G.R. No. 144696 August 16, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PHILIPPINE GLOBAL COMMUNICATIONS, INC., Respondent.

FACTS

Respondent Philippine Global Communications, Inc., a telecommunications company operating under a legislative franchise, was subject to a 3% franchise tax under Section 117(b) of the 1977 National Internal Revenue Code (NIRC). Republic Act No. 7716 (the E-VAT Law), which took effect on May 28, 1994, amended Section 117 by deleting the specific provision imposing the 3% tax on telephone and telegraph systems. On June 30, 1994, the Supreme Court issued a Temporary Restraining Order (TRO) in the Tolentino cases, enjoining the enforcement and implementation of the E-VAT Law. This TRO was lifted on October 30, 1995.
Believing it was exempt from the 3% franchise tax upon the E-VAT Law’s effectivity, respondent paid the tax under protest from the second quarter of 1994 through the fourth quarter of 1995. It subsequently filed a claim for refund of these payments with the Bureau of Internal Revenue, arguing the E-VAT Law’s amendment was self-operative and the TRO did not suspend its tax exemption. The Court of Tax Appeals granted the refund, a decision affirmed by the Court of Appeals.

ISSUE

Was respondent liable to pay the 3% franchise tax during the period the TRO enjoined the implementation of the E-VAT Law?

RULING

No, respondent was not liable. The Supreme Court reversed the appellate decisions and held respondent was not entitled to a refund. The legal logic centers on the effect of the TRO. While the E-VAT Law became effective on May 28, 1994, its implementation was suspended by the Court’s TRO from June 30, 1994, until its lifting on October 30, 1995. The Court clarified that a TRO preserves the status quo prevailing before its issuance. The status quo ante was the legal regime under the unamended NIRC, where respondent was expressly subject to the 3% franchise tax under Section 117(b).
The deletion of this tax provision by the E-VAT Law could not be given effect during the suspension. To rule otherwise would grant a tax exemption by mere legislative deletion without the requisite implementation, which was precisely restrained. The obligation to pay the tax remained in force during the TRO period. Consequently, respondent’s payments were correct and no refund was due. The Court emphasized that the TRO rightfully suspended the operation of the amendatory law in its entirety, preventing any change to the taxpayer’s liabilities during the period of judicial restraint.