What is the doctrine of willful blindness?

Ignorance of the law excuses no one from compliance therewith.

This is the foundation of law enforcement in the Philippines. A person cannot feign ignorance of the law in order to avoid compliance and the corresponding consequences or liabilities. The primordial reason behind the rule is that it is the person’s responsibility to know the law in the jurisdiction.

What happens if a person willfully avoid learning the law? It does not matter as there is the doctrine of willful blindness.

Doctrine of Willful blindness

The doctrine of willful blindness is the conscious effort to avoid learning of critical facts that are already made apparent by the surrounding circumstances. This doctrine is also referred to as the principle of “conscious avoidance”.

As there is no Philippine Supreme Court discussing the matter yet, the closest legal basis on the matter is the case of Global Tech Appliances, Inc. v. SEB, ___ U.S. ___ (6/1/11) where the Supreme Court of the United States (SCOTUS) upheld the doctrine of willful blindness and even went so far as to apply it in civil cases, viz:

The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances. The traditional rationale for this doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge. Edwards, The Criminal Degrees of Knowledge, 17 Mod. L. Rev. 294, 302 (1954) (hereinafter Edwards) (observing on the basis of English authorities that “up to the present day, no real doubt has been cast on the proposition that [willful blindness] is as culpable as actual knowledge”). It is also said that persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts. See United States v. Jewell, 532 F. 2d 697, 700 (CA9 1976) (en banc).

This Court’s opinion more than a century ago in Spurr v. United States, 174 U. S. 728 (1899), while not using the term “willful blindness,” endorsed a similar concept. The case involved a criminal statute that prohibited a bank officer from “willfully” certifying a check drawn against insufficient funds. We said that a willful violation would occur “if the [bank] officer purposely keeps himself in ignorance of whether the drawer has money in the bank.” Id., at 735. Following our decision in Spurr, several federal prosecutions in the first half of the 20th century invoked the doctrine of willful blindness. Later, a 1962 proposed draft of the Model Penal Code, which has since become official, attempted to incorporate the doctrine by defining “knowledge of the existence of a particular fact” to include a situation in which “a person is aware of a high probability of [the fact’s] existence, unless he actually believes that it does not exist.” ALI, Model Penal Code §2.02(7) (Proposed Official Draft 1962). Our Court has used the Code’s definition as a guide in analyzing whether certain statutory presumptions of knowledge comported with due process. See Turner v. United States, 396 U. S. 398, 416–417 (1970); Leary v. United States, 395 U. S. 6, 46–47, and n. 93 (1969). And every Court of Appeals— with the possible exception of the District of Columbia Circuit, see n. 9, infra—has fully embraced willful blindness, applying the doctrine to a wide range of criminal statutes.

Given the long history of willful blindness and its wide acceptance in the Federal Judiciary, we can see no reason why the doctrine should not apply in civil lawsuits for induced patent infringement under 35 U. S. C. §271(b).

In summary, the doctrine of willful blindness negates the offender’s defense conscious avoidance of knowing a set of critical facts in the hopes of avoiding liability. This doctrine simply reiterates and even reinforces the doctrine of ignorantia juris non excusat (ignorance of the law excuses no one).

AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue

The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA.

G.R. No. 185969, 19 November 2014

The issues raised involved are as follows: (a) the interpretation of the 120 day rule for filing an administrative claim for refund or credit, and (2) the significance between a sales invoice and an official receipt as evidence for zero-related transactions.

Citing jurisprudence, “Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer ‘may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to such sales.’ In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit ‘within two (2) years,’ which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.”

Further, “Section 112(C) provides that the Commissioner shall decide the application for refund or credit ‘within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A).’ The reference in Section 112(C) of the submission of documents ‘in support of the application filed in accordance with Subsection A’ means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the ‘phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA.”

Moreover, “Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C).”

In addition, the Atlas doctrine “which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT.”

Here, when the foregoing pronouncements are applied, “and considering that petitioner’s administrative claim was filed before the promulgation of the Atlas case, it is clear that petitioner only had a period of two (2) years from the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made, to file an administrative claim for refund or issuance of a TCC in its favor. As aptly found by the CTA in Division and the CTA En Banc, the administrative claim covering all four (4) quarters of taxable year 2003, was filed by petitioner on 13 April 2005. However, although petitioner’s administrative claim was filed within the prescribed 2-year period under Section 112(A) of the NIRC of 1997, as amended, insofar as to the Second, Third, and Fourth Quarters of taxable year 2003 are concerned, it appears that its claim covering the First Quarter of taxable year 2003 was belatedly filed…”

Evidently, “the CTA had no jurisdiction to rule on petitioner’s refund claim covering the First Quarter of taxable year 2003 since its administrative claim was filed beyond the 2-year prescriptive period as mandated by law, or exactly fourteen (14) days after the last day to file the same.”

However, “as to petitioner’s claims covering the remaining quarters of taxable year 2003, the Court finds that petitioner has indeed properly filed its judicial claim before the CTA, even without waiting for the expiration of the one hundred twenty (120)-day period, since at the time petitioner filed its petition, BIR Ruling No. DA-489-03 issued on 10 December 2003 was already in effect…”

Based on the foregoing jurisprudential pronouncements, “as a general rule, a taxpayer-claimant needs to wait for the expiration of the one hundred twenty (120)-day period before it may be considered as ‘inaction’ on the part of the Commissioner of Internal Revenue (CIR). Thereafter, the taxpayer-claimant is given only a limited period of thirty (30) days from said expiration to file its corresponding judicial claim with the CTA. However, with the exception of claims made during the effectivity of BIR Ruling No. DA-489-03 (from 10 December 2003 to 5 October 2010), petitioner has indeed properly and timely filed its judicial claim covering the Second, Third, and Fourth Quarters of taxable year 2003, within the bounds of the law and existing jurisprudence.”

On the issue regarding the significance between a sales invoice and an official receipt as evidence for zero-related transactions, Section 113(A) of the NIRC of 1997 is the applicable rule: “A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237…”

While it appears that there is no clear distinction on the evidentiary value of an invoice or official receipt, “it is worthy to note that the said provision is a general provision which covers all sales of a VAT registered person, whether sale of goods or services. It does not necessarily follow that the legislature intended to use the same interchangeably. The Court therefore cannot conclude that the general provision of Section 113 of the NIRC of 1997, as amended, intended that the invoice and official receipt can be used for either sale of goods or services, because there are specific provisions of the Tax Code which clearly delineates the difference between the two transactions.”

To be clear, “the VAT invoice is the seller’s best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyer’s best evidence of the payment of goods or services received from the seller. Thus, … VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used interchangeably…”

Taganito Mining Corporation v. Commissioner of Internal Revenue

The two-year period under Section 229 does not apply to claims for a refund or tax credit for unutilized creditable input VAT because it is not considered ‘excessively’ collected.

G.R. No. 198076, 19 November 2014

The issue was whether or not Taganito’s judcial claim was prematurely filed. It is clear that “the two-year period under Section 229 does not apply to claims for a refund or tax credit for unutilized creditable input VAT because it is not considered ‘excessively’ collected. Instead, San Roque settled that Section 112 applies to claims for a refund or tax credit for unutilized creditable input VAT, thereby making the 120+ 30 day period prescribed therein mandatory and jurisdictional in nature.

“As an exception to the mandatory and jurisdictional nature of the 120+30 day period, judicial claims filed between December 10, 2003 or from the issuance of BIR Ruling No. DA-489-03, up to October 6, 2010 or the reversal of the ruling in Aichi, need not wait for the lapse of the 120+30 day period in consonance with the principle of equitable estoppel.

“In the present case, Taganito filed its judicial claim with the CTA on February 19, 2004, clearly within the period of exception of December 10, 2003 to October 6, 2010. Its judicial claim was, therefore, not prematurely filed and should not have been dismissed by the CTA En Banc.”

La Suerte Cigar & Cigarette Factor v. Court of Appeals, Commissioner of Internal Revenue

Stemmed leaf tobacco is subject to the specific tax under Section 141(b).

G.R. Nos. 125346, 136328-29, 144942, 148605, 158197, 165499

Excise tax is “a tax on the production, sale, or consumption of a specific commodity in a country. Section 110 of the 1986 Tax Code explicitly provides that the ‘excise taxes on domestic products shall be paid by the manufacturer or producer before [the] removal [of those products] from the place of production.’ ‘It does not matter to what use the article[s] subject to tax is put; the excise taxes are still due, even though the articles are removed merely for storage in some other place and are not actually sold or consumed.’ The excise tax based on weight, volume capacity or any other physical unit of measurement is referred to as ‘specific tax.’ If based on selling price or other specified value, it is referred to as “ad valorem” tax.

“Section 141 subjects partially prepared tobacco, such as stemmed leaf tobacco, to excise tax…  It is evident that when tobacco is harvested and processed either by hand or by machine, all its products become subject to specific tax. Section 141 reveals the legislative policy to tax all forms of manufactured tobacco — in contrast to raw tobacco leaves — including tobacco refuse or all other tobacco which has been cut, split, twisted, or pressed and is capable of being smoked without further industrial processing.

“Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially prepared tobacco. The removal of the stem or midrib from the leaf tobacco makes the resulting stemmed leaf tobacco a prepared or partially prepared tobacco. The following is La Suerte’s own illustration of how the stemmed leaf tobacco comes about: In the process of removing the stems, the whole leaf tobacco breaks into pieces; after the stems or midribs are removed, the tobacco is threshed (cut by machine into fine narrow strips) and then undergoes a process of redrying, undoubtedly showing that stemmed leaf tobacco is a partially prepared tobacco.

“Since the Tax Code contained no definition of ‘partially prepared tobacco,’ then the term should be construed in its general, ordinary, and comprehensive sense.

“RR No. 17-67, as amended, supplements the law by delineating what products of tobacco are ‘prepared or manufactured’ and ‘partially prepared or partially manufactured.’

“x x x

“Different definitions of the term ‘stemmed leaf’ are unavoidable, especially considering that Section 2 (m)(1) is an implementing regulation of Act No. 2613, which was enacted in 1916 for purposes of improving the quality of Philippine tobacco products, while Section 137 defines the tobacco product only for the purpose of exempting it from the specific tax. Whichever definition is adopted, there is no doubt that stemmed leaf tobacco is a partially prepared tobacco.

“The onus of proving that stemmed leaf tobacco is not subject to the specific tax lies with the cigarette manufacturers. Taxation is the rule, exemption is the exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The cigarette manufacturers must justify their claim by a clear and categorical provision in the law. Otherwise, they are liable for the specific tax on stemmed leaf tobacco found in their possession pursuant to Section 127 of the 1986 Tax Code, as amended.

“Stemmed leaf tobacco transferred in bulk between cigarette manufacturers are exempt from excise tax under Section 137 of the 1986 Tax Code in conjunction with RR No. V-39 and RR No. 17-67…  Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf tobacco is sold in bulk as raw material by one manufacturer directly to another; and (2) that the sale or transfer has complied with the conditions prescribed by the Department of Finance.

“That the title of Section 137 uses the term ‘without prepayment’ while the body itself uses ‘without payment’ is of no moment. Both terms simply mean that stemmed leaf tobacco may be removed from the factory or place of production without prior payment of the specific tax.

Citing jurisprudence, “the exemption from specific tax of the sale of stemmed leaf tobacco is qualified by and is subject to ‘such conditions as may be prescribed in the regulations of the Department of Finance.’ These conditions were provided for in RR Nos. V-39 and 17-67. Thus, Section 137 must be read and interpreted in accordance with these regulations.

“x x x

“Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of Internal Revenue with an L-7 permit refer to ‘manufacturers of tobacco products.” Hence, the transferor and transferee of the stemmed leaf tobacco must be an L-7 tobacco manufacturer.

“x x x

“There is no new product when stemmed leaf tobacco is transferred between two L-7 permit holders. Thus, there can be no excise tax that will attach. The regulation, therefore, is reasonable and does not create a new statutory right.

“x x x

“Importation of stemmed leaf tobacco not included in the exemption under Section 137… The transaction contemplated in Section 137 does not include importation of stemmed leaf tobacco for the reason that the law uses the word ‘sold’ to describe the transaction of transferring the raw materials from one manufacturer to another.

“The Tax Code treats an importer and a manufacturer differently. Section 123 clearly distinguishes between goods manufactured or produced in the Philippines and things imported. The law uses the proper term ‘importation’ or ‘imported’ whenever the transaction involves bringing in articles from foreign countries as provided under Section 125 (cf. Section 124). Whenever the Tax Code refers to importers and manufacturers, they are separately mentioned as two distinct persons or entities (Sections 156 and 160). Under Chapter II, whenever the law uses the word manufacturer, it only means local manufacturer or producer of domestic products (Sections 150, 151, and 152 of the 1939 Tax Code).

“Moreover, foreign manufacturers of tobacco products not engaged in trade or business in the Philippines cannot be designated as L-7 since these are beyond the pale of Philippine law and regulations. The factories contemplated are those located or operating only in the Philippines.

“x x x

There is no double taxation. “The contention that the cigarette manufacturers are doubly taxed because they are paying the specific tax on the raw material and on the finished product in which the raw material was a part is also devoid of merit.

“For double taxation in the objectionable or prohibited sense to exist, ‘the same property must be taxed twice, when it should be taxed but once.’ ‘[B]oth taxes must be imposed on the same property or subject-matter, for the same purpose, by the same… taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax.’

“At all events, there is no constitutional prohibition against double taxation in the Philippines…

“It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform.

“Excise taxes are essentially taxes on property because they are levied on certain specified goods or articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition, and on goods imported. In this case, there is no double taxation in the prohibited sense because the specific tax is imposed by explicit provisions of the Tax Code on two different articles or products: (1) on the stemmed leaf tobacco; and (2) on cigar or cigarette.”

Catholic school wins tax case

A Catholic school wins a tax case against the Bureau of Internal Revenue (BIR). Before a Makati RTC, the school challenged the BIR revenue memorandum circular requiring non-stock, non-profit educational school to secure a tax exemption. The Makati Court ruled in favor of the school citing the constitutional provision granting exemption takes precedence over a circular.

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