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G.R. No. 187485, October 08, 2013 - COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SAN ROQUE POWER CORPORATION, Respondent.; G.R. No. 196113, October 08, 2013 - TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.; G.R. No. 197156, October 08, 2013 - PHILEX MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SAN ROQUE POWER CORPORATION, Respondent.
PHILEX MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the Comment to the Motion for Reconsideration filed by the Commissioner of Internal Revenue (CIR) in G.R. No. 187485, the Motion for Reconsideration filed by the CIR in G.R. No. 196113, and the Comment to the Motion for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R. No. 196113.
The CIR, on the other hand, asserts that Taganito Mining Corporation’s (Taganito) judicial claim for tax credit or refund was prematurely filed before the CTA and should be disallowed because BIR Ruling No. DA-489-03 was issued by a Deputy Commissioner, not by the Commissioner of Internal Revenue.
The decision now on appeal reflects the orthodox view that an unconstitutional act, for that matter an executive order or a municipal ordinance likewise suffering from that infirmity, cannot be the source of any legal rights or duties. Nor can it justify any official act taken under it. Its repugnancy to the fundamental law once judicially declared results in its being to all intents and purposes a mere scrap of paper. As the new Civil Code puts it: “When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws of the Constitution.” It is understandable why it should be so, the Constitution being supreme and paramount. Any legislative or executive act contrary to its terms cannot survive.
Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.
Clearly, for the operative fact doctrine to apply, there must be a “legislative or executive measure,” meaning a law or executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such executive issuance until its invalidation by the court, the effects of the law or executive issuance, when relied upon by the public in good faith, may have to be recognized as valid. In the present case, however, there is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-03.
To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that “the BIR and the CTA in actual practice did not observe and did not require refund seekers to comply with the 120+30 day periods.”4This is glaring error because an administrative practice is neither a law nor an executive issuance. Moreover, in the present case, there is even no such administrative practice by the BIR as claimed by San Roque.
In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finance’s One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS) asked the BIR to rule on the propriety of the actions taken by Lazi Bay Resources Development, Inc. (LBRDI). LBRDI filed an administrative claim for refund for alleged input VAT for the four quarters of 1998. Before the lapse of 120 days from the filing of its administrative claim, LBRDI also filed a judicial claim with the CTA on 28 March 2000 as well as a supplemental judicial claim on 29 September 2000. In its Memorandum dated 13 August 2002 before the BIR, the DOF-OSS pointed out that LBRDI is “not yet on the right forum in violation of the provision of Section 112(D) of the NIRC” when it sought judicial relief before the CTA. Section 112(D) provides for the 120+30 day periods for claiming tax refunds.
The DOF-OSS itself alerted the BIR that LBRDI did not follow the 120+30 day periods. In BIR Ruling No. DA-489-03, Deputy Commissioner Jose Mario C. Buñag ruled that “a taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.” Deputy Commissioner Buñag, citing the 7 February 2002 decision of the Court of Appeals (CA) in Commissioner of Internal Revenue v. Hitachi Computer Products (Asia) Corporation5(Hitachi), stated that the claim for refund with the Commissioner could be pending simultaneously with a suit for refund filed before the CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no administrative practice by the BIR that supported simultaneous filing of claims. Prior to BIR Ruling No. DA-489-03, the BIR considered the 120+30 day periods mandatory and jurisdictional. Thus, prior to BIR Ruling No. DA-489-03, the BIR’s actual administrative practice was to contest simultaneous filing of claims at the administrative and judicial levels, until the CA declared in Hitachi that the BIR’s position was wrong. The CA’s Hitachi decision is the basis of BIR Ruling No. DA-489-03 dated 10 December 2003 allowing simultaneous filing. From then on taxpayers could rely in good faith on BIR Ruling No. DA-489-03 even though it was erroneous as this Court subsequently decided in Aichi that the 120+30 day periods were mandatory and jurisdictional.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: “x x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents.” Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no “decision” or “deemed a denial” decision of the Commissioner for the CTA to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner x x x.
San Roque’s argument must, therefore, fail. The doctrine of operative fact is an argument for the application of equity and fair play. In the present case, we applied the doctrine of operative fact when we recognized simultaneous filing during the period between 10 December 2003, when BIR Ruling No. DA-489-03 was issued, and 6 October 2010, when this Court promulgated Aichi declaring the 120+30 day periods mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-03.
Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or ruling issued by the Commissioner that is relied upon by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or ruling, will not suffice because such a mere administrative practice may not be uniformly and consistently applied. An administrative practice, if not formalized as a rule or ruling, will not be known to the general public and can be availed of only by those with informal contacts with the government agency.
Since the law has already prescribed in Section 246 of the Tax Code how the doctrine of operative fact should be applied, there can be no invocation of the doctrine of operative fact other than what the law has specifically provided in Section 246. In the present case, the rule or ruling subject of the operative fact doctrine is BIR Ruling No. DA-489-03 dated 10 December 2003. Prior to this date, there is no such rule or ruling calling for the application of the operative fact doctrine in Section 246. Section 246, being an exemption to statutory taxation, must be applied strictly against the taxpayer claiming such exemption.
San Roque insists that this Court should not decide the present case in violation of the rulings of the CTA; otherwise, there will be adverse effects on the national economy. In effect, San Roque’s doomsday scenario is a protest against this Court’s power of appellate review. San Roque cites cases decided by the CTA to underscore that the CTA did not treat the 120+30 day periods as mandatory and jurisdictional. However, CTA or CA rulings are not the executive issuances covered by Section 246 of the Tax Code, which adopts the operative fact doctrine. CTA or CA decisions are specific rulings applicable only to the parties to the case and not to the general public. CTA or CA decisions, unlike those of this Court, do not form part of the law of the land. Decisions of lower courts do not have any value as precedents. Obviously, decisions of lower courts are not binding on this Court. To hold that CTA or CA decisions, even if reversed by this Court, should still prevail is to turn upside down our legal system and hierarchy of courts, with adverse effects far worse than the dubious doomsday scenario San Roque has conjured.
San Roque cited cases7 in its Supplemental Motion for Reconsideration to support its position that retroactive application of the doctrine in the present case will violate San Roque’s right to equal protection of the law. However, San Roque itself admits that the cited cases never mentioned the issue of premature or simultaneous filing, nor of compliance with the 120+30 day period requirement. We reiterate that “[a]ny issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as precedent.”8Therefore, the cases cited by San Roque to bolster its claim against the application of the 120+30 day period requirement do not have any value as precedents in the present case.
Leonardo-De Castro, Brion, Bersamin, Abad, and Perez, JJ., concur.
Sereno, C.J., I maintain my dissent.
Velasco, Jr, J., I dissenting. Please see dissenting opinion.
Peralta, Mendoza, Reyes, and Perlas-Bernabe, JJ., join the dissent of J. Velasco.
Del Castillo, J., I join J. Leonen’s concurring and separate dissenting opinion.
Leonen, J., see separate dissenting and concurring opinion.
9 G.R. No. 196113, Motion for Reconsideration, p. 4.
Before Us are the Motions for Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485 and the Commissioner of Internal Revenue (CIR) in G.R. No. 196113.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes 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) thereof.
In his Resolution denying the motions at bar, Justice Carpio reiterates the Decision dated February 12, 2013. He explained that the period in Section 112 (C) must be construed as mandatory from January 1, 1998 until December 10, 2003. From December 11, 2003, the 120<30 day period is discretionary until October 5, 2010. Then, from October 6, 2010 onwards, the 120<30 day period is again mandatory.
Justice Carpio ratiocinated that under the 1997 NIRC, in the filing of judicial claims for the refund of excess input VAT or the issuance of a tax credit certificate (TCC), the observance of the 120<30 day-provided in Section 112 (C) of the 1997 Tax Code is mandatory. However, since the Bureau of Internal Revenue (BIR) issued BIR Ruling No. DA-489-03 Re: Lazi Bay Resources Development, Inc. (Lazi Bay ruling) on December 10, 2003, which provided the contrary position, taxpayers can rely on this BIR ruling until its reversal in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.2 (Aichi) promulgated on October 6, 2010. In other words, Justice Carpio is of the position that Section 112 (C) must be considered mandatory from the effectivity of the 1997 NIRC on January 1, 1998, except the period between December 10, 2003 and October 6, 2010.
Chief Justice Sereno in her Separate Dissenting Opinion, in the meantime, would advance the application of the mandatory nature of the period in Section 112 (C) from the date of promulgation of Aichi on October 6, 2010. She is of the considered view that due process and equity demands that taxpayers, who relied on the various Court of Tax Appeals (CTA) and BIR Opinions promulgated prior to Aichi allowing the discretionary treatment of the period, must be exempted from the mandatory application of Section 112 (C). Thus, Section 112 (C) is not mandatory during the period between January 1, 1998 (the date of effectivity of the 1997 NIRC) and October 6, 2010 (the date of promulgation of Aichi).
Justice Leonen, on the other hand, states in his Separate Opinion the observation that the strict and mandatory application of the 120<30 day-period must be reckoned from the date of the effectivity of the 1997 NIRC. He posits that the construction made by this Court in Aichi should be read into and considered part of Section 112 (C) from the moment it became effective on January 1, 1998.
In my previous Dissent, I submitted that for judicial claims for refund/credit of input VAT filed from January 1, 1996 (effectivity of Revenue Regulation No. [RR] 7-95) up to October 31, 2005 (prior to effectivity of RR 16-2005), the Court may treat the period provided for the filing of judicial claims as permissible provided that both the administrative and judicial claims are filed within two (2) years from the close of the relevant taxable quarter. Then, for judicial claims filed from November 1, 2005 (date of effectivity of RR 16-2005) and thereafter, the prescriptive period under Section 112 (C) is mandatory.
I explained that RR 7-95 was clear that both the administrative and judicial claims must be filed within 2 years from the close of the relevant taxable quarters. Hence, taxpayers were led to believe that the 120<30 day-period (or 60<30 as the case may be) is immaterial provided that the 2-year prescriptive period is observed. RR 7-95 remained in effect even after the effectivity of the 1997 NIRC on January 1, 1998, as shown by the various issuances of the Secretary of Finance, BIR (RMC 42-03, RMC 49-03, BIR Ruling No. DA-489-03), and the decisions of the CTA, which have mostly been affirmed by this Court.
It was only on November 1, 2005, when RR 16-2005 took effect, that the import of Section 112 (C) was clarified and the standing rule enunciated in RR 07-95 was effectively repealed.
Hence, the discretionary treatment of the 120<30 day-period in Section 112 (C) must be allowed during the period from January 1, 1996 until October 31, 2005 in recognition of the prevailing rule laid down in RR 7-95, as exemplified by the ruling in BIR Ruling No. DA-489-03, that allowed the simultaneous filing of administrative and judicial claims for the refund of excess VAT. Thereafter, or from November 1, 2005 onwards, the 120<30 day period must be strictly applied and is mandatory pursuant to the letter of Section 112 (C), as correctly implemented by RR 16-2005 and recognized in Aichi.
It is the contention of movant San Roque, which filed its judicial claim for VAT refund on April 10, 2003, or 13 days after filing its administrative claim, that the prevailing rule and practice observed by the BIR and the CTA at the time it filed its judicial claim sanctioned the discretionary treatment of Section 112 (C) of the 1997 NIRC. Hence, the relaxation of the strict and mandatory application of the said provision must not, as argued, be reckoned from the issuance of Lazi Bay in December 2003 but from the time that the BIR set in black and white the rule mandating the strict and mandatory observance of the 120<30 day period in said Section 112 (C).
On this point, I agree with the movant San Roque and vote to grant its Motion for Reconsideration.
Meanwhile, Section 4 of the 1977 NIRC, as amended, specified the provisions that must be contained in rules and regulations, not just in rulings of the BIR. Among other things, the 1977 NIRC required that “[t]he conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and conduct of legal actions and proceedings”6 must be defined in a revenue regulation, not just an issuance of the BIR. Certainly, therefore, the specification of the details regarding the observance of the prescriptive period for the filing of judicial claims is within the power of the Secretary of Finance, not the CIR.
SEC. 244. The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code.
Given the limited power vested on the CIR in relation to the rule-making power reposed on the Secretary of Finance, the CIR cannot amend and reverse a revenue regulation by the mere expedience of issuing a ruling. Thus, if this Court is bent on upholding the effectivity of BIR Ruling No. DA-489-03 in Lazi Bay, it must be taken as an application of a rule already laid down and specified by the Secretary of Finance in RR 7-95, and not as an isolated application that deviated from an un-interpreted provision of law.
The fact that then Deputy Commissioner for Legal & Inspection Group Jose Mario Buñag, instead of the CIR, issued BIR Ruling No. DA-489-03 is yet another proof that it is not to be construed as a departure from a rule or provision of law but an application of a rule already laid down in RR 7-95 and prevailing at the time of its issuance. Section 7 of the 1997 NIRC specifically prohibits the delegation of the power “to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau.”8 Hence, the Lazi Bay ruling can only be taken as an indication of a prevailing rule laid down by the Secretary of Finance and affirmed and resonated in the Revenue Memorandum Circulars (RMCs) issued by the CIR himself, such as RMC No. 42-03 and RMC 49-03.
Indeed, RR 7-95 prevails over a mere BIR Ruling. Note that a revenue regulation is published before its effectivity so that taxpayers are notified of its effects and the consequences of the failure to abide thereby. This is not so with respect to BIR Rulings. Instead, the rulings are addressed and transmitted to the parties who applied for the issuance of the BIR’s opinion; other taxpayers are not notified by publication in a newspaper of general circulation of its import and consequence. Unless they conduct a thorough and in-depth investigation, they will not be informed of the opinion of the BIR as embodied in the ruling. As between RR 7-95, a revenue regulation and the BIR ruling in Lazi Bay, therefore, reliance on the former is more in accord with due process.
Q-17: If a claim submitted to the Court of Tax Appeals for judicial determination is denied by the CTA due to lack of documentary support, should the corresponding claim pending at the BIR offices be also denied?
Clearly, the period referred to by the CIR in issuing RMC 49-03 is the period laid down in Section 112 (C)11 of the 1997 NIRC, as interpreted and enforced by RR 7-95, i.e., “the two (2) year period from the date of filing of the VAT return for the taxable quarter.”12 Hence, taxpayers were allowed to treat the 120-day period as non-compulsory and merely discretionary so long as the 2-year period is observed and complied.
Hence, the prevailing rule even after the effectivity of the 1997 NIRC was to treat the 120<30-day period as non-mandatory since RR 7-95 was not affected and remained in effect.
Also worthy of note is that the provision that RR 7-95 interpreted and enforced virtually remained the same; Section 106(d) of the 1977 NIRC, as amended, was substantially adopted and re-enacted by Section 112 (C) of the 1997 NIRC.14 It is a hornbook rule that when the legislature reenacts a law that has been construed by an executive agency using substantially the same language, it is an indication of the adoption by the legislature of the prior construction by the agency.15 The almost verbatim reproduction of Section 106(D) of the 1977 NIRC by Section 112(C) of the 1997 NIRC is therefore an implied recognition by the legislature of the propriety of the interpretation made by the Secretary of Finance of the proper prescriptive period in filing judicial claims for input VAT refund/issuance of TCCs.
On 4 August 2000, Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. The claim involved P25,023,471.84 representing excess input VAT attributable to Hitachi’s zero-rated export sales for the four taxable quarters of 1999.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing of the word "zero-rated" on invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law.
It is, therefore, inaccurate to state that before the issuance of BIR Ruling DA-489-03 in Lazi Bay on 10 December 2003, there was no administrative practice, rule or ruling rule followed by the BIR that supported simultaneous filing of claims and that prior to the Lazi Bay ruling, the BIR considered the 120<30 day period mandatory. Rather, the Lazi Bay ruling is one of the outcomes and tangible evidence of such practice, as made concrete by RR 7-95, that allowed the simultaneous filing of claims.
Similarly, as pointed out by movant, the fact that this Court, like the CTA and the BIR, has passed upon the issue of the prescriptive period for filing the judicial claim sub silencio is also a glaring evidence of the sanctioned rule and practice that allowed for the discretionary and non-mandatory treatment of the 120<30 day period in Section 112(C) of the 1997 NIRC.
Case was decided on the merits. CIR and CTA said nothing about prematurity of judicial claim or CTA’s lack of jurisdiction.
CTA EB explicitly noted that the judicial claim was filed long after the lapse of the 120<30 day period under Sec. 112. However, no mention was made about the prescription or the CTA’s lack of jurisdiction. The case was decided on the merits.
Case was resolved on the merits. No one raised the issue of violation of Sec. 112 or the CTA’s lack of jurisdiction.
Although CTA Decisions are not binding legal precedents, their factual recitals are nothing less than indelible records of, and incontrovertible proof as to, the manner in which both the BIR and the CTA regarded the 120<30 day period, and the manner in which they actually handled administrative and judicial claims for refund/tax credit during the period in question. And the narrations of facts and case antecedents culled from the CTA En Banc Decisions establish that the BIR and CTA, by their very actuations in the period between 1996 and 2005, did in fact permit, tolerate and encourage taxpayers to file their refund/tax credit claims without regard to the 120<30 day period in Section 112.
It is also necessary to point out that the February 12, 2013 Decision in these consolidated cases, in contrast, cited only one solitary decision rendered by the Court of Appeals (CA), not the CTA, as supposed proof that the BIR, in the years between 1998 and 2003, allegedly took the position that the 120<30 day period was mandatory and jurisdictional.
While sheer number of cases is not always determinative of an issue, in this particular case, the large number of CTA EB Decisions containing factual recitals which prove that the BIR and the CTA did not observe the 120<30 day period most certainly carry far more weight than a single solitary CA case allegedly showing the opposite.
CIR v. Ironcon Builders & Development Corp., G.R. No. 180042, February 8, 2010.
Mirant Sual Corporation (formerly, Southern Energy Philippines, Inc.) v. CIR, G.R. No. 167315, February 10, 2010.
Hitachi Global Storage Technologies Phils. Corp. v. CIR, G.R. No. 174212, October 20, 2010.
Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) v. CIR, G.R. No. 172378, January 17, 2011.
Intel Technology Philippines, Inc. v. CIR, G.R. No. 172613, February 13, 2013 [This is an unsigned Resolution of the Court’s Second Division].
An examination of the narration of facts in each case of the above-listed cases shows that each case pertains to a judicial claim for refund of excess unutilized input VAT pursuant to Section 112 of the 1997 NIRC, and these judicial claims were all filed with the CTA within the period starting from January 1, 1998 to December 10, 2003, the so-called period of strict enforcement of the 120<30 day period according to this Court’s February 12, 2013 Decision in the present consolidated cases. Without exception, each of the above-listed judicial claims did not comply with the 120<30 day period requirement. But in every instance and notwithstanding that the narrations of facts very clearly and unmistakably showed that these claims failed to comply with the aforesaid requirement, this Court nonetheless either granted those judicial claims or else denied them on grounds other than such non-compliance. Notably, in every single occasion, the Court let pass said non-compliance sans comment.
What is more, seven (7) of the foregoing Decisions and two (2) Resolutions mentioned above were promulgated after Aichi was promulgated on October 6, 2010, yet unlike San Roque, those nine judicial claims were not subjected to the Aichi ruling and the retroactive application of the Court’s new interpretation. In other words, even in the post-Aichi scenario, the Court still refrained from denying outright these claims for their failure to strictly comply with the 120<30 day period in recognition and cognizance of the prevailing practice after the effectivity of the 1997 NIRC and pre-RR 16-2005 that allowed the discretionary treatment of the period.
The mandatory application of the 120<30 day period was set in black and white only after the effectivity of RR 16-2005.
In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with subparagraph (a) above.
Since, similar to RR 7-95, RR 16-2005 was promulgated pursuant to Sections 244 and 245 of the 1997 Tax Code,22 it embodies a legislative rule that deserves the deference and respect due the law it implements. For this reason, from the effectivity of RR 16-2005 on November 1, 2005, all taxpayers are bound to strictly observe the 120<30 day period provided in Section 112 (C) and there was no need to wait for the promulgation of a decision like Aichi in view of the existence of a clear legislative rule that finally repealed all other rulings that may have clouded the mandatory nature of the 120<30 day period.
The Court finds the questioned revenue regulation to be legislative in nature. Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. Court of Appeals, the Court recognized that the application of Section 277 calls for none other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.
In line with the prospective application of RR 16-2005, no one can argue with the February 12, 2013 Decision where it declared that “[t]his court is applying Mirant and Aichi prospectively,” on account of its sound basis in hornbook doctrine, law and jurisprudence, apart from being fully justified by considerations of fairness and equity. However, the Decision immediately departed from the doctrinal norm of prospectivity by retroactively applying the new interpretation thus causing the denial of San Roque’s claim, while in the same breath announcing that the Court shall apply Mirant and Aichi prospectively. We can avoid such jarring dissonance by applying the new Doctrine from the moment when the strict application of the period had been put in ink by RR 16-2005.
The Decision of February 12, 2013 and the Resolution employ retroactivity to backdate the Court’s new interpretation of the 120<30 day period under Section 112. This is a dangerous precedent. The retroactivity of application of a new judicial interpretation must be seen for what it is – a corrective tool that must be used in a very controlled, restricted manner and only for very necessary, limited situations and occasions. It is not a tool to be employed lightly; extreme need therefor must be first established. For it is capable of destroying established contractual rights and relationships and causing drastic, massive damage.
Respondent deferentially submits that fairness and evenhandedness will opt for a prospective application of the new interpretation, given the unalterable fact that taxpayers had taken their cue from the policies, and procedures of the tax agency and the tax court, (which policies, issuances and procedures enjoyed what amounts to the tacit approval of the High Court), and had filed their claims accordingly, and now are in no position to undo what had been done years before.
Thus, if, as the Decision declares, “[t]axpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law,” there is more reason to maintain that refund seekers should not be prejudiced, penalized nor castigated for having taken guidance from the policies, pronouncements, issuances and actuations of the BIR and the CTA, which actuations have direct bearing on a difficult question of law.
Article 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
This Court is, therefore, duty-bound to actively refrain from actions that may be perceived as elevating strict adherence to procedural rules and technicalities over and above the taxpayer’s clear, substantive legal right to the refund sought. We must remain cognizant of the taxpayer’s good faith compliance with procedures approved and sanctioned by the BIR and the CTA and accepted by this Court, and avoid creating obstacles to defeat the taxpayer’s substantive right to refunds.
Consistent with the principle of operative fact and the basic notions of fairness and equity, the strict and mandatory application of Section 112 (C) must be reckoned from the day the rule was set clarified and set in black and white—on the effectivity of RR 16-2005 on November 1, 2005. In net effect, all claims for refund of input VAT filed and commenced after November 1, 2005 must strictly observe the period provided in Section 112(C) of the 1997 Tax Code. Since San Roque filed its judicial claim in April 2003, or more than two (2) years before the effectivity of RR 16-2005, its claim for input VAT should be granted regardless of its failure to take into account the period provided in Section 112 (C).
The non-mandatory treatment of the 120<30 day period prior to November 1, 2005 should hold especially true for taxpayers like movant San Roque, that had filed its judicial claim within the 120 days, and not after the lapse of the period.
The prematurity in filing, unlike the late filing, of the judicial claim cannot serve to deprive the CTA of its jurisdiction as it is axiomatic that the jurisdiction of courts is determined by law.27 The discretion is, therefore, with the CTA to dismiss without prejudice, upon proper motion, a judicial claim prematurely filed by a taxpayer. This Court cannot, contrary to RA 1125 which vested upon the CTA its jurisdiction, declare the immediate deprivation of such jurisdiction to consider and evaluate the legitimacy of a taxpayer’s claim on the feeble ground that the taxpayer has failed to patiently await the lapse of the period given to the CIR to act.
At most, the prematurity of the filing of the judicial claim for the refund of VAT is a ground for the dismissal without prejudice of the claim that can be waived by the BIR and disregarded by the CTA, if the tribunal is inclined to rule on the substantial aspect of the claim. It is not for this Court to pre-empt the decision of the CTA on the exercise of the jurisdiction it has been conferred by law.
We cannot, therefore, deny the movant’s claim for refund solely based on the prematurity of its judicial filing, which in the first place has been instigated by the taxpayer’s good faith reliance on a revenue regulation issued by the Secretary of Finance, the practice observed by the BIR and the CTA, and the silent tolerance by this Court.
While, indeed, the lifeblood of our country is the taxes due from the taxpayers, the heart of this nation beats in rhyme with justice and fairness that deplore the sacrifice of a substantial right in the altars of procedure. Let us therefore look into the merits of the movant’s rights and give credit to its good faith passing over of the period provided in Section 112 (C) of the 1997 NIRC.
Hence, all claims for input VAT refund/issuance of TCC filed after November 1, 2005 must strictly observe the 120<30 day period provided in Section 112 (C) of the 1997 NIRC. Meanwhile, all judicial claims filed prior to the same date are allowed to rely on the practice sanctioned by RR 7-95, as exemplified by BIR Ruling No. DA-489-03 in Lazi Bay.
For all the foregoing, I vote to GRANT the Motion for Reconsideration filed by San Roque Power Corporation in G.R. No. 187485, and DENY the Motion for Reconsideration of the Commissioner of Internal Revenue in G.R. No. 196113.
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.
13 Emphasis and underscoring supplied.
d) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with sub-paragraphs (a) and (b) hereof.
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes 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) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.
30 Emphasis and underscoring supplied.
We undermine the operative value of the rule of law whenever we reward clearly erroneous administrative interpretation of statutes. We open the legal order to undeserved inconsistencies, and worse, we make the Commissioner of Internal Revenue vulnerable to pressure.
Inconsistency in the administrative implementation of clear statutory provisions and vulnerability of our revenue officials to rent-seeking behavior drive investors away from our markets.
Properly denying an irregular application for a tax refund would mean more funds that can be used for the social good. The beneficiaries of a social good may be too atomized that they may not have the resources to compel our tax officials to deny an improper application of refund of taxes made. In my view, this is the compelling rationale behind the principle that tax statutes are strictly construed against the taxpayer. Our legal order equalizes opportunities through its general principles.
I reiterate my concurrence with the interpretation of Section 112 (C) of the National Internal Revenue Code of 19971 (referred here as the 1997 Tax Code) that the 120+30 day period is mandatory and jurisdictional. It has been that way since 1997, and doubts as to what it clearly said only arose due to inconsistent issuances of the Bureau of Internal Revenue.
I, however, reiterate my dissent with respect to the application of this doctrinal interpretation as We resolved the Motions for Reconsideration of the February 12, 2013 Decision of this Court filed by San Roque Power Corporation in G.R. No. 187485, and the Commissioner of Internal Revenue in G.R. No. 196113.
In my view, the text of Section 112 (C) is clear. It puts all taxpayers on notice. The interpretations made through Revenue Regulation or by Opinion by a Deputy Commissioner of the Bureau of Internal Revenue contrary to the provisions of the law are clearly ultra vires and should not be countenanced. If We sanction these acts, it undermines the operative value of the statute as written. It rewards erroneous interpretation and unduly grants discretion to the Commissioner of Internal Revenue, which may be abused given the pressure from million-peso claims for tax refunds.
There is no room for any other interpretation of the text except that resort to an appeal with the Court of Tax Appeals is made (a) only after the 120-day period from the date of submission of complete documents to support the refund or tax credit certificate with the Commissioner of Internal Revenue or (b) within the 120-day period from the time the claim has been denied or only partially granted.
In the Decision, the majority considered the issuance by the Bureau of Internal Revenue of Ruling No. DA-489-03 dated December 10, 2003 in Re: Lazi Bay Resources Development, Inc. This opinion, rendered by a Deputy Commissioner, stated that the taxpayer need not wait for the lapse of the 120-day period before seeking judicial relief. The majority deemed it equitable to except, from the strict compliance with the 120+30-day mandatory and jurisdictional periods, judicial claims filed within the period from December 10, 2003, when Bureau of Internal Revenue Ruling No. DA-489-03 was issued, to October 6, 2010, when the doctrine in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.2 was adopted. The main ponencia still maintains that the taxpayers cannot be faulted for relying on the Bureau’s declaration.
In its Motion for Reconsideration, San Roque argues that by the ‘operative fact’ principle, due recognition should be given to the fact that even prior to the issuance of Bureau of Internal Revenue Ruling No. DA-489-03, including the time when its administrative and judicial claims for refund were filed on March 28, 2003 and April 10, 2003, respectively, the Bureau and the Court of Tax Appeals in actual practice neither observed nor demanded compliance with the 120+30-day period. Thus, in the spirit of justice, fairness and equity, San Roque insists that the rule on the mandatory and jurisdictional nature of the 120+30-day period should only be applied prospectively.
On the other hand, the Commissioner of Internal Revenue argues that the Bureau of Internal Revenue Ruling No. DA-489-03 is not a valid issuance authorized under Section 4 of the 1997 Tax Code because a deputy commissioner issued it.
I maintain my position that the Aichi doctrine3 as confirmed in San Roque should be applied to all undecided Value Added Tax or VAT refund cases, regardless of the period when the claim for refund was made.
When this Court interprets law, it declares what a particular provision has always meant. We do not create new legal obligations. We do not have the power to legislate. Interpretations of law made by courts necessarily always have a “retroactive” effect.
Once We determine that a previous interpretation of the law is erroneous, We cannot, at the same time, continue to give effect to such erroneous interpretation because Ours is the duty to uphold the true meaning of the law.
A construction placed upon the law by the Commissioner, even if it has been followed for years, if found to be contrary to law, must be abandoned. To say that such interpretation established by the administrative agency has effect would be to say that this Court has the power to control or suspend the effectivity of laws. We cannot hold ourselves hostage to an erroneous interpretation. To say that equity should be considered because it has been relied upon by taxpayers would mean to underestimate or, worse, make the ordinary beneficiaries of the use of our taxes invisible. We cannot use equity only to favor large taxpayers.
We cannot justify such course of action.
Sec. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
However, the Commissioner of Internal Revenue cannot legislate guidelines contrary to the law it is tasked to implement. Hence, its interpretation is not conclusive and will be ignored if judicially found to be erroneous.
Vested right is “some right or interest in the property which has become fixed and established, and is no longer open to doubt or controversy."
There are no vested rights in procedure. Taxpayers do not have vested rights over tax refunds. Refunds need to be proven and its application raised in the right manner as required by statute. Only after a final determination of the right to refund and its amount does it become a vested right for the taxpayer.
Where the taxpayer acted in bad faith.
This provision should only apply when there is a valid interpretation made by the Commissioner of Internal Revenue. In the present case, the Bureau of Internal Revenue Ruling No. DA-489-03 is ultra vires and was not validly issued since it was promulgated by a Deputy Commissioner.
In Aichi, this Court squarely addressed the particular issue on prematurity of a judicial claim based on its reasonable interpretation of the language of the 1997 Tax Code. In that case, this Court did not defer application of the rule laid down. This Court ordered the Court of Tax Appeals to dismiss Aichi’s appeal due to the premature filing of its claim for refund/credit of input value added tax. In Aichi, the administrative and judicial claims were simultaneously filed on September 30, 2004.
The Bureau of Internal Revenue Ruling is ultra vires and invalid not only because it contravenes the law but also because it was issued beyond the scope of the authority of the deputy commissioner. In this, I agree with Justice Velasco.
Under Section 411 of the 1997 Tax Code, the power to interpret the provisions of the Code and other tax laws is under the exclusive and original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance. Pursuant to Section 712 of the Tax Code, the Commissioner of Internal Revenue may delegate his or her powers to a subordinate official except, among others, the power to issue rulings of first impression13 or to reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue. The Bureau of Internal Revenue Ruling No. DA-489-03 is a ruling of first impression, declaring for the first time in written form the permissive nature of the 120-day period stated in Section 112 (C).
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax. — (a) x x x.
(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of the application but before the lapse of the two (2) year period from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the Court of Tax Appeals.
On the contrary, it is clear from the provision cited above that the appeal to the Court of Tax Appeals may be made only after the lapse of the 60-day (now 120-day) period without action by the Commissioner of Internal Revenue on the administrative claim. A rule or regulation cannot go beyond the terms and provisions of the basic law.15 Revenue Regulation No. 07-95, therefore, cannot go beyond the provisions of the Tax Code.
Even assuming, without conceding, that Justice Velasco’s interpretation of the Revenue Regulation is correct, it will still be ultra vires in the light of the clear provisions of the law.
San Roque further argues that strict adherence to procedural rules is exacted at the expense of substantive justice considering its clear entitlement to a refund. Such contention is misguided. Again, a value added tax refund is not a refund of an excessively, illegally or erroneously collected tax. A value added tax refund claim may be made because it is specifically allowed and provided for by law, i.e., Section 110 (B)16 and Section 112 (A)17 of the National Internal Revenue Code, as amended. Similar in nature to a tax exemption, it must be construed strictly against the taxpayer. Hence, strict compliance with both substantive and procedural requirements is required for a value added tax refund claim to prosper.
Finally, San Roque’s argument that the retroactive application of the subject Decision would have detrimental effects to the flow of investments, especially foreign, into our country and hampering the growth and development of our national economy, is inaccurate.
Investment is the process of exchanging income for goods that are expected to produce earnings at a later time.19 Investments are not only composed of private investments (local or foreign). There are also public investments. Public investments include building infrastructure such as roads, ports, power, water, and telecommunication facilities.20 These kinds of investments are as important to private investors as it is to the general population. National investment is an aggregate of both public and private investments in reality.
On the other hand, public savings (from government revenue) translate to investments in public goods that benefit the majority of the population,24 such as major infrastructure projects like roads and bridges, education, police and fire protection, to name a few.
For many foreign investors eyeing developing countries as a potential investment ground, infrastructure is also a critical issue.25 According to Dwight Perkins, et al., “Countries with poor infrastructure often cannot attract investment.”26 Since the Philippines is stricter compared to other countries in the region in terms of labor standards and wages, we will be in serious trouble if our government does not have enough revenue to sustain infrastructure projects. These projects also benefit private investment in the form of reduced transaction costs.
To reiterate, tax is only one aspect of the costs of doing business. Good infrastructure translates to reduced costs in more business-related aspects, such as transportation, communication, and other utilities.
Understandably, petitioners marshall arguments in support of their needs. Justice requires that We consider them carefully but weigh this in relation to the public interest. In doing so, We should always abide by Our understanding of the concept of the rule of law and always appropriately take the longer view. All these We can do so elegantly in this case with a plain, straightforward reading of what the law has always been providing since 1997.
GRANT the Motion for Reconsideration of the Commissioner of Internal Revenue in G.R. No. 196113.
6Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, G.R. No. 90776, June 3, 1991, 198 SCRA 82, 88.
11 SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
15 CIVIL CODE, Art. 7.
(B)Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
29 The World Bank has been aggregating data for indicators of governance and institutions, and one of the things they measure is Rule of Law, which is defined as “perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.” See D. KAUFMANN, A. KRAAY, AND M. MASTRUZZI, Governance Matters VIII: Aggregate and Individual Governance Indicators 1996-2008, p. 6. (visited May 27, 2013).

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Art. 7


FindACase | Batiste v. United Fire And Casualty Co.
Batiste v. United Fire And Casualty Co.
Panel composed of Judges Fredericka Homberg Wicker, Hans J. Liljeberg, and Marion F. Edwards, Judge Pro Tempore.
EDWARDS, JUDGE PRO TEMPORE, J.
Plaintiffs, Quentella Batiste and her husband, Hayward Batiste, appeal the trial court's judgment granting summary judgment in favor of defendants, Veron's Supermarket, LLC, ("Veron's Supermarket") and its insurer, United Fire and Casualty Company ("United Fire")(or collectively, "Veron's Supermarket"). For the following reasons, we find the trial court properly determined that the Batistes will not be able to prove that Veron's Supermarket had constructive notice of an allegedly hazardous condition, an essential element of their cause of action pursuant to La. R.S. 9:2800.6. Accordingly, we affirm the trial court judgment.
On August 3, 2015, Quentella and Hayward Batiste filed suit against Veron's Supermarket and its insurer, United Fire, seeking to recover damages for injuries allegedly sustained as result of a November 9, 2014 slip and fall accident inside Veron's Supermarket in Lutcher, Louisiana. The Batistes contend that Ms. Batiste, accompanied by her adolescent granddaughter, slipped and fell in a puddle of water while traversing the supermarket's beer and beverage aisle as she made her way to the check-out counter located at the front of the store. Ms. Batiste purportedly suffered injuries to her left shoulder necessitating surgery as a result of the fall.
Veron's Supermarket subsequently filed a motion for summary judgment on the basis that the Batistes could not meet their burden of proof under La. R.S. 9:2800.6, the Louisiana Merchant Liability Statute. Specifically, Veron's Supermarket argued the Batistes could not prove Veron's Supermarket created or had actual or constructive knowledge of the allegedly hazardous condition (i.e., water on the floor of the aisle), an essential element of their claim under La. R.S. 9:2800.6, because the Batistes failed to demonstrate that the alleged water on the floor existed for such a period of time that it would have been discovered if Veron's Supermarket had exercised reasonable care.
In support of its motion for summary judgment, Veron's Supermarket submitted the deposition testimony of Ms. Batiste wherein she testified that she did not know where the alleged substance upon which she fell came from, what caused it, how long the substance was present on the floor prior to her fall, or whether anyone at the store had actual knowledge that the alleged substance was present on the floor before she fell. Additionally, Veron's Supermarket submitted surveillance video taken at the time of Ms. Batiste's fall, which it claimed failed to show any condition existing on the floor that could have caused Ms. Batiste to fall. Veron's Supermarket also submitted the deposition testimony of several of its employees, including Michael Fountain, George Maroudas, and Evonté Brown, each of whom testified that they did not observe or feel any substance on the floor immediately after Ms. Batiste's fall. Based on the evidence presented, Veron's Supermarket averred that Ms. Batiste could not prove that Veron's Supermarket had constructive notice of a hazardous condition that existed on the floor for some period of time prior to her fall and, thus, could not carry her burden of proof of this element at trial mandating the grant of summary judgment in its favor.
The Batistes also filed a partial motion for summary judgment on the issue of spoliation of evidence, an issue raised for the first time in their motion, arguing that Veron's Supermarket intentionally destroyed portions of the surveillance videotape that captured the condition of the floor that existed for a length of time both prior and subsequent to Ms. Batiste's slip and fall, which the Batistes claim would have shown the liquid substance on the floor as well as what the store employees did to remove the spill. Because the footage preserved by Veron's Supermarket captured only fifty-five seconds, and only showed Ms. Batiste's actual slip and fall, the Batistes sought to have the lower court impose an adverse presumption against Veron's Supermarket "as to the single issue they cannot prove: that the condition of the aisle presented an unreasonable risk of harm." According to the Batistes, Veron's Supermarket selectively preserved only that portion of the videotape that was beneficial to its case and intentionally destroyed or purged the remainder of the videotape because the remainder was detrimental to Veron's Supermarket's case and favorable to the Batistes.
Additionally, the Batistes claimed that, based on the deposition testimony of Evonté Brown, wherein she conceded that the store's maintenance records did not substantiate that she had performed a floor check during the hour prior to the incident in violation of the store's clean-up policies and procedures, "constructive notice" on the part of Veron's Supermarket should have been inferred since the evidence showed that reasonable care had not been exercised. Arguing that the adverse presumption applied and that they had proven every element of their case (i.e., that Veron's Supermarket had constructive notice that the liquid substance on the floor presented an unreasonable risk of harm and had existed on the aisle for a period of time prior to Ms. Batiste's fall, and that Veron's Supermarket had failed to exercise reasonable care to keep its aisles and floors free of hazardous conditions), the Batistes argued Veron's Supermarket was not entitled to summary judgment.
In response to the Batistes' spoliation claim, Veron's Supermarket filed a Motion to Strike objecting to "improper summary judgment evidence and argument" submitted by the Batistes in support of their claim. Specifically, Veron's Supermarket objected to the Batistes' attempt to convert their opposition to Veron's Supermarket's motion for summary judgment into an untimely filed discovery motion, and objected to various exhibits submitted by the Batistes in support of their spoliation claim.
The parties' respective motions came for hearing on April 17, 2017, at which time the trial court agreed with Veron's Supermarket that no genuine issue of material fact existed, and that the evidence presented did not establish the temporal element necessary in order for the Batistes to carry their burden of proving constructive notice. Thereafter, on May 8, 2017, the trial court issued a judgment that granted summary judgment in favor of Veron's Supermarket and dismissed the Batistes' suit, with prejudice.
The Batistes now appeal the May 8, 2017 judgment of the trial court on the basis that they proved all elements of their claim as mandated in La. R.S. 9:2800.6, specifically the notice requirement, by offering sufficient evidence that Veron's Supermarket had constructive notice of the unsafe condition that caused their damages prior to Ms. Batiste's slip and fall. The Batistes also challenge the trial court's finding that no genuine issue of material fact existed regarding whether Veron's Supermarket intentionally, and without reasonable explanation, destroyed videotape evidence that was detrimental to their case and beneficial to the Batistes.
When reviewing a district court's ruling on a motion for summary judgment, we apply the de novo standard of review. Flowers v. Wal-Mart Stores, Inc., 12-140, p. 4 (La.App. 5 Cir. 7/31/12), 99 So.3d 696, 698. We use "the same criteria that govern the trial court's determination of whether summary judgment is appropriate, i.e., whether there is a genuine issue of material fact, and whether the movant is entitled to judgment as a matter of law." Reynolds v. Bordelon, 14-2371, p. 3 (La. 6/30/15), 172 So.3d 607, 610.
A motion for summary judgment shall be granted "if the motion, memorandum, and supporting documents show that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law." La. C.C.P. art. 966(A)(3). The summary judgment procedure is favored and is designed to secure the just, speedy, and inexpensive determination of every action. See La C.C.P. art. (A)(2); Robinson v. Jefferson Parish School Bd., 08-1224, p. 17 (La.App. 5 Cir. 4/7/09), 9 So.3d 1035, 1043.
A summary judgment may be rendered or affirmed only as to those issues set forth in the motion under consideration by the court at that time. La. C.C.P. art. 966(F). Ordinarily, the burden of proof is on the mover. See La. C.C.P. art. 966(D)(1). However, if the mover will not bear the burden of proof at trial on the matter that is before the court on the motion, the mover's burden does not require that all essential elements of the adverse party's claim, action, or defense be negated. Instead, the mover must point out to the court the absence of factual support for one or more elements essential to the adverse party's claim, action, or defense. Thereafter, the adverse party must produce factual evidence sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial. If the adverse party fails to meet this burden, there is no genuine issue of material fact, and the mover is entitled to summary judgment as a matter of law. La. C.C.P. art. 966(D)(1); Temple v. Morgan, 15-1159, pp. 12-13 (La.App. 1 Cir. 6/3/16), 196 So.3d 71, 76. Once the motion for summary judgment has been properly supported by the moving party, the failure of the non-moving party to produce evidence of a material factual dispute mandates the granting of the motion. Babin v. Winn Dixie La., Inc., 00-0078, p. 7 (La. 6/30/00), 764 So.2d 37, 40.
A fact is material if it potentially ensures or precludes recovery, affects a litigant's ultimate success, or determines the outcome of the legal dispute. King v. Illinois Nat. Ins., 08-1491, p. 10 (La. 4/3/09), 9 So.3d 780, 784. A genuine issue of material fact is one as to which reasonable minds could disagree; if reasonable minds could reach only one conclusion, there is no need for trial on that issue and summary judgment is appropriate. Id.; Alwell v. Meadowcrest Hosp., Inc., 07-376, p. 4 (La.App. 5 Cir. 10/30/07), 971 So.2d 411, 414. When examining factual issues, courts may not consider the merits of the case, make credibility determinations, evaluate testimony, or weigh evidence. Manis v. Zemlik, 11-799, p. 8 (La.App. 5 Cir. 5/8/12), 96 So.3d 509, 512-513. Therefore, "despite the legislative mandate that summary judgments are now favored, factual inferences reasonably drawn from the evidence must be construed in favor of the party opposing the motion, and all doubt must be resolved in the opponent's favor." Id., 11-799, p. 7, 96 So.3d at 512-513.
Because it is the applicable substantive law that determines materiality, whether a particular fact in dispute is material can be seen only in light of the substantive law applicable to this case. Mills v. Cyntrenicks v. Plaza, L.L.C., 14-1115, pp. 3-4 (La App. 1 Cir. 8/19/15), 182 So.3d 80, 82. Veron's Supermarket's motion for summary judgment is governed by La. R.S. 9:2800.6, the Louisiana Merchant Liability Statute.


The current accounting method change procedure, Rev. Proc. 2015-13, contains a new provision that may be useful to taxpayers making certain acquisitions of corporate stock or assets, or acquisitions of partnership interests. This new provision was not in the prior administrative procedures.
In course of investigating a potential acquisition of corporate stock or assets or an interest in a partnership, the acquiring taxpayer may discover that the target company has been using an improper accounting method which, if subsequently corrected or discovered on examination by the IRS, would result in an unfavorable IRC § 481 adjustment. The target company will have an unfavorable or positive IRC § 481 adjustment if it has been using an accounting method that understates income or overstates deductions for tax purposes.
Prior to Rev. Proc. 2015-13, if an acquiring taxpayer determined that the target company has been using an improper accounting method that would result in an unfavorable IRC § 481 adjustment if corrected, the acquiring taxpayer would obtain an adjustment to the purchase price, or an indemnity from the selling parties to protect against the potential tax liability associated with the improper accounting method.
Under Rev. Proc. 2015-13, the target company can change its improper accounting methods, either under the automatic consent provisions or with the National Office's advance consent, and elect to take the entire positive IRC § 481 adjustment into account in the year of change if the target company is the subject of an "eligible" acquisition transaction during the year of change or in the subsequent taxable year on or before the extended due date for filing the target company's Federal income tax return for the year of change. Rev. Proc. 2015-13, § 7.03(3)(d)(i). If the target company makes this election, the target company will bear the entire tax liability associated with its improper accounting methods.
Acquisition of stock in a C corporation which results in the acquiring taxpayer owning at least 50.1% of the corporation's stock.
Acquisition of any amount of stock in an S corporation as long as the acquisition does not cause the S corporation to cease to exist for Federal income tax purposes.
Acquisition of an interest in a partnership that does not result in a constructive termination of the partnership under IRC § 708(b)(1)(B), such as an acquisition of less than a 50% interest in partnership capital and profits.
Acquisition of stock in a corporation that results in the target corporation leaving an affiliated group filing a consolidated tax return.
Acquisition of stock in a corporation that results in the target corporation becoming a member of an affiliated group filing a consolidated tax return.
Acquisition of the assets of a corporation in a reorganization transaction described in IRC §§ 368(a)(1)(A), (C), (D), (F) or (G), or in a corporate liquidation under IRC § 332.
Because an accounting method change may not be made in the final year of the trade or business to which the change in accounting method relates (except if the final year of the trade or business results from an IRC § 381(a) transaction), the target company generally will be required to file Forms 3115 for the taxable year preceding the year in which the eligible acquisition takes place if the target company ceases to engage in its trade or business in the year of the eligible acquisition.


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Appeal from the United States District Court for the Western District of Wisconsin. No. 94-C-942--John C. Shabaz, Chief Judge.
Before CUMMINGS, FLAUM, and DIANE P. WOOD, Circuit Judges.
DIANE P. WOOD, Circuit Judge. The question presented in this case is whether a state correctional institution may require an inmate, upon pain of being rated a higher security risk and suffering adverse effects for parole eligibility, to attend a substance abuse counseling program with explicit religious content, consistent with the Establishment Clause of the First Amendment to the U.S. Constitution. Applying the test of Lemon v. Kurtzman, 403 U.S. 602 (1971), the district court concluded that the prison program did not violate the Establishment Clause and granted the defendants' motion for summary judgment. We find, to the contrary, that the state has impermissibly coerced inmates to participate in a religious program. We therefore reverse and remand for further proceedings.
James W. Kerr, at the time this case arose, was an inmate at the Oakhill Correctional Institution, a minimum security facility in Oregon, Wisconsin. Catherine J. Farrey is the warden at Oakhill, and Lloyd Lind is the supervisor for Oakhill's Social Services Department. Oakhill requires inmates with chemical dependence problems, like Kerr, to observe Narcotics Anonymous ("NA") meetings as part of their rehabilitation program. According to Kerr, whose version of the facts we accept on this appeal from summary judgment, the penalty for nonattendance at NA meetings was a higher security risk classification and negative effects on parole eligibility. NA was the only substance abuse program available to the Oakhill inmates. Oakhill used it because of its demonstrated success with prison inmates and because it was free for both the institution and the inmates.
The parties do not dispute the fact that the NA meetings at Oakhill were organized around these principles.
Kerr asserted in an affidavit that he objected as soon as he was told by Alan Webb, the prison social worker assigned to his case, that he would be required to attend the NA meetings. His affidavit claimed that Webb told him that he "didn't have a choice in the matter; that attendance was mandatory; that if [he] didn't go, [he] would most likely be shipped off to a medium (i.e. higher security) prison, and denied the hope of parole." When Kerr first attended the NA meeting, he objected to dragging God's name into "this messy business of addictions," and he expressed his disagreement with the view of God that was propounded at the meeting. Kerr regarded NA's deterministic view of God to be in conflict with his own belief about free will; more generally, he found it offensive to his personal religious beliefs.
Warden Farrey confirmed in her affidavit that inmates were required to "observe" the NA meetings, although she stated that they were not required to "participate." She also conceded that "Narcotics Anonymous does use the concept of a 'higher being' in their treatment approach." This concept, she went on to say, was viewed as a very personal matter and could range from a religious concept of God to the non-religious concept of individual willpower. Nevertheless, she confirmed that the NA program followed the twelve principles set forth above. Finally, she confirmed that refusal to attend recommended treatment programs like NA could have an adverse impact on an inmate's security risk rating and consideration for parole, although she asserted that no inmate had ever suffered the former penalty solely for refusing to participate in NA or in Alcoholics Anonymous, a similar program for alcoholics.
On December 19, 1994, acting pro se, Kerr filed this suit under 42 U.S.C. sec. 1983, naming both Warden Farrey and Lind as defendants. He initially asked for an injunction preventing the prison officials from compelling himself and other inmates to attend NA meetings and from keeping records of attendance at those meetings. He also asked for unspecified compensatory and punitive damages. The district court allowed him to proceed in forma pauperis. On February 15, 1995, the defendants filed a motion for summary judgment, attaching Warden Farrey's affidavit and the NA brochure in support of the motion. Kerr responded on March 9, 1995. He asserted that the "flexible" spirituality that NA claimed did not reflect the actual operation of the program and that the NA approach was antithetical to his religious beliefs. He also stated that the Oakhill NA meetings always began with a prayer invoking the Lord and that all members were encouraged to read the NA book, which is similar to the AA "Big Book" and contains many references to spirituality and God. Finally, in the event his materials were deemed insufficient to defeat the summary judgment motion, he asked for 60 more days for further discovery. He attached excerpts from Rational Recovery, a non-spiritually based self-help substance abuse recovery program, and the AA Big Book, in addition to other materials, to his response. The defendants filed their reply on March 21, 1995, which added the argument that they were entitled to qualified immunity from suit.
The next day, March 22, 1995, the district court granted the defendants' motion. The court's order acknowledged that "Narcotics Anonymous uses the concept of a 'higher being' in its treatment approach." It accepted Warden Farrey's representation that the "higher being" concept could range from a religious view of God to the nonreligious concept of individual willpower (and thus implicitly rejected Kerr's evidence to the contrary). The court also found that inmates like Kerr were required to observe the NA meetings and that refusal to attend could have an adverse impact on an inmate's security risk rating and consideration for parole. Nevertheless, the court found no Establishment Clause violation. Following the three-part test of Lemon, the court concluded (without explanation) that the NA program had a secular purpose, that it neither advanced nor inhibited religion, and that there was no state entanglement "in terms of economic support." The court found support for its result in Turner v. Safely, 482 U.S. 78 (1987), which held that a prison policy impinging on an inmate's First Amendment rights (relating to inmate marriages and inmate-to-inmate correspondences) was valid if it was reasonably related to legitimate penological interests. Finally, it rejected the argument that the NA program impermissibly burdened Kerr's rights under the Free Exercise Clause of the First Amendment or the Religious Freedom Restoration Act, 42 U.S.C. sec. 2000bb. In light of its rejection of Kerr's claims on the merits, the district court did not reach the defendants' claim of qualified immunity.
Before turning to the merits of the claims Kerr raises, we must consider one preliminary question: which, if any, of them are still properly before us? On August 14, 1995, after the district court granted summary judgment and this appeal was docketed, Kerr was paroled from Oakhill. This action renders his claim for injunctive relief from the mandatory attendance requirement moot. City of Los Angeles v. Lyons, 461 U.S. 95 (1983); Knox v. McGinnis, 998 F.2d 1405, 1413-14 (7th Cir. 1993). Counsel for the State asserted at oral argument that August 14th was the earliest date at which he could have been paroled, but Kerr claimed that this was not true. Unfortunately, the record before us is inadequate to resolve this matter, which means on summary judgment review that we must accept Kerr's account for present purposes. Thus, it is at least possible that Kerr's objections to the NA program may have had an adverse effect on his parole consideration.
At oral argument, we inquired whether he had any other claims for injunctive relief, and Kerr's lawyer noted that Kerr had also requested the expungement from his prison records of any adverse references related to his unwillingness to attend the NA program. Counsel for the State conceded that Kerr had made such allegations and that the State had offered nothing in response to them in the record below. Therefore, on the record properly before us, Kerr continues to have standing with respect to his claim to have the alleged negative references about his attendance at the NA meetings expunged from his prison records, because any such references may have a continuing adverse impact on him. Del Raine v. Carlson, 826 F.2d 698 (7th Cir. 1987); Chapman v. Pickett, 586 F.2d 22, 26 (7th Cir. 1978). Cf., Hewitt v. Helms, 482 U.S. 755, 760 (1987) (release from prison did not moot plaintiff's claims involving expungement of misconduct from prison records and prisoner could have qualified as prevailing party if he had sought a declaratory judgment or expungement order). The parties on remand, of course, will be able to explore this question further, and we recognize that once the district court has an opportunity to examine Kerr's prison records, the facts may show either that certain material should be expunged, or that there is nothing to expunge.
Finally, for purposes of the present appeal, Kerr's parole does not moot his claims for damages against the officials in their individual capacity--a claim Kerr's lawyer stressed he was still trying to present. These claims, however, are the ones affected by the qualified immunity defense, which we consider below.
[t]he "establishment of religion" clause of the First Amendment means at least this: Neither a state nor the Federal Government can set up a church. Neither can pass laws which aid one religion, aid all religions, or prefer one religion over another. Neither can force nor influence a person to go to or to remain away from church against his will or force him to profess a belief or disbelief in any religion. No person can be punished for entertaining or professing religious beliefs or disbeliefs, for church attendance or nonattendance. No tax in any amount, large or small, can be levied to support any religious activities or institutions, whatever they may be called, or whatever form they may adopt to teach or practice religion. Neither a state nor the Federal Government can, openly or secretly, participate in the affairs of any religious organizations or groups and vice versa.
It would be an understatement to say that the Supreme Court has wrestled with the precise content of these principles over the years, as it has confronted a wide variety of challenges to federal and state actions that allegedly violate the Establishment Clause. Justice Blackmun's concurring opinion in Lee noted that since 1971 alone, the Court had decided 31 Establishment Clause cases, see 112 S.Ct. at 2663 n.4, and the numbers keep growing. As the Court's language from Lee quoted above suggests, however, these cases can be divided for convenience of analysis into two broad categories.
In the first group of cases, those dealing with government efforts to "coerce anyone to support or participate in religion or its exercise," the essence of the complaint is that the state is somehow forcing a person who does not subscribe to the religious tenets at issue to support them or to participate in observing them. These cases can be thought of generally as the "outsider" cases, where the state is imposing religion on an unwilling subject. Thus, for example, in Torcaso v. Watkins, 367 U.S. 488 (1961), the Court struck down a Maryland law that required individuals appointed to public office in that state to declare their belief in the existence of God. In the school prayer cases, the Court struck down the practice of beginning the school day with a prayer, scripture readings, or the Lord's Prayer, where some students (or their families) did not subscribe to the religious beliefs expressed therein. See Engel v. Vitale, 370 U.S. 421 (1962) (official prayer); School District of Abington Township v. Schempp, 374 U.S. 203 (1963) (Bible reading and Lord's Prayer). Justice Brennan's concurring opinion in Schempp underscored the risk to outsiders when it pointed out the religious diversity that exists in the United States today. 374 U.S. at 240. The fact that the prayers and morning exercise sessions were technically voluntary did not dispel the inherently coercive nature of the setting for impressionable children, compelled by law to attend the school. The concerns expressed by the Court in Wallace v. Jaffree, 472 U.S. 38 (1985), which struck down Alabama statutes that prescribed a moment of silence for voluntary prayer and that permitted teachers to lead willing students in prayer, were similar. Quoting from the earlier decision in West Virginia Board of Education v. Barnette, 319 U.S. 624, 642 (1943), the Court held that "no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion, or force citizens to confess by word or act their faith therein." 472 U.S. at 55. Finally, Lee itself struck down the practice of including a nondenominational religious invocation and benediction as part of a public school graduation ceremony, where "young graduates who object are induced to conform." 112 S.Ct. at 2661.
The second group of cases has inspired more controversy within the Supreme Court itself. These are the cases in which existing religious groups seek some benefit from the state, or in which the state wishes to confer a benefit on such a group (or groups). Everson, where the Court upheld a state statute that provided publicly funded transportation services for parochial school students, belongs in this category. 330 U.S. at 17-18. No one was forcing families to send their children to parochial schools; the "establishment effect" came from the use of the protesting taxpayers' dollars to help those students or their families. Lemon v. Kurtzman, often considered the case providing the definitive test for Establishment Clause claims, is another example of a case concerned with how far the state may help religious "insiders." In Lemon, the question concerned the constitutionality of Pennsylvania and Rhode Island programs designed to provide financial support to nonpublic elementary and secondary schools, including parochial schools. Both involved challenges to statutes that provided assistance with teacher salaries, and in the Pennsylvania case, also a statute providing for assistance with textbooks and instructional materials. Applying its now famed three-part test, the Court in Lemon concluded that the programs were unconstitutional. See also Wolman v. Walter, 433 U.S. 229 (1977) (assessing constitutionality of various forms of assistance to parochial schools). Compare Zorach v. Clauson, 343 U.S. 306 (1952) (finding program that released religious students from class during a specified time each day for off-campus religious instruction constitutional) with Illinois ex rel. McCollum v. Board of Education, 333 U.S. 203 (1948) (finding program that released religious students from class during a specified time each week for on-campus religious instruction unconstitutional, with some members of the Court noting their concern about coercion).
The cases dealing with the availability of various kinds of public fora for religious groups or religious displays are principally concerned with how far the state may assist pre-existing religious groups. A number of cases have explored the right of student groups with a religious orientation to be treated in the same manner as other, nonreligious, student groups. See Rosenberger v. Rector & Visitors of Univ. of Va., 115 S.Ct. 2510 (1995) (the University denied a religious group its free speech rights when it refused on viewpoint grounds to provide the group funding for its newspaper; Establishment Clause did not require or excuse the University's action); Westside Community Board of Ed. v. Mergens, 496 U.S. 226 (1990) (Equal Access Act, 20 U.S.C. secs. 4071-74, forbids school from denying permission to a student religious group to meet on school premises during noninstructional time; Act so construed is consistent with the Establishment Clause); Widmar v. Vincent, 454 U.S. 263 (1981) (a state university, which makes its facilities generally available for student groups, may not exclude a student group wishing to use those facilities for worship and religious discussion). Other cases, both at the Supreme Court and in this Circuit, have considered the extent to which a state or city may include particular religious symbols in public displays. See, e.g., Capitol Square Review and Advisory Bd. v. Pinette, 115 S.Ct. 2440, 2446-50 (1995) (state did not violate Establishment Clause by permitting Ku Klux Klan to display a Latin cross on the grounds of the state capitol); Allegheny County, 492 U.S. at 592-602 (creche in county courthouse violates the Establishment Clause, but menorah outside the city-county building does not); Lynch, 465 U.S. at 680-85 (creche included in Christmas display with Santa Claus house, Christmas tree, and "Season's Greetings" banner does not violate the Establishment Clause); Grossbaum v. Indianapolis-Marion Bldg. Authority, 63 F.3d 581, 595 (7th Cir. 1995) (placement of menorah in lobby of a municipal building under an evenhanded policy of allowing expression on the holiday season does not violate the Establishment Clause); Gonzales v. North Township of Lake County, Ind., 4 F.3d 1412, 1422-23 (7th Cir. 1993) (memorial crucifix honoring members of the armed services in a public park violates the Establishment Clause); Harris v. City of Zion, Lake County, Ill., 927 F.2d 1401, 1414-15 (7th Cir. 1991) (presence of Latin cross, dove, and crown along with the words "God Reigns" on city's seal violates the Establishment Clause), cert. denied, 505 U.S. 1218 (1992). While some of these cases, such as Harris, have significant elements of forcing religion on outsiders, in the main they illustrate the ways in which the state may make public facilities available for existing religious groups.
There is virtually no dispute in the Supreme Court that, in principle, the first kind of case identified here, the "outsider" case, falls within the scope of the Establishment Clause. As Justice Blackmun (writing for himself, Justice Stevens, and Justice O'Connor) put it in his concurring opinion in Lee, "[a]lthough our precedents make clear that proof of government coercion is not necessary to prove an Establishment Clause violation, it is sufficient. Government pressure to participate in a religious activity is an obvious indication that the government is endorsing or promoting religion." 112 S.Ct. at 2664. Justice Scalia (writing for himself, the Chief Justice, and Justices White and Thomas) agreed that "[t]he government can, of course, no more coerce political orthodoxy than religious orthodoxy." Id. at 2682. Justice Kennedy's opinion for the majority, as already noted, called it "beyond dispute" that the Constitution guarantees that the government may not coerce anyone to support or participate in religion or its exercise. Individuals may disagree in a particular case over other issues, such as whether it is the state who has acted, or whether coercion is present, or whether religion or something else is the aim of the coercion. But in general, a coercion-based claim indisputably raises an Establishment Clause question.
The debate that has raged among scholars and among members of the Supreme Court has centered on the second type of case: those elusive "insider" cases in which the state has taken some action that helps existing religions-action, in doctrinal terms, that establishes a religion or tends to do so. See, e.g., Kent Greenawalt, Quo Vadis: The Status and Prospects of "Tests" under the Religion Clauses, 1995 Sup. Ct. Rev. 323 (1995); Carl H. Esbeck, A Restatement of the Supreme Court's Law of Religious Freedom: Coherence, Conflict, or Chaos, 70 Notre Dame L. Rev. 581 (1995); Michael McConnell, Accommodation of Religion: An Update and a Response to the Critics, 60 Geo. Wash. L. Rev. 685 (1992). These are the cases for which the Lemon test was designed, which asks (1) whether the statute has a secular legislative purpose, (2) whether its principal or primary effect is one that neither advances nor inhibits religion, and (3) whether it avoids excessive entanglement with religion. 403 U.S. at 612-13. Some Justices have distilled from this a more general inquiry into whether the state is endorsing religion. See Allegheny County, 492 U.S. at 628 (O'Connor, J.); Lee, 112 S.Ct. at 2676 (Souter, J., stating that the state may not favor or endorse either religion generally over nonreligion or one religion over others). Important though the question is, we need not decide here what the controlling test from the Supreme Court is for cases raising questions about the way in which the state treats existing religious groups. Kerr's case is more simple. As noted above, he has alleged that the prison authorities of the State of Wisconsin are coercing him, under threat of meaningful penalties, to attend religious meetings. As he put it in his affidavit to the district court, "to force me to attend [NA] is at least as offensive as many people would find forced attendance of services at a Mosque, a Jewish Temple, or a meeting of Penticostals [sic], to be."
In applying the Lemon test to Kerr's claim, the district court did not take into account the substantial Establishment Clause jurisprudence that the Supreme Court has developed since Lemon, which we have tried to summarize here. In our view, when a plaintiff claims that the state is coercing him or her to subscribe to religion generally, or to a particular religion, only three points are crucial: first, has the state acted; second, does the action amount to coercion; and third, is the object of the coercion religious or secular? In Kerr's case, the first two criteria are satisfied easily. There is no question that the prison authorities act for the State of Wisconsin in these circumstances. The fact that NA ran the treatment program is of no moment, since it is clear that the prison officials required inmates to attend NA meetings (at the very least, to observe). On the record as it comes to us, it is also undisputed that Kerr was subject to significant penalties if he refused to attend the NA meetings: classification to a higher security risk category and adverse notations in his prison record that could affect his chances for parole. (Although Kerr himself was never reclassified, we noted above that he alleged that his parole consideration was affected, and he also alleged that the adverse notations could still harm him in the future.) Looking at the program in general, this is not a case where the plaintiff argues that coercion occurred through the denial of benefits, or other more complex variations on that theme. The final element requires somewhat more discussion. The district court thought that the NA program escaped the "religious" label because the twelve steps used phrases like "God, as we understood Him," and because the warden indicated that the concept of God could include the non-religious idea of willpower within the individual. We are unable to agree with this interpretation. A straightforward reading of the twelve steps shows clearly that the steps are based on the monotheistic idea of a single God or Supreme Being. True, that God might be known as Allah to some, or YHWH to others, or the Holy Trinity to still others, but the twelve steps consistently refer to "God, as we understood Him." Even if we expanded the steps to include polytheistic ideals, or animistic philosophies, they are still fundamentally based on a religious concept of a Higher Power. Kerr alleged, furthermore, that the meetings were permeated with explicit religious content. This was therefore not a case (again, on the present record) where the only religious note was struck by the insertion of the words "under God" in the Pledge of Allegiance, or other incidental references that the courts have upheld. See, e.g., Sherman v. Wheeling School District, 980 F.2d 437 (7th Cir. 1992). Because that is true, the program runs afoul of the prohibition against the state's favoring religion in general over non-religion.
The Court of Appeals of New York has recently come to the same conclusion we reach today in Matter of David Griffin v. Coughlin, No. 73, 1996 WL 317180, 63 USLW 2003 (N.Y. App. Ct. June 11, 1996). In that case, the Court of Appeals held that the Establishment Clause does not permit the state to deprive an atheist or agnostic inmate of eligibility for an expanded family visitation program because of his refusal to participate in the sole alcohol and drug rehabilitation program at his state correctional facility--the same AA and NA programs at issue here. Two federal district courts have also decided similar cases. In Warner v. Orange County Dept. of Probation, 870 F. Supp. 69 (S.D.N.Y. 1994), the court decided that the Establishment Clause was violated when the only option available to a convicted motorist for required rehabilitation was the program run by AA. In the other case, O'Connor v. California, 855 F. Supp. 303 (C.D. Cal. 1994), the court found no violation because the AA program was one of a variety of options available to the convicted driver, any of which would satisfy the condition of his probation. In our case, as we have noted, the only choice available to Kerr was the NA program. Our conclusion is thus in harmony with that of other courts that have considered similar questions.
Kerr's claim for damages against the prison officials leads us directly to the question of qualified immunity, which the prison officials have urged as an alternate ground for affirmance on appeal. Qualified immunity is available to shield government officials who are performing discretionary functions from liability for civil damages "insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 817 (1982). Recognizing that the question of the level of generality at which the relevant "legal right" is to be identified is often dispositive, the Supreme Court cautioned against imposing an unrealistic burden on public officials in Anderson v. Creighton, 483 U.S. 635, 639 (1987). The appropriate question is whether reasonable public officials in their position would have understood that what they were doing was unlawful. Id. at 640. Concretely, we must decide whether a reasonable prison official would have known, at the time Kerr was forced to "observe" the NA program, that this requirement violated the Establishment Clause.
Although it has been clear for many years that the state may not coerce people to participate in religious programs, see Barnette (1943), Torcaso (1961), and Engel (1962), the particular application of this principle to prisons has arisen only recently in the courts. See Matter of David Griffin, Warner, and O'Connor, supra. One district court, considering a similar case against officials regarding the operation of an alcohol rehabilitation program at a correctional facility, found that a reasonable official might have concluded that the program satisfied the Lemon test, and thus concluded that qualified immunity was appropriate. Scarpino v. Grosshiem, 852 F. Supp. 798 (S.D. Iowa 1994). The district judge here as well concluded that the program survived scrutiny under Lemon. While we conclude that the facts on the summary judgment record do not support that conclusion, under Anderson we cannot say that a reasonable prison official should have known that her actions were unlawful. We conclude that Farrey and Lind were entitled to qualified immunity on Kerr's damages claims against them and that those claims should be dismissed on remand.
Before the district court, Kerr also complained that requiring his attendance at NA meetings impeded his ability to practice his own personal religion in violation of the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act, 42 U.S.C. sec. 2000bb et seq. This court has recently considered Free Exercise claims in the prison context in two cases, Sasnett v. Sullivan, No. 95-3924 (decided August 2, 1996), and Mack v. O'Leary, 80 F.3d 1175 (7th Cir. 1996). Although these cases illustrate that prison inmates may, on occasion, state valid claims under these theories, they are of no help to Kerr. On appeal, he has failed to develop this line of argument, aside from noting the tension between the principles of NA and his belief in free will. He is therefore deemed to have waived these claims. Circuit Rule 28(a)(5); Doherty v. City of Chicago, 75 F.3d 318, 323-24 (7th Cir. 1996).
The judgment of the district court is REVERSED and REMANDED for further proceedings consistent with this opinion.

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