds, penalties, or other matters arising under the National Internal Revenue Code. This exclusive jurisdiction extends to determining the constitutionality or validity of tax laws, rules, regulations, and administrative issuances of the Commissioner.
• Precedential Shift: While British American Tobacco v. Camacho represented a deviation allowing regular courts to pass upon the validity of revenue regulations, this conflict was resolved in Banco de Oro v. Republic, which reverted to the rule that the Court of Tax Appeals has exclusive jurisdiction over such matters, as affirmed in COURAGE v. Commissioner of Internal Revenue.
• Void RTC Resolution: Consequently, the Regional Trial Court's Resolution declaring RMO No. 20-2013 unconstitutional and RMC No. 52-2013 illegal is void for having been issued without jurisdiction.
• Proper Remedy: The Court of Appeals erred in ruling on the propriety of injunctive relief; it should have dismissed the case outright for lack of jurisdiction. Before the Supreme Court exercises review powers over constitutional questions involving co-equal branches, the case must first be heard by the appropriate trial court—the Court of Tax Appeals, not the Regional Trial Court.

• Exclusive Jurisdiction of the Court of Tax Appeals: Under Republic Act No. 1125, as amended by Republic Act No. 9282, Section 7, the Court of Tax Appeals exercises exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds, penalties, or other matters arising under the National Internal Revenue Code. This jurisdiction encompasses the power to determine the constitutionality or validity of tax laws, rules, regulations, and administrative issuances of the Commissioner of Internal Revenue, to the exclusion of regular courts.
• Hierarchy of Judicial Review in Tax Matters: Questions regarding the validity of revenue issuances must be brought before the Court of Tax Appeals, not Regional Trial Courts. The Supreme Court will not rule on the merits of such questions when the case was filed in a court lacking jurisdiction, as any further disquisition would be obiter dictum.

• "It is the Court of Tax Appeals, and not the regional trial courts, that has the jurisdiction to rule on the constitutionality and validity of revenue issuances by the Commissioner of Internal Revenue."
• "The Court of Tax Appeals 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."
• "Before this Court exercises its review powers, especially when the issue involves the constitutionality and validity of an act of a co-equal branch of government, the case must first be heard on both the law and the facts by the appropriate trial court. The law has determined this to be the Court of Tax Appeals."

• Blaquera v. Rodriguez, 103 Phil. 511 (1958) — Established that the Court of Tax Appeals, not regular courts, has jurisdiction over cases questioning the Collector of Internal Revenue's actions.
• Commissioner of Internal Revenue v. Leal, 440 Phil. 477 (2002) — Applied Section 7 of RA 1125 to emphasize that jurisdiction over revenue memorandum orders and circulars lies with the Court of Tax Appeals.
• Asia International Auctioneers v. Parayno, 565 Phil. 255 (2007) — Reiterated that the Court of Tax Appeals has exclusive jurisdiction to review rulings or opinions of the Commissioner of Internal Revenue; refusal to rule on merits when court a quo lacked jurisdiction.
• British American Tobacco v. Camacho, 584 Phil. 489 (2008) — Deviation allowing regular courts jurisdiction over constitutional validity of revenue regulations; distinguished and superseded by later jurisprudence.
• Banco de Oro v. Republic, 793 Phil. 97 (2016) — Resolved the conflict in favor of exclusive CTA jurisdiction over validity of tax issuances, reverting to Blaquera and Leal.
• COURAGE v. Commissioner of Internal Revenue, 835 Phil. 298 (2018) — Affirmed Banco de Oro and the exclusive jurisdiction of the Court of Tax Appeals.

• Section 7, Republic Act No. 1125 (as amended by Republic Act No. 9282) — Grants the Court of Tax Appeals exclusive appellate jurisdiction to review decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds, penalties, or other matters arising under the National Internal Revenue Code.
• Article XIV, Section 4(3), 1987 Constitution — Provides that all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties; cited by petitioner as basis for exemption.
• Sections 237 and 238, National Internal Revenue Code — Provisions regarding receipts and invoices; cited by the RTC in declaring RMC No. 52-2013 illegal.
• Section 4, National Internal Revenue Code — Grants the Commissioner of Internal Revenue authority to promulgate rules and regulations for the enforcement of internal revenue laws; cited by respondents as basis for the assailed issuances.

Hernando, Inting, Delos Santos, and Rosario, JJ.