010 CELAJE Secretary of Finance V Lazatin

010 Secretary of Finance v.
Lazatin (CELAJE) RR 2-2012, it shall be considered an importer liable for the taxes due on these
November 29, 2016 | G.R. No. 210588 | Brion, J. | FEZs are exempt from VAT products.
PETITIONER: SECRETARY OF FINANCE CESAR B. PURISIMA AND Since the tax exemptions enjoyed by FEZ enterprises under the law extend even
COMMISSIONER OF INTERNAL REVENUE KIM S. JACINTO-HENARES to VAT and excise tax, as we discussed above, it follows and we accordingly
rule that the taxes imposed by Section 3 of RR 2-2012 directly contravene these
RESPONDENTS: REPRESENTATIVE CARMELO F. LAZATIN AND exemptions. First, the regulation erroneously considers petroleum and
ECOZONE PLASTIC ENTERPRISES CORPORATION petroleum products brought into a FEZ as taxable importations. Second, it
unreasonably burdens FEZ enterprises by making them pay the corresponding
taxes - an obligation from which the law specifically exempts them - even if
SUMMARY: In response to reports of smuggling of petroleum and petroleum there is a subsequent opportunity to refund the payments made.
products and to ensure the correct taxes are paid and collected, petitioner
Secretary of Finance Cesar V. Purisima - signed RR 2-2012. The RR requires RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum
the payment of value-added tax (VAT) and excise tax on the importation of all and petroleum products into FEZs. Strictly speaking, however, articles brought
petroleum and petroleum products coming directly from abroad and brought into these FEZs are not taxable importations under the law based on the
into the Philippines, including Freeport and economic zones (FEZs). following considerations:
Respondent Carmelo F. Lazatin, filed a petition for prohibition and injunction Importation refers to bringing goods from abroad into the Philippine customs
against the petitioners to annul and set aside RR 2-2012. Lazatin posits that jurisdiction. The Philippine VAT system adheres to the cross border doctrine.
Republic Act No. (RA) 9400 treats the Clark Special Economic Zone and Clark Under this rule, no VAT shall be imposed to form part of the cost of the goods
Freeport Zone (together hereinafter referred to as Clark FEZ) as a separate destined for consumption outside the Philippine customs territory.
customs territory and allows tax and duty-free importations of raw materials, Laws such as RA 7227, RA 7916, and RA 9400 have established certain special
capital and equipment into the zone. Thus, the imposition of VAT and excise areas as separate customs territories. In this regard, we have already held that
tax, even on the importation of petroleum products into FEZs (like Clark FEZ), such jurisdictions, such as the Clark FEZ, are, by legal fiction, foreign
directly contravenes the law. territories.
Issue: W/N the imposition of VAT and excise tax was proper. No. We find it clear from all these that when goods (e.g., petroleum and petroleum
Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs products) are brought into an FEZ, the goods remain to be in foreign territory
territory separate and distinct from the Philippines customs territory. Thus, as and are not therefore goods introduced into Philippine customs territory subject
opposed to importations into and establishments in the Philippines customs to Philippine customs and tax laws.
territory, which are fully subject to Philippine customs and tax laws, Lastly, we rule that the refund mechanism provided by RR 2-2012 does not
importations into and establishments located within the Clark FEZ (FEZ amount to a tax exemption. Even if the possibility of a subsequent refund exists,
Enterprises) enjoy special incentives, including tax and duty-free importation. the fact remains that FEZ enterprises must still spend money and other
The law provides that importations of raw materials and capital equipment into resources to pay for something they should be immune to in the first place. This
the FEZs shall be tax- and duty-free. Thus, FEZ enterprises are exempt from completely contradicts the essence of their tax exemption.
both direct and indirect internal revenue taxes. In particular, they are
considered VAT-exempt entities. In line with this comprehensive
interpretation, we rule that the tax exemption enjoyed by FEZ enterprises covers DOCTRINE: Goods brought into and traded within an FEZ are generally
internal revenue taxes imposed on goods brought into the FEZ, including the beyond the reach of national internal revenue taxes and customs duties enforced
Clark FEZ, such as VAT and excise tax. in the Philippine customs territory. This is consistent with the incentive granted
to FEZs exempting the importation itself from taxes and duties.
RR 2-2012 illegally imposes VAT and excise tax on goods brought into the
FEZs. RR 2-2012 explicitly covers even petroleum and petroleum products
imported and/or brought into the various FEZs in the Philippines. Hence, when
an FEZ enterprise brings petroleum and petroleum products into the FEZ, under

010 CELAJE Secretary of Finance V Lazatin

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010 CELAJE Secretary of Finance V Lazatin

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010 Secretary of Finance v.

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