### Facts:
The case originated when the COMELEC entered into a contract in May 2008 with Smartmatic Sahi Technology, Inc. (Smartmatic) and Avante International Technology, Inc. (Avante) for the lease, with an option to purchase, of electronic voting machines for the Autonomous Region in Muslim Mindanao Regional Election. The COMELEC did not withhold Expanded Withholding Tax (EWT) on payments to Smartmatic and Avante, believing such procurement to be exempt from taxes under RA No. 8436 as amended by RA No. 9369.
On April 23, 2010, the Bureau of Internal Revenue (BIR) issued a Letter of Authority for examination of COMELEC’s withholding taxes for 2008, finding a deficiency in EWT. After the issuance of a Preliminary Assessment Notice and a Final Assessment Notice, COMELEC protested the assessment, which was subsequently denied. COMELEC then appealed to the Court of Tax Appeals (CTA).
The CTA Second Division partially granted COMELEC’s petition, recognizing COMELEC’s duty to withhold taxes but not holding it liable for deficiency interests. COMELEC and the Commissioner of Internal Revenue (CIR) filed motions for reconsideration and subsequent appeals to the CTA En Banc, which resulted in a dismissal for COMELEC’s petition and a denial of CIR’s petition. Both parties then escalated the matter to the Supreme Court.
### Issues:
1. Whether the COMELEC is exempt from the obligation to withhold EWT under RA No. 8436 as amended.
2. Whether the COMELEC’s petition was properly filed without a motion for reconsideration of the CTA Second Division’s amended decision.
3. Whether the COMELEC is liable for the deficiency basic EWT and penalties.
### Court’s Decision:
The Supreme Court denied both petitions. It established that:
1. The COMELEC’s exemption under RA No. 8436 as amended does not extend to the obligation to withhold EWT. The withholding tax system is distinct from direct and indirect taxes, and COMELEC, as a withholding agent, failed to perform its duty.
2. The COMELEC correctly filed its petition for review without seeking reconsideration of the amended decision by the CTA Division, since the amended decision was not substantially different from the original.
3. The COMELEC is liable for the deficiency in the basic EWT but not for deficiency interest or penalties, as the CTA Division’s decision became final regarding the CIR’s failure to contest on time.
### Doctrine:
The case reiterates the distinction between direct and indirect taxes and the role of withholding agents in the tax system. It clarifies that exemptions under specific laws do not automatically exempt entities from their duties as withholding agents under the Tax Code.
### Class Notes:
– **Withholding Tax**: A method of collecting income tax in advance from the payment due to the payee.
– **Tax Exemption**: Not presumed and must be explicitly stated; does not extend to withholding obligations unless explicitly included.
– **Withholding Agent’s Liability**: Limited to the amount that should have been withheld; not liable for penalties if the failure to withhold was not addressed in the timely appeal on final assessments.
– **CTA Jurisdiction**: Holds exclusive appellate jurisdiction over disputes regarding tax assessments, including those involving government agencies.
### Historical Background:
This case highlights the complexities involved in tax exemptions and the responsibilities of government entities as withholding agents. It underscores the judiciary’s role in interpreting tax laws and the procedural requirements for challenging tax assessments within the specialized tax courts.
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