In a 10-page decision penned by Chief Justice Lucas Bersamin, promulgated on Nov. 7 and released on Monday, the High Court’s First Division reversed the order issued by the Makati City Regional Trial Court (RTC) which stopped the bureau from implementing Section 108 and 184 of the National Internal Revenue Code of 1997 (NIRC).
Section 108 imposes a 10 percent value-added tax on gross receipts derived from the sale or exchange of services, including the use or lease of properties.
On the other hand, Section 184 imposes the collection of a documentary stamp tax of PHP0.50 on each PHP4, of the amount of premium charged on policies of insurance upon properties.
The said provisions were enjoined by the Makati RTC Branch 66 following the suit filed by Standard Insurance Co. Inc., which operates as a non-life insurance company in the Philippines and offers motorcar, cellphone, property, marine, accident, and comprehensive general liability insurance services.
Standard Insurance is contesting the assessed tax liability issued by the BIR against it arising from a deficiency in the payment of Documentary Stamp Taxes (DST) for the taxable years 2011 to 2013 amounting to PHP418.8 million including interest and compromise penalty.
The firm sought the issuance of an injunction against the implementation of Section 108 and Section 184 of the NIRC with respect to the taxes to be paid by non-life insurance companies.
In its petition, Standard Insurance claimed that the NIRC provisions violate the equal protection clause under the Constitution and cited the effectivity of Republic Act No. 10001 or An Act Reducing the Taxes on Life Insurance Policies which reduces from five percent to two percent the tax rate for life insurance premiums.
The company also cited the pendency of deliberation on House Bill No. 325 known as "An Act Rationalizing the Taxes Imposed on Non-Life Insurance Policies".
The proposed law seeks an equal treatment for both life and non-life companies in response to the supposed inequality generate by the enactment of R.A. 10001.
On May 8, 2015, the trial court granted the petition of Standard Insurance and permanently enjoined the BIR from implementing Sections 108 and 184 until the enactment into law by Congress of House Bill No. 322.
This prompted the BIR to elevate the lower court's decision before the SC.
The BIR argued that a petition for declaratory relief is not applicable to contest tax assessments and that the Makati RTC erred in declaring that Section 108 and 184 violate the equal protection clause of the Constitution.
In granting the BIR’s petition, the Court held that the trial court “grossly erred” in granting Standard Insurance’ petition for declaratory relief and subsequently enjoining the BIR from implementing the assailed NIRC provisions permanently.
It said the trial court failed to comply with the requisites under Section 1, Rule 63 of the Rules Court covering an action for declaratory relief.
“The apprehension of the respondent that it could be rendered technically insolvent through the imposition of the iniquitous taxes imposed by Section 108 and Section 184 of the NIRC, laws that were valid and binding, did not render the action for declaratory fall within the purview of an actual controversy that was ripe for judicial determination,” the SC said.
“The respondent was thereby engaging in speculation or conjecture, or arguing on probabilities, not actualities. Therein lay the prematurity of its action, for a justiciable controversy refers to an existing case or controversy that is appropriate or ripe for judicial determination, not one that is conjectural or merely anticipator,” it added.
Thus, the SC said Standard Insurance’s petition for declaratory relief should have been dismissed by the trial court instantly.
“With not all the requisites for the remedy of declaratory relief being present, the respondent’s petition for declaratory relief had not legal support and should have been dismissed by the RTC,” the Court ruled.