G.R. No. 163445 December 18, 2007
ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC BAY MOTORS CORPORATION, petitioners, vs. HON. GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenue (BIR), et al., respondents.

FACTS

Petitioners are registered enterprises within the Subic Special Economic and Freeport Zone (SSEFZ). They import motor vehicles into the zone and subsequently sell them through public auction. The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 31-2003, which imposed uniform tax guidelines on such transactions. The RMC required, among other things, that if the winning bidder brings a vehicle into the customs territory, the bidder shall be liable to pay Value-Added Tax (VAT) and excise tax based on the winning bid price. Petitioners filed a complaint with the Regional Trial Court (RTC) of Olongapo City, seeking to declare the RMC void for being contrary to Republic Act No. 7227 (the Bases Conversion and Development Act of 1992). They argued that as registered SSEFZ enterprises, their importations and sales within the zone are tax-exempt. The RTC issued a temporary restraining order against the BIR. The BIR moved to dismiss the case, arguing the RTC lacked jurisdiction over tax collection matters.

ISSUE

Whether the Regional Trial Court had jurisdiction over the petitioners’ action to declare RMC No. 31-2003 void and to enjoin its implementation.

RULING

No, the RTC lacked jurisdiction. The Supreme Court affirmed the Court of Appeals’ decision dismissing the case. The nature of the action is determinative of jurisdiction. Petitioners’ suit, while framed as one for declaratory relief, is in substance a suit to restrain the collection of internal revenue taxes. The principal purpose was to invalidate the RMC to avoid the payment of VAT and excise taxes on auctioned vehicles. Under Section 7 of Republic Act No. 1125, as amended, and Section 11 of Republic Act No. 9282, the Court of Tax Appeals (CTA) has exclusive appellate jurisdiction over cases involving the collection of internal revenue taxes. This jurisdiction extends to cases where the assessment or collection is contested, even if the action is couched as one for declaratory relief or injunction. Since the RMC implemented tax laws and its nullification would directly affect tax collection, the dispute falls within the exclusive domain of the CTA. The RTC, therefore, correctly dismissed the case for lack of jurisdiction. The proper recourse for petitioners was to appeal any adverse tax assessment to the CTA, not to seek injunctive relief from the RTC.