We resolved to give due course to this petition for its raises issues dwelling

on the scope of the taxing power of local government-owned and controlled

corporations.

The uncontradicted factual antecedents are summarized in the instant

petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was

created by virtue of Republic Act No. 6958, mandated to "principally
undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of
Cebu and the Lahug Airport in Cebu City, . . . and such other Airports
as may be established in the Province of Cebu . . . (Sec. 3, RA 6958).
It is also mandated to:

a) encourage, promote and develop international and domestic

air traffic in the Central Visayas and Mindanao regions as a
means of making the regions centers of international trade and
tourism, and accelerating the development of the means of
G.R. No. 120082 September 11, 1996
transportation and communication in the country; and
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
b) upgrade the services and facilities of the airports and to
vs.
formulate internationally acceptable standards of airport
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the
accommodation and service.
Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented
by its Mayor HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
CESA, respondents. Since the time of its creation, petitioner MCIAA enjoyed the privilege
of exemption from payment of realty taxes in accordance with Section
14 of its Charter.
 
Sec. 14. Tax Exemptions. — The authority shall be exempt
DAVIDE, JR., J.:
from realty taxes imposed by the National Government or any
of its political subdivisions, agencies and instrumentalities . . .
For review under Rule 45 of the Rules of Court on a pure question of law are
the decision of 22 March 19951 of the Regional Trial Court (RTC) of Cebu
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-
City, Branch 20, dismissing the petition for declaratory relief in Civil Case No.
Charge, Office of the Treasurer of the City of Cebu, demanded
CEB-16900 entitled "Mactan Cebu International Airport Authority vs. City of
payment for realty taxes on several parcels of land belonging to the
Cebu", and its order of 4, May 19952 denying the motion to reconsider the
petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474,
decision.
109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-
A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City,
in the total amount of P2,229,078.79.

TAX 1 batch 1 Page 1 of 193

Petitioner objected to such demand for payment as baseless and x x x           x x x          x x x
unjustified, claiming in its favor the aforecited Section 14 of RA 6958
which exempt it from payment of realty taxes. It was also asserted (c) . . .
that it is an instrumentality of the government performing
governmental functions, citing section 133 of the Local Government Except as provided herein, any exemption from
Code of 1991 which puts limitations on the taxing powers of local payment of real property tax previously granted to, or
government units: presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled
Sec. 133. Common Limitations on the Taxing Powers of Local corporations are hereby withdrawn upon the effectivity
Government Units. — Unless otherwise provided herein, the of this Code.
exercise of the taxing powers of provinces, cities, municipalities,
and barangay shall not extend to the levy of the following: As the City of Cebu was about to issue a warrant of levy against the
properties of petitioner, the latter was compelled to pay its tax account
a) . . . "under protest" and thereafter filed a Petition for Declaratory Relief
with the Regional Trial Court of Cebu, Branch 20, on December 29,
x x x           x x x          x x x 1994. MCIAA basically contended that the taxing powers of local
government units do not extend to the levy of taxes or fees of any kind
o) Taxes, fees or charges of any kind on the National on an instrumentality of the national government. Petitioner insisted
Government, its agencies and instrumentalities, and that while it is indeed a government-owned corporation, it nonetheless
local government units. (Emphasis supplied) stands on the same footing as an agency or instrumentality of the
national government. Petitioner insisted that while it is indeed a
Respondent City refused to cancel and set aside petitioner's realty tax government-owned corporation, it nonetheless stands on the same
account, insisting that the MCIAA is a government-controlled footing as an agency or instrumentality of the national government by
corporation whose tax exemption privilege has been withdrawn by the very nature of its powers and functions.
virtue of Sections 193 and 234 of the Local Governmental Code that
took effect on January 1, 1992: Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-owned
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise corporation performing proprietary functions As such, all exemptions
provided in this Code, tax exemptions or incentives granted to, or previously granted to it were deemed withdrawn by operation of law,
presently enjoyed by all persons whether natural or juridical, including as provided under Sections 193 and 234 of the Local Government
government-owned or controlled corporations, except local water Code when it took effect on January 1, 1992.3
districts, cooperatives duly registered under RA No. 6938, non-stock,
and non-profit hospitals and educational institutions, are hereby The petition for declaratory relief was docketed as Civil Case No. CEB-
withdrawn upon the effectivity of this Code. (Emphasis supplied) 16900.

xxx xxx xxx In its decision of 22 March 1995,4 the trial court dismissed the petition in light
of its findings, to wit:
Sec. 234. Exemptions from Real Property taxes. — . . .
A close reading of the New Local Government Code of 1991 or RA
(a) . . . 7160 provides the express cancellation and withdrawal of exemption
of taxes by government owned and controlled corporation per
TAX 1 batch 1 Page 2 of 193
 Sections after the effectivity of said Code on January 1, 1992, to wit: I RESPONDENT JUDGE ERRED IN FAILING TO RULE
[proceeds to quote Sections 193 and 234] THAT THE PETITIONER IS VESTED WITH GOVERNMENT
POWERS AND FUNCTIONS WHICH PLACE IT IN THE
Petitioners claimed that its real properties assessed by respondent SAME CATEGORY AS AN INSTRUMENTALITY OR
City Government of Cebu are exempted from paying realty taxes in AGENCY OF THE GOVERNMENT.
view of the exemption granted under RA 6958 to pay the same (citing
Section 14 of RA 6958). II RESPONDENT JUDGE ERRED IN RULING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES
However, RA 7160 expressly provides that "All general and special TO THE CITY OF CEBU.
laws, acts, city charters, decress [sic], executive orders,
proclamations and administrative regulations, or part or parts thereof Anent the first assigned error, the petitioner asserts that although it is a
which are inconsistent with any of the provisions of this Code are government-owned or controlled corporation it is mandated to perform
hereby repealed or modified accordingly." ([f], Section 534, RA 7160). functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
With that repealing clause in RA 7160, it is safe to infer and state that functions primarily to promote certain aspects of the economic life of the
the tax exemption provided for in RA 6958 creating petitioner had people.6 Considering its task "not merely to efficiently operate and manage
been expressly repealed by the provisions of the New Local the Mactan-Cebu International Airport, but more importantly, to carry out the
Government Code of 1991. Government policies of promoting and developing the Central Visayas and
Mindanao regions as centers of international trade and tourism, and
So that petitioner in this case has to pay the assessed realty tax of its accelerating the development of the means of transportation and
properties effective after January 1, 1992 until the present. communication in the country,"7 and that it is an attached agency of the
Department of Transportation and Communication (DOTC),8 the petitioner
This Court's ruling finds expression to give impetus and meaning to "may stand in [sic] the same footing as an agency or instrumentality of the
the overall objectives of the New Local Government Code of 1991, RA national government." Hence, its tax exemption privilege under Section 14 of
7160. "It is hereby declared the policy of the State that the territorial its Charter "cannot be considered withdrawn with the passage of the Local
and political subdivisions of the State shall enjoy genuine and Government Code of 1991 (hereinafter LGC) because Section 133 thereof
meaningful local autonomy to enable them to attain their fullest specifically states that the taxing powers of local government units shall not
development as self-reliant communities and make them more extend to the levy of taxes of fees or charges of any kind on the national
effective partners in the attainment of national goals. Towards this government its agencies and instrumentalities."
end, the State shall provide for a more responsive and accountable
local government structure instituted through a system of As to the second assigned error, the petitioner contends that being an
decentralization whereby local government units shall be given more instrumentality of the National Government, respondent City of Cebu has no
powers, authority, responsibilities, and resources. The process of power nor authority to impose realty taxes upon it in accordance with the
decentralization shall proceed from the national government to the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
local government units. . . .5 Amusement and Gaming Corporation;9

Its motion for reconsideration having been denied by the trial court in its 4 Local governments have no power to tax instrumentalities of the
May 1995 order, the petitioner filed the instant petition based on the following National Government. PAGCOR is a government owned or controlled
assignment of errors: corporation with an original character, PD 1869. All its shares of stock
are owned by the National Government. . . .

TAX 1 batch 1 Page 3 of 193

 PAGCOR has a dual role, to operate and regulate gambling exclude instrumentalities of the national government from the taxing power of
casinos. The latter joke is governmental, which places it in the the local government units.
category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, In its comment respondent City of Cebu alleges that as local a government
PAGCOR should be and actually is exempt from local taxes. unit and a political subdivision, it has the power to impose, levy, assess, and
Otherwise, its operation might be burdened, impeded or collect taxes within its jurisdiction. Such power is guaranteed by the
subjected to control by a mere Local government. Constitution10 and enhanced further by the LGC. While it may be true that
under its Charter the petitioner was exempt from the payment of realty
The states have no power by taxation or otherwise, to retard, impede, taxes,11 this exemption was withdrawn by Section 234 of the LGC. In
burden or in any manner control the operation of constitutional laws response to the petitioner's claim that such exemption was not repealed
enacted by Congress to carry into execution the powers vested in the because being an instrumentality of the National Government, Section 133 of
federal government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. the LGC prohibits local government units from imposing taxes, fees, or
579). charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234
This doctrine emanates from the "supremacy" of the National thereof does not distinguish between government-owned corporation, and
Government over local government. Section 234 thereof does not distinguish between government-owned
corporation, and Section 234 thereof does not distinguish between
Justice Holmes, speaking for the Supreme Court, make references to government-owned or controlled corporations performing governmental and
the entire absence of power on the part of the States to touch, in that purely proprietary functions. Respondent city of Cebu urges this the Manila
way (taxation) at least, the instrumentalities of the United States International Airport Authority is a governmental-owned corporation, 12 and to
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state reject the application of Basco because it was "promulgated . . . before the
or political subdivision can regulate a federal instrumentality in such a enactment and the singing into law of R.A. No. 7160," and was not, therefore,
way as to prevent it from consummating its federal responsibilities, or decided "in the light of the spirit and intention of the framers of the said law.
even to seriously burden it in the accomplishment of them. (Antieau
Modern Constitutional Law, Vol. 2, p. 140) As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
Otherwise mere creature of the State can defeat National policies thru security against its abuse is to be found only in the responsibility of the
extermination of what local authorities may perceive to be undesirable legislature which imposes the tax on the constituency who are to pay it.
activities or enterprise using the power to tax as "a toll for regulation" Nevertheless, effective limitations thereon may be imposed by the people
(U.S. v. Sanchez, 340 US 42). The power to tax which was called by through their Constitutions.13 Our Constitution, for instance, provides that the
Justice Marshall as the "power to destroy" (McCulloch v. rule of taxation shall be uniform and equitable and Congress shall evolve a
Maryland, supra) cannot be allowed to defeat an instrumentality or progressive system of taxation.14 So potent indeed is the power that it was
creation of the very entity which has the inherent power to wield it. once opined that "the power to tax involves the power to destroy."15 Verily,
(Emphasis supplied) taxation is a destructive power which interferes with the personal and
property for the support of the government. Accordingly, tax statutes must be
It then concludes that the respondent Judge "cannot therefore correctly say construed strictly against the government and liberally in favor of the
that the questioned provisions of the Code do not contain any distinction taxpayer.16 But since taxes are what we pay for civilized society,17 or are the
between a governmental function as against one performing merely lifeblood of the nation, the law frowns against exemptions from taxation and
proprietary ones such that the exemption privilege withdrawn under the said statutes granting tax exemptions are thus construed strictissimi juris against
Code would apply to all government corporations." For it is clear from Section the taxpayers and liberally in favor of the taxing authority.18 A claim of
133, in relation to Section 234, of the LGC that the legislature meant to exemption from tax payment must be clearly shown and based on language
TAX 1 batch 1 Page 4 of 193
in the law too plain to be mistaken.19 Elsewise stated, taxation is the rule, (c) Taxes on estates, "inheritance, gifts, legacies and other
exemption therefrom is the exception.20 However, if the grantee of the acquisitions mortis causa, except as otherwise provided herein
exemption is a political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect of the exemption is (d) Customs duties, registration fees of vessels and wharfage on
merely to reduce the amount of money that has to be handled by the wharves, tonnage dues, and all other kinds of customs fees charges
government in the course of its operations.21 and dues except wharfage on wharves constructed and maintained by
the local government unit concerned:
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely (e) Taxes, fees and charges and other imposition upon goods carried
by virtue of a valid delegation as before, but pursuant to direct authority into or out of, or passing through, the territorial jurisdictions of local
conferred by Section 5, Article X of the Constitution.22 Under the latter, the government units in the guise or charges for wharfages, tolls for
exercise of the power may be subject to such guidelines and limitations as bridges or otherwise, or other taxes, fees or charges in any form
the Congress may provide which, however, must be consistent with the basic whatsoever upon such goods or merchandise;
policy of local autonomy.
(f) Taxes fees or charges on agricultural and aquatic products when
There can be no question that under Section 14 of R.A. No. 6958 the sold by marginal farmers or fishermen;
petitioner is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and (g) Taxes on business enterprise certified to be the Board of
instrumentalities. Nevertheless, since taxation is the rule and exemption Investment as pioneer or non-pioneer for a period of six (6) and four
therefrom the exception, the exemption may thus be withdrawn at the (4) years, respectively from the date of registration;
pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of (h) Excise taxes on articles enumerated under the National Internal
a mutual nature, which then becomes contractual and is thus covered by the Revenue Code, as amended, and taxes, fees or charges on
non-impairment clause of the Constitution.23 petroleum products;

The LGC, enacted pursuant to Section 3, Article X of the constitution provides (i) Percentage or value added tax (VAT) on sales, barters or
for the exercise by local government units of their power to tax, the scope exchanges or similar transactions on goods or services except as
thereof or its limitations, and the exemption from taxation. otherwise provided herein;

Section 133 of the LGC prescribes the common limitations on the taxing (j) Taxes on the gross receipts of transportation contractor and person
powers of local government units as follows: engage in the transportation of passengers of freight by hire and
common carriers by air, land, or water, except as provided in this
Sec. 133. Common Limitations on the Taxing Power of Local code;
Government Units. — Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and (k) Taxes on premiums paid by ways reinsurance or retrocession;
barangays shall not extend to the levy of the following:
(l) Taxes, fees, or charges for the registration of motor vehicles and
(a) Income tax, except when levied on banks and other financial for the issuance of all kinds of licenses or permits for the driving of
institutions; thereof, except, tricycles;

(b) Documentary stamp tax;

TAX 1 batch 1 Page 5 of 193
 (m) Taxes, fees, or other charges on Philippine product actually thereof had been granted, for reconsideration or otherwise, to a
exported, except as otherwise provided herein; taxable person;

(n) Taxes, fees, or charges, on Countryside and Barangay Business (b) Charitable institutions, churches, parsonages or convents
Enterprise and Cooperatives duly registered under R.A. No. 6810 and appurtenants thereto, mosques nonprofits or religious
Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. cemeteries and all lands, building and improvements actually,
6938) otherwise known as the "Cooperative Code of the Philippines; directly, and exclusively used for religious charitable or
and educational purposes;

(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE (c) All machineries and equipment that are actually, directly and
NATIONAL GOVERNMENT, ITS AGENCIES AND exclusively used by local water districts and government-owned
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. or controlled corporations engaged in the supply and distribution
(emphasis supplied) of water and/or generation and transmission of electric power;

Needless to say the last item (item o) is pertinent in this case. The "taxes, (d) All real property owned by duly registered cooperatives as
fees or charges" referred to are "of any kind", hence they include all of these, provided for under R.A. No. 6938; and;
unless otherwise provided by the LGC. The term "taxes" is well understood
so as to need no further elaboration, especially in the light of the above (e) Machinery and equipment used for pollution control and
enumeration. The term "fees" means charges fixed by law or Ordinance for environmental protection.
the regulation or inspection of business activity,24 while "charges" are
pecuniary liabilities such as rents or fees against person or property.25 Except as provided herein, any exemptions from payment of real
property tax previously granted to or presently enjoyed by, all
Among the "taxes" enumerated in the LGC is real property tax, which is persons whether natural or juridical, including all government
governed by Section 232. It reads as follows: owned or controlled corporations are hereby withdrawn upon the
effectivity of his Code.
Sec. 232. Power to Levy Real Property Tax. — A province or city or a
municipality within the Metropolitan Manila Area may levy on an These exemptions are based on the ownership, character, and use of the
annual ad valorem tax on real property such as land, building, property. Thus;
machinery and other improvements not hereafter specifically
exempted. (a) Ownership Exemptions. Exemptions from real property taxes
on the basis of ownership are real properties owned by: (i) the
Section 234 of LGC provides for the exemptions from payment of real Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a
property taxes and withdraws previous exemptions therefrom granted to barangay, and (vi) registered cooperatives.
natural and juridical persons, including government owned and controlled
corporations, except as provided therein. It provides: (b) Character Exemptions. Exempted from real property taxes
on the basis of their character are: (i) charitable institutions, (ii)
Sec. 234. Exemptions from Real Property Tax. — The following are houses and temples of prayer like churches, parsonages or
exempted from payment of the real property tax: convents appurtenant thereto, mosques, and (iii) non profit or
religious cemeteries.
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
TAX 1 batch 1 Page 6 of 193
 (c) Usage exemptions. Exempted from real property taxes on The foregoing sections of the LGC speaks of: (a) the limitations on the taxing
the basis of the actual, direct and exclusive use to which they powers of local government units and the exceptions to such limitations; and
are devoted are: (i) all lands buildings and improvements which (b) the rule on tax exemptions and the exceptions thereto. The use
are actually, directed and exclusively used for religious, of exceptions of provisos in these section, as shown by the following clauses:
charitable or educational purpose; (ii) all machineries and
equipment actually, directly and exclusively used or by local (1) "unless otherwise provided herein" in the opening paragraph
water districts or by government-owned or controlled of Section 133;
corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii) all (2) "Unless otherwise provided in this Code" in section 193;
machinery and equipment used for pollution control and
environmental protection. (3) "not hereafter specifically exempted" in Section 232; and

To help provide a healthy environment in the midst of the (4) "Except as provided herein" in the last paragraph of Section
modernization of the country, all machinery and equipment for 234
pollution control and environmental protection may not be taxed by
local governments. initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded.
2. Other Exemptions Withdrawn. All other exemptions previously Instead of the clause "unless otherwise provided herein," with the "herein" to
granted to natural or juridical persons including government- mean, of course, the section, it should have used the clause "unless
owned or controlled corporations are withdrawn upon the otherwise provided in this Code." The former results in absurdity since the
effectivity of the Code.26 section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions were
Section 193 of the LGC is the general provision on withdrawal of tax explicitly indicated in the text. For instance, in item (a) which excepts the
exemption privileges. It provides: income taxes "when livied on banks and other financial institutions", item (d)
which excepts "wharfage on wharves constructed and maintained by the local
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless government until concerned"; and item (1) which excepts taxes, fees, and
otherwise provided in this code, tax exemptions or incentives granted charges for the registration and issuance of license or permits for the driving
to or presently enjoyed by all persons, whether natural or juridical, of "tricycles". It may also be observed that within the body itself of the section,
including government-owned, or controlled corporations, except local there are exceptions which can be found only in other parts of the LGC, but
water districts, cooperatives duly registered under R.A. 6938, non the section interchangeably uses therein the clause "except as otherwise
stock and non profit hospitals and educational constitutions, are provided herein" as in items (c) and (i), or the clause "except as otherwise
hereby withdrawn upon the effectivity of this Code. provided herein" as in items (c) and (i), or the clause "excepts as provided in
this Code" in item (j). These clauses would be obviously unnecessary or
On the other hand, the LGC authorizes local government units to grant tax mere surplus-ages if the opening clause of the section were" "Unless
exemption privileges. Thus, Section 192 thereof provides: otherwise provided in this Code" instead of "Unless otherwise provided
herein". In any event, even if the latter is used, since under Section 232 local
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local government units have the power to levy real property tax, except those
government units may, through ordinances duly approved, grant tax exempted therefrom under Section 234, then Section 232 must be deemed to
exemptions, incentives or reliefs under such terms and conditions as qualify Section 133.
they may deem necessary.

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Thus, reading together Section 133, 232 and 234 of the LGC, we conclude In short, the petitioner can no longer invoke the general rule in Section 133
that as a general rule, as laid down in Section 133 the taxing powers of local that the taxing powers of the local government units cannot extend to the levy
government units cannot extend to the levy of inter alia, "taxes, fees, and of:
charges of any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant to Section (o) taxes, fees, or charges of any kind on the National Government, its
232, provinces, cities, municipalities in the Metropolitan Manila Area may agencies, or instrumentalities, and local government units.
impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the I must show that the parcels of land in question, which are real property, are
beneficial used thereof has been granted, for consideration or otherwise, to a any one of those enumerated in Section 234, either by virtue of ownership,
taxable person", as provided in item (a) of the first paragraph of Section 234. character, or use of the property. Most likely, it could only be the first, but not
under any explicit provision of the said section, for one exists. In light of the
As to tax exemptions or incentives granted to or presently enjoyed by natural petitioner's theory that it is an "instrumentality of the Government", it could
or juridical persons, including government-owned and controlled corporations, only be within be first item of the first paragraph of the section by expanding
Section 193 of the LGC prescribes the general rule, viz., they the scope of the terms Republic of the Philippines" to
are withdrawn upon the effectivity of the LGC, except upon the effectivity of embrace . . . . . . "instrumentalities" and "agencies" or expediency we quote:
the LGC, except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non stock and non-profit hospitals and (a) real property owned by the Republic of the Philippines, or any of
educational institutions, and unless otherwise provided in the LGC. The latter the Philippines, or any of its political subdivisions except when the
proviso could refer to Section 234, which enumerates the properties exempt beneficial use thereof has been granted, for consideration or
from real property tax. But the last paragraph of Section 234 further qualifies otherwise, to a taxable person.
the retention of the exemption in so far as the real property taxes are
concerned by limiting the retention only to those enumerated there-in; all This view does not persuade us. In the first place, the petitioner's claim that it
others not included in the enumeration lost the privilege upon the effectivity of is an instrumentality of the Government is based on Section 133(o), which
the LGC. Moreover, even as the real property is owned by the Republic of the expressly mentions the word "instrumentalities"; and in the second place it
Philippines, or any of its political subdivisions covered by item (a) of the first fails to consider the fact that the legislature used the phrase "National
paragraph of Section 234, the exemption is withdrawn if the beneficial use of Government, its agencies and instrumentalities" "in Section 133(o),but only
such property has been granted to taxable person for consideration or the phrase "Republic of the Philippines or any of its political subdivision "in
otherwise. Section 234(a).

Since the last paragraph of Section 234 unequivocally withdrew, upon the The terms "Republic of the Philippines" and "National Government" are not
effectivity of the LGC, exemptions from real property taxes granted to natural interchangeable. The former is boarder and synonymous with "Government
or juridical persons, including government-owned or controlled corporations, of the Republic of the Philippines" which the Administrative Code of the 1987
except as provided in the said section, and the petitioner is, undoubtedly, a defines as the "corporate governmental entity though which the functions of
government-owned corporation, it necessarily follows that its exemption from the government are exercised through at the Philippines, including, saves as
such tax granted it in Section 14 of its charter, R.A. No. 6958, has been the contrary appears from the context, the various arms through which
withdrawn. Any claim to the contrary can only be justified if the petitioner can political authority is made effective in the Philippines, whether pertaining to
seek refuge under any of the exceptions provided in Section 234, but not the autonomous reason, the provincial, city, municipal or barangay
under Section 133, as it now asserts, since, as shown above, the said section subdivision or other forms of local government."27 These autonomous
is qualified by Section 232 and 234. regions, provincial, city, municipal or barangay subdivisions" are the political
subdivision.28

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On the other hand, "National Government" refers "to the entire machinery of property taxes in the last paragraph of property taxes in the last paragraph of
the central government, as distinguished from the different forms of local Section 234. These policy considerations are consistent with the State policy
Governments."29 The National Government then is composed of the three to ensure autonomy to local governments33 and the objective of the LGC that
great departments the executive, the legislative and the judicial.30 they enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them effective
An "agency" of the Government refers to "any of the various units of the partners in the attainment of national goals.34 The power to tax is the most
Government, including a department, bureau, office instrumentality, or effective instrument to raise needed revenues to finance and support myriad
government-owned or controlled corporation, or a local government or a activities of local government units for the delivery of basic services essential
distinct unit therein;"31 while an "instrumentality" refers to "any agency of the to the promotion of the general welfare and the enhancement of peace,
National Government, not integrated within the department framework, progress, and prosperity of the people. It may also be relevant to recall that
vested with special functions or jurisdiction by law, endowed with some if not the original reasons for the withdrawal of tax exemption privileges granted to
all corporate powers, administering special funds, and enjoying operational government-owned and controlled corporations and all other units of
autonomy; usually through a charter. This term includes regulatory agencies, government were that such privilege resulted in serious tax base erosion and
chartered institutions and government-owned and controlled corporations".32 distortions in the tax treatment of similarly situated enterprises, and there was
a need for this entities to share in the requirements of the development, fiscal
If Section 234(a) intended to extend the exception therein to the withdrawal of or otherwise, by paying the taxes and other charges due from them.35
the exemption from payment of real property taxes under the last sentence of
the said section to the agencies and instrumentalities of the National The crucial issues then to be addressed are: (a) whether the parcels of land
Government mentioned in Section 133(o), then it should have restated the in question belong to the Republic of the Philippines whose beneficial use
wording of the latter. Yet, it did not Moreover, that Congress did not wish to has been granted to the petitioner, and (b) whether the petitioner is a "taxable
expand the scope of the exemption in Section 234(a) to include real property person".
owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the Section 15 of the petitioner's Charter provides:
fact that the source of this exemption is Section 40(a) of P.D. No. 646,
otherwise known as the Real Property Tax Code, which reads: Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other
Sec 40. Exemption from Real Property Tax. — The exemption shall properties, movable or immovable, belonging to or presently
be as follows: administered by the airports, and all assets, powers, rights, interests
and privileges relating on airport works, or air operations, including all
(a) Real property owned by the Republic of the Philippines or any equipment which are necessary for the operations of air navigation,
of its political subdivisions and any government-owned or acrodrome control towers, crash, fire, and rescue facilities are hereby
controlled corporations so exempt by is charter: Provided, transferred to the Authority: Provided however, that the operations
however, that this exemption shall not apply to real property of the control of all equipment necessary for the operation of radio aids to air
above mentioned entities the beneficial use of which has been navigation, airways communication, the approach control office, and
granted, for consideration or otherwise, to a taxable person. the area control center shall be retained by the Air Transportation
Office. No equipment, however, shall be removed by the Air
Note that as a reproduced in Section 234(a), the phrase "and any Transportation Office from Mactan without the concurrence of the
government-owned or controlled corporation so exempt by its charter" was authority. The authority may assist in the maintenance of the Air
excluded. The justification for this restricted exemption in Section 234(a) Transportation Office equipment.
seems obvious: to limit further tax exemption privileges, specially in light of
the general provision on withdrawal of exemption from payment of real
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The "airports" referred to are the "Lahug Air Port" in Cebu City and the WHEREFORE, the instant petition is DENIED. The challenged decision and
"Mactan International AirPort in the Province of Cebu",36 which belonged to order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-
the Republic of the Philippines, then under the Air Transportation Office 16900 are AFFIRMED.
(ATO).37
No pronouncement as to costs.
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu
City then administered by the Lahug Air Port and includes the parcels of land SO ORDERED.
the respondent City of Cebu seeks to levy on for real property taxes. This
section involves a "transfer" of the "lands" among other things, to the
petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.

This "transfer" is actually an absolute conveyance of the ownership thereof

because the petitioner's authorized capital stock consists of, inter alia "the
value of such real estate owned and/or administered by the
airports."38 Hence, the petitioner is now the owner of the land in question and
the exception in Section 234(c) of the LGC is inapplicable.

Moreover, the petitioner cannot claim that it was never a "taxable person"
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive proof
of the legislative intent to make it a taxable person subject to all taxes, except
real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes
of real property tax, in light of the forgoing disquisitions, it had already G.R. No. L-14595             October 11, 1919
become even if it be conceded to be an "agency" or "instrumentality" of the
Government, a taxable person for such purpose in view of the withdrawal in GREGORIO SARASOLA, plaintiff-appellant,
the last paragraph of Section 234 of exemptions from the payment of real vs.
property taxes, which, as earlier adverted to, applies to the petitioner. WENCESLAO TRINIDAD, Collector of Internal Revenue of the Philippine
Islands, defendant-appellee.
Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Philippine Amusement and Gaming Corporation39 is unavailing Cohn and Fisher for appellant.
since it was decided before the effectivity of the LGC. Besides, nothing can Attorney-General Paredes for appellee.
prevent Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.
MALCOLM, J.:

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The complaint in this case was filed in the Court of First Instance of Manila for the Sections 1578 and 1579 of the Administrative Code of 1917 read as follows:
purpose of having an injunction issue to restrain the defendant, the Collector of
Internal Revenue, from the alleged illegal collection of taxes in the amount of SEC. 1578. Injunction not available to restrain collection of tax. — No court
P11,739.29. The defendant interposed a demurrer to the complaint, based on two shall have authority to grant an injunction to restrain the collection of any
grounds, namely: (1) that the court had no jurisdiction of the subject-matter of the internal-revenue tax.
action because of the provisions of section 1578 of the Administrative Code of 1917;
and (2) that the facts stated in the complaint did not entitle the plaintiff to the relief SEC. 1579. Recovery of tax paid under protest. — When the validity of any
demanded. The Honorable James A. Ostrand, Judge of First Instance, sustained the tax is questioned, or its amount disputed, or other question raised as to
demurrer, holding that "In the opinion of the court, the case is still controlled by the liability therefor, the person against whom or against whose property the
decision of the Supreme Court in the case of Churchill and Tait vs. Rafferty (32 Phil., same is sought to be enforced shall pay the tax under instant protest, or upon
580). The fact that section 1579 of the Administrative Code of 1917 disallows interest protest within ten days, and shall thereupon request the decision of the
on the internal revenue taxes recovered back is hardly sufficient to vary the rule." It is Collector of Internal Revenue. If the decision of the Collector of Internal
from the final order dismissing the complaint, without special finding as to costs, that Revenue is adverse, or if no decision is made by him within six months from
the plaintiff to this court. the date when his decision was requested, the taxpayer may proceed, at any
time within two years after the payment of the tax, to bring an action against
As will be noted, the judge was induced to take such action be reason of his the Collector of Internal Revenue for the recovery without interest of the sum
understanding of the decision of this court in the case of Churchill and Tait vs. alleged to have been illegally collected, the process to be served upon him,
Rafferty (supra, appeal dismissed in the United States Supreme Court [1918], 248 upon the provincial treasurer, or upon the officer collecting the tax.
U.S., 555), in which the plaintiffs likewise endeavor unsuccessfully to have the
defendant Collector of Internal Revenue enjoined from collecting and enforcing These portions of our tax laws, leaving out of notice the two words "without interest,"
against the plaintiffs an internal revenue tax on bill boards. Both counsel for appellant are in no way different from American tax laws. The antecedents of sections 1578
and appellee herein seem to find comfort in this decision. Instead, however, of and 1579 of the existing Administrative Code are the Administrative Code of 1916,
devoting our time to a fine analysis of this decision with the object of ascertaining if it the Internal Revenue Law of 1914 (Act No. 2339), and Internal Revenue Law of 1904
is still controlling, it would seem preferable to place it to one side for the nonce and to (Act No. 1189). Section 1578 of the Administrative Code and its corresponding
proceed independently thereof to settle the instant issues. sections in previous Philippine Laws, found its particular inspiration in a similar
provision in the Act of Congress of March 2, 1867. (14 Stat. at L., 475; sec. 3224,
Appellant's formal specifications of error are epitomized in three points: "1. The U.S. Rev. Stat.) Again expressly leaving out of our present consideration the phrase
statute is a mere expression of the equity rule and does not close the door of equity "without interest," a vast array of interpretative jurisprudence which culminates in the
where there is no adequate remedy at law; 2. The equitable jurisdiction to issue writs decision in Churchill and Tait vs .Rafferty, supra, would leave no room for doubt that
where the legal remedy is inadequate is crystallized and cannot be abbreviated by such legislation is constitutional. The point, however, to keep sharply before us is,
local statute; 3. The legal remedy is grossly inadequate and the injury irreparable that until the enactment of the Administrative Code of 1917, no law of the Philippine
and the writ should issue." The Attorney-General, in his brief for the appellee, says Legislature or Commission had contained a provision permitting the recovery of
that a resolution of the three errors assigned by appellant depends upon the answer taxes "without interest," and no provision essentially the same can be found in the
to the question, "Is the legal provision prohibiting the courts from granting an statutes United States or of the several States.
injunction to retrain the collection of internal revenue taxes constitutional?" Whether,
therefore, we agree with the Attorney-General in his bold assertion relative to the Before we recur to our precise question, a good background for this decision might
issue being the constitutionality of sections 1578 and 1579 of the Administrative well concern the more general subject of the remedies of the taxpayer. The broad
Code of 1917, or whether we consider the more subtle argument of the learned principle is that every taxpayer has a right to a remedy for any actual wrong he may
counsel for appellant which seems merely to squint at this question, it is necessary to have suffered in the collection of taxes. Usually a party will find a plain and sufficient
have before us the pertinent provisions of Philippine law. remedy for the injuries complained of, or threatened, in the courts of law; in such
instances, equity will not take jurisdiction. "Presumptively," Judge Cooley says, "the
TAX 1 batch 1 Page 11 of 193
remedy at law is adequate." (Cooley on Taxation, 3d Ed., Vol. 2, pp. 1377, 1412, merchant in the city of Manila, and so was not liable to the payment of a tax as such,
1415.) Where, as in the Philippines, the taxpayer is permitted to pay the amount and that he is without means of complying with the demand of the defendant under
demanded of him under protest and then maintain an action at law to recover back protest or otherwise. Such, likewise, was one of three grounds which were
the whole amount paid or so much of it as was illegally exacted, this is ordinarily suggested as giving equitable jurisdiction to the Supreme Court of the State of
regarded as an adequate remedy. Thus, the Legislature of the State of Tennessee Michigan. Regarding it, Judge Cooley said:
enacted a statute not greatly different from the Philippine statute, with the exception
that the words, "without interest," were not included, and the United States Supreme The force of the third contention must rest in the fact that enforcing the tax
Court in discussing the law said: "This remedy is simple and effective. . . . It is a wise may in some cases compel the suspension of business, because it is more
and reasonable precaution for the security of the government. No government could than the person taxed can afford to pay. But if this consideration is sufficient
exist that permitted its collection to be delayed by every litigious man or every to justify the transfer of a controversy from a court of law to a court of equity,
embarrassed man, to whom delay was more important than the payment of costs." then every controversy where money is demanded may be made the subject
(State of Tennessee vs. Sneed [1877], 6 Otto, 69. See also 37 Cyc., 1267, 1268.) of equitable cognizance. To enforce against a dealer a promissory not may in
Again in the case of Snyder vs. Marks ([1883], 109 U.S., 185) the sole object of the some cases as effectually break up his business as to collect from him a tax
suit was to restrain the collection of a tax which was assessed under the United of equal amount. This is not what is known to the law as irreparable injury.
States Internal Revenue Laws. The court said: The remedy of a suit to recover back The courts have never recognized the consequences of the mere
the tax after it is paid, is provided by statute, and a suit to restrain its collection is enforcement of a money demand as falling within that category.
forbidden. The remedy so given is exclusive, and no other remedy can be (Youngblood vs. Sexton [1875], 32 Mich., 406.)
substituted for it."
No one could very convincingly argue against the force of these leading cases. Not
An exceptional circumstance which serves to take cases out of the general rule neglecting, therefore, to remember their importance, the precise and narrower
comes under the head of irreparable injury. In a decision of the United States question is suggested — Did the addition of the words "without interest" in the statute
Supreme Court in which this was explained (Dows vs. The City of Chicago [1871], 11 so deprive an aggrieved taxpayer of his adequate remedy at law as to justify judicial
Wall., 108) it was remarked that there can be no case of equitable cognizance interference? In two recent decisions of this court, interest on judgments for the
"where there is a plain and adequate remedy at law. And except where the special recovery of taxes was allowed, but without deciding this precise question. Thus, in
circumstances which we have mentioned exist, the party of whom an illegal tax is Viuda e Hijos de Pedro P. Roxas vs. Rafferty [1918], 37 Phil., 957), it was said that
collected has ordinarily ample remedy, either by action against the officer making the whether interest could be adjudged a taxpayer against the United States, a State of
collection or the body to whom the tax is paid." Accordingly it was held that since the the American Union, or the Government of the Philippine Islands, was beside the
plaintiff had his action after the tax was paid "against the officer or the city to recover question. And in Hongkong & Shanghai Banking Corporation vs. Rafferty [1918], 39
back the money," a bill in equity to restrain the collection of a tax would not be Phil., 145), it was said that whether interest may be recovered under section 1579 of
sustained. If the ground alleged is alone that the tax was illegal, this is not sufficient the Administrative Code, is left for decision when a case arises after the Code
for the maintenance of an injunction. (Dows vs .The City of Chicago, supra; became effective. As the point can no longer be evaded, we shall proceed to resolve
Shelton vs. Platt [1891], 139 U.S., 591, reviewing previous decisions; Nye Jenks & it, and in so doing can find no better approach than that to be found in the right to
Co. vs. Town of Washburn [1903], 125 Fed., 817; Churchill and interest.
Tait vs. Rafferty, supra, followed approvingly in Young vs. Rafferty [1916], 33 Phil.,
556, 563.) It is well settled both on principle and authority that interest is not to be awarded
against a sovereign government, as the United States or a State, unless its consent
While we have these decisions in mind, it might be well to recall that in one way or has been manifested by an Act of its Legislature or by a lawful contract of its
another, the whole question harks back to the legality of sections 1578 and 1579 of executive officers. If there be doubt upon the subject, that doubt must be resolved in
the Administrative Code. But in addition, according to the averments of the plaintiff's favor of the State. In Gosman's Case ([1881], L. R. 17 Ch. Div., 771) Sir George
complaint which are provisionally admitted by the demurrer of the defendant, the Jessel, Master of the Rolls, speaking for the Court of Appeals, summed up the Law
plaintiff's claim is, that he was not engaged in the business of a commission of England in this concise statement: "There is no ground for charging the Crown
TAX 1 batch 1 Page 12 of 193
with interest. Interest is only payable by statute or by contract." In Attorney- It has been urged that since interest is in the nature of damages, it is proper for
General vs. Cape Fear Navigation Co. ([1843], 37 N.C., 444) Chief Justice Ruffin laid allowance. While this may be true in the general run of cases, it is not necessary true
down as undoubted law that "the State never pays interest unless she expressly when the sovereign power is concerned. The state is not amenable to judgments for
engages to do so." Judge Cooley says that "The recovery (in tax suits) must be damages or costs without its consent. (Hongkong & Shanghai Banking
limited to the money received. . . . Interest is recoverable only when expressly Corporation vs. Rafferty, supra, citing numerous decisions.) In Morley vs. Lakeshore
allowed by statute." (2 Cooley on Taxation, 3d Ed., p. 1510; Savings and Loan & Michigan Southern Railway Co. ([1892], 146 U.S., 162, followed recently in
Society vs. San Francisco [1901], 131 Cal., 356.) In United States vs. Sherman Missouri & Arkansas Lumber & Mining Co. vs. Greenwood District of Sebastian
[1878], 98 U.S., 465) the court, in considering a law relating to suits against revenue County, Arkansas [1919], U.S. Sup. Ct. Adv. Op., April 1, 1919, p .239), the United
officers providing for recovery of the amount payable out of the treasury, held that States Supreme Court had under consideration a state statute which reduced the
the amount recoverable did not include interest upon the judgment. Justice Strong, rate of interest upon all judgments obtained within the courts of the state. The court
delivering the opinion of the court, in part said: said:

When the obligation arises, it is an obligation to pay the amount recovered; After the cause of action, whether a tort or a broken contract, not itself
that is, the amount for which judgment has been given. The act of Congress prescribing interest till payment, shall have been merged into a judgment,
says not a word about interest. Judgments, it is true, are by the law of South whether interest shall accrue upon the judgment is a matter not of contract
Carolina, as well as by Federal legislation, declared to bear interest. Such between the parties, but of legislative discretion, which is free, so far as the
legislation, however, has no application to the government. And the interest is Constitution of the United States is concerned, to provide for interest as a
no part of the amount recovered. It accrues only after the recovery has been penalty or liquidated damages for the nonpayment of the judgment, or not to
had. Moreover, whenever interest is allowed either by statute or by common do so. When such provision is made by statute, the owner of the judgment is,
law, except in cases where there has been a contract to pay interest, it is of course, entitled to the interest so prescribed until payment is received, or
allowed for delay or default of the debtor. But delay or default cannot be until the State shall, in the exercise of its discretion, declare that such interest
attributed to the government. It is presumed to be always ready to pay what it shall be changed or cease to accrue. Should the statutory damages for
owes. (See also U.S. vs .Bayard [1888], 127 U.S., 251; U.S. vs. North nonpayment of a judgment be determined by a State, either in whole or in
Carolina [1890], 136 U.S., 211 Board of County Commissioners vs. Kaul part, the owner of a judgment will be entitled to receive and have a vested
[1908], 17 L. R. A. [N.S.], 552.) right in the damages which shall have accrued up to the date of the legislative
change; but after that time his rights as to interests as damages are, as when
As this is the main rule, the converse proposition must be equally true, that taxes he first obtained his judgment, just what the legislature chooses to declare.
only draw interest as do sums of money when expressly authorized. A corollary to He has no contract whatever on the subject with the defendant in the
the principle is also self-evident, that interest cannot be recovered on an abatement judgment, and his right is to receive, and the defendant's obligation is to pay,
unless the statute provides for it. (1 Cooley on Taxation, 3d Ed., p. 20; 2 Cooley on as damages, just what the State chooses to prescribe. . . .
Taxation, 3d Ed., p. 1392; City of Lowell vs. County Commissioners of Middlesex
[1862], 3 Allen [Mass.], 550.) The only contrary dictum is to the effect that where an If it be true, as we have endeavored to show, that interest allowed for
illegal tax has been collected, the citizen who has paid and is obliged to bring suit nonpayment of judgments is in the nature of statutory damages, and if the
against the collector is entitled to interest from the time of the illegal exaction. plaintiff in the present case has received all such damages which accrued
(Erskine vs. Van Arsdale [1872], 15 Wall., 75; National Home vs. Parrish [1913], 229 while his judgment remained unpaid, there is no change or withdrawal of
U.S., 494; Matter of O'Berry [1904], 179 N.Y., 285.) The distinction undoubtedly remedy. His right was to collect such damages as the State, in its discretion,
arises through the fiction that the suit is against the collector and not against the provided should be paid by defendant who should fail to promptly pay
State, although the judgment is not to be paid by the collector but directly from the judgments which should be entered against them, and such right has not
treasury. been destroyed or interfered with by legislation. The discretion exercised by
the legislature in prescribing what, if any, damages shall be paid by way of

TAX 1 batch 1 Page 13 of 193

 compensation for delay in the payment of judgments is based on reasons of are within the control of the Legislature." (Genet vs .City of Brooklyn [1885], 99 N.Y.,
public policy, and is altogether outside the sphere of private contracts. 296.) Or as said by Chief Justice Marshall in McCulloch vs. Maryland, supra, "The
people of a state give to their government a right of taxing themselves and their
Our statute, it will be remembered, not only does not authorize interest but negatives property, and as the exigencies of the Government cannot be limited, they prescribe
the payment of interest .While, therefore, coming under the purview of the general no limit to the exercise of this right, resting confidently on the interest of the legislator
principle pertaining to legislative discretion, it also avoids any trouble to be found in and on the influence of the constituents over their representatives, to guard
those decisions which allow interest without any express provision on the subject, themselves against its abuse." (See to the same effect the Philippine case of De
because the statute provides that interest shall not be allowed .From whatever Villata vs. Stanley [1915], 32 Phil., 541; and Churchill and Tait vs. Concepcion
direction we look at the subject, therefore, we reach either the conclusion that the [1916], 34 Phil., 969.)
law is valid, or that the plaintiff has not proven such a case of irreparable injury as
would warrant the issuance of the extraordinary writ of injunction. Applying these well-known principles to the case at bar, it would seem that the
legislature has considered that a law providing for the payment of a tax with a right to
The reason for what superficially seems to be a harsh ruling goes back to the bring a suit before a tribunal to recover back the same without interest is a full and
fundamental conception of the nature of taxation. It is but a truism to restate that adequate remedy for the aggrieved taxpayer. The disallowance of interest in such
taxation is an attribute of sovereignty. It is the strongest of all the powers of case, like the other steps prescribed as conditional to recovery, has been made one
government. It involves, as Chief Justice Marshall in his historical statement said, the of the conditions which the lawmakers have seen fit to attach to the remedy
power to destroy. (McCulloch vs. Maryland [1819], 4 Wheat., 316; Loan provided. As the Legislature in the exercise of its wide discretionary power, has
Association vs. Topeka [1875], 20 Wall., 655.) "The right of taxation where it exists," deemed the remedy provided in section 1579 of the Administrative Code to be an
the court said in Austin vs. Aldermen ([1868], 7 Wall., 694), "is necessarily unlimited adequate mode of testing the validity of an internal revenue tax and has willed that
in its nature. It carriers with it inherently the power to embarrass and such a remedy shall be exclusive, the courts not only owe it to a coordinate branch of
destroy." 1awph!l.net the government to respect the opinion thus announced, but have no right to interfere
with the enforcement of such a law.
Public policy decrees that, since upon the prompt collection of revenue there
depends the very existence of government itself, whatever determination shall be The last remaining point touches upon the possibility that section 1579 of the
arrived at by the Legislature should not be interfered with, unless there be a clear Administrative Code, in conjunction with the following section, has served to diminish
violation of some constitutional inhibition. As said in Dows vs. The City of the jurisdiction of the courts and, in pursuance of well-known principles, is thus
Chicago, supra, "It is upon taxation that the several states chiefly rely to obtain the invalid. Section 9 of the Philippine Bill and section 26 of the Jones Law, the first the
means to carry on their respective governments, and it is of the utmost importance to Act of Congress of July 1, 1902, and the second the Act of Congress of August 29,
all of them that the modes adopted to enforce the taxes levied should be interfered 1916, have provided "That the Supreme Court and the Courts of First Instance of the
with as little as possible. Any delay in the proceedings of the officers, upon whom the Philippine Islands shall possess and exercise jurisdiction as heretofore provided and
duty is devolved of collecting the taxes, may derange the operations of government, such additional jurisdiction as shall hereafter be prescribed by law. . . ." The
and thereby cause serious detriment to the public." Or as said in Supreme Court of the Philippines, in interpreting these provisions, has reached the
Snyder vs. Marks, supra, "The system prescribed by the United States in regard to conclusion that they had the effect of taking one or more Acts of the Philippine
both customs duties and internal revenue taxes, of stringent measures, not judicial, Commission and Legislature out of the field of ordinary legislation and making of
to collect them, with appeals to specified tribunals and suits to recover back moneys them in effect basic laws. In other words, it was held that the Legislature could add to
illegally exacted, was a system of corrective justice, intended to be complete and but could not diminish the jurisdiction of the courts. (Barrameda vs .Moir [1913], 25
enacted under the right belonging to the Government, to prescribe the conditions on Phil., 44.) But any argument predicated upon such a proposition must necessarily
which it would subject itself to the judgment of the courts in the collection of its assume that the Philippine courts have had the power to restrain by injunction the
revenues." Or as said in Tennesse vs. Sneed, supra, "The Government may fix the collection of taxes. And since, with or without a law, the Philippine courts would not
conditions upon which it will consent to litigate the validity of its original taxes." Or as have presumed to issue an injunction to restrain the collection of a tax, the
said in a New York case, "The power of taxation being legislative, all the incidents prohibition expressed in the law has had no other effect than to confirm a universal
TAX 1 batch 1 Page 14 of 193
principle. This was expressly decided in the case of Churchill and Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol
Tait vs. Rafferty, supra, and has since then not been open to discussion. and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes
for appellees.
To conclude — in answer to the argument made by appellant, we can say that
sections 1578 and 1579 of the Administrative Code establish an adequate remedy at
law and that we are not convinced that the enforcement of the tax will produce
irreparable injury, and, in answer to the argument of appellee, that sections 1578 and MARTIN, J.:
1579 of the Administrative Code of 1917 are valid. The result is, thus, to affirm the
final order appealed from. Costs shall be taxed against the appellant. So ordered. This is an appeal from the decision of the Court of First Instance of Leyte in its Civil
Case No. 3294, which was certified to Us by the Court of Appeals on October 6,
1969, as involving only pure questions of law, challenging the power of taxation
delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the

Philippines, Inc., commenced a complaint with preliminary injunction before the Court
of First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27,
series of 1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions
of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the
same subject matter and the production tax rates imposed therein are practically the
same, and second, that on January 17, 1963, the acting Municipal Treasurer of
Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola
Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September
G.R. No. L-31156 February 27, 1976 25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff- purpose of computing the taxes due, the person, firm, company or corporation
appellant, producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the
vs. total number of bottles produced and corked during the month. 3
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees. On the other hand, Municipal Ordinance No. 27, which was approved on October 28,
1962, levies and collects "on soft drinks produced or manufactured within the
Sabido, Sabido & Associates for appellant. territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing
TAX 1 batch 1 Page 15 of 193
soft drinks shall submit to the Municipal Treasurer a monthly report of the total said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of
number of gallons produced or manufactured during the month. 5 the legislative power to enact and vest in local governments the power of local
taxation.
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.' The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant's pretense, would not suffice to invalidate the said law as confiscatory and
On October 7, 1963, the Court of First Instance of Leyte rendered judgment oppressive. In delegating the authority, the State is not limited 6 the exact measure
"dismissing the complaint and upholding the constitutionality of [Section 2, Republic of that which is exercised by itself. When it is said that the taxing power may be
Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering delegated to municipalities and the like, it is meant that there may be delegated such
the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the measure of power to impose and collect taxes as the legislature may deem
costs." expedient. Thus, municipalities may be permitted to tax subjects which for reasons of
public policy the State has not deemed wise to tax for more general purposes. 10 This
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court is not to say though that the constitutional injunction against deprivation of property
of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the without due process of law may be passed over under the guise of the taxing power,
Judiciary Act of 1948, as amended. except when the taking of the property is in the lawful exercise of the taxing power,
as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is
There are three capital questions raised in this appeal: observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds
1. — Is Section 2, Republic Act No. 2264 an undue delegation of of taxes notice and opportunity for hearing are provided. 11 Due process is usually
power, confiscatory and oppressive? violated where the tax imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation;
and arbitrary or oppressive methods are used in assessing and collecting taxes. But,
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and
a tax does not violate the due process clause, as applied to a particular taxpayer,
impose percentage or specific taxes?
although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the
3. — Are Ordinances Nos. 23 and 27 unjust and unfair? amount of tax to be raised should be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner in which it shall be apportioned
1. The power of taxation is an essential and inherent attribute of sovereignty, are generally not necessary to due process of law. 12
belonging as a matter of right to every independent government, without being
expressly conferred by the people. 6 It is a power that is purely legislative and which There is no validity to the assertion that the delegated authority can be declared
the central legislative body cannot delegate either to the executive or judicial unconstitutional on the theory of double taxation. It must be observed that the
department of the government without infringing upon the theory of separation of delegating authority specifies the limitations and enumerates the taxes over which
powers. The exception, however, lies in the case of municipal corporations, to which, local taxation may not be exercised. 13 The reason is that the State has exclusively
said theory does not apply. Legislative powers may be delegated to local reserved the same for its own prerogative. Moreover, double taxation, in general, is
governments in respect of matters of local concern. 7 This is sanctioned by not forbidden by our fundamental law, since We have not adopted as part thereof the
immemorial practice. 8 By necessary implication, the legislative power to create injunction against double taxation found in the Constitution of the United States and
political corporations for purposes of local self-government carries with it the power some states of the Union.14 Double taxation becomes obnoxious only where the
to confer on such local governmental agencies the power to tax. 9 Under the New taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the
Constitution, local governments are granted the autonomous authority to create their same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed
own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local by the State and the other by the city or municipality. 17
government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law." Withal, it cannot be
TAX 1 batch 1 Page 16 of 193
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid
taxation, because these two ordinances cover the same subject matter and impose ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under
practically the same tax rate. The thesis proceeds from its assumption that both Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or
ordinances are valid and legally enforceable. This is not so. As earlier quoted, other taxes in any form based thereon. The tax is levied on the produce (whether
Ordinance No. 23, which was approved on September 25, 1962, levies or collects sold or not) and not on the sales. The volume capacity of the taxpayer's production
from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo of soft drinks is considered solely for purposes of determining the tax rate on the
for .every bottle corked, irrespective of the volume contents of the bottle used. When products, but there is not set ratio between the volume of sales and the amount of
it was discovered that the producer or manufacturer could increase the volume the tax.21
contents of the bottle and still pay the same tax rate, the Municipality of Tanauan
enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The on specified articles, such as distilled spirits, wines, fermented liquors, products of
difference between the two ordinances clearly lies in the tax rate of the soft drinks tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of
of volume capacity. The intention of the Municipal Council of Tanauan in enacting those specified.
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that 3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone
confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 would not support the claim that the tax is oppressive, unjust and confiscatory.
compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. Municipal corporations are allowed much discretion in determining the reates of
27, series of 1962. The aforementioned admission shows that only Ordinance No. imposable taxes. 25 This is in line with the constutional policy of according the widest
27, series of 1962 is being enforced by defendants-appellees. Even the Provincial possible autonomy to local governments in matters of local taxation, an aspect that is
Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions amount is so excessive as to be prohibitive, courts will go slow in writing off an
of the latter are inconsistent with the provisions of the former." ordinance as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a local autonomy were to be realized. 28
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend Finally, the municipal license tax of P1,000.00 per corking machine with five but not
to almost "everything, accepting those which are mentioned therein." As long as the more than ten crowners or P2,000.00 with ten but not more than twenty crowners
text levied under the authority of a city or municipal ordinance is not within the imposed on manufacturers, producers, importers and dealers of soft drinks and/or
exceptions and limitations in the law, the same comes within the ambit of the general mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the
cabisus non excepti  19 The limitation applies, particularly, to the prohibition against resolution of the validity of Ordinance No. 27. Municipalities are empowered to
municipalities and municipal districts to impose "any percentage tax or other taxes in impose, not only municipal license taxes upon persons engaged in any business or
any form based thereon nor impose taxes on articles subject to specific tax except occupation but also to levy for public purposes, just and uniform taxes. The
gasoline, under the provisions of the National Internal Revenue Code." For purposes ordinance in question (Ordinance No. 27) comes within the second power of a
of this particular limitation, a municipal ordinance which prescribes a set ratio municipality.
between the amount of the tax and the volume of sale of the taxpayer imposes a
sales tax and is null and void for being outside the power of the municipality to
TAX 1 batch 1 Page 17 of 193
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, BRION, J.:
otherwise known as the Local Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re- This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch
pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and 58, Angeles City, through a petition for review on certiorari1 under Rule 45 of the
legal effect. Costs against petitioner-appellant. Rules of Court on a pure question of law. The petition seeks the reversal of the
November 8, 2013 decision2 of the RTC in SCA Case No. 12-410. In the assailed
SO ORDERED. decision, the RTC declared Revenue Regulation (RR) No. 2-2012 unconstitutional
and without force and effect.

The Facts

In response to reports of smuggling of petroleum and petroleum products and to

ensure the correct taxes are paid and collected, petitioner Secretary of Finance
Cesar V. Purisima - pursuant to his authority to interpret tax laws3 and upon the
recommendation of petitioner Commissioner of Internal Revenue (CIR) Kim S.
Jacinto-Henares signed RR 2-2012 on February 17, 2012.

The RR requires the payment of value-added tax (VAT) and excise tax on the

importation of all petroleum and petroleum products coming directly from abroad and
brought into the Philippines, including Freeport and economic zones (FEZs).4 It then
allows the credit or refund of any VAT or excise tax paid if the taxpayer proves that
the petroleum previously brought in has been sold to a duly registered FEZ locator
and used pursuant to the registered activity of such locator.5

In other words, an FEZ locator must first pay the required taxes upon entry into the
FEZ of a petroleum product, and must thereafter prove the use of the petroleum
product for the locator's registered activity in order to secure a credit for the taxes
paid.

On March 7, 2012, Carmelo F. Lazatin, in his capacity as Pampanga First District

G.R. No. 210588 Representative, filed a petition for prohibition and injunction6 against the petitioners
to annul and set aside RR 2-2012.
SECRETARY OF FINANCE CESAR B. PURISIMA AND COMMISSIONER OF
INTERNAL REVENUE KIM S. JACINTO-HENARES, Petitioners Lazatin posits that Republic Act No. (RA) 94007 treats the Clark Special Economic
vs. Zone and Clark Freeport Zone (together hereinafter referred to as Clark FEZ) as a
REPRESENTATIVE CARMELO F. LAZATIN AND ECOZONE PLASTIC separate customs territory and allows tax and duty-free importations of raw
ENTERPRISES CORPORATION, Respondents materials, capital and equipment into the zone. Thus, the imposition of VAT and
excise tax, even on the importation of petroleum products into FEZs (like Clark
DECISION FEZ), directly contravenes the law.

TAX 1 batch 1 Page 18 of 193

The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to RTC, sufficiently shows how his rights, privileges, and prerogatives as a member of
intervene in the proceedings as a co-petitioner and accordingly entered its Congress were impaired by the issuance of RR 2-2012.
appearance and moved for leave of court to file its petition-in- intervention.8
The RTC also ruled that the case warrants a relaxation on the rules on legal standing
EPEC claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is because the issues touched upon are of transcendental importance. The trial court
implemented. EPEC insists that RR 2-2012's mechanism of requiring even locators considered the encompassing effect that RR 2- 2012 may have in the numerous
to pay the tax first and to subsequently claim a credit or to refund the taxes paid freeport and economic zones in the Philippines, as well as its potential impact on
effectively removes the locators' tax-exempt status. hundreds of investors operating within the zones.

The RTC initially issued a temporary restraining order to stay the implementation of The RTC then held that even if Lazatin does not have legal standing, EPEC' s
RR 2-2012. It eventually issued a writ of preliminary injunction in its order dated April intervention cured this defect: EPEC, as a locator within the Clark FEZ, would be
4, 2012. adversely affected by the implementation of RR 2-2012.

The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400
petition for certiorari9 before the Court of Appeals (CA) assailing the RTC's order. because it imposes taxes that, by law, are not due in the first place.14 Since RA 9400
The CA granted the petition10 and denied the respondents' subsequent motion for clearly grants tax and duty-free incentives to Clark FEZ locators, a revocation of
reconsideration.11 these incentives by an RR directly contravenes the express intent of the
Legislature.15 In effect, the petitioners encroached upon the prerogative to enact,
The respondents stood their ground by filing a petition for review on certiorari before amend, or repeal laws, which the Constitution exclusively granted to Congress.
this Court (G.R. No. 208387) to reinstate the RTC's injunction against the
implementation of RR 2-2012, and by moving for the issuance of a temporary The Petition
restraining order and/or writ of preliminary injunction. We denied the motion but
nevertheless required the petitioners to comment on the petition. The petitioners anchor their present petition on two arguments: 1) respondents
have no legal standing, and 2) RR 2-2012 is valid and constitutional.
The proceedings before the RTC in the meanwhile continued. On April 18, 2012,
petitioner Lazatin amended his original petition, converting it to a petition for The petitioners submit that the Lazatin and EPEC do not have legal standing to
declaratory relief.12 The RTC admitted the amended petition and allowed EPEC to assail the validity of RR 2-2012.
intervene.
First, the petitioners claim that Lazatin does not have the requisite legal standing as
In its decision dated November 8, 2013, the RTC ruled in favor of Lazatin and EPEC. he failed to exactly show how the implementation of RR 2-2012 would impair the
exercise his official functions. Respondent Lazatin merely generally alleged that his
First, on the procedural aspect, the RTC held that the original petition's amendment constitutional prerogatives to pass or amend laws were gravely impaired or were
is allowed by the rules and that amendments are largely preferred; it allowed the about to be impaired by the issuance of RR 2-2012. He did not specify the power
amendment in the exercise of its sound judicial discretion to avoid multiplicity of suits that he, as a legislator, would be encroached upon.
and to give the parties an opportunity to thresh out the issues and finally reach a
conclusion.13 While the Clark FEZ is within the district that respondent Lazatin represents, the
petitioners emphasize that Lazatin failed to show that he is authorized to file a case
Second, the R TC held that Lazatin and EPEC had legal standing to question the on behalf of the locators in the FEZ, the local government unit, or his constituents in
validity of RR 2-2012. Lazatin's allegation that RR 2-2012 effectively amends and general.16 To the petitioners, if RR 2- 2012 ever caused injury to the locators or to
modifies RA 9400 gave him standing as a legislator: the amendment of a tax law is a any of Lazatin's constituents, only these injured parties possess the personality to
power that belongs exclusively to Congress. Lazatin's allegation, according to the
TAX 1 batch 1 Page 19 of 193
question the petitioners' actions; respondent Lazatin cannot claim this right on their imported products have not been removed from the FEZ, their earlier payment shall
behalf.17 be subject to a refund.

The petitioners claim, too, that the RTC should not have brushed aside the rules on The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax
standing on account of transcendental importance. To them, this case does not exemption privilege.1âwphi1 The regulation simply requires proof that a locator has
involve public funds, only a speculative loss of profits upon the implementation of RR complied with the conditions for tax exemption. If the locator cannot show that the
2-2012; nor is Lazatin a party with more direct and specific interest to raise the goods were retained and/or consumed within the FEZ, such failure creates the
issues in his petition.18 Citing Senate v. Ermita,19 the petitioners argue that the rules presumption that the goods have been introduced into the customs territory without
on standing cannot be relaxed. the appropriate permits.26 On the other hand, if they have duly proven the disposition
of the goods within the FEZ, their "advance payment" is subject to a refund. Thus, to
Second, petitioners also argue that EPEC does not have legal standing to intervene. the petitioners, to the extent that a refund is allowable, there is in reality a tax
That EPEC will ultimately bear the VAT and excise tax as an end-user, is exemption.27
misguided.20 The burden of payment of VAT and excise tax may be shifted to the
buyer21 and this burden, from the point of view of the transferee, is no longer a tax Counter-arguments
but merely a component of the cost of goods purchased. The statutory liability for the
tax remains with the seller. Thus, EPEC cannot say that when the burden is passed Respondents Lazatin and EPEC, maintaining that they have standing to question its
on to it, RR 2-2012 effectively imposes tax on it as a Clark FEZ locator. validity, insist that RR 2-2012 is unconstitutional.

The petitioners point out that RR 2-2012 imposes an "advance tax" only upon Respondents have standing as
importers of petroleum products. If EPEC is indeed a locator, then it enjoys tax and lawmaker and FEZ locator.
duty exemptions granted by RA 9400 so long as it does not bring the petroleum or
petroleum products to the Philippine customs territory.22 The respondents argue that a member of Congress has standing to protect the
prerogatives, powers, and privileges vested by the Constitution in his office.28 As a
The petitioners legally argue that RR 2-2012 is valid and constitutional. member of Congress, his standing to question executive issuances that infringe on
the right of Congress to enact, amend, or repeal laws has already been
First, petitioners submit that RR 2-2012's issuance and implementation are within recognized.29 He suffers substantial injury whenever the executive oversteps and
their powers to undertake.23 RR 2-2012 is an administrative issuance that enjoys the intrudes into his power as a lawmaker.30
presumption of validity in the manner that statutes enjoy this presumption; thus, it
cannot be nullified without clear and convincing evidence to the contrary.24 On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs.
Thus, being a Clark FEZ locator, EPEC is among the many businesses that would
Second, petitioners contend that while RA 9400 does grant tax and customs duty have been directly affected by its implementation.31
incentives to Clark FEZ locators, there are conditions before these benefits may be
availed of. The locators cannot invoke outright exemption from VAT and excise tax RR 2-2012 illegally imposes taxes
on its importations without first satisfying the conditions set by RA 9400, that is, the on Clark FEZs.
importation must not be removed from the FEZ and introduced into the Philippine
customs territory.25 The respondents underscore that RA 9400 provides FEZ locators certain incentives,
such as tax- and duty-free importations of raw materials and capital equipment.
These locators enjoy what petitioners call a qualified tax exemption. They must first These provisions of the law must be interpreted in a way that will give full effect to
pay the corresponding taxes on its imported petroleum. Then, they must submit the law's policy and objective, which is to maximize the benefits derived from the FEZs in
documents required under RR 2-2012. If they have sufficiently shown that the promoting economic and social development.32

TAX 1 batch 1 Page 20 of 193

They admit that the law subjects to taxes and duties the goods that were brought into The Court's Ruling
the FEZ and subsequently introduced to the Philippine customs territory. However,
contrary to petitioners' position that locators' tax and duty exemptions We do not find the petition meritorious.
are qualified, their incentives apply automatically.
I. Respondents have legal
According to the respondents, petitioners' interpretation of the law contravenes the standing to file petition for
policy laid down by RA 9400, because it makes the incentives subject to a declaratory relief.
suspensive condition. They claim that the condition - the removal of the goods from
the FEZ and their subsequent introduction to the customs territory - is resolutory; The party seeking declaratory relief must have a legal interest in the controversy for
locators enjoy the granted incentives upon bringing the goods into the FEZ. It is the action to prosper.40 This interest must be material not merely incidental. It must
only when the goods are shown to have been brought into the customs territory will be an interest that which will be affected by the challenged decree, law or regulation.
the proper taxes and duties have to be paid.33 RR 2-2012 reverses this process by It must be a present substantial interest, as opposed to a mere expectancy or a
requiring the locators to pay "advance" taxes and duties first and to subsequently future, contingent, subordinate, or consequential interest.41
prove that they are entitled to a refund, thereafter.34 RR 2-2012 indeed allows a
refund, but a refund of taxes that were not due in the first place.35 Moreover, in case the petition for declaratory relief specifically involves a question of
constitutionality, the courts will not assume jurisdiction over the case unless the
The respondents add that even the refund mechanism under RR 2-2012 is person challenging the validity of the act possesses the requisite legal standing to
problematic. They claim that RR 2-2012 only allows a refund when the petroleum pose the challenge.42
products brought into the FEZ are subsequently sold to FEZ locators or to entities
that similarly enjoy exemption from direct and indirect taxes. The issuance does not Locus standi is a personal and substantial interest in a case such that the party has
envision a situation where the petroleum products are directly brought into the FEZ sustained or will sustain direct injury as a result of the challenged governmental act.
and are consumed by the same entity/locator.36 Further, the refund process takes a The question is whether the challenging party alleges such personal stake in the
considerable length of time to secure, thus requiring cash outlay on the part of outcome of the controversy so as to assure the existence of concrete adverseness
locators;37 even when the claim for refund is granted, the refund will not be in cash, that would sharpen the presentation of issues and illuminate the court in ruling on the
but in the form of a Tax Credit Certificate (TCC).38 constitutional question posed.43

As the challenged regulation directly contravenes incentives legitimately granted by a We rule that the respondents satisfy these standards.
legislative act, the respondents argue that in issuing RR 2-2012, the petitioners not
only encroached upon congressional prerogatives and arrogated powers unto Lazatin has legal standing as
themselves; they also effectively violated, brushed aside, and rendered nugatory the a legislator.
rigorous process required in enacting or amending laws.39
Lazatin filed the petition for declaratory relief before the RTC in his capacity as a
Issues member of Congress.44 He alleged that RR 2-2012 was issued directly contravening
RA 9400, a legislative enactment. Thus, the regulation encroached upon the
We shall decide the following issues: Congress' exclusive power to enact, amend, or repeal laws.45 According to Lazatin, a
member of Congress has standing to challenge the validity of an executive issuance
I. Whether respondents Lazatin and EPEC have legal standing to bring the action of if it tends to impair his prerogatives as a legislator.46
declaratory relief; and
We agree with Lazatin.
II. Whether RR 2-2012 is valid and constitutional.

TAX 1 batch 1 Page 21 of 193

In Biraogo v. The Philippine Truth Commission,47 we ruled that legislators have the In sum, the respondents' respective interests in this case are sufficiently substantial
legal standing to ensure that the prerogatives, powers, and privileges vested by the to be directly affected by the implementation of RR 2-2012. The RTC therefore did
Constitution in their office remain inviolate. To this end, members of Congress are not err when it gave due course to Lazatin's petition for declaratory relief as well as
allowed to question the validity of any official action that infringes on their EPEC's petition-in-intervention.
prerogatives as legislators.48
In light of this ruling, we see no need to rule on the claimed transcendental
Thus, members of Congress possess the legal standing to question acts that amount importance of the issues raised.
to a usurpation of the legislative power of Congress.49 Legislative power is
exclusively vested in the Legislature. When the implementing rules and regulations II. RR 2-2012 is invalid and
issued by the Executive contradict or add to what Congress has provided by unconstitutional.
legislation, the issuance of these rules amounts to an undue exercise of legislative
power and an encroachment of Congress' prerogatives. On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional
because: a) it illegally imposes taxes upon FEZ enterprises, which, by law, enjoy tax-
To the same extent that the Legislature cannot surrender or abdicate its legislative exempt status, and b) it effectively amends the law (i.e., RA 7227, as amended by
power without violating the Constitution,50 so also is a constitutional violation RA 9400) and thereby encroaches upon the legislative authority reserved exclusively
committed when rules and regulations implementing legislative enactments are by the Constitution for Congress.
contrary to existing statutes. No law can be amended by a mere administrative rule
issued for its implementation; administrative or executive acts are invalid if they FEZ enterprises enjoy tax- and
contravene the laws or to the Constitution.51 duty-free incentives on its
importations.
Thus, the allegation that RR 2-2012 - an executive issuance purporting to implement
the provisions of the Tax Code - directly contravenes RA 9400 clothes a member of In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and
Congress with legal standing to question the issuance to prevent undue Development Act of 1992" to enhance the benefits to be derived from the Subic and
encroachment of legislative power by the executive. Clark military reservations.54 RA 7227 established the Subic Special economic zone
and granted such special territory various tax and duty incentives.
EPEC has legal standing as a
Clark FEZ locator. To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the
legislature enacted RA 9400 to amend RA 7227.55 Subsequently, the Department of
EPEC intervened in the proceedings before the RTC based on the allegation that, as Finance issued Department Order No. 3-200856 to implement RA
a Clark FEZ locator, it will be directly affected by the implementation of RR 2-2012.52 9400 (Implementing Rules).

We agree with EPEC. Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs
territory separate and distinct from the Philippines customs territory. Thus, as
It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and opposed to importations into and establishments in the Philippines customs
applies to all petroleum and petroleum products that are imported directly from territory,57 which are fully subject to Philippine customs and tax
abroad to the Philippines, including FEZs.53 laws, importations into and establishments located within the Clark FEZ (FEZ
Enterprises )58 enjoy special incentives, including tax and duty-free
As an enterprise located in the Clark FEZ, its importations of petroleum and importation.59 More specifically, Clark FEZ enterprises shall be entitled to
petroleum products will be directly affected by RR 2-2012. Thus, its interest in the the freeport status of the zone and a 5% preferential income tax rate on its gross
subject matter - a personal and substantial one - gives it legal standing to question income, in lieu of national and local taxes.60
the issuance's validity.
TAX 1 batch 1 Page 22 of 193
RA 9400 and its Implementing Rules grant the following: Third, the claim shall only be granted upon showing that the necessary condition has
been fulfilled.
First, the law provides that importations of raw materials and capital equipment into
the FEZs shall be tax- and duty-free. It is the specific transaction (i.e., importation) At first glance, this imposition - a mere tax administration measure according to the
that is exempt from taxes and duties. petitioners - appears to be consistent with the taxation of similar imported articles
under the Tax Code, specifically under its Sections 10764 and 14865 (in relation with
Second, the law also grants FEZ enterprises tax- and duty-free importation and a Sections 12966 and 13167).
preferential rate in the payment of income tax, in lieu of all national and local taxes.
These incentives exempt the establishment itself from taxation. However, RR 2-2012 explicitly covers even petroleum and petroleum products
imported and/or brought into the various FEZs in the Philippines. Hence, when
Thus, the Legislature intended FEZs to enjoy tax incentives in general - whether with an FEZ enterprise brings petroleum and petroleum products into the FEZ, under RR
respect to the transactions that take place within its special jurisdiction, or 2-2012, it shall be considered an importer liable for the taxes due on these products.
the persons/establishments within the jurisdiction. From this perspective, the tax
incentives enjoyed by FEZ enterprises must be understood to necessarily The crux of the controversy can be found in this feature of the challenged regulation.
include the tax exemption of importations of selected articles into the FEZ.
The petitioners assert that RR 2-2012 simply implements the provisions of the Tax
We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted Code on collection of internal revenue taxes, more specifically VAT and excise tax,
within the context and in a manner that promotes the legislative intent of RA on the importation of petroleum and petroleum products. To them, FEZ enterprises
722761 and, by extension, RA 9400. Thus, we recognized that FEZ enterprises are enjoy a qualified tax exemption such that they have to pay the tax due on the
exempt from both direct and indirect internal revenue taxes.62 In particular, they are importation first, and thereafter claim a refund, which shall be allowed only upon
considered VAT-exempt entities.63 showing that the goods were not introduced to the Philippine customs territory.

In line with this comprehensive interpretation, we rule that the tax exemption enjoyed On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ
by FEZ enterprises covers internal revenue taxes imposed on goods brought into the enterprises, which in the first place are not liable for taxes. They emphasize that the
FEZ, including the Clark FEZ, such as VAT and excise tax. tax incentives under RA 9400 apply automatically upon the importation of the goods.
The proper taxes on the importation shall only be due if the enterprises can later
RR 2-2012 illegally imposes VAT and excise show that the goods were subsequently introduced to the Philippine customs
tax on goods brought into the FEZs. territory.

Section 3 of RR 2-2012 provides the following: Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to
VAT and excise tax, as we discussed above, it follows and we accordingly rule
First, whenever petroleum and petroleum products are imported and/or brought that the taxes imposed by Section 3 of RR 2-2012 directly contravene these
directly to the Philippines, the importer of these goods is required to pay the exemptions. First, the regulation erroneously considers petroleum and petroleum
corresponding VAT and excise tax due on the importation. products brought into a FEZ as taxable importations. Second, it unreasonably
burdens FEZ enterprises by making them pay the corresponding taxes - an
Second, the importer, as the payor of the taxes, may subsequently seek a refund of obligation from which the law specifically exempts them - even if there is a
the amount previously paid by filing a corresponding claim with the Bureau of subsequent opportunity to refund the payments made.
Customs (BOC).
Petroleum and petroleum products brought
into the FEZ and which remain therein are
not taxable importations.
TAX 1 batch 1 Page 23 of 193
RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As
petroleum products into FEZs. Strictly speaking, however, articles brought into these long as the goods remain (e.g., sale and/or consumption of the article within the
FEZs are not taxable importations under the law based on the following FEZ) in the FEZ or re-exported to another foreign jurisdiction, they shall continue to
considerations: be tax-free.79 However, once the goods are introduced into the Philippine customs
territory, it ceases to enjoy the tax privileges accorded to FEZs. It shall then be
First, importation refers to bringing goods from abroad into the Philippine customs considered as an importation subject to all applicable national internal revenue taxes
jurisdiction. It begins from the time the goods enter the Philippine jurisdiction and is and customs duties.
deemed terminated when the applicable taxes and duties have been paid or the
goods have left the jurisdiction of the BOC.68 The tax exemption granted to FEZ
enterprises is an immunity from tax liability
Second, under the Tax Code, imported goods are subject to VAT and excise tax. and from the payment of the tax.
These taxes shall be paid prior to the release of the goods from customs
custody.69 Also, for VAT purposes,70 an importer refers to any person who brings The respondents claim that when RR 2-2012 was issued, petroleum and petroleum
goods into the Philippines. products brought into the FEZ by FEZ enterprises suddenly became subject to VAT
and excise tax, in direct contravention of RA 9400 (with respect to Clark FEZ
Third, the Philippine VAT system adheres to the cross border doctrine.71 Under this enterprises). Such imposition is not authorized under any law, including the Tax
rule, no VAT shall be imposed to form part of the cost of the goods destined for Code.80
consumption outside the Philippine customs territory.72 Thus, we have already ruled
before that an FEZ enterprise cannot be directly charged for the VAT on its sales, On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax
nor can VAT be passed on to them indirectly as added cost to their purchases.73 exemption privileges of FEZ enterprises.1âwphi1 As their tax exemption is
merely qualified, they cannot invoke outright exemption. Thus, FEZ enterprises are
Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain required to pay internal revenue taxes first on their imported petroleum under RR 2-
special areas as separate customs territories .74 In this regard, we have already held 2012. They may then refund their previous payment upon showing that the condition
that such jurisdictions, such as the Clark FEZ, are, by legal fiction, foreign under RA 9400 has been satisfied - that is, the goods have not been introduced to
territories.75 the Philippines customs territory.81 To the petitioners, to the extent that a refund is
allowable, there is still in reality a tax exemption.82
Fifth, the Implementing Rules provides that goods initially introduced into the FEZs
and subsequently brought out therefrom and introduced into the Philippine customs We disagree with this contention.
territory shall be considered as importations and thereby subject to the VAT.76 One
such instance is the sale by any FEZ enterprise to a customer located in the customs First, FEZ enterprises bringing goods into the FEZ should not be considered
territory, which the VAT regulations refer to as a technical importation.77 as importers subject to tax in the same manner that the very act of bringing goods
into these special territories does not make them taxable importations. We
We find it clear from all these that when goods (e.g., petroleum and petroleum emphasize that the exemption from taxes and duties under RA 9400 are granted not
products) are brought into an FEZ, the goods remain to be in foreign territory and are only to importations into the FEZ, but also specifically to each FEZ enterprise. As
not therefore goods introduced into Philippine customs territory subject to Philippine discussed, the tax exemption enjoyed by FEZ enterprises necessarily includes the
customs and tax laws.78 tax exemption of the importations of selected articles into the FEZ.

Stated differently, goods brought into and traded within an FEZ are generally beyond Second, the essence of a tax exemption is the immunity or freedom from a charge
the reach of national internal revenue taxes and customs duties enforced in the or burden to which others are subjected.83 It is a waiver of the government's right to
Philippine customs territory. This is consistent with the incentive granted to FEZs collect84 the amounts that would have been collectible under our tax laws. Thus,
exempting the importation itself from taxes and duties.
TAX 1 batch 1 Page 24 of 193
when the law speaks of a tax exemption, it should be understood as freedom from of petroleum and petroleum products, not once did it mention the pertinent chapters
the imposition and payment of a particular tax. of the Tax Code on VAT and excise tax.

Based on this premise, we rule that the refund mechanism provided by RR 2-2012 While we recognize petitioners' essential rationale in issuing RR 2-2012, the
does not amount to a tax exemption. Even if the possibility of a subsequent refund procedures proposed by the issuance cannot be implemented at the expense of
exists, the fact remains that FEZ enterprises must still spend money and other entities that have been clearly granted statutory tax immunity.
resources to pay for something they should be immune to in the first place. This
completely contradicts the essence of their tax exemption. REVISED PAGE

In the same vein, we cannot agree with the view that FEZ enterprises have the duty Tax exemptions are granted for specific public interests that the Legislature
to prove their entitlement to tax exemption first before fully enjoying the same; we considers sufficient to offset the monetary loss in the grant of exemptions.89 To limit
find it illogical to determine whether a person is exempted from tax without first the tax-free importation privilege of FEZ enterprises by requiring them to pay subject
determining if he is subject to the tax being imposed. We have reminded the tax to a refund clearly runs counter to the Legislature's intent to create a free port where
authorities to determine first if a person is liable for a particular tax, applying the rule the "free flow of goods or capital within, into, and out of the zones" is ensured.90
of strict interpretation of tax laws, before asking him to prove his exemption
therefrom.85 Indeed, as entities exempted on taxes on importations, FEZ enterprises Finally, the State's inherent power to tax is vested exclusively in the
are clearly beyond the coverage of any law imposing those very charges. There is no Legislature.91 We have since ruled that the power to tax includes the power to grant
justifiable reason to require them to prove that they are exempted from it. tax exemptions.92 Thus, the imposition of taxes, as well as the grant and withdrawal
of tax exemptions, shall only be valid pursuant to a legislative enactment.
More importantly, we have also recognized that the exemption from local and
national taxes granted under RA 7227, as amended by RA 9400, are ipso As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly
facto accorded to FEZs. In case of doubt, conflicts with respect to such tax accorded by the legislative to FEZ enterprises, the *petitioners have arrogated upon
exemption privilege shall be resolved in favor of these special territories.86 themselves a power reserved exclusively to Congress, in violation of the doctrine of
separation of powers.
RR 2-2012 is unconstitutional.
In these lights, we hereby rule and declare that RR 2-2012 is null and void.
According to the respondents, the power to enact, amend, or repeal laws belong
exclusively to Congress.87 In passing RR 2-2012, petitioners illegally amended the WHEREFORE, we hereby DISMISS the petition for lack of merit, and
law - a power solely vested on the Legislature. accordingly AFFIRM decision of the Regional Trial Court dated November 8, 2013
2001 in SCA Case No. 12-410.
We agree with the respondents.
SO ORDERED.
The power of the petitioners to interpret tax laws is not absolute. The rule is that
regulations may not enlarge, alter, restrict, or otherwise go beyond the provisions of
the law they administer; administrators and implementors cannot engraft additional
requirements not contemplated by the legislature.88

It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code
provision it wishes to implement. While it purportedly establishes mere
administration measures for the collection of VAT and excise tax on the importation

TAX 1 batch 1 Page 25 of 193

 At the conclusion of the Second World War, the tenants who have all been tilling the
lands in Nasugbu for generations expressed their desire to purchase from Roxas y
Cia. the parcels which they actually occupied. For its part, the Government, in
consonance with the constitutional mandate to acquire big landed estates and
apportion them among landless tenants-farmers, persuaded the Roxas brothers to
part with their landholdings. Conferences were held with the farmers in the early part
of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the
Government for distribution to actual occupants for a price of P2,079,048.47 plus
P300,000.00 for survey and subdivision expenses.

It turned out however that the Government did not have funds to cover the purchase
G.R. No. L-25043             April 26, 1968 price, and so a special arrangement was made for the Rehabilitation Finance
Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan.
Collateral for such loan were the lands proposed to be sold to the farmers. Under the
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own
arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price
respective behalf and as judicial co-guardians of JOSE ROXAS, petitioners,
but by installment, and contracted with the Rehabilitation Finance Corporation to pay
vs.
its loan from the proceeds of the yearly amortizations paid by the farmers.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of
P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income
Leido, Andrada, Perez and Associates for petitioners.
tax purposes as gain on the sale of capital asset held for more than one year
Office of the Solicitor General for respondents.
pursuant to Section 34 of the Tax Code.
BENGZON, J.P., J.:
RESIDENTIAL HOUSE
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their
During their bachelor days the Roxas brothers lived in the residential house at Wright
grandchildren by hereditary succession the following properties:
St., Malate, Manila, which they inherited from their grandparents. After Antonio and
Eduardo got married, they resided somewhere else leaving only Jose in the old
(1) Agricultural lands with a total area of 19,000 hectares, situated in the
house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in
municipality of Nasugbu, Batangas province;
the sum of P8,000.00 a year.
(2) A residential house and lot located at Wright St., Malate, Manila; and
ASSESSMENTS
(3) Shares of stocks in different corporations.
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y
Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus
To manage the above-mentioned properties, said children, namely, Antonio Roxas, P10.00 compromise penalty for late payment, and P150.00 tax for dealers of
Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. securities for 1952 plus P10.00 compromise penalty for late payment. The
assessment for real estate dealer's tax was based on the fact that Roxas y Cia.
AGRICULTURAL LANDS received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to
Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental

TAX 1 batch 1 Page 26 of 193

income therefrom in the amount of P3,000.00 or more is considered a real estate Manila's neediest families
dealer and is liable to pay the corresponding fixed tax.
1955
The Commissioner of Internal Revenue justified his demand for the fixed tax on
dealers of securities against Roxas y Cia., on the fact that said partnership made Contributions to Contribution to
profits from the purchase and sale of securities.           Our Lady of Fatima Chapel,
FEU 50.00
In the same assessment, the Commissioner assessed deficiency income taxes ANTONIO ROXAS:
against the Roxas Brothers for the years 1953 and 1955, as follows:
1953
1953 1955 Contributions to —
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00 Pasay City Firemen Christmas
Fund 25.00
Jose Roxas 6,323.00 5,588.00
Pasay City Police Dept. X'mas fund 50.00
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of
the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the 1955
Nasugbu farm lands to the tenants, and the disallowance of deductions from gross
income of various business expenses and contributions claimed by Roxas y Cia. and Contributions to —
the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm
Baguio City Police Christmas fund 25.00
lands and sold them to the farmers on installment, the Commissioner considered the
partnership as engaged in the business of real estate, hence, 100% of the profits
Pasay City Firemen Christmas fund 25.00
derived therefrom was taxed.
Pasay City Police Christmas fund 50.00
The following deductions were disallowed:
EDUARDO ROXAS:
ROXAS Y CIA.:
1953
1953
Contributions to —
Tickets for Banquet in honor of
P 40.00 Hijas de Jesus' Retiro de Manresa
          S. Osmeña 450.00
Gifts of San Miguel beer 28.00 Philippines Herald's fund for
Manila's neediest families 100.00
Contributions to —
Philippine Air Force Chapel 1955
100.00
Contributions to Philippines
Manila Police Trust Fund 150.00           Herald's fund for Manila's
          neediest families 120.00
Philippines Herald's fund for 100.00
TAX 1 batch 1 Page 27 of 193
 JOSE ROXAS: estate. The business activity alluded to was the act of subdividing the Nasugbu farm
lands and selling them to the farmers-occupants on installment. To bolster his stand
1955 on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles
of partnership, quoted below:
Contributions to Philippines
          Herald's fund for Manila's
          neediest families 120.00 4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que
pueden pertenecer a ella en el futuro, alquilandoles por los plazos y demas
condiciones, estime convenientes y vendiendo aquellas que a juicio de sus
The Roxas brothers protested the assessment but inasmuch as said protest was gerentes no deben conservarse;
denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961.
The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining The above-quoted purpose notwithstanding, the proposition of the Commissioner of
the assessment except the demand for the payment of the fixed tax on dealer of Internal Revenue cannot be favorably accepted by Us in this isolated transaction with
securities and the disallowance of the deductions for contributions to the Philippine its peculiar circumstances in spite of the fact that there were hundreds of vendees.
Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment Although they paid for their respective holdings in installment for a period of ten
reads: years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer
during the ten-year amortization period.
WHEREFORE, the decision appealed from is hereby affirmed with respect to
petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby It should be borne in mind that the sale of the Nasugbu farm lands to the very
ordered to pay the respondent Commissioner of Internal Revenue the farmers who tilled them for generations was not only in consonance with, but more in
amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as obedience to the request and pursuant to the policy of our Government to allocate
deficiency income taxes for the years 1953 and 1955, plus 5% surcharge and lands to the landless. It was the bounden duty of the Government to pay the agreed
1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to
modified with respect to the partnership Roxas y Cia. in the sense that it subsequently subdivide them among the farmers at very reasonable terms and
should pay only P150.00, as real estate dealer's tax. With costs against prices. However, the Government could not comply with its duty for lack of funds.
petitioners. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way
and sold lands directly to the farmers in the same way and under the same terms as
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The would have been the case had the Government done it itself. For this magnanimous
Commissioner of Internal Revenue did not appeal. act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
The issues:
The power of taxation is sometimes called also the power to destroy. Therefore it
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary should be exercised with caution to minimize injury to the proprietary rights of a
gain, hence 100% taxable? taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg". And, in order to maintain the general public's trust
(2) Are the deductions for business expenses and contributions deductible? and confidence in the Government this power must be used justly and not
treacherously. It does not conform with Our sense of justice in the instant case for
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate the Government to persuade the taxpayer to lend it a helping hand and later on to
dealers? penalize him for duly answering the urgent call.

The Commissioner of Internal Revenue contends that Roxas y Cia. could be In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in
considered a real estate dealer because it engaged in the business of selling real question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the
TAX 1 batch 1 Page 28 of 193
farmers are capital assets, and the gain derived from the sale thereof is capital gain, university gives dividends to its stockholders. Located within the premises of the
taxable only to the extent of 50%. university, the chapel in question has not been shown to belong to the Catholic
Church or any religious organization. On the other hand, the lower court found that it
DISALLOWED DEDUCTIONS belongs to the Far Eastern University, contributions to which are not deductible
under Section 30(h) of the Tax Code for the reason that the net income of said
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a university injures to the benefit of its stockholders. The disallowance should be
banquet given in honor of Sergio Osmena and P28.00 for San Miguel beer given as sustained.
gifts to various persons. The deduction were claimed as representation expenses.
Representation expenses are deductible from gross income as expenditures incurred Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax
in carrying on a trade or business under Section 30(a) of the Tax Code provided the upon it, because although it earned a rental income of P8,000.00 per annum in 1952,
taxpayer proves that they are reasonable in amount, ordinary and necessary, and said rental income came from Jose Roxas, one of the partners. Section 194 of the
incurred in connection with his business. In the case at bar, the evidence does not Tax Code, in considering as real estate dealers owners of real estate receiving
show such link between the expenses and the business of Roxas y Cia. The findings rentals of at least P3,000.00 a year, does not provide any qualification as to the
of the Court of Tax Appeals must therefore be sustained. persons paying the rentals. The law, which states: 1äwphï1.ñët

The petitioners also claim deductions for contributions to the Pasay City Police, . . . "Real estate dealer" includes any person engaged in the business of
Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust buying, selling, exchanging, leasing or renting property on his own account as
Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of principal and holding himself out as a full or part-time dealer in real estate
Fatima chapel at Far Eastern University. or as an owner of rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year: . . . (Emphasis
The contributions to the Christmas funds of the Pasay City Police, Pasay City supplied) .
Firemen and Baguio City Police are not deductible for the reason that the Christmas
funds were not spent for public purposes but as Christmas gifts to the families of the is too clear and explicit to admit construction. The findings of the Court of Tax
members of said entities. Under Section 39(h), a contribution to a government entity Appeals or, this point is sustained.1äwphï1.ñët
is deductible when used exclusively for public purposes. For this reason, the
disallowance must be sustained. On the other hand, the contribution to the Manila To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas,
Police trust fund is an allowable deduction for said trust fund belongs to the Manila Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income
Police, a government entity, intended to be used exclusively for its public functions. tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: *

The contributions to the Philippines Herald's fund for Manila's neediest families were ANTONIO ROXAS
disallowed on the ground that the Philippines Herald is not a corporation or an
association contemplated in Section 30 (h) of the Tax Code. It should be noted Net income per return P315,476.59
however that the contributions were not made to the Philippines Herald but to a
Add: 1/3 share, profits in Roxas y
group of civic spirited citizens organized by the Philippines Herald solely for P 153,249.15
Cia.
charitable purposes. There is no question that the members of this group of citizens
do not receive profits, for all the funds they raised were for Manila's neediest Less amount declared 146,135.46
families. Such a group of citizens may be classified as an association organized
exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code.
Amount understated P 7,113.69
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Contributions disallowed 115.00
Lady of Fatima chapel at the Far Eastern University on the ground that the said
TAX 1 batch 1 Page 29 of 193
 P 7,228.69 Net taxable income P299,592.47
Less 1/3 share of contributions Tax Due P147,250.00
amounting to P21,126.06
disallowed from partnership but Tax paid 147,159.00
allowed to partners 7,042.02 186.67
Deficiency P91.00
Net income per review P315,663.26 ===========

Less: Exemptions 4,200.00 JOSE ROXAS

Net income per return P222,681.76
Net taxable income P311,463.26 Add: 1/3 share, profits in Roxas y
P153,429.15
Cia.
Tax due 154,169.00
Less amount reported 146,135.46
Tax paid 154,060.00

Amount understated 7,113.69

Deficiency P 109.00
========== Less 1/3 share of contributions
disallowed from partnership but
EDUARDO ROXAS
allowed as deductions to partners 7,042.02 71.67
P
Net income per return
304,166.92
Net income per review P222,753.43
Add: 1/3 share, profits in Roxas y
P 153,249.15 Less: Exemption 1,800.00
Cia
Less profits declared 146,052.58
Net income subject to tax P220,953.43

Amount understated P 7,196.57 Tax due P102,763.00

Less 1/3 share in contributions Tax paid 102,714.00

amounting to P21,126.06
disallowed from partnership but Deficiency P 49.00
allowed to partners 7,042.02 155.55 ===========

Net income per review P304,322.47 WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby
ordered to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and
Less: Exemptions 4,800.00 Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective

TAX 1 batch 1 Page 30 of 193

sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all This is a petition for review on certiorari to reverse the June 10, 1977 decision of the
corresponding for the year 1955. No costs. So ordered. Central Board of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L.
Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City
Assessor of Manila" which affirmed the March 29, 1976 decision of the Board of Tax
Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose
Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes
v. City Assessor of Manila" upholding the classification and assessments made by
the City Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of
land situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased and
entirely occupied as dwelling sites by tenants. Said tenants were paying monthly
rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14,
1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one
year from its effectivity, an increase in monthly rentals of dwelling units or of lands on
which another's dwelling is located, where such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil
Code for two years from its effectivity thereby disallowing the ejectment of lessees
upon the expiration of the usual legal period of lease. On October 12, 1972,
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending
G.R. Nos. L-49839-46             April 26, 1991 the aforementioned provision of the Civil Code, excepting leases with a definite
period. Consequently, the Reyeses, petitioners herein, were precluded from raising
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners, the rentals and from ejecting the tenants. In 1973, respondent City Assessor of
vs. Manila re-classified and reassessed the value of the subject properties based on the
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities schedule of market values duly reviewed by the Secretary of Finance. The revision,
as appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT as expected, entailed an increase in the corresponding tax rates prompting
APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment
FLORES, in their capacities as appointed and Acting Members of the BOARD Appeals. They averred that the reassessments made were "excessive, unwarranted,
OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his capacity as inequitable, confiscatory and unconstitutional" considering that the taxes imposed
City Assessor of Manila, respondents. upon them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the land
Barcelona, Perlas, Joven & Academia Law Offices for petitioners. values instead of the comparable sales approach which the City Assessor adopted
(Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:

WHEREFORE, and considering that the appellants have failed to submit

PARAS, J.: concrete evidence which could overcome the presumptive regularity of the
TAX 1 batch 1 Page 31 of 193
 classification and assessments appear to be in accordance with the base THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE
schedule of market values and of the base schedule of building unit values, SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF
as approved by the Secretary of Finance, the cases should be, as they are APPELLANTS' PROPERTIES.
hereby, upheld.
The petition is impressed with merit.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p.
22). The crux of the controversy is in the method used in tax assessment of the
properties in question. Petitioners maintain that the "Income Approach" method
The Reyeses appealed to the Central Board of Assessment Appeals.1âwphi1 They would have been more realistic for in disregarding the effect of the restrictions
submitted, among others, the summary of the yearly rentals to show the income imposed by P.D. 20 on the market value of the properties affected, respondent
derived from the properties. Respondent City Assessor, on the other hand, submitted Assessor of the City of Manila unlawfully and unjustifiably set increased new
three (3) deeds of sale showing the different market values of the real property assessed values at levels so high and successive that the resulting annual real
situated in the same vicinity where the subject properties of petitioners are located. estate taxes would admittedly exceed the sum total of the yearly rentals paid or
To better appreciate the locational and physical features of the land, the Board of payable by the dweller tenants under P.D. 20. Hence, petitioners protested against
Hearing Commissioners conducted an ocular inspection with the presence of two the levels of the values assigned to their properties as revised and increased on the
representatives of the City Assessor prior to the healing of the case. Neither the ground that they were arbitrarily excessive, unwarranted, inequitable, confiscatory
owners nor their authorized representatives were present during the said ocular and unconstitutional (Rollo, p. 10-A).
inspection despite proper notices served them. It was found that certain parcels of
land were below street level and were affected by the tides (Rollo, pp. 24-25). On the other hand, while respondent Board of Tax Assessment Appeals admits in its
decision that the income approach is used in determining land values in some
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, vicinities, it maintains that when income is affected by some sort of price control, the
the dispositive portion of which reads: same is rejected in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project the true market
WHEREFORE, the appealed decision insofar as the valuation and value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
assessment of the lots covered by Tax Declaration Nos. (5835) PD-5847, "Comparable Sales Approach" on the ground that the value estimate of the
(5839), (5831) PD-5844 and PD-3824 is affirmed. properties predicated upon prices paid in actual, market transactions would be a
uniform and a more credible standards to use especially in case of mass appraisal of
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 properties (Ibid.). Otherwise stated, public respondents would have this Court
and (1) PD-266, the appealed Decision is modified by allowing a 20% completely ignore the effects of the restrictions of P.D. No. 20 on the market value of
reduction in their respective market values and applying therein the properties within its coverage. In any event, it is unquestionable that both the
assessment level of 30% to arrive at the corresponding assessed value. "Comparable Sales Approach" and the "Income Approach" are generally acceptable
methods of appraisal for taxation purposes (The Law on Transfer and Business
SO ORDERED. (Decision of the Central Board of Assessment Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the
Appeals, Rollo, p. 27) propriety of one as against the other would of course depend on several factors.
Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao
Petitioner's subsequent motion for reconsideration was denied, hence, this petition. Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and
elements of value and must exercise a prudent discretion in reaching conclusions.
The Reyeses assigned the following error:
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of
taxation must not only be uniform, but must also be equitable and progressive.
TAX 1 batch 1 Page 32 of 193
Uniformity has been defined as that principle by which all taxable articles or kinds of property for taxation purposes is that the property must be "appraised at its current
property of the same class shall be taxed at the same rate (Churchill v. Concepcion, and fair market value."
34 Phil. 969 [1916]).
By no strength of the imagination can the market value of properties covered by P.D.
Notably in the 1935 Constitution, there was no mention of the equitable or No. 20 be equated with the market value of properties not so covered. The former
progressive aspects of taxation required in the 1973 Charter (Fernando "The has naturally a much lesser market value in view of the rental restrictions.
Constitution of the Philippines", p. 221, Second Edition). Thus, the need to examine
closely and determine the specific mandate of the Constitution. Ironically, in the case at bar, not even the factors determinant of the assessed value
of subject properties under the "comparable sales approach" were presented by the
Taxation is said to be equitable when its burden falls on those better able to pay. public respondents, namely: (1) that the sale must represent a bonafide arm's length
Taxation is progressive when its rate goes up depending on the resources of the transaction between a willing seller and a willing buyer and (2) the property must be
person affected (Ibid.). comparable property (Rollo, p. 27). Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the time in
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the question, there were hardly any willing buyers. As a general rule, there were no
powers of government. But for all its plenitude the power to tax is not unconfined as takers so that there can be no reasonable basis for the conclusion that these
there are restrictions. Adversely effecting as it does property rights, both the due properties were comparable with other residential properties not burdened by P.D.
process and equal protection clauses of the Constitution may properly be invoked to 20. Neither can the given circumstances be nonchalantly dismissed by public
invalidate in appropriate cases a revenue measure. If it were otherwise, there would respondents as imposed under distressed conditions clearly implying that the same
be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax involves were merely temporary in character. At this point in time, the falsity of such premises
the power to destroy." The web or unreality spun from Marshall's famous dictum was cannot be more convincingly demonstrated by the fact that the law has existed for
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is around twenty (20) years with no end to it in sight.
not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v.
Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, Verily, taxes are the lifeblood of the government and so should be collected without
139 SCRA 439 [1985]). unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for government itself It is
In the same vein, the due process clause may be invoked where a taxing statute is therefore necessary to reconcile the apparently conflicting interests of the authorities
so arbitrary that it finds no support in the Constitution. An obvious example is where and the taxpayers so that the real purpose of taxations, which is the promotion of the
it can be shown to amount to confiscation of property. That would be a clear abuse of common good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et
power (Sison v. Ancheta, supra). al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and
The taxing power has the authority to make a reasonable and natural classification P.D. 20) under the principle of social justice should not now be penalized by the
for purposes of taxation but the government's act must not be prompted by a spirit of same government by the imposition of excessive taxes petitioners can ill afford and
hostility, or at the very least discrimination that finds no support in reason. It suffices eventually result in the forfeiture of their properties.
then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the By the public respondents' own computation the assessment by income approach
conditions not being different both in the privileges conferred and the liabilities would amount to only P10.00 per sq. meter at the time in question.
imposed (Ibid., p. 662).
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that of public respondents are REVERSED and SET ASIDE; and (e) the respondent
the first Fundamental Principle to guide the appraisal and assessment of real Board of Assessment Appeals of Manila and the City Assessor of Manila are ordered

TAX 1 batch 1 Page 33 of 193

to make a new assessment by the income approach method to guarantee a fairer Private respondent is a foreign corporation represented in the Philippines by
and more realistic basis of computation (Rollo, p. 71). Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel
M/V Gardenia. In December 1980, NASUTRA2 chartered M/V Gardenia to load
SO ORDERED. 16,500 metric tons of raw sugar in the Philippines.3 On December 23, 1980, Mr.
Edilberto Lising, the operations supervisor of Soriamont Agency,4 paid the required
income and common carrier's taxes in the respective sums of FIFTY-NINE
THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE
CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED
NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
CENTAVOS (P107,142.75) based on the expected gross receipts of the
vessel.5 Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar
for loading. On January 10, 1981, NASUTRA and private respondent's agent
mutually agreed to have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier's taxes as erroneous since
no receipt was realized from the charter agreement, private respondent instituted a
claim for tax credit or refund of the sum ONE HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75)
before petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner
failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed
a petition for review6 before public respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the
G.R. No. L-68252 May 26, 1995 following: that taxes are presumed to have been collected in accordance with law;
that in an action for refund, the burden of proof is upon the taxpayer to show that
COMMISSIONER OF INTERNAL REVENUE, petitioner, taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said
vs. burden is fatal to the action for refund; and that claims for refund are construed
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP strictly against tax claimants.7
AGENCIES INC., and COURT OF TAX APPEALS, respondents.
After trial, respondent tax court decided in favor of the private respondent. It held:

It has been shown in this case that 1) the petitioner has complied with
PUNO, J.: the mentioned statutory requirement by having filed a written claim for
refund within the two-year period from date of payment; 2) the
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is respondent has not issued any deficiency assessment nor disputed
entitled to a refund or tax credit for amounts representing pre-payment of income and the correctness of the tax returns and the corresponding amounts of
common carrier's taxes under the National Internal Revenue Code, section 24 (b) prepaid income and percentage taxes; and 3) the chartered vessel
(2), as amended.1 sailed out of the Philippine port with absolutely no cargo laden on
board as cleared and certified by the Customs authorities;
nonetheless 4) respondent's apparent bit of reluctance in validating
TAX 1 batch 1 Page 34 of 193
 the legal merit of the claim, by and large, is tacked upon the There is no dispute about the applicable law. It is section 24 (b) (2) of the National
"examiner who is investigating petitioner's claim for refund which is Internal Revenue Code which at that time provides as follows:
the subject matter of this case has not yet submitted his report.
Whether or not respondent will present his evidence will depend on A corporation organized, authorized, or existing under the laws of any
the said report of the examiner." (Respondent's Manifestation and foreign country, engaged in trade or business within the Philippines,
Motion dated September 7, 1982). Be that as it may the case was shall be taxable as provided in subsection (a) of this section upon the
submitted for decision by respondent on the basis of the pleadings total net income derived in the preceding taxable year from all sources
and records and by petitioner on the evidence presented by within the Philippines: Provided, however, That international carriers
counsel sans the respective memorandum. shall pay a tax of two and one-half per cent (2 1/2%) on their gross
Philippine billings: "Gross Philippine Billings" include gross revenue
An examination of the records satisfies us that the case presents no realized from uplifts anywhere in the world by any international carrier
dispute as to relatively simple material facts. The circumstances doing business in the Philippines of passage documents sold therein,
obtaining amply justify petitioner's righteous indignation to a more whether for passenger, excess baggage or mail, provided the cargo or
expeditious action. Respondent has offered no reason nor made effort mail originates from the Philippines. The gross revenue realized from
to submit any controverting documents to bash that patina of the said cargo or mail include the gross freight charge up to final
legitimacy over the claim. But as might well be, towards the end of destination. Gross revenue from chartered flights originating from the
some two and a half years of seeming impotent anguish over the Philippines shall likewise form part of "Gross Philippine Billings"
pendency, the respondent Commissioner of Internal Revenue would regardless of the place or payment of the passage documents . . . . .
furnish the satisfaction of ultimate solution by manifesting that "it is
now his turn to present evidence, however, the Appellate Division of Pursuant to this provision, a resident foreign corporation engaged in the transport of
the BIR has already recommended the approval of petitioner's claim cargo is liable for taxes depending on the amount of income it derives from sources
for refund subject matter of this petition. The examiner who examined within the Philippines. Thus, before such a tax liability can be enforced the taxpayer
this case has also recommended the refund of petitioner's claim. must be shown to have earned income sourced from the Philippines.
Without prejudice to withdrawing this case after the final approval of
petitioner's claim, the Court ordered the resetting to September 7, We agree with petitioner that a claim for refund is in the nature of a claim for
1983." (Minutes of June 9, 1983 Session of the Court) We need not exemption8 and should be construed in strictissimi juris against the
fashion any further issue into an apparently settled legal situation as taxpayer.9 Likewise, there can be no disagreement with petitioner's stance that
far be it from a comedy of errors it would be too much of a stretch to private respondent has the burden of proof to establish the factual basis of its claim
hold and deny the refund of the amount of prepaid income and for tax refund.
common carrier's taxes for which petitioner could no longer be made
accountable. The pivotal issue involves a question of fact — whether or not the private respondent
was able to prove that it derived no receipts from its charter agreement, and hence is
On August 3, 1984, respondent court denied petitioner's motion for reconsideration, entitled to a refund of the taxes it pre-paid to the government.
hence, this petition for review on certiorari.
The respondent court held that sufficient evidence has been adduced by the private
Petitioner now contends: (1) private respondent has the burden of proof to support its respondent proving that it derived no receipt from its charter agreement with
claim of refund; (2) it failed to prove that it did not realize any receipt from its charter NASUTRA. This finding of fact rests on a rational basis, and hence must be
agreement; and (3) it suppressed evidence when it did not present its charter sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V
agreement. "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load and
returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance
We find no merit in the petition. Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo
TAX 1 batch 1 Page 35 of 193
while Exhibit "F" is the Certification by the Officer-in-Charge, Export Division of the The power of taxation is sometimes called also the power to destroy.
Bureau of Customs Iloilo. The correctness of the contents of these documents Therefore it should be exercised with caution to minimize injury to the
regularly issued by officials of the Bureau of Customs cannot be doubted as indeed, proprietary rights of a taxpayer. It must be exercised fairly, equally
they have not been contested by the petitioner. The records also reveal that in the and uniformly, lest the tax collector kill the "hen that lays the golden
course of the proceedings in the court a quo, petitioner hedged and hawed when its egg." And, in order to maintain the general public's trust and
turn came to present evidence. At one point, its counsel manifested that the BIR confidence in the Government this power must be used justly and not
examiner and the appellate division of the BIR have both recommended the approval treacherously.
of private respondent's claim for refund. The same counsel even represented that
the government would withdraw its opposition to the petition after final approval of IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated
private respondents' claim. The case dragged on but petitioner never withdrew its September 15, 1983, is AFFIRMED in toto. No costs.
opposition to the petition even if it did not present evidence at all. The insincerity of
petitioner's stance drew the sharp rebuke of respondent court in its Decision and for SO ORDERED.
good reason. Taxpayers owe honesty to government just as government owes
fairness to taxpayers.

In its last effort to retain the money erroneously prepaid by the private respondent,
petitioner contends that private respondent suppressed evidence when it did not
present its charter agreement with NASUTRA. The contention cannot succeed. It
presupposes without any basis that the charter agreement is prejudicial evidence
against the private respondent. 10 Allegedly, it will show that private respondent
earned a charter fee with or without transporting its supposed cargo from Iloilo to
Japan. The allegation simply remained an allegation and no court of justice will
regard it as truth. Moreover, the charter agreement could have been presented by
petitioner itself thru the proper use of a subpoena duces tecum. It never did either
because of neglect or because it knew it would be of no help to bolster its
position. 11 For whatever reason, the petitioner cannot take to task the private
respondent for not presenting what it mistakenly calls "suppressed evidence."

We cannot but bewail the unyielding stance taken by the government in refusing to
refund the sum of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY
TWO PESOS AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously prepaid
by private respondent. The tax was paid way back in 1980 and despite the clear
showing that it was erroneously paid, the government succeeded in delaying its
refund for fifteen (15) years. After fifteen (15) long years and the expenses of
litigation, the money that will be finally refunded to the private respondent is just
worth a damaged nickel. This is not, however, the kind of success the government,
especially the BIR, needs to increase its collection of taxes. Fair deal is expected by
our taxpayers from the BIR and the duty demands that BIR should refund without
G.R. No. 99886 March 31, 1993
any unreasonable delay what it has erroneously collected. Our ruling in Roxas v.
Court of Tax Appeals 12 is apropos to recall:
JOHN H. OSMEÑA, petitioner,
vs.
TAX 1 batch 1 Page 36 of 193
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of
in his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his E.O. 1024,7 and ordered released from the National Treasury to the Ministry of
capacity as Head of the Office of Energy Affairs; REX V. TANTIONGCO, and the Energy. The same Executive Order also authorized the investment of the fund in
ENERGY REGULATORY BOARD, respondents. government securities, with the earnings from such placements accruing to the fund.

Nachura & Sarmiento for petitioner. President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive
Order No. 137 on February 27, 1987, expanding the grounds for reimbursement to
The Solicitor General for public respondents. oil companies for possible cost underrecovery incurred as a result of the reduction of
domestic prices of petroleum products, the amount of the underrecovery being left
for determination by the Ministry of Finance.

NARVASA, C.J.: Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a
"Terminal Fund Balance deficit" of some P12.877 billion;8 that to abate the worsening
The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by deficit, "the Energy Regulatory Board . . issued an Order on December 10, 1990,
Rule 65 of the Rules of Court,2 upon the following posited grounds, viz.:3 approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6)
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of months, but this notwithstanding, the respondents — Oscar Orbos, in his capacity as
Energy (now, the Office of Energy Affairs), created pursuant to § 8, paragraph 1, of Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance;
P.D. No. 1956, as amended, "said creation of a trust fund being contrary to Section Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs;
29 (3), Article VI of the . . Constitution;4 Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are poised to
accept, process and pay claims not authorized under P.D. 1956."9
2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by
Executive Order No. 137, for "being an undue and invalid delegation of legislative The petition further avers that the creation of the trust fund violates §
power . . to the Energy Regulatory Board;"5 29(3), Article VI of the Constitution, reading as follows:

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price (3) All money collected on any tax levied for a special purpose shall
Stabilization Fund,6 because it contravenes § 8, paragraph 2 (2) of be treated as a special fund and paid out for such purposes only. If
P. D. 1956, as amended; and the purpose for which a special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred to the general
funds of the Government.
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of
a rollback of the pump prices and petroleum products to the levels prevailing prior to
the said Order. The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as
amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust
fund,' and that "if a special tax is collected for a specific purpose, the revenue
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D.
generated therefrom shall 'be treated as a special fund' to be used only for the
1956 creating a Special Account in the General Fund, designated as the Oil Price
purpose indicated, and not channeled to another government objective." 10 Petitioner
Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for
further points out that since "a 'special fund' consists of monies collected through the
cost increases in crude oil and imported petroleum products resulting from exchange
taxing power of a State, such amounts belong to the State, although the use thereof
rate adjustments and from increases in the world market prices of crude oil.
is limited to the special purpose/objective for which it was created." 11

TAX 1 batch 1 Page 37 of 193

He also contends that the "delegation of legislative authority" to the ERB violates § a) Any increase in the tax collection from ad valorem
28 (2). Article VI of the Constitution, viz.: tax or customs duty imposed on petroleum
products subject to tax under this Decree arising from
(2) The Congress may, by law, authorize the President to fix, within exchange rate adjustment, as may be determined by
specified limits, and subject to such limitations and restrictions as it the Minister of Finance in consultation with the Board
may impose, tariff rates, import and export quotas, tonnage and of Energy;
wharfage dues, and other duties or imposts within the framework of
the national development program of the Government; b) Any increase in the tax collection as a result of the
lifting of tax exemptions of government corporations, as
and, inasmuch as the delegation relates to the exercise of the power of may be determined by the Minister of Finance in
taxation, "the limits, limitations and restrictions must be quantitative, that is, consultation with the Board of Energy:
the law must not only specify how to tax, who (shall) be taxed (and) what the
tax is for, but also impose a specific limit on how much to tax." 12 c) Any additional amount to be imposed on petroleum
products to augment the resources of the Fund through
The petitioner does not suggest that a "trust account" is illegal per se, but maintains an appropriate Order that may be issued by the Board
that the monies collected, which form part of the OPSF, should be maintained in of Energy requiring payment of persons or companies
a special account of the general fund for the reason that the Constitution so engaged in the business of importing, manufacturing
provides, and because they are, supposedly, taxes levied for a special purpose. He and/or marketing petroleum products;
assumes that the Fund is formed from a tax undoubtedly because a portion thereof is
taken from collections of ad valorem taxes and the increases thereon. d) Any resulting peso cost differentials in case the
actual peso costs paid by oil companies in the
It thus appears that the challenge posed by the petitioner is premised primarily on importation of crude oil and petroleum products is less
the view that the powers granted to the ERB under P.D. 1956, as amended, partake than the peso costs computed using the reference
of the nature of the taxation power of the State. The Solicitor General observes that foreign exchange rate as fixed by the Board of Energy.
the "argument rests on the assumption that the OPSF is a form of revenue measure
drawing from a special tax to be expended for a special purpose." 13 The petitioner's xxx xxx xxx
perceptions are, in the Court's view, not quite correct.
The fact that the world market prices of oil, measured by the spot
To address this critical misgiving in the position of the petitioner on these issues, the market in Rotterdam, vary from day to day is of judicial notice. Freight
Court recalls its holding in Valmonte v. Energy Regulatory Board, et al. 14 — rates for hauling crude oil and petroleum products from sources of
supply to the Philippines may also vary from time to time. The
The foregoing arguments suggest the presence of misconceptions exchange rate of the peso vis-a-vis the U.S. dollar and other
about the nature and functions of the OPSF. The OPSF is a "Trust convertible foreign currencies also changes from day to day. These
Account" which was established "for the purpose of minimizing the fluctuations in world market prices and in tanker rates and foreign
frequent price changes brought about by exchange rate adjustment exchange rates would in a completely free market translate into
and/or changes in world market prices of crude oil and imported corresponding adjustments in domestic prices of oil and petroleum
petroleum products." 15 Under P.D. No. 1956, as amended by products with sympathetic frequency. But domestic prices which vary
Executive Order No. 137 dated 27 February 1987, this Trust Account from day to day or even only from week to week would result in a
may be funded from any of the following sources: chaotic market with unpredictable effects upon the country's economy
in general. The OPSF was established precisely to protect local
consumers from the adverse consequences that such frequent oil
TAX 1 batch 1 Page 38 of 193
 price adjustments may have upon the economy. Thus, the OPSF "financing the growth and development of the sugar industry and all
serves as a pocket, as it were, into which a portion of the purchase its components, stabilization of the domestic market including the
price of oil and petroleum products paid by consumers as well as foreign market." The fact that the State has taken possession of
some tax revenues are inputted and from which amounts are drawn moneys pursuant to law is sufficient to constitute them state funds,
from time to time to reimburse oil companies, when appropriate even though they are held for a special purpose (Lawrence v.
situations arise, for increases in, as well as underrecovery of, costs of American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur
crude importation. The OPSF is thus a buffer mechanism through Sec. 2, p. 718). Having been levied for a special purpose, the
which the domestic consumer prices of oil and petroleum products revenues collected are to be treated as a special fund, to be, in the
are stabilized, instead of fluctuating every so often, and oil companies language of the statute, "administered in trust" for the purpose
are allowed to recover those portions of their costs which they would intended. Once the purpose has been fulfilled or abandoned, the
not otherwise recover given the level of domestic prices existing at balance if any, is to be transferred to the general funds of the
any given time. To the extent that some tax revenues are also put into Government. That is the essence of the trust intended (SEE 1987
it, the OPSF is in effect a device through which the domestic prices of Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution,
petroleum products are subsidized in part. It appears to the Court that Article VI, Sec. 23(1). 17
the establishment and maintenance of the OPSF is well within that
pervasive and non-waivable power and responsibility of the The character of the Stabilization Fund as a special kind of fund is
government to secure the physical and economic survival and well- emphasized by the fact that the funds are deposited in the Philippine
being of the community, that comprehensive sovereign authority we National Bank and not in the Philippine Treasury, moneys from which
designate as the police power of the State. The stabilization, and may be paid out only in pursuance of an appropriation made by law
subsidy of domestic prices of petroleum products and fuel oil — (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935
clearly critical in importance considering, among other things, the Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
continuing high level of dependence of the country on imported crude
oil — are appropriately regarded as public purposes. Hence, it seems clear that while the funds collected may be referred to as taxes, they
are exacted in the exercise of the police power of the State. Moreover, that the
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is
nature of which is not far different from the OPSF. In Gaston v. Republic Planters segregated from the general fund; and while it is placed in what the law refers to as a
Bank, 16 this Court upheld the legality of the sugar stabilization fees and explained "trust liability account," the fund nonetheless remains subject to the scrutiny and
their nature and character, viz.: review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without
The stabilization fees collected are in the nature of a tax, which is precedent. RULING
within the power of the State to impose for the promotion of the sugar
industry (Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is not in With regard to the alleged undue delegation of legislative power, the Court finds that
a pure exercise of the taxing power. It is levied with a regulatory the provision conferring the authority upon the ERB to impose additional amounts on
purpose, to provide a means for the stabilization of the sugar industry. petroleum products provides a sufficient standard by which the authority must be
The levy is primarily in the exercise of the police power of the State exercised. In addition to the general policy of the law to protect the local consumer
(Lutz v. Araneta, supra). by stabilizing and subsidizing domestic pump rates, § 8(c) of P.D. 1956 18 expressly
authorizes the ERB to impose additional amounts to augment the resources of the
xxx xxx xxx Fund.

The stabilization fees in question are levied by the State upon sugar What petitioner would wish is the fixing of some definite, quantitative restriction, or "a
millers, planters and producers for a special purpose — that of specific limit on how much to tax." 19 The Court is cited to this requirement by the
TAX 1 batch 1 Page 39 of 193
petitioner on the premise that what is involved here is the power of taxation; but as The standard, as the Court has already stated, may even be implied. In that light,
already discussed, this is not the case. What is here involved is not so much the there can be no ground upon which to sustain the petition, inasmuch as the
power of taxation as police power. Although the provision authorizing the ERB to challenged law sets forth a determinable standard which guides the exercise of the
impose additional amounts could be construed to refer to the power of taxation, it power granted to the ERB. By the same token, the proper exercise of the delegated
cannot be overlooked that the overriding consideration is to enable the delegate to power may be tested with ease. It seems obvious that what the law intended was to
act with expediency in carrying out the objectives of the law which are embraced by permit the additional imposts for as long as there exists a need to protect the general
the police power of the State. public and the petroleum industry from the adverse consequences of pump rate
fluctuations. "Where the standards set up for the guidance of an administrative
The interplay and constant fluctuation of the various factors involved in the officer and the action taken are in fact recorded in the orders of such officer, so that
determination of the price of oil and petroleum products, and the frequently shifting Congress, the courts and the public are assured that the orders in the judgment of
need to either augment or exhaust the Fund, do not conveniently permit the setting such officer conform to the legislative standard, there is no failure in the performance
of fixed or rigid parameters in the law as proposed by the petitioner. To do so would of the legislative functions." 22
render the ERB unable to respond effectively so as to mitigate or avoid the
undesirable consequences of such fluidity. As such, the standard as it is expressed, This Court thus finds no serious impediment to sustaining the validity of the
suffices to guide the delegate in the exercise of the delegated power, taking account legislation; the express purpose for which the imposts are permitted and the general
of the circumstances under which it is to be exercised. objectives and purposes of the fund are readily discernible, and they constitute a
sufficient standard upon which the delegation of power may be justified.
For a valid delegation of power, it is essential that the law delegating the power must
be (1) complete in itself, that is it must set forth the policy to be executed by the In relation to the third question — respecting the illegality of the reimbursements to
delegate and (2) it must fix a standard — limits of which oil companies, paid out of the Oil Price Stabilization Fund, because allegedly in
are sufficiently determinate or determinable — to which the delegate must contravention of § 8, paragraph 2 (2) of P.D. 1956, amended 23 — the Court finds for
conform. 20 the petitioner.

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful The petition assails the payment of certain items or accounts in favor of the
delegation, there must be a standard, which implies at the very least petroleum companies (i.e., inventory losses, financing charges, fuel oil sales to the
that the legislature itself determines matters of principle and lays National Power Corporation, etc.) because not authorized by law. Petitioner
down fundamental policy. Otherwise, the charge of complete contends that "these claims are not embraced in the enumeration in § 8 of P.D. 1956
abdication may be hard to repel. A standard thus defines legislative . . since none of them was incurred 'as a result of the reduction of domestic prices of
policy, marks its limits, maps out its boundaries and specifies the petroleum products,'" 24 and since these items are reimbursements for which the
public agency to apply it. It indicates the circumstances under which OPSF should not have responded, the amount of the P12.877 billion deficit "should
the legislative command is to be effected. It is the criterion by which be reduced by P5,277.2 million." 25 It is argued "that under the principle of ejusdem
the legislative purpose may be carried out. Thereafter, the executive generis . . . the term 'other factors' (as used in § 8 of P.D. 1956) . . can only include
or administrative office designated may in pursuance of the above such 'other factors' which necessarily result in the reduction of domestic prices of
guidelines promulgate supplemental rules and regulations. The petroleum products." 26
standard may either be express or implied. If the former, the non-
delegation objection is easily met. The standard though does not have The Solicitor General, for his part, contends that "(t)o place said (term) within the
to be spelled out specifically. It could be implied from the policy and restrictive confines of the rule of ejusdem generis would reduce (E.O. 137) to a
purpose of the act considered as a whole. 21 meaningless provision."

It would seem that from the above-quoted ruling, the petition for prohibition should
fail.
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This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et overpayment refunds. To be sure, the absence of any argument for or against the
al., 27 passed upon the application of ejusdem generis to paragraph 2 of § 8 of P.D. validity of the refund cannot result in its disallowance by the Court. Unless the
1956, viz.: impropriety or illegality of the overpayment refund has been clearly and specifically
shown, there can be no basis upon which to nullify the same.
The rule of ejusdem generis states that "[w]here words follow an
enumeration of persons or things, by words of a particular and specific Finally, the Court finds no necessity to rule on the remaining issue, the same having
meaning, such general words are not to be construed in their widest been rendered moot and academic. As of date hereof, the pump rates of gasoline
extent, but are held to be as applying only to persons or things of the have been reduced to levels below even those prayed for in the petition.
same kind or class as those specifically mentioned." 28 A reading of
subparagraphs (i) and (ii) easily discloses that they do not have a WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the
common characteristic. The first relates to price reduction as directed reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in
by the Board of Energy while the second refers to reduction in all other respects.
internal ad valorem taxes. Therefore, subparagraph (iii) cannot be
limited by the enumeration in these subparagraphs. What should be SO ORDERED.
considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section
which explicitly allows the cost underrecovery only if such were
incurred as a result of the reduction of domestic prices of petroleum
products.

The Court thus holds, that the reimbursement of financing charges is not authorized
by paragraph 2 of § 8 of P.D. 1956, for the reason that they were not incurred as a
result of the reduction of domestic prices of petroleum products. Under the same
provision, however, the payment of inventory losses is upheld as valid, being clearly
a result of domestic price reduction, when oil companies incur a cost underrecovery
for yet unsold stocks of oil in inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the National Power
Corporation is equally permissible, not as coming within the provisions of P.D. 1956,
but in virtue of other laws and regulations as held in Caltex  29 and which have been
pointed to by the Solicitor General. At any rate, doubts about the propriety of such
reimbursements have been dispelled by the enactment of R.A. 6952, establishing the
Petroleum Price Standby Fund, § 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the
National Power Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive G.R. No. 159647 April 15, 2005
discussion has been presented to show how this is prohibited by P.D. 1956. Nor has
the Solicitor General taken any effort to defend the propriety of this refund. In fine, COMMISSIONER OF INTERNAL REVENUE, Petitioners,
neither of the parties, beyond the mere mention of overpayment refunds, has at all vs.
bothered to discuss the arguments for or against the legality of the so-called CENTRAL LUZON DRUG CORPORATION, Respondent.
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 DECISION "On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in
the amount of ₱904,769.00 allegedly arising from the 20% sales discount granted by
PANGANIBAN, J.: respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to
obtain affirmative response from petitioner, respondent elevated its claim to the
The 20 percent discount required by the law to be given to senior citizens is a tax Court of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.
credit, not merely a tax deduction from the gross income or gross sale of the
establishment concerned. A tax credit is used by a private establishment only after "On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondent’s
the tax has been computed; a tax deduction, before the tax is computed. RA 7432 Petition for lack of merit. In said decision, the [CTA] justified its ruling with the
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the following ratiocination:
revenue regulation that withdraw or modify such grant are void. Basic is the rule that
administrative regulations cannot amend or revoke the law. ‘x x x, if no tax has been paid to the government, erroneously or illegally, or if no
amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing.
The Case Moreover, whether the recovery of the tax is made by means of a claim for refund or
tax credit, before recovery is allowed[,] it must be first established that there was an
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to actual collection and receipt by the government of the tax sought to be recovered. x x
set aside the August 29, 2002 Decision2 and the August 11, 2003 Resolution3 of the x.
Court of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as
follows: ‘x x x x x x x x x

"WHEREFORE, premises considered, the Resolution appealed from ‘Prescinding from the above, it could logically be deduced that tax credit is premised
is AFFIRMED in toto. No costs."4 on the existence of tax liability on the part of taxpayer. In other words, if there is no
tax liability, tax credit is not available.’
The assailed Resolution denied petitioner’s Motion for Reconsideration.
"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed
The Facts resolution,6 granted respondent’s motion for reconsideration and ordered herein
petitioner to issue a Tax Credit Certificate in favor of respondent citing the decision of
The CA narrated the antecedent facts as follows: the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled
‘Central [Luzon] Drug Corporation vs. Commissioner of Internal
"Respondent is a domestic corporation primarily engaged in retailing of medicines Revenue’ promulgated on May 31, 2001, to wit:
and other pharmaceutical products. In 1996, it operated six (6) drugstores under the
business name and style ‘Mercury Drug.’ ‘However, Sec. 229 clearly does not apply in the instant case because the tax sought
to be refunded or credited by petitioner was not erroneously paid or illegally
"From January to December 1996, respondent granted twenty (20%) percent sales collected. We take exception to the CTA’s sweeping but unfounded statement that
discount to qualified senior citizens on their purchases of medicines pursuant to ‘both tax refund and tax credit are modes of recovering taxes which are either
Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the erroneously or illegally paid to the government.’ Tax refunds or credits do not
said period, the amount allegedly representing the 20% sales discount granted by exclusively pertain to illegally collected or erroneously paid taxes as they may be
respondent to qualified senior citizens totaled ₱904,769.00. other circumstances where a refund is warranted. The tax refund provided under
Section 229 deals exclusively with illegally collected or erroneously paid taxes but
there are other possible situations, such as the refund of excess estimated corporate
"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year
quarterly income tax paid, or that of excess input tax paid by a VAT-registered
1996 declaring therein that it incurred net losses from its operations.
person, or that of excise tax paid on goods locally produced or manufactured but
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actually exported. The standards and mechanics for the grant of a refund or credit Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20
under these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. percent discount on their purchase of medicine from any private establishment in the
7432, is yet another instance of a tax credit and it does not in any way refer to country.11 The latter may then claim the cost of the discount as a tax credit.12 But can
illegally collected or erroneously paid taxes, x x x.’"7 such credit be claimed, even though an establishment operates at a loss?

Ruling of the Court of Appeals We answer in the affirmative.

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering Tax Credit versus
petitioner to issue a tax credit certificate in favor of respondent in the reduced
amount of ₱903,038.39. It reasoned that Republic Act No. (RA) 7432 required Tax Deduction
neither a tax liability nor a payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is not tantamount to an unintended Although the term is not specifically defined in our Tax Code,13 tax credit generally
benefit from the law, but rather a just compensation for the taking of private property refers to an amount that is "subtracted directly from one’s total tax liability."14 It is an
for public use. "allowance against the tax itself"15 or "a deduction from what is owed"16 by a taxpayer
to the government. Examples of tax credits are withheld taxes, payments of
Hence this Petition.8 estimated tax, and investment tax credits.17

The Issues Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction "from income for tax purposes,"18 or an amount
Petitioner raises the following issues for our consideration: that is "allowed by law to reduce income prior to [the] application of the tax rate to
compute the amount of tax which is due."19 An example of a tax deduction is any of
"Whether the Court of Appeals erred in holding that respondent may claim the 20% the allowable deductions enumerated in Section 3420 of the Tax Code.
sales discount as a tax credit instead of as a deduction from gross income or gross
sales. A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the
tax due, including -- whenever applicable -- the income tax that is determined after
"Whether the Court of Appeals erred in holding that respondent is entitled to a applying the corresponding tax rates to taxable income.21 A tax deduction, on the
refund."9 other, reduces the income that is subject to tax22 in order to arrive at taxable
income.23 To think of the former as the latter is to avoid, if not entirely confuse, the
These two issues may be summed up in only one: whether respondent, despite issue. A tax credit is used only after the tax has been computed; a tax
incurring a net loss, may still claim the 20 percent sales discount as a tax credit. deduction, before.

The Court’s Ruling Tax Liability Required

The Petition is not meritorious. for  Tax Credit

Sole Issue: Since a tax credit is used to reduce directly the tax that is due, there ought to be a
tax liability before the tax credit can be applied. Without that liability, any tax
Claim of 20 Percent Sales Discount credit application will be useless. There will be no reason for deducting the latter
when there is, to begin with, no existing obligation to the government. However, as
as  Tax Credit  Despite  Net Loss will be presented shortly, the existence of a tax credit or its grant by law is not the

TAX 1 batch 1 Page 43 of 193

same as the availment or use of such credit. While the grant is mandatory, the goods, materials and supplies, when such amount -- as computed -- is higher than
availment or use is not. the actual VAT paid on the said items.25 Clearly from this provision, the tax
credit refers to an input tax that is either due only or given a value by mere
If a net loss is reported by, and no other taxes are currently due from, a business comparison with the VAT actually paid -- then later prorated. No tax is actually paid
establishment, there will obviously be no tax liability against which any tax credit can prior to the availment of such credit.
be applied.24 For the establishment to choose the immediate availment of a tax
credit will be premature and impracticable. Nevertheless, the irrefutable fact remains In Section 111(B), a one and a half percent input tax credit that is merely
that, under RA 7432, Congress has granted without conditions a tax credit benefit to presumptive is allowed. For the purchase of primary agricultural products used as
all covered establishments. inputs -- either in the processing of sardines, mackerel and milk, or in the
manufacture of refined sugar and cooking oil -- and for the contract price of public
Although this tax credit benefit is available, it need not be used by losing ventures, work contracts entered into with the government, again, no prior tax payments are
since there is no tax liability that calls for its application. Neither can it be reduced to needed for the use of the tax credit.
nil by the quick yet callow stroke of an administrative pen, simply because no
reduction of taxes can instantly be effected. By its nature, the tax credit may still be More important, a VAT-registered person whose sales are zero-rated or effectively
deducted from a future, not a present, tax liability, without which it does not have any zero-rated may, under Section 112(A), apply for the issuance of a tax
use. In the meantime, it need not move. But it breathes. credit certificate for the amount of creditable input taxes merely due -- again not
necessarily paid to -- the government and attributable to such sales, to the extent
Prior Tax Payments Not that the input taxes have not been applied against output taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt
Required for  Tax Credit sales, the amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately allocated on the
While a tax liability is essential to the availment or use of any tax credit, prior tax basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes,
payments are not. On the contrary, for the existence or grant solely of such credit, this provision -- as well as the one earlier mentioned -- shows that the prior payment
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact of taxes is not a requisite.
replete with provisions granting or allowing tax credits, even though no taxes have
been previously paid. It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of
a tax credit allowed, even though no prior tax payments are not required.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- Specifically, in this provision, the imposition of a final withholding tax rate on cash
subject to certain limitations -- for estate taxes paid to a foreign country. Also found and/or property dividends received by a nonresident foreign corporation from a
in Section 101(C) is a similar provision for donor’s taxes -- again when paid to a domestic corporation is subjected to the condition that a foreign tax credit will be
foreign country -- in computing for the donor’s tax due. The tax credits in both given by the domiciliary country in an amount equivalent to taxes that are merely
instances allude to the prior payment of taxes, even if not made to our government. deemed paid.27 Although true, this provision actually refers to the tax credit as
a condition only for the imposition of a lower tax rate, not as a deduction from the
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in corresponding tax liability. Besides, it is not our government but the domiciliary
transactions -- whether or not subject to the VAT -- is also allowed a tax credit that country that credits against the income tax payable to the latter by the foreign
includes a ratable portion of any input tax not directly attributable to either activity. corporation, the tax to be foregone or spared.28
This input tax may either be the VAT on the purchase or importation of goods or
services that is merely due from -- not necessarily paid by -- such VAT-registered In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows
person in the course of trade or business; or the transitional input tax determined in as credits, against the income tax imposable under Title II, the amount of income
accordance with Section 111(A). The latter type may in fact be an amount equivalent taxes merely incurred -- not necessarily paid -- by a domestic corporation during a
to only eight percent of the value of a VAT-registered person’s beginning inventory of taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for
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such taxes incurred but not paid, a tax credit may be allowed, subject to the condition Regulations No. 2-94 Erroneous
precedent that the taxpayer shall simply give a bond with sureties satisfactory to and
approved by petitioner, in such sum as may be required; and further conditioned RA 7432 specifically allows private establishments to claim as tax credit the amount
upon payment by the taxpayer of any tax found due, upon petitioner’s of discounts they grant.33 In turn, the Implementing Rules and Regulations, issued
redetermination of it. pursuant thereto, provide the procedures for its availment.34 To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate,
In addition to the above-cited provisions in the Tax Code, there are also tax treaties is indefensible.
and special laws that grant or allow tax credits, even though no prior tax payments
have been made. First, the definition given by petitioner is erroneous. It refers to tax credit as the
amount representing the 20 percent discount that "shall be deducted by the said
Under the treaties in which the tax credit method is used as a relief to avoid double establishments from their gross income for income tax purposes and from their gross
taxation, income that is taxed in the state of source is also taxable in the state of sales for value-added tax or other percentage tax purposes."35 In ordinary business
residence, but the tax paid in the former is merely allowed as a credit against the tax language, the tax credit represents the amount of such discount. However, the
levied in the latter.29 Apparently, payment is made to the state of source, not manner by which the discount shall be credited against taxes has not been clarified
the state of residence. No tax, therefore, has been previously paid to the latter. by the revenue regulations.

Under special laws that particularly affect businesses, there can also be tax By ordinary acceptation, a discount is an "abatement or reduction made from the
credit incentives. To illustrate, the incentives provided for in Article 48 of Presidential gross amount or value of anything."36 To be more precise, it is in business parlance
Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax "a deduction or lowering of an amount of money;"37 or "a reduction from the full
credits equivalent to either five percent of the net value earned, or five or ten percent amount or value of something, especially a price."38 In business there are many kinds
of the net local content of exports.30 In order to avail of such credits under the said of discount, the most common of which is that affecting the income statement39 or
law and still achieve its objectives, no prior tax payments are necessary. financial report upon which the income tax is based.

From all the foregoing instances, it is evident that prior tax payments are not Business Discounts
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private Deducted from  Gross Sales
establishments concerned.31 However, we do not agree with its finding32 that the
carry-over of tax credits under the said special law to succeeding taxable periods, A cash discount, for example, is one granted by business establishments to credit
and even their application against internal revenue taxes, did not necessitate the customers for their prompt payment.40 It is a "reduction in price offered to the
existence of a tax liability. purchaser if payment is made within a shorter period of time than the maximum time
specified."41 Also referred to as a sales discount on the part of the seller and
The examples above show that a tax liability is certainly important in the availment or a purchase discount on the part of the buyer, it may be expressed in such
use, not the existence or grant, of a tax credit. Regarding this matter, a private terms as "5/10, n/30."42
establishment reporting a net loss in its financial statements is no different from
another that presents a net income. Both are entitled to the tax credit provided for A quantity discount, however, is a "reduction in price allowed for purchases made in
under RA 7432, since the law itself accords that unconditional benefit. However, for large quantities, justified by savings in packaging, shipping, and handling."43 It is also
the losing establishment to immediately apply such credit, where no tax is due, will called a volume or bulk discount.44
be an improvident usance.
A "percentage reduction from the list price x x x allowed by manufacturers to
Sections 2.i and 4 of Revenue wholesalers and by wholesalers to retailers"45 is known as a trade discount. No entry
for it need be made in the manual or computerized books of accounts, since the
TAX 1 batch 1 Page 45 of 193
purchase or sale is already valued at the net price actually charged the buyer.46 The The Law, Not Prompt Payment
purpose for the discount is to encourage trading or increase sales, and the prices at
which the purchased goods may be resold are also suggested.47 Even a chain A distinguishing feature of the implementing rules of RA 7432 is the private
discount -- a series of discounts from one list price -- is recorded at net.48 establishment’s outright deduction of the discount from the invoice price of the
medicine sold to the senior citizen.60 It is, therefore, expected that for each retail sale
Finally, akin to a trade discount is a functional discount. It is "a supplier’s price made under this law, the discount period lasts no more than a day, because such
discount given to a purchaser based on the [latter’s] role in the [former’s] distribution discount is given -- and the net amount thereof collected -- immediately upon
system."49 This role usually involves warehousing or advertising. perfection of the sale.61 Although prompt payment is made for an arm’s-length
transaction by the senior citizen, the real and compelling reason for the private
Based on this discussion, we find that the nature of a sales discount is peculiar. establishment giving the discount is that the law itself makes it mandatory.
Applying generally accepted accounting principles (GAAP) in the country, this type of
discount is reflected in the income statement50 as a line item deducted -- along with What RA 7432 grants the senior citizen is a mere discount privilege, not a sales
returns, allowances, rebates and other similar expenses -- from gross sales to arrive discount or any of the above discounts in particular. Prompt payment is not the
at net sales.51 This type of presentation is resorted to, because the accounts reason for (although a necessary consequence of) such grant. To be sure, the
receivable and sales figures that arise from sales discounts, -- as well as privilege enjoyed by the senior citizen must be equivalent to the tax credit benefit
from quantity, volume or bulk discounts -- are recorded in the manual and enjoyed by the private establishment granting the discount. Yet, under the revenue
computerized books of accounts and reflected in the financial statements at the regulations promulgated by our tax authorities, this benefit has been erroneously
gross amounts of the invoices.52 This manner of recording credit sales -- known as likened and confined to a sales discount.
the gross method -- is most widely used, because it is simple, more convenient to
apply than the net method, and produces no material errors over time.53 To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. However, to a private establishment, the effect is
However, under the net method used in recording trade, chain or functional different from a simple reduction in price that results from such discount. In other
discounts, only the net amounts of the invoices -- after the discounts have been words, the tax credit benefit is not the same as a sales discount. To repeat from our
deducted -- are recorded in the books of accounts54 and reflected in the financial earlier discourse, this benefit cannot and should not be treated as a tax deduction.
statements. A separate line item cannot be shown,55 because the transactions
themselves involving both accounts receivable and sales have already been entered To stress, the effect of a sales discount on the income statement and income tax
into, net of the said discounts. return of an establishment covered by RA 7432 is different from that resulting from
the availment or use of its tax credit benefit. While the former is a deduction before,
The term sales discounts is not expressly defined in the Tax Code, but one provision the latter is a deduction after, the income tax is computed. As mentioned earlier, a
adverts to amounts whose sum -- along with sales returns, allowances and cost of discount is not necessarily a sales discount, and a tax credit for a simple discount
goods sold56 -- is deducted from gross sales to come up with the gross privilege should not be automatically treated like a sales discount. Ubi lex non
income, profit or margin57 derived from business.58 In another provision therein, sales distinguit, nec nos distinguere debemus. Where the law does not distinguish, we
discounts that are granted and indicated in the invoices at the time of sale -- and that ought not to distinguish.
do not depend upon the happening of any future event -- may be excluded from
the gross sales within the same quarter they were given.59 While determinative only Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
of the VAT, the latter provision also appears as a suitable reference point for income percent discount deductible from gross income for income tax purposes, or
tax purposes already embraced in the former. After all, these two provisions affirm from gross sales for VAT or other percentage tax purposes. In effect, the tax
that sales discounts are amounts that are always deductible from gross sales. credit benefit under RA 7432 is related to a sales discount. This contrived definition
is improper, considering that the latter has to be deducted from gross sales in order
Reason for the Senior Citizen Discount: to compute the gross income in the income statement and cannot be deducted
again, even for purposes of computing the income tax.
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When the law says that the cost of the discount may be claimed as a tax credit, it
means that the amount -- when claimed -- shall be treated as a reduction from any Third, the word may in the text of the statute71 implies that the
tax liability, plain and simple. The option to avail of the tax credit benefit depends availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is
upon the existence of a tax liability, but to limit the benefit to a sales discount -- which no absolute right conferred upon respondent, or any similar taxpayer, to avail itself of
is not even identical to the discount privilege that is granted by law -- does not define the tax credit remedy whenever it chooses; "neither does it impose a duty on the part
it at all and serves no useful purpose. The definition must, therefore, be stricken of the government to sit back and allow an important facet of tax collection to be at
down. the sole control and discretion of the taxpayer."73 For the tax authorities to compel
respondent to deduct the 20 percent discount from either its gross income or
Laws Not Amended its gross sales74 is, therefore, not only to make an imposition without basis in law, but
also to blatantly contravene the law itself.
by Regulations
What Section 4.a of RA 7432 means is that the tax credit benefit is merely
Second, the law cannot be amended by a mere regulation. In fact, a regulation that permissive, not imperative. Respondent is given two options -- either to claim or not
"operates to create a rule out of harmony with to claim the cost of the discounts as a tax credit. In fact, it may even ignore the credit
the statute is a mere nullity";62 it cannot prevail. and simply consider the gesture as an act of beneficence, an expression of its social
conscience.
It is a cardinal rule that courts "will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to Granting that there is a tax liability and respondent claims such cost as a tax credit,
enforce it x x x."63 In the scheme of judicial tax administration, the need for certainty then the tax credit can easily be applied. If there is none, the credit cannot be used
and predictability in the implementation of tax laws is crucial.64 Our tax authorities fill and will just have to be carried over and revalidated75 accordingly. If, however, the
in the details that "Congress may not have the opportunity or competence to business continues to operate at a loss and no other taxes are due, thus compelling
provide."65 The regulations these authorities issue are relied upon by taxpayers, who it to close shop, the credit can never be applied and will be lost altogether.
are certain that these will be followed by the courts.66 Courts, however, will not
uphold these authorities’ interpretations when clearly absurd, erroneous or improper. In other words, it is the existence or the lack of a tax liability that determines whether
the cost of the discounts can be used as a tax credit. RA 7432 does not give
In the present case, the tax authorities have given the term tax credit in Sections 2.i respondent the unfettered right to avail itself of the credit whenever it pleases.
and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their Neither does it allow our tax administrators to expand or contract the legislative
interpretation has muddled up the intent of Congress in granting a mere discount mandate. "The ‘plain meaning rule’ or verba legis in statutory construction is thus
privilege, not a sales discount. The administrative agency issuing these regulations applicable x x x. Where the words of a statute are clear, plain and free from
may not enlarge, alter or restrict the provisions of the law it administers; it cannot ambiguity, it must be given its literal meaning and applied without attempted
engraft additional requirements not contemplated by the legislature.67 interpretation."76

In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is Tax Credit Benefit
law."69 Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.70 Deemed  Just Compensation

Availment of Tax Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not
Credit Voluntary come directly from the State, but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed
as their just compensation for private property taken by the State for public use.77
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The concept of public use is no longer confined to the traditional notion of use by the credit limitation under RR 2-94 is inutile, if not improper. Worse, profit-generating
public, but held synonymous with public interest, public benefit, public welfare, businesses will be put in a better position if they avail themselves of tax
and public convenience.78 The discount privilege to which our senior citizens are credits denied those that are losing, because no taxes are due from the latter.
entitled is actually a benefit enjoyed by the general public to which these citizens
belong. The discounts given would have entered the coffers and formed part of Grant of  Tax Credit
the gross sales of the private establishments concerned, were it not for RA 7432.
The permanent reduction in their total revenues is a forced subsidy corresponding to Intended by the Legislature
the taking of private property for public use or benefit.
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted
As a result of the 20 percent discount imposed by RA 7432, respondent becomes by the community as a whole and to establish a program beneficial to them.86 These
entitled to a just compensation. This term refers not only to the issuance of a tax objectives are consonant with the constitutional policy of making "health x x x
credit certificate indicating the correct amount of the discounts given, but also to the services available to all the people at affordable cost"87 and of giving "priority for the
promptness in its release. Equivalent to the payment of property taken by the State, needs of the x x x elderly."88 Sections 2.i and 4 of RR 2-94, however, contradict these
such issuance -- when not done within a reasonable time from the grant of the constitutional policies and statutory objectives.
discounts -- cannot be considered as just compensation. In effect, respondent is
made to suffer the consequences of being immediately deprived of its revenues Furthermore, Congress has allowed all private establishments a simple tax credit,
while awaiting actual receipt, through the certificate, of the equivalent amount it not a deduction. In fact, no cash outlay is required from the government for
needs to cope with the reduction in its revenues.79 the availment or use of such credit. The deliberations on February 5, 1992 of the
Bicameral Conference Committee Meeting on Social Justice, which finalized RA
Besides, the taxation power can also be used as an implement for the exercise of the 7432, disclose the true intent of our legislators to treat the sales discounts as a tax
power of eminent domain.80 Tax measures are but "enforced contributions exacted credit, rather than as a deduction from gross income. We quote from those
on pain of penal sanctions"81 and "clearly imposed for a public purpose."82 In recent deliberations as follows:
years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth.83 "THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from
taxable income. I think we incorporated there a provision na - on the responsibility of
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot the private hospitals and drugstores, hindi ba?
be invoked to trample on the rights of property owners who under our Constitution
and laws are also entitled to protection. The social justice consecrated in our SEN. ANGARA. Oo.
[C]onstitution [is] not intended to take away rights from a person and give them to THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here
another who is not entitled thereto."84 For this reason, a just compensation for income about the deductions from taxable income of that private hospitals, di ba ganon 'yan?
that is taken away from respondent becomes necessary. It is in the tax credit that our MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government
legislators find support to realize social justice, and no administrative body can alter and public institutions, so, puwede na po nating hindi isama yung mga less
that fact. deductions ng taxable income.
THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung
To put it differently, a private establishment that merely breaks even85 -- without the isiningit natin?
discounts yet -- will surely start to incur losses because of such discounts. The same MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the
effect is expected if its mark-up is less than 20 percent, and if all its sales come from microphone).
retail purchases by senior citizens. Aside from the observation we have already SEN. ANGARA. Hindi pa, hindi pa.
raised earlier, it will also be grossly unfair to an establishment if the discounts will be THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?
treated merely as deductions from either its gross income or its gross sales. SEN. ANGARA. Oo. You want to insert that?
Operating at a loss through no fault of its own, it will realize that the tax THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.
TAX 1 batch 1 Page 48 of 193
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, RA 7432 is an earlier law not expressly repealed by, and therefore remains an
provided that, the private hospitals can claim the expense as a tax credit. exception to, the Tax Code -- a later law. When the former states that a tax
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of credit may be claimed, then the requirement of prior tax payments under certain
(inaudible) income. provisions of the latter, as discussed above, cannot be made to apply. Neither can
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano? the instances of or references to a tax deduction under the Tax Code94 be made to
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments restrict RA 7432. No provision of any revenue regulation can supplant or modify the
na covered. acts of Congress.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered? WHEREFORE, the Petition is hereby DENIED. The assailed Decision and
SEN. ANGARA. Restaurant lodging houses, recreation centers. Resolution of the Court of Appeals AFFIRMED. No pronouncement as to costs.
REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. SO ORDERED.
Can we go back to Section 4 ha?
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20%
discount from all establishments et cetera, et cetera, provided that said
establishments - provided that private establishments may claim the cost as a tax
credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.
REP. AQUINO Okay.
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89

Special Law

Over General Law

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a
general law. "x x x [T]he rule is that on a specific matter the special law shall prevail
over the general law, which shall
be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there
are two statutes, the earlier special and the later general -- the terms of the general
broad enough to include the matter provided for in the special -- the fact that one is
special and the other is general creates a presumption that the special is to be
considered as remaining an exception to the general,91 one as a general law of the
land, the other as the law of a particular case."92 "It is a canon of statutory G.R. No. 75713 October 2, 1989
construction that a later statute, general in its terms and not expressly repealing
a prior special statute, will ordinarily not affect the special provisions of such earlier PHILIPPINE COCONUT PRODUCERS FEDERATION, INC., (COCOFED), MARIA
statute."93 CLARA L. LOBREGAT, BIENVENIDO A. MARQUEZ, SR., MANUEL J. LASERNA,
TAX 1 batch 1 Page 49 of 193
JR., DOMINGO P. ESPINA, CELESTINO B. SABATE, JOSE A. GOMEZ, The action is denominated a class suit of the COCOFED, a private national
EDUARDO U. ESCUETA, MANUEL V. DEL ROSARIO, SULPICIO G. GRANADA, association of coconut producers which by legal mandate receives allocations from
INAKI R. MENDEZONA, JOSE R. ELEAZER, JR., JOSE REYNALDO V. the coconut levy funds to finance its operating expenses and projects; the Coconut
MORENTE, ELADIO I. CHATTO, COCONUT INVESTMENT COMPANY, INC., Investment Company (CIC), the first government corporation created to administer
SERGIO R. RIGODON, SPOUSES MANUEL AND CONCEPCION UTZURRUM, the coconut levy funds (as will later be explained in some detail); and individual
represented by MANUEL M. UTZURRUM, JR., MAXIMO M. PEREZ, RAUL petitioners Maria Clara Lobregat and some 37 other persons, all claiming to be either
ANTONIO Z. UNSON, JUSTO C. RUBI, RODOLFO Z. SALVACION, PAZ F. coconut farmers, coconut workers or stockholders of the sequestered companies,
ABILA, JESUS 0. SALVAN, TEODORICO R. RANERA, CRISPULO M. PIONILLA, bringing suit for themselves and in representation of "the more than one million
ROSARIO P. MERTO, ISABEL R. ALVAREZ, GREGORIO L. ANTENOR, coconut farmers who are similarly situated" upon a claim of private interest in the
EDILBERTO CONTRERAS, REYNALDO R. LADLAD, VENANCIO R. PINON, LUIS sequestered assets and properties.
A. NEGRE, ANASTACIO S. NIERE, FRANCISCO R. BINABAY, JAMITO A.
DAPULA, ROSENDO M. ABARRENTOS, RAUL M. ALEGRE, AGUSTIN C. IBAL, The COCONUT LEVY FUNDS:
ROGELIO A. DELA CRUZ, GREGORIO V. MERCADO, and All other coconut
farmers similarly situated, petitioners, The sequestration of the corporations and the other acts complained of were
vs. undertaken by the PCGG preparatory to the filing of suit in the Sandiganbayan
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, HON. JOVITO R. against Marcos and his associates for the illicit conversion of the coconut levy funds,
SALONGA, HON. RAMON DIAZ, HON. RAUL DAZA, HON. MARY CONCEPCION purportedly channeled through the COCOFED and the other sequestered
BAUTISTA and HON. QUINTIN DOROMAL, respondents, THE PHILIPPINE businesses, into private pelf. These funds fall into four general classes, viz.: (a) the
COCONUT AUTHORITY, intervenor. Coconut Investment Fund created under R.A. 6260 (effective June 19, 1971); (b) the
Coconut Consumers Stabilization Fund created under PD 276 (effective August 20,
Jose D. Valmores, Reynaldo A. Ruiz, Manuel J. Laserna, Jr. and Ramon C. Malinao 1973); (c) the Coconut Industry Development Fund created under PD 582 (effective
for petitioners. November 14,1974); and (d) the Coconut Industry Stabilization Fund created under
P.D. 1841 (effective October 2, 1981).
Agcaoili and Associates for movant.
The Coconut Investment Fund (CIF):

The Coconut Investment Fund, or CIF, was put up in 1971 by R.A. 6260 which
NARVASA, J.: declared it to be the national policy to accelerate the development of the coconut
industry through the provision of adequate medium and long term financing for
The petition for certiorari and prohibition with preliminary injunction at bar seeks the capital investment in the industry.3 A levy of P 0.55 was imposed on the first
annulment of the sequestration and other orders issued by the Presidential domestic sale of every 100 kilograms of copra or equivalent coconut product,4 fifty
Commission on Good Government PCGG)1 against petitioner Philippine Coconut centavos (P 0. 50) of which accrued to the CIF. The Philippine Coconut
Producers Federation, Inc. (COCOFED) and various other industrial and commercial Administration (or PHILCOA), 5 received three centavos (P 0.03)6 of the five
enterprises set up ostensibly for purposes concerned with the development of the remaining, and the balance was placed "at the disposition of the recognized national
coconut industry and the welfare of those involved in or served by it. These agencies association of coconut producers with the largest x x membership"7- which
or enterprises were organized and financed with revenues derived from coconut association was declared by PHILCOA 8 to be petitioner COCOFED.
levies imposed under a succession of laws of the late dictatorship and are alleged to
have been thereafter used as conduits to perpetrate "the most stupendous The CIF was to be used exclusively to pay for the Philippine Government's
malversation of public funds in the annals of our history," as the PCGG puts it, 2 with subscription to the capital stock 9 of the Coconut Investment Company (CIC), a
deposed President Ferdinand Marcos and his cronies as the suspected authors and corporation with a capitalization of P 100,000,000.00 created by the statute to
chief beneficiaries of the resulting "coconut industry monopoly. administer the Fund, as has already been stated, and to invest its capital in financing
TAX 1 batch 1 Page 50 of 193
"agricultural, industrial or other productive (coconut) enterprises" qualified under the The Coconut Industry Investment Fund (CIIF)
terms of the statute to apply for loans with the CIC.10 The State was to initially
subscribe to CIC's capital stock "for and on behalf of the coconut farmers," to whom The various laws relating to the coconut industry were codified in 1976; promulgated
such shares were supposed to be transferred "upon full payment (with the collections on October 21 of that year was PD 961 or the "Coconut Industry Code," which later
on the levy) of the authorized capital stock x x or upon termination of a ten-year came to be known as the "Revised Coconut Industry Code" upon its amendment by
period from the start of the collection of the levy x x, whichever comes first."11 The PD 1468, effective June 11, 1978. The Code provided for the continued enforcement
scheme, in short, called for the use of the CIF-funds collected mainly from coconut of the Stabilization Fund Levy imposed by PD 276 and for the use ocdf the CCSF
farmers-to pay for the CIC shares of stock to be subscribed by the Government and and the CIDF for substantially the same purposes specified by the enactments
held by it until the levy was lifted, whereupon the Government was to "convert" the ordaining their creation.
receipts issued to the farmers (as evidence of payment of the levy) "into shares of
stock"-this time in the farmers' names in the new, private corporation to be formed by A new provision was however inserted in the Code, authorizing the use of the
them at such time, conformably with the provisions of the law. 12 balance of the CIDF not needed to finance the replanting program and other
authorized projects, for the acquisition of "shares of stock in corporations organized
The levy imposed by R.A. 6260 was collected from 1972 to 1982. for the purpose of engaging in the establishment and operation of industries, ..
commercial activities and other allied business undertakings relating to coconut and
The Coconut Consumers Stabilization Fund (CCSF) other palm oil indust(ries)."21 From this fund thus created, the Coconut Industry
Investment Fund or the CIIF, were purchased the shares of stock in what have come
P.D. 276 established a second fund on August 20,1973, barely a year after the to be known as the "CIIF companies the sequestered corporations into which said
creation of the CIF. The decree imposed a "Stabilization Fund Levy" of fifteen pesos CIIF (Coconut Industry Investment Fund) was heavily invested after its creation.
(P 15.00) on the first sale of every 100 kilograms of copra resecada or equivalent
product.13 The revenues were to be credited to the Coconut Stabilization Fund The Coconut Industry Stabilization Fund (CISF): (Formerly CCSF)
(CCSF)14 Which was to be used to subsidize the sale of coconut-based products at
prices set by the Price Control Council, in order to stabilize the price of edible oil and The collection of the CCSF and the CIDF was suspended for a time in virtue of PD
other coconut oil-based products for the benefit of consumers 15 The levy was to be 1699.22 However, on October 2, 1981, PD 1841 was issued reviving the levies and
collected for only one year.16 The CCSF however became a permanent fund under renaming the CCSF the Coconut Industry Stabilization Fund, or the CISF, to which
PD 414.17 accrued the new collections. The impost was in the amount of P50.00 for every 100
kilos of copra resecada or equivalent product delivered to exporters and other copra
The Coconut Industry Development Fund (CIDF): users. The funds collected were to be apportioned among the CIDF,23 the
COCOFED,24 the PCA,25 and the "bank acquired for the benefit of the coconut
On November 14, 1974, PD 582 was promulgated setting up yet another "permanent farmers under PD 755" referring to the United Coconut Planters Bank or the UCPB.26
fund ... (this time to) finance the establishment, operation and maintenance of a
hybrid coconut seednut farm ... (and the implementation of) a nationwide coconut The AGENCIES INVOLVED:
replanting program" "using precocious high-yielding hybrid seednuts x x to (be)
distribute(d), ... free, to coconut farmers." 18 The fund was denominated the Coconut As may be observed, three agencies played key roles in the collection, management,
Industry Development Fund, or the CIDF. Its initial capital of P100 million was to be investment and use of the coconut levy funds: (a) the Philippine Coconut Authority
paid from the CCSF, and in addition to this, the PCA was directed to thereafter remit (PCA), formerly the Philippine Coconut Administration or the PHILCOA; (b) the
to the fund "an amount equal to at least twenty centavos (PO.20) per kilogram COCOFED; and (c) the UCPB. Charged with the duty to "receive and administer the
of copra resecada or its equivalent out of its current collections of the coconut funds provided by law,"27 the Philippine Coconut Authority or the PCA was created
consumers stabilization levy." 19 The CIDF was assured of continued contribution on June 30, 1973 by P.D. 232 to replace and assume the functions of (1) the
from the permanent levy in the same amount deemed to be "automatically imposed" Philippine Coconut Administration or PHILCOA (which had been established in
in the event of the lifting of the Stabilization Fund Levy.20 1954), (2) the Coconut Coordinating Council (CCC), and (3) the Philippine Coconut
TAX 1 batch 1 Page 51 of 193
Research Institute(PHILCORIN). By virtue of the Decree, the PCA took over the Pablo Oil Manufacturing Co., Inc. Some of these corporations in turn acquired UCPB
collection of the CIF Levy under RA 6260 in 1973, while subsequent statutes, to wit, shares of stock as well as shareholdings in the San Miguel Corporation.
PD 276 (in relation to PD 414), PD 582, and PD 1841, empowered it specifically to
manage the CCSF, the CIDF, and the CISF, from the time of their creation. Under The SEQUESTRATION PROCEEDINGS:
the laws just mentioned, the PCA, as the government arm that "formulate(s) x x (the)
general program of development for the coconut x x and palm oil indust(ries)" 28 is On March 19, 1986, the Presidential Commission on Good Government (PCGG)
allotted a share in the funds kept in its trust. Its governing board is composed of sequestered CIIF companies GRANEX, ILICOCO, Southern Island Oil Mill, Legaspi
members coming from the public and private sectors, among them representatives of Oil of Davao City, and Legaspi Oil of Cagayan de Oro City. Also sequestered shortly
COCOFED.29 thereafter, on April 21, 1986, were Anchor Insurance Brokerage, Inc., Southern
Luzon Coconut Oil Mills and the San Pablo Oil Manufacturing Co., Inc. Shares of
The Philippine Coconut Producers Federation, Inc. or the COCOFED, as the private stock in the UCPB registered in the names of these and other CIIF companies, and
national association of coconut producers certified in 1971 by the PHILCOA as later those issued to 1,405,366 purported coconut farmers-stockholders were
having the largest membership among such producers,30 receives substantial likewise sequestered, as were the 33.1 million shares of stock held by fourteen (14)
portions of the coconut funds to finance its operating expenses and socio-economic CIIF companies in the San Miguel Corporation.
projects. R.A. 6260 entrusted it with the task of maintaining "continuing liaison with
the different sectors of the industry, the government and its own mass base." 31 Its Next placed under sequestration on July 8,1986 was the COCOFED. Its bank
president sits on the governing board of the PCA and on the Philippine Coconut accounts as well as those of CIIF companies COCOLIFE and COCOMARK, of
Consumers Stabilization Committee, the agency assisting the PCA in the COCOFED president Maria Clara Lobregat, and of COCOFED directors Inaki
administration of the CCSF. It is also represented in the Board of Directors of the Mendezona and Eladio Chatto, were frozen. On May 30, 1988, PCGG appointed a
CIC and of two (2) CIIF companies COCOMARK (the COCOFED Marketing 15-man Board of Directors for COCOFED, replacing the incumbents. Management
Corporation) and COCOLIFE (the United Coconut Planters' Life Insurance Co.). teams for the CIC and COCOMARK were deputized the day after, relieving Maria
Clara Lobregat and Manuel Agcaoili as president and vice-president, respectively, of
The United Coconut Planters Bank (or the UCPB) is a commercial bank acquired "for both corporations, and Vicente Valmores as corporate secretary of the CIC. Various
the benefit of the coconut farmers" 32 with the use of the Coconut Consumers other orders pertaining to the CIC, the CIIF companies, COCOFED, and the UCPB
Stabilization Fund (CCSF) in virtue of P.D. 755, promulgated on July 29,1975. The were also afterwards issued and implemented, with a view to conserving their assets
Decree authorized the Bank to provide the intended beneficiaries with "readily pending the government's investigation into the suspected plunder of the coconut
available credit facilities at preferential rates." 33 It also authorized the distribution of levy funds by former President Ferdinand Marcos and his associates and cronies.
the Bank's shares of stock, free, to the coconut farmers; and some 1,405,366
purported recipients have been listed as UCPB stockholders as of April 10, 1986.34 PETITIONERS' SUBMITTALS

The UCPB was thereafter empowered by PD 1468 to "(make) investments for the The instant petition was filed on September 3, 1986 to assail the foregoing directives
benefit of the coconut farmers"35 using that part of the CIDF referred to as the CIIF. and acts. The petitioners posit that:
Thus were organized the "CIIF companies" subject of the sequestration orders
herein assailed.36 As in the case of the shares of stock in the UCPB, the law provided 1) the PCGG has no jurisdiction over the sequestered properties as
for the "equitable distribution" to the coconut farmers, free, of the investments made the powersconferred upon it by Executive Orders Numbered 1, 2 and
in the CIIF companies.37 Among the corporations in which the UCPB has come to 14 extend only to ill-gotten wealth of "former President Ferdinand E.
have substantial shareholdings are the COCOFED Marketing Corporation Marcos and/or his wife, Imelda Romualdez Marcos" or "their close
(COCOMARK), United Coconut Planters' Life Insurance (COCOLIFE) GRANEX, relatives, subordinates, business associates, dummies, agents, or
ILICOCO, Southern Island Oil Mill, Legaspi Oil of Davao City and of Cagayan de Oro nominees," 38 and not to the private properties of the coconut farmers
City, Anchor Insurance Brokerage, Inc., Southern Luzon Coconut Oil Mills, and San and the petitioners, who do not fall under any of the classes of
persons specified under the Orders;
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 2) the sequestered properties are not ill-gotten wealth of the there is an obvious and imperative need for preliminary provisional
petitioners whose ownership of the shares of stock in the COCOFED, measures to prevent the concealment, disappearance, destruction,
the CIIF companies, and the UCPB resulted from lawful dissipation, or loss of the assets and properties subject of the suits, or
disbursements of the coconut levy fund; and to restrain or foil acts that may render moot and academic, or
effectively hamper, delay, or negate efforts to recover the same.
3) the sequestration of the petitioners' private properties is a gross
abuse of prosecutorial discretion on the part of PCGG and, corollarily, xxx
rendered enforcement of E.O.'s 1, 2 and 14 as against them
unconstitutional and violative of the Bill of Rights. To answer this need, the law has prescribed three (3) provisional
remedies. These are: (1) sequestration; (2) freeze orders; and (3)
PCA INTERVENTION provisional takeover. (at p. 208)

A petition-in-intervention presented by the PCA was admitted by the Court by The PCGG exercised the powers conferred upon it by Executive Orders Numbered
Resolution dated May 24, 1988. 1, 2 and 14 on the basis of evidence in its possession which it deemed sufficient to
show, prima facie, that former President Marcos, Mr. Eduardo Cojuangco, Jr., the
THE PCGG POSITION COCOFED and its national leaders, collaborated with each other to perpetrate the
"systematic plunder" of the funds generated by the coconut levy. That preliminary
The Solicitor General, for the PCGG, submits that the funds collected from the determination finds support in the documents and evidence relative thereto. Reports,
coconut levy are public funds which no amount of pronouncements to the contrary-by for example, from the Commission on Audit (COA) which audited the funds after the
decree or any other presidential issuance can convert into private money; that in the February 1986 Revolution tend to show that:
light of the report of the Commission on Audit of its examination of the funds made
after the unceremonious deposal of President Marcos, to the effect that the funds (1) of the funds allocated to COCOFED, some P20 million were
were misappropriated and squandered by the latter, his cronies and the leaders of delivered to Mrs. Imelda R. Marcos for the Imelda Romualdez Marcos
the coconut industry, it is the duty of PCGG to recover the same and, pending Scholarship Program of which no accounting has been made;
recovery proceedings, to make use of its power of sequestration and other remedies
conferred by Executive Orders 1, 2 and 14. In his view, the so-called "more than one (2) COCOFED purchased an aircraft at a total cost of P
million coconut farmers" do not own the coconut levy funds or the assets acquired 11,849,071.29;
therewith.
(3) a COCOFED disbursement of P 23 million for the account of the
1. The question of the validity of PCGG sequestration and freeze Census Committee which undertook the survey of coconut farmers to
orders as provisional measures to collect and conserve the assets determine other farmers entitled to the unissued shares of UCPB, was
believed to be ill-gotten wealth has been laid to rest in BASECO vs. under-reimbursed by P 3,584,826.36;
PCGG (150 SCRA 181) where this Court held that such orders are
not confiscatory but only preservative in character, not designed to (4) cash advances in hundreds of thousands of pesos granted by
effect a confiscation of, but only to conserve properties believed to be COCOMARK to COCOFED officials Jose Reynaldo Morente, Inaki
ill-gotten wealth of the ex-president, his family and associates, and to Mendezona, Bienvenido Marquez and Maria Clara Lobregat were
prevent their concealment, dissipation, or transfer, pending the unliquidated;
determination of their true ownership.
(5) COCOMARK made disbursements for cash advances for travel
Nor may it be gainsaid that pending the institution of the suits for the and transportation expenses to its directors who are also directors of
recovery of such ill-gotten wealth as the evidence at hand may reveal, COCOFED without supporting documents.
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The investigation by the PCGG of the funds supposed to havebeen invested in the Philippines or abroad, x x (and) business enterprises and entities
UCPB on behalf of the coconut farmers, also reveal that UCPB shares appearing in (came to be) owned or controlled by them, during x x (the Marcos)
the UCPB books as issued to 1,405,366 coconut farmers are not in fact owned by administration, directly or through nominees, by taking undue
the said persons because a large number of them sold their stock to national and advantage of their public office and using their powers, authority,
local officials of COCOFED at the latter's initiative; and documents found in influence, connections or relationships
Malacanang in the wake of the February 1986 people's revolution tend to show that
Eduardo Cojuangco, Jr., apart from owning his own shares in UCPB, also "fronted" b. otherwise stated, that 'there are assets and properties purportedly
for the shares of Mr. Marcos in that bank. pertaining to former President Ferdinand E. Marcos, and/or his wife
Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
As to the coconut levy funds invested in the CIIF companies for the benefit of business associates, dummies, agents or nominees which had been
coconut farmers, COA findings adverted to by the PCGG disclose that said funds or were acquired by them directly or indirectly, through or as a result
were invested in companies most of which were or became vehicles to effectuate of the improper or illegal use of funds or properties owned by the
their misuse. The United Coconut Oil Mills, Inc. (UNICOM), a CIIF funded company, Government of the Philippines or any of its branches,
for example, appears to have spent millions of pesos to acquire non-operating and instrumentalities, enterprises, banks or financial institutions, or by
unprofitable coconut oil mills owned by persons close to the Marcoses that P840 taking undue advantage of their office, authority, influence,
million of the CIDF were siphoned off to Agricultural Investors, Inc., a corporation connections or relationship, resulting in their unjust enrichment and
owned and controlled by Eduardo Cojuangco, Jr., which has a paid-up capital of only causing grave damage and prejudice to the Filipino people and the
P100,000; and that P41.9 million worth of seednuts equivalent to 24.48% of the total Republic of the Philippines';
purchases of UCPB using CIDF from 1979 to 1982 had not been accounted for.
Reports were also cited showing that only 75.52% of the total seednuts purchased c. that 'said assets and properties are in the form of bank accounts,
had been distributed to the participants of the replanting program. The PCGG also deposits, trust accounts, shares of stocks, buildings, shopping
claims to have in its possession evidence of other instances of misuse or centers, condominiums, mansions, residences, estates, and other
misappropriation of the coconut levy funds attributable to the petitioners. kinds of real and personal properties in the Philippines and in various
countries of the world' ...39
The petitioners deny the PCGG's postulations and assertions.
2. The petitioners' claim that the assets acquired with the coconut levy
It is of course not for this Court to pass upon the factual issues thus raised. That funds are privately owned by the coconut farmers is founded on
function pertains to the Sandiganbayan in the first instance. For purposes of this certain provisions of law, to wit:
proceeding, all that the Court needs to determine is whether or not there is prima
facie justification for the sequestration ordered by the PCGG. The Court is satisfied Sec. 7. Incorporation as a private entity under Act Numbered One
that there is. The cited incidents, given the public character of the coconut levy Thousand Four Hundred Fifty-Nine, as amended. -Upon full payment
funds, place petitioners COCOFED and its leaders and officials, at least prima facie, of the authorized capital stock, as evidenced by receipts issued for
squarely within the purview of Executive Orders Nos. 1, 2 and 14, as construed and levies paid, or upon termination of a ten-year period from the start of
applied in BASECO, to wit: the collection of the levy as provided in Section eight hereof,
whichever comes first, the shares of stock held by the Philippine
1. that ill-gotten properties (were) amassed by the leaders and Government for and in behalf of the coconut farmers shall be
supporters of the previous regime; transferred, in accordance with such rules, regulations and
procedures as the Company shall prescribe and promulgate, to and in
a. more particularly, that (i)ll-gotten wealth was accumulated by the name of the coconut farmers who shall then incorporate as a
former President Ferdinand E. Marcos, his immediate family, private entity under Act Numbered One Thousand Four Hundred Fifty-
relatives, subordinates and close associates, x x located in the Nine, as amended.... (Sec. 7, Republic Act 6260)
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and Cojuangco, Jr. vs. Securities and Exchange Commission; G.R. No.
75094, Clifton Ganay vs. Presidential Commission on Good
The Coconut Consumers Stabilization Fund and the Coconut Industry Government; G.R. No. 76397, Board of Directors of San Miguel
Development Fund as well as all disbursements of said Funds for the Corporation vs. Securities and Exchange Commission; G.R. No.
benefit of the coconut farmers x x shall not be construed or interpreted 79459, Eduardo Cojuangco, Jr. vs. Hon. Pedro N. Laggui; G.R. No.
.. as special and/or fiduciary funds, or as part of the general funds of 79520, Neptunia Corporation, Ltd. vs. Presidential Commission on
the national government within the contemplation of P.D. 711; nor as Good Government, August 10, 1988.
subsidy, donation, levy government funded investment, or
government share within the contemplation of PD 898, the intention In view of the foregoing, the petition and the petition-in-intervention are hereby
being that said fund and the disbursements thereof as herein DISMISSED. Costs against petitioners.
authorized for the benefit of the coconut farmers shall be owned by
them in their private capacities .... (Section 5, Article III, P.D. 1468) SO ORDERED.

The proposition is open to question, to say the least. Indeed, the Solicitor General
suggests quite strongly that the laws operating or purporting to convert the coconut
levy funds into private funds, are a transgression of the basic limitations for the licit
exercise of the state's taxing and police powers, and that certain provisions of said
laws are merely clever strategems to keep away government audit in order to
facilitate misappropriation of the funds in question.

The utilization and proper management of the coconut levy funds, raised as they
were by the State's police and taxing powers, are certainly the concern of the
Government. It cannot be denied that it was the welfare of the entire nation that
provided the prime moving factor for the imposition of the levy. It cannot be denied
that the coconut industry is one of the major industries supporting the national
economy. It is, therefore, the State's concern to make it a strong and secure source
not only of the livelihood of a significant segment of the population but also of export
earnings the sustained growth of which is one of the imperatives of economic
stability. The coconut levy funds are clearly affected with public interest. Until it is
demonstrated satisfactorily that they have legitimately become private funds, they
must prima facie and by reason of the circumstances in which they were raised and
accumulated be accounted subject to the measures prescribed in E.O. Nos. 1, 2, and
14 to prevent their concealment, dissipation, etc., which measures include the
sequestration and other orders of the PCGG complained of.

3. The incidents concerning the voting of the sequestered shares, the

COCOFED elections, and the replacement of directors, being matters
incidental to the sequestration, should be addressed to the G.R. No. 167330               September 18, 2009
Sandiganbayan in accordance with the doctrine laid down in PCGG
vs. Pena, 159 SCRA 556, reiterated in G.R. No. 74910, Andres
Soriano III vs. Hon. Manuel Yuzon; G.R. No. 75075, Eduardo
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PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent
vs. petitioner a formal demand letter and the corresponding assessment notices
COMMISSIONER OF INTERNAL REVENUE, Respondent. demanding the payment of deficiency taxes, including surcharges and interest, for
the taxable years 1996 and 1997 in the total amount of ₱224,702,641.18. xxxx
RESOLUTION
The deficiency [documentary stamp tax (DST)] assessment was imposed on
CORONA, J.: petitioner’s health care agreement with the members of its health care program
pursuant to Section 185 of the 1997 Tax Code xxxx
ARTICLE II
Declaration of Principles and State Policies x x x           x x x          x x x

Section 15. The State shall protect and promote the right to health of the people and Petitioner protested the assessment in a letter dated February 23, 2000. As
instill health consciousness among them. respondent did not act on the protest, petitioner filed a petition for review in the Court
of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
ARTICLE XIII assessments.
Social Justice and Human Rights
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
Section 11. The State shall adopt an integrated and comprehensive approach to
health development which shall endeavor to make essential goods, health and other WHEREFORE, in view of the foregoing, the instant Petition for Review is
social services available to all the people at affordable cost. There shall be priority for PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT
the needs of the underprivileged sick, elderly, disabled, women, and children. The amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from
State shall endeavor to provide free medical care to paupers.1 January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87
inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid
For resolution are a motion for reconsideration and supplemental motion for for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void
reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by and without force and effect. The 1996 and 1997 deficiency DST assessment against
petitioner Philippine Health Care Providers, Inc.2 petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to
DESIST from collecting the said DST deficiency tax.
We recall the facts of this case, as follows:
SO ORDERED.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish,
maintain, conduct and operate a prepaid group practice health care delivery system Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it
or a health maintenance organization to take care of the sick and disabled persons cancelled the DST assessment. He claimed that petitioner’s health care agreement
enrolled in the health care plan and to provide for the administrative, legal, and was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
financial responsibilities of the organization." Individuals enrolled in its health care
programs pay an annual membership fee and are entitled to various preventive, On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care
diagnostic and curative medical services provided by its duly licensed physicians, agreement was in the nature of a non-life insurance contract subject to DST.
specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited by it. WHEREFORE, the petition for review is GRANTED. The Decision of the Court of
Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency
x x x           x x x          x x x
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documentary stamp tax assessment and ordered petitioner to desist from collecting (d) Legislative intent to exclude health care agreements from items subject to
the same is REVERSED and SET ASIDE. DST is clear, especially in the light of the amendments made in the DST law
in 2002.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73
as deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% (e) Assuming arguendo that petitioner’s agreements are contracts of
surcharge for late payment and 20% interest per annum from January 27, 2000, indemnity, they are not those contemplated under Section 185.
pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been
fully paid. (f) Assuming arguendo that petitioner’s agreements are akin to health
insurance, health insurance is not covered by Section 185.
SO ORDERED.
(g) The agreements do not fall under the phrase "other branch of insurance"
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this mentioned in Section 185.
case.
(h) The June 12, 2008 decision should only apply prospectively.
x x x           x x x          x x x
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the
In a decision dated June 12, 2008, the Court denied the petition and affirmed the taxable year 2005 and all prior years. Therefore, the questioned assessments
CA’s decision. We held that petitioner’s health care agreement during the pertinent on the DST are now rendered moot and academic.6
period was in the nature of non-life insurance which is a contract of indemnity,
citing Blue Cross Healthcare, Inc. v. Olivares3 and Philamcare Health Systems, Inc. Oral arguments were held in Baguio City on April 22, 2009. The parties submitted
v. CA.4 We also ruled that petitioner’s contention that it is a health maintenance their memoranda on June 8, 2009.
organization (HMO) and not an insurance company is irrelevant because contracts
between companies like petitioner and the beneficiaries under their plans are treated In its motion for reconsideration, petitioner reveals for the first time that it availed of a
as insurance contracts. Moreover, DST is not a tax on the business transacted but tax amnesty under RA 94807 (also known as the "Tax Amnesty Act of 2007") by fully
an excise on the privilege, opportunity or facility offered at exchanges for the paying the amount of ₱5,127,149.08 representing 5% of its net worth as of the year
transaction of the business. ending December 31, 2005.8

Unable to accept our verdict, petitioner filed the present motion for reconsideration We find merit in petitioner’s motion for reconsideration.
and supplemental motion for reconsideration, asserting the following arguments:
Petitioner was formally registered and incorporated with the Securities and Exchange
(a) The DST under Section 185 of the National Internal Revenue of 1997 is Commission on June 30, 1987.9 It is engaged in the dispensation of the following
imposed only on a company engaged in the business of fidelity bonds and medical services to individuals who enter into health care agreements with it:
other insurance policies. Petitioner, as an HMO, is a service provider, not an
insurance company. Preventive medical services such as periodic monitoring of health problems, family
planning counseling, consultation and advices on diet, exercise and other healthy
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, habits, and immunization;
affirmed in effect the CA’s disposition that health care services are not in the
nature of an insurance business. Diagnostic medical services such as routine physical examinations, x-rays,
urinalysis, fecalysis, complete blood count, and the like and
(c) Section 185 should be strictly construed.

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Curative medical services which pertain to the performing of other remedial and Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
therapeutic processes in the event of an injury or sickness on the part of the enrolled
member.10 Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all
policies of insurance or bonds or obligations of the nature of indemnity for loss,
Individuals enrolled in its health care program pay an annual membership fee. damage, or liability made or renewed by any person, association or company
Membership is on a year-to-year basis. The medical services are dispensed to or corporation transacting the business of accident, fidelity, employer’s liability,
enrolled members in a hospital or clinic owned, operated or accredited by petitioner, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of
through physicians, medical and dental practitioners under contract with it. It insurance (except life, marine, inland, and fire insurance), and all bonds,
negotiates with such health care practitioners regarding payment schemes, financing undertakings, or recognizances, conditioned for the performance of the duties of any
and other procedures for the delivery of health services. Except in cases of office or position, for the doing or not doing of anything therein specified, and on all
emergency, the professional services are to be provided only by petitioner's obligations guaranteeing the validity or legality of any bond or other obligations
physicians, i.e. those directly employed by it11 or whose services are contracted by issued by any province, city, municipality, or other public body or organization, and
it.12 Petitioner also provides hospital services such as room and board on all obligations guaranteeing the title to any real estate, or guaranteeing any
accommodation, laboratory services, operating rooms, x-ray facilities and general mercantile credits, which may be made or renewed by any such person, company or
nursing care.13 If and when a member avails of the benefits under the agreement, corporation, there shall be collected a documentary stamp tax of fifty centavos
petitioner pays the participating physicians and other health care providers for the (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the premium
services rendered, at pre-agreed rates.14 charged. (Emphasis supplied)

To avail of petitioner’s health care programs, the individual members are required to It is a cardinal rule in statutory construction that no word, clause, sentence, provision
sign and execute a standard health care agreement embodying the terms and or part of a statute shall be considered surplusage or superfluous, meaningless, void
conditions for the provision of the health care services. The same agreement and insignificant. To this end, a construction which renders every word operative is
contains the various health care services that can be engaged by the enrolled preferred over that which makes some words idle and nugatory.17 This principle is
member, i.e., preventive, diagnostic and curative medical services. Except for the expressed in the maxim Ut magis valeat quam pereat, that is, we choose the
curative aspect of the medical service offered, the enrolled member may actually interpretation which gives effect to the whole of the statute – its every word.18
make use of the health care services being offered by petitioner at any time.
From the language of Section 185, it is evident that two requisites must concur
Health Maintenance Organizations Are Not Engaged In The Insurance before the DST can apply, namely: (1) the document must be a policy of insurance
Business or an obligation in the nature of indemnity and (2) the maker should be
transacting the business of accident, fidelity, employer’s liability, plate, glass,
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO steam boiler, burglar, elevator, automatic sprinkler, or other branch
and not an insurer because its agreements are treated as insurance contracts and of insurance (except life, marine, inland, and fire insurance).
the DST is not a tax on the business but an excise on the privilege, opportunity or
facility used in the transaction of the business.15 Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance
Act of 1995"), an HMO is "an entity that provides, offers or arranges for coverage of
Petitioner, however, submits that it is of critical importance to characterize the designated health services needed by plan members for a fixed prepaid
business it is engaged in, that is, to determine whether it is an HMO or an insurance premium."19 The payments do not vary with the extent, frequency or type of services
company, as this distinction is indispensable in turn to the issue of whether or not it is provided.
liable for DST on its health care agreements.16
The question is: was petitioner, as an HMO, engaged in the business of insurance
A second hard look at the relevant law and jurisprudence convinces the Court that during the pertinent taxable years? We rule that it was not.
the arguments of petitioner are meritorious.
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Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates primarily for the distribution of health care services rather than the assumption of
what constitutes "doing an insurance business" or "transacting an insurance insurance risk.
business:"
xxx Although Group Health’s activities may be considered in one aspect as creating
a) making or proposing to make, as insurer, any insurance contract; security against loss from illness or accident more truly they constitute the quantity
purchase of well-rounded, continuous medical service by its members. xxx The
b) making or proposing to make, as surety, any contract of suretyship as a functions of such an organization are not identical with those of insurance or
vocation and not as merely incidental to any other legitimate business or indemnity companies. The latter are concerned primarily, if not exclusively, with
activity of the surety; risk and the consequences of its descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence, not the daily routine of living.
c) doing any kind of business, including a reinsurance business, specifically Hazard is predominant. On the other hand, the cooperative is concerned
recognized as constituting the doing of an insurance business within the principally with getting service rendered to its members and doing so at lower
meaning of this Code; prices made possible by quantity purchasing and economies in operation. Its
primary purpose is to reduce the cost rather than the risk of medical care; to
d) doing or proposing to do any business in substance equivalent to any of broaden the service to the individual in kind and quantity; to enlarge the
the foregoing in a manner designed to evade the provisions of this Code. number receiving it; to regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than merely protecting
In the application of the provisions of this Code, the fact that no profit is derived from against the financial loss caused by extraordinary and unusual occurrences,
the making of insurance contracts, agreements or transactions or that no separate or such as death, disaster at sea, fire and tornado. It is, in this instance, to take care
direct consideration is received therefore, shall not be deemed conclusive to show of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts
that the making thereof does not constitute the doing or transacting of an insurance as well as the more serious and unusual illness. To summarize, the distinctive
business. features of the cooperative are the rendering of service, its extension, the
bringing of physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial reduction in cost
Various courts in the United States, whose jurisprudence has a persuasive effect on
by quantity purchasing in short, getting the medical job done and paid for; not,
our decisions,21 have determined that HMOs are not in the insurance business. One
except incidentally to these features, the indemnification for cost after the
test that they have applied is whether the assumption of risk and indemnification of
services is rendered. Except the last, these are not distinctive or generally
loss (which are elements of an insurance business) are the principal object and
characteristic of the insurance arrangement. There is, therefore, a substantial
purpose of the organization or whether they are merely incidental to its business. If
difference between contracting in this way for the rendering of service, even on the
these are the principal objectives, the business is that of insurance. But if they are
contingency that it be needed, and contracting merely to stand its cost when or after
merely incidental and service is the principal purpose, then the business is not
it is rendered.
insurance.
That an incidental element of risk distribution or assumption may be present should
Applying the "principal object and purpose test,"22 there is significant American case
not outweigh all other factors. If attention is focused only on that feature, the line
law supporting the argument that a corporation (such as an HMO, whether or not
between insurance or indemnity and other types of legal arrangement and economic
organized for profit), whose main object is to provide the members of a group with
function becomes faint, if not extinct. This is especially true when the contract is for
health services, is not engaged in the insurance business.
the sale of goods or services on contingency. But obviously it was not the purpose of
the insurance statutes to regulate all arrangements for assumption or distribution of
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court risk. That view would cause them to engulf practically all contracts, particularly
of Appeals of the District of Columbia Circuit held that Group Health Association conditional sales and contingent service agreements. The fallacy is in looking only
should not be considered as engaged in insurance activities since it was created at the risk element, to the exclusion of all others present or their subordination
TAX 1 batch 1 Page 59 of 193
to it. The question turns, not on whether risk is involved or assumed, but on indemnity insurer without having qualified as such and rendering itself subject to
whether that or something else to which it is related in the particular plan is its the more stringent financial requirements of the General Insurance Laws….
principal object purpose.24 (Emphasis supplied)
A participating provider of health care services is one who agrees in writing to render
In California Physicians’ Service v. Garrison,25 the California court felt that, after health care services to or for persons covered by a contract issued by health service
scrutinizing the plan of operation as a whole of the corporation, it was service rather corporation in return for which the health service corporation agrees to make
than indemnity which stood as its principal purpose. payment directly to the participating provider.28 (Emphasis supplied)

There is another and more compelling reason for holding that the service is not Consequently, the mere presence of risk would be insufficient to override the primary
engaged in the insurance business. Absence or presence of assumption of risk purpose of the business to provide medical services as needed, with payment made
or peril is not the sole test to be applied in determining its status. The directly to the provider of these services.29 In short, even if petitioner assumes the
question, more broadly, is whether, looking at the plan of operation as a whole, risk of paying the cost of these services even if significantly more than what the
‘service’ rather than ‘indemnity’ is its principal object and purpose. Certainly member has prepaid, it nevertheless cannot be considered as being engaged in the
the objects and purposes of the corporation organized and maintained by the insurance business.
California physicians have a wide scope in the field of social service. Probably there
is no more impelling need than that of adequate medical care on a voluntary, By the same token, any indemnification resulting from the payment for services
low-cost basis for persons of small income. The medical profession unitedly is rendered in case of emergency by non-participating health providers would still be
endeavoring to meet that need. Unquestionably this is ‘service’ of a high order incidental to petitioner’s purpose of providing and arranging for health care services
and not ‘indemnity.’26 (Emphasis supplied) and does not transform it into an insurer. To fulfill its obligations to its members
under the agreements, petitioner is required to set up a system and the facilities for
American courts have pointed out that the main difference between an HMO and an the delivery of such medical services. This indubitably shows that indemnification is
insurance company is that HMOs undertake to provide or arrange for the provision of not its sole object.
medical services through participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses incurred up to a pre-agreed In fact, a substantial portion of petitioner’s services covers preventive and diagnostic
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield medical services intended to keep members from developing medical conditions or
of New Jersey27 is clear on this point: diseases.30 As an HMO, it is its obligation to maintain the good health of its
members. Accordingly, its health care programs are designed to prevent or to
The basic distinction between medical service corporations and ordinary health and minimize the possibility of any assumption of risk on its part. Thus, its
accident insurers is that the former undertake to provide prepaid medical undertaking under its agreements is not to indemnify its members against any loss or
services through participating physicians, thus relieving subscribers of any further damage arising from a medical condition but, on the contrary, to provide the health
financial burden, while the latter only undertake to indemnify an insured for medical and medical services needed to prevent such loss or damage.31
expenses up to, but not beyond, the schedule of rates contained in the policy.
Overall, petitioner appears to provide insurance-type benefits to its members (with
x x x           x x x          x x x respect to its curative medical services), but these are incidental to the principal
activity of providing them medical care. The "insurance-like" aspect of petitioner’s
The primary purpose of a medical service corporation, however, is an undertaking to business is miniscule compared to its noninsurance activities. Therefore, since it
provide physicians who will render services to subscribers on a prepaid substantially provides health care services rather than insurance services, it cannot
basis. Hence, if there are no physicians participating in the medical service be considered as being in the insurance business.
corporation’s plan, not only will the subscribers be deprived of the protection
which they might reasonably have expected would be provided, but the It is important to emphasize that, in adopting the "principal purpose test" used in the
corporation will, in effect, be doing business solely as a health and accident above-quoted U.S. cases, we are not saying that petitioner’s operations are identical
TAX 1 batch 1 Page 60 of 193
in every respect to those of the HMOs or health providers which were parties to It is … incorrect to say that the health care agreement is not based on loss or
those cases. What we are stating is that, for the purpose of determining what "doing damage because, under the said agreement, petitioner assumes the liability and
an insurance business" means, we have to scrutinize the operations of the business indemnifies its member for hospital, medical and related expenses (such as
as a whole and not its mere components. This is of course only prudent and professional fees of physicians). The term "loss or damage" is broad enough to cover
appropriate, taking into account the burdensome and strict laws, rules and the monetary expense or liability a member will incur in case of illness or injury.
regulations applicable to insurers and other entities engaged in the insurance
business. Moreover, we are also not unmindful that there are other American Under the health care agreement, the rendition of hospital, medical and professional
authorities who have found particular HMOs to be actually engaged in insurance services to the member in case of sickness, injury or emergency or his availment of
activities.32 so-called "out-patient services" (including physical examination, x-ray and laboratory
tests, medical consultations, vaccine administration and family planning counseling)
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance is the contingent event which gives rise to liability on the part of the member. In case
industry. This is evident from the fact that it is not supervised by the Insurance of exposure of the member to liability, he would be entitled to indemnification by
Commission but by the Department of Health.33 In fact, in a letter dated September 3, petitioner.
2000, the Insurance Commissioner confirmed that petitioner is not engaged in the
insurance business. This determination of the commissioner must be accorded great Furthermore, the fact that petitioner must relieve its member from liability by paying
weight. It is well-settled that the interpretation of an administrative agency which is for expenses arising from the stipulated contingencies belies its claim that its
tasked to implement a statute is accorded great respect and ordinarily controls the services are prepaid. The expenses to be incurred by each member cannot be
interpretation of laws by the courts. The reason behind this rule was explained predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of
in Nestle Philippines, Inc. v. Court of Appeals:34 paying for the costs of the services even if they are significantly and substantially
more than what the member has "prepaid." Petitioner does not bear the costs alone
The rationale for this rule relates not only to the emergence of the multifarious needs but distributes or spreads them out among a large group of persons bearing a similar
of a modern or modernizing society and the establishment of diverse administrative risk, that is, among all the other members of the health care program. This is
agencies for addressing and satisfying those needs; it also relates to the insurance.37
accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular statute. In Asturias We reconsider. We shall quote once again the pertinent portion of Section 185:
Sugar Central, Inc. vs. Commissioner of Customs,35 the Court stressed that
executive officials are presumed to have familiarized themselves with all the Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all
considerations pertinent to the meaning and purpose of the law, and to have formed policies of insurance or bonds or obligations of the nature of indemnity for
an independent, conscientious and competent expert opinion thereon. The courts loss, damage, or liability made or renewed by any person, association or company
give much weight to the government agency officials charged with the or corporation transacting the business of accident, fidelity, employer’s liability, plate,
implementation of the law, their competence, expertness, experience and informed glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of
judgment, and the fact that they frequently are the drafters of the law they interpret.36 insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)

A Health Care Agreement Is Not An Insurance Contract Contemplated Under In construing this provision, we should be guided by the principle that tax statutes are
Section 185 Of The NIRC of 1997 strictly construed against the taxing authority.38 This is because taxation is a
destructive power which interferes with the personal and property rights of the people
Section 185 states that DST is imposed on "all policies of insurance… or obligations and takes from them a portion of their property for the support of the
of the nature of indemnity for loss, damage, or liability…." In our decision dated June government.39 Hence, tax laws may not be extended by implication beyond the clear
12, 2008, we ruled that petitioner’s health care agreements are contracts of import of their language, nor their operation enlarged so as to embrace matters not
indemnity and are therefore insurance contracts: specifically provided.40

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We are aware that, in Blue Cross and Philamcare, the Court pronounced that a by which a corporation, in consideration of a stipulated amount, agrees at its own
health care agreement is in the nature of non-life insurance, which is primarily a expense to defend a physician against all suits for damages for malpractice is one of
contract of indemnity. However, those cases did not involve the interpretation of a tax insurance, and the corporation will be deemed as engaged in the business of
provision. Instead, they dealt with the liability of a health service provider to a insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a
member under the terms of their health care agreement. Such contracts, as contract is not to render personal services, but to indemnify against loss and damage
contracts of adhesion, are liberally interpreted in favor of the member and strictly resulting from the defense of actions for malpractice.42 (Emphasis supplied)
against the HMO. For this reason, we reconsider our ruling that Blue
Cross and Philamcare are applicable here. Second. Not all the necessary elements of a contract of insurance are present in
petitioner’s agreements. To begin with, there is no loss, damage or liability on the
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement part of the member that should be indemnified by petitioner as an HMO. Under the
whereby one undertakes for a consideration to indemnify another against loss, agreement, the member pays petitioner a predetermined consideration in exchange
damage or liability arising from an unknown or contingent event. An insurance for the hospital, medical and professional services rendered by the petitioner’s
contract exists where the following elements concur: physician or affiliated physician to him. In case of availment by a member of the
benefits under the agreement, petitioner does not reimburse or indemnify the
1. The insured has an insurable interest; member as the latter does not pay any third party. Instead, it is the petitioner who
pays the participating physicians and other health care providers for the services
2. The insured is subject to a risk of loss by the happening of the designed rendered at pre-agreed rates. The member does not make any such payment.
peril;
In other words, there is nothing in petitioner's agreements that gives rise to a
3. The insurer assumes the risk; monetary liability on the part of the member to any third party-provider of medical
services which might in turn necessitate indemnification from petitioner. The terms
4. Such assumption of risk is part of a general scheme to distribute actual "indemnify" or "indemnity" presuppose that a liability or claim has already been
losses among a large group of persons bearing a similar risk and incurred. There is no indemnity precisely because the member merely avails of
medical services to be paid or already paid in advance at a pre-agreed price under
5. In consideration of the insurer’s promise, the insured pays a premium.41 the agreements.

Do the agreements between petitioner and its members possess all these elements? Third. According to the agreement, a member can take advantage of the bulk of the
They do not. benefits anytime, e.g. laboratory services, x-ray, routine annual physical examination
and consultations, vaccine administration as well as family planning counseling, even
in the absence of any peril, loss or damage on his or her part.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that,
even if a contract contains all the elements of an insurance contract, if its primary
purpose is the rendering of service, it is not a contract of insurance: Fourth. In case of emergency, petitioner is obliged to reimburse the member who
receives care from a non-participating physician or hospital. However, this is only a
very minor part of the list of services available. The assumption of the expense by
It does not necessarily follow however, that a contract containing all the four
petitioner is not confined to the happening of a contingency but includes incidents
elements mentioned above would be an insurance contract. The primary purpose
even in the absence of illness or injury.
of the parties in making the contract may negate the existence of an insurance
contract. For example, a law firm which enters into contracts with clients whereby in
consideration of periodical payments, it promises to represent such clients in all suits In Michigan Podiatric Medical Association v. National Foot Care Program,
for or against them, is not engaged in the insurance business. Its contracts are Inc.,43 although the health care contracts called for the defendant to partially
simply for the purpose of rendering personal services. On the other hand, a contract reimburse a subscriber for treatment received from a non-designated doctor, this did
not make defendant an insurer. Citing Jordan, the Court determined that "the primary
TAX 1 batch 1 Page 62 of 193
activity of the defendant (was) the provision of podiatric services to subscribers in ARTICLE XI
consideration of prepayment for such services."44 Since indemnity of the insured was Stamp Taxes on Specified Objects
not the focal point of the agreement but the extension of medical services to the
member at an affordable cost, it did not partake of the nature of a contract of Section 116. There shall be levied, collected, and paid for and in respect to the
insurance. several bonds, debentures, or certificates of stock and indebtedness, and other
documents, instruments, matters, and things mentioned and described in this
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily section, or for or in respect to the vellum, parchment, or paper upon which such
true that risk alone is sufficient to establish it. Almost anyone who undertakes a instrument, matters, or things or any of them shall be written or printed by any person
contractual obligation always bears a certain degree of financial risk. Consequently, or persons who shall make, sign, or issue the same, on and after January first,
there is a need to distinguish prepaid service contracts (like those of petitioner) from nineteen hundred and five, the several taxes following:
the usual insurance contracts.
x x x           x x x          x x x
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide
health services: the risk that it might fail to earn a reasonable return on its Third xxx (c) on all policies of insurance or bond or obligation of the nature of
investment. But it is not the risk of the type peculiar only to insurance companies. indemnity for loss, damage, or liability made or renewed by any person,
Insurance risk, also known as actuarial risk, is the risk that the cost of insurance association, company, or corporation transacting the business of accident,
claims might be higher than the premiums paid. The amount of premium is fidelity, employer’s liability, plate glass, steam boiler, burglar, elevator,
calculated on the basis of assumptions made relative to the insured.45 automatic sprinkle, or other branch of insurance (except life, marine, inland,
and fire insurance) xxxx (Emphasis supplied)
However, assuming that petitioner’s commitment to provide medical services to its
members can be construed as an acceptance of the risk that it will shell out more On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was
than the prepaid fees, it still will not qualify as an insurance contract because enacted revising and consolidating the laws relating to internal revenue. The
petitioner’s objective is to provide medical services at reduced cost, not to distribute aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely
risk like an insurer. reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed and
exclusive enumeration of itemb s subject to DST was thus retained.
In sum, an examination of petitioner’s agreements with its members leads us to
conclude that it is not an insurance contract within the context of our Insurance On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again
Code. reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative Code).
Upon its amendment on March 10, 1917, the pertinent DST provision became
There Was No Legislative Intent To Impose DST On Health Care Agreements Of Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of
HMOs 1917.

Furthermore, militating in convincing fashion against the imposition of DST on Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the
petitioner’s health care agreements under Section 185 of the NIRC of 1997 is the NIRC of 1939), which codified all the internal revenue laws of the Philippines. In an
provision’s legislative history. The text of Section 185 came into U.S. law as early as amendment introduced by RA 40 on October 1, 1946, the DST rate was increased
1904 when HMOs and health care agreements were not even in existence in this but the provision remained substantially the same.
jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise
known as the "Internal Revenue Law of 1904")46 enacted on July 2, 1904 and Thereafter, on June 3, 1977, the same provision with the same DST rate was
became effective on August 1, 1904. Except for the rate of tax, Section 185 of the reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959,
NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was
wit: again increased.1avvphi1
TAX 1 batch 1 Page 63 of 193
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
NIRC of 1977 was renumbered as Section 198. And under Section 23 of EO47 273 range, acknowledging in its very nature no limits, so that security against its abuse is
dated July 25, 1987, it was again renumbered and became Section 185. to be found only in the responsibility of the legislature which imposes the tax on the
constituency who is to pay it.51 So potent indeed is the power that it was once opined
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only that "the power to tax involves the power to destroy."52
with respect to the rate of tax.
Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or way beyond its net worth of ₱259 million.54 Respondent never disputed these
the NIRC of 1997), the subject legal provision was retained as the present Section assertions. Given the realities on the ground, imposing the DST on petitioner would
185. In 2004, amendments to the DST provisions were introduced by RA 924348 but be highly oppressive. It is not the purpose of the government to throttle private
Section 185 was untouched. business. On the contrary, the government ought to encourage private
enterprise.55 Petitioner, just like any concern organized for a lawful economic activity,
On the other hand, the concept of an HMO was introduced in the Philippines with the has a right to maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA,
formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was et al.:57
later reorganized and renamed Integrated Health Care Services, Inc. (or Intercare).
However, there are those who claim that Health Maintenance, Inc. is the HMO The power of taxation is sometimes called also the power to destroy. Therefore it
industry pioneer, having set foot in the Philippines as early as 1965 and having been should be exercised with caution to minimize injury to the proprietary rights of a
formally incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
there are 36 registered HMOs with a total enrollment of more than 2 million.49 the "hen that lays the golden egg."58

We can clearly see from these two histories (of the DST on the one hand and HMOs Legitimate enterprises enjoy the constitutional protection not to be taxed out of
on the other) that when the law imposing the DST was first passed, HMOs were yet existence. Incurring losses because of a tax imposition may be an acceptable
unknown in the Philippines. However, when the various amendments to the DST law consequence but killing the business of an entity is another matter and should not be
were enacted, they were already in existence in the Philippines and the term had in allowed. It is counter-productive and ultimately subversive of the nation’s thrust
fact already been defined by RA 7875. If it had been the intent of the legislature to towards a better economy which will ultimately benefit the majority of our people.59
impose DST on health care agreements, it could have done so in clear and
categorical terms. It had many opportunities to do so. But it did not. The fact that the Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
NIRC contained no specific provision on the DST liability of health care agreements
of HMOs at a time they were already known as such, belies any legislative intent to Petitioner asserts that, regardless of the arguments, the DST assessment for taxable
impose it on them. As a matter of fact, petitioner was assessed its DST liability years 1996 and 1997 became moot and academic60 when it availed of the tax
only on January 27, 2000, after more than a decade in the business as an amnesty under RA 9480 on December 10, 2007. It paid ₱5,127,149.08 representing
HMO.50 5% of its net worth as of the year ended December 31, 2005 and complied with all
requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to
Considering that Section 185 did not change since 1904 (except for the rate of tax), it immunity from payment of taxes as well as additions thereto, and the appurtenant
would be safe to say that health care agreements were never, at any time, civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising
recognized as insurance contracts or deemed engaged in the business of insurance from the failure to pay any and all internal revenue taxes for taxable year 2005 and
within the context of the provision. prior years.61

The Power To Tax Is Not The Power To Destroy Far from disagreeing with petitioner, respondent manifested in its memorandum:

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Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to not binding precedent. Thus, in CIR v. Baier-Nickel,70 the Court noted that a previous
immunity from payment of the tax involved, including the civil, criminal, or case, CIR v. Baier-Nickel71 involving the same parties and the same issues, was
administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in previously disposed of by the Court thru a minute resolution dated February 17, 2003
2005 and the preceding years. sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case
"ha(d) no bearing" on the latter case because the two cases involved different
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding subject matters as they were concerned with the taxable income of different taxable
the merits of this case as discussed above, respondent concedes that such tax years.72
amnesty extinguishes the tax liabilities of petitioner. This admission, however, is
not meant to preclude a revocation of the amnesty granted in case it is found to have Besides, there are substantial, not simply formal, distinctions between a minute
been granted under circumstances amounting to tax fraud under Section 10 of said resolution and a decision. The constitutional requirement under the first paragraph of
amnesty law.62 (Emphasis supplied) Section 14, Article VIII of the Constitution that the facts and the law on which the
judgment is based must be expressed clearly and distinctly applies only to decisions,
Furthermore, we held in a recent case that DST is one of the taxes covered by the not to minute resolutions. A minute resolution is signed only by the clerk of court by
tax amnesty program under RA 9480.63 There is no other conclusion to draw than authority of the justices, unlike a decision. It does not require the certification of the
that petitioner’s liability for DST for the taxable years 1996 and 1997 was totally Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the
extinguished by its availment of the tax amnesty under RA 9480. Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a
decision.73 Indeed, as a rule, this Court lays down doctrines or principles of law which
Is The Court Bound By A Minute Resolution In Another Case? constitute binding precedent in a decision duly signed by the members of the Court
and certified by the Chief Justice.
Petitioner raises another interesting issue in its motion for reconsideration: whether
this Court is bound by the ruling of the CA64 in CIR v. Philippine National Bank65 that Accordingly, since petitioner was not a party in G.R. No. 148680 and since
a health care agreement of Philamcare Health Systems is not an insurance contract petitioner’s liability for DST on its health care agreement was not the subject matter
for purposes of the DST. of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in
that case (which is not even binding precedent) in its favor. Nonetheless, in view of
In support of its argument, petitioner cites the August 29, 2001 minute resolution of the reasons already discussed, this does not detract in any way from the fact that
this Court dismissing the appeal in Philippine National Bank (G.R. No. petitioner’s health care agreements are not subject to DST.
148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute
resolution was a judgment on the merits; hence, the Court should apply the CA ruling A Final Note
there that a health care agreement is not an insurance contract.
Taking into account that health care agreements are clearly not within the ambit of
It is true that, although contained in a minute resolution, our dismissal of the petition Section 185 of the NIRC and there was never any legislative intent to impose the
was a disposition of the merits of the case. When we dismissed the petition, we same on HMOs like petitioner, the same should not be arbitrarily and unjustly
effectively affirmed the CA ruling being questioned. As a result, our ruling in that included in its coverage.
case has already become final.67 When a minute resolution denies or dismisses a
petition for failure to comply with formal and substantive requirements, the It is a matter of common knowledge that there is a great social need for adequate
challenged decision, together with its findings of fact and legal conclusions, are medical services at a cost which the average wage earner can afford. HMOs
deemed sustained.68 But what is its effect on other cases? arrange, organize and manage health care treatment in the furtherance of the goal of
providing a more efficient and inexpensive health care system made possible by
With respect to the same subject matter and the same issues concerning the same quantity purchasing of services and economies of scale. They offer advantages over
parties, it constitutes res judicata.69 However, if other parties or another subject the pay-for-service system (wherein individuals are charged a fee each time they
matter (even with the same parties and issues) is involved, the minute resolution is receive medical services), including the ability to control costs. They protect their
TAX 1 batch 1 Page 65 of 193
members from exposure to the high cost of hospitalization and other medical G.R. No. L-75697
expenses brought about by a fluctuating economy. Accordingly, they play an
important role in society as partners of the State in achieving its constitutional VALENTIN TIO doing business under the name and style of OMI
mandate of providing its citizens with affordable health services. ENTERPRISES, petitioner,
vs.
The rate of DST under Section 185 is equivalent to 12.5% of the premium VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA
charged.74 Its imposition will elevate the cost of health care services. This will in turn COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents.
necessitate an increase in the membership fees, resulting in either placing health
services beyond the reach of the ordinary wage earner or driving the industry to the Nelson Y. Ng for petitioner.
ground. At the end of the day, neither side wins, considering the indispensability of The City Legal Officer for respondents City Mayor and City Treasurer.
the services offered by HMOs.

WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004

decision of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET
ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is MELENCIO-HERRERA, J.:
hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from
collecting the said tax. This petition was filed on September 1, 1986 by petitioner on his own behalf and
purportedly on behalf of other videogram operators adversely affected. It assails the
No costs. constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the
SO ORDERED. videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days
after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned

decree, Presidential Decree No. 1994 amended the National Internal Revenue Code
providing, inter alia:

SEC. 134. Video Tapes. — There shall be collected on each processed

video-tape cassette, ready for playback, regardless of length, an annual tax
of five pesos; Provided, That locally manufactured or imported blank video
tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie
Producers, Importers and Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete
protection of their rights and that their "survival and very existence is threatened by
the unregulated proliferation of film piracy." The Intervenors were thereafter allowed
to file their Comment in Intervention.
TAX 1 batch 1 Page 66 of 193
The rationale behind the enactment of the DECREE, is set out in its preambular 7. WHEREAS, civic-minded citizens and groups have called for remedial
clauses as follows: measures to curb these blatant malpractices which have flaunted our
censorship and copyright laws;
1. WHEREAS, the proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or any technical 8. WHEREAS, in the face of these grave emergencies corroding the moral
improvement or variation thereof, have greatly prejudiced the operations of values of the people and betraying the national economic recovery program,
moviehouses and theaters, and have caused a sharp decline in theatrical bold emergency measures must be adopted with dispatch; ... (Numbering of
attendance by at least forty percent (40%) and a tremendous drop in the paragraphs supplied).
collection of sales, contractor's specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually in Petitioner's attack on the constitutionality of the DECREE rests on the following
government revenues; grounds:

2. WHEREAS, videogram(s) establishments collectively earn around P600 1. Section 10 thereof, which imposes a tax of 30% on the gross receipts
Million per annum from rentals, sales and disposition of videograms, and payable to the local government is a RIDER and the same is not germane to
such earnings have not been subjected to tax, thereby depriving the the subject matter thereof;
Government of approximately P180 Million in taxes each year;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful
3. WHEREAS, the unregulated activities of videogram establishments have restraint of trade in violation of the due process clause of the Constitution;
also affected the viability of the movie industry, particularly the more than
1,200 movie houses and theaters throughout the country, and occasioned 3. There is no factual nor legal basis for the exercise by the President of the
industry-wide displacement and unemployment due to the shutdown of vast powers conferred upon him by Amendment No. 6;
numerous moviehouses and theaters;
4. There is undue delegation of power and authority;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative
for the Government to create an environment conducive to growth and 5. The Decree is an ex-post facto law; and
development of all business industries, including the movie industry which
has an accumulated investment of about P3 Billion; 6. There is over regulation of the video industry as if it were a nuisance,
which it is not.
5. WHEREAS, proper taxation of the activities of videogram establishments
will not only alleviate the dire financial condition of the movie industry upon We shall consider the foregoing objections in seriatim.
which more than 75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue for the
1. The Constitutional requirement that "every bill shall embrace only one subject
Government, and at the same time rationalize the heretofore uncontrolled
which shall be expressed in the title thereof" 1 is sufficiently complied with if the title
distribution of videograms;
be comprehensive enough to include the general purpose which a statute seeks to
achieve. It is not necessary that the title express each and every end that the statute
6. WHEREAS, the rampant and unregulated showing of obscene videogram wishes to accomplish. The requirement is satisfied if all the parts of the statute are
features constitutes a clear and present danger to the moral and spiritual related, and are germane to the subject matter expressed in the title, or as long as
well-being of the youth, and impairs the mandate of the Constitution for the they are not inconsistent with or foreign to the general subject and title. 2 An act
State to support the rearing of the youth for civic efficiency and the having a single general subject, indicated in the title, may contain any number of
development of moral character and promote their physical, intellectual, and provisions, no matter how diverse they may be, so long as they are not inconsistent
social well-being;
TAX 1 batch 1 Page 67 of 193
with or foreign to the general subject, and may be considered in furtherance of such in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature
subject by providing for the method and means of carrying out the general acts upon its constituents. This is, in general, a sufficient security against erroneous
object." 3 The rule also is that the constitutional requirement as to the title of a bill and oppressive taxation. 10
should not be so narrowly construed as to cripple or impede the power of
legislation. 4 It should be given practical rather than technical construction. 5 The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram establishments of
Tested by the foregoing criteria, petitioner's contention that the tax provision of the around P600 million per annum have not been subjected to tax, thereby depriving
DECREE is a rider is without merit. That section reads, inter alia: the Government of an additional source of revenue. It is an end-user tax, imposed on
retailers for every videogram they make available for public viewing. It is similar to
Section 10. Tax on Sale, Lease or Disposition of Videograms. — the 30% amusement tax imposed or borne by the movie industry which the theater-
Notwithstanding any provision of law to the contrary, the province shall collect owners pay to the government, but which is passed on to the entire cost of the
a tax of thirty percent (30%) of the purchase price or rental rate, as the case admission ticket, thus shifting the tax burden on the buying or the viewing public. It is
may be, for every sale, lease or disposition of a videogram containing a a tax that is imposed uniformly on all videogram operators.
reproduction of any motion picture or audiovisual program. Fifty percent
(50%) of the proceeds of the tax collected shall accrue to the province, and The levy of the 30% tax is for a public purpose. It was imposed primarily to answer
the other fifty percent (50%) shall acrrue to the municipality where the tax is the need for regulating the video industry, particularly because of the rampant film
collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared piracy, the flagrant violation of intellectual property rights, and the proliferation of
equally by the City/Municipality and the Metropolitan Manila Commission. pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.
x x x           x x x          x x x
The public purpose of a tax may legally exist even if the motive which
The foregoing provision is allied and germane to, and is reasonably necessary for impelled the legislature to impose the tax was to favor one industry over
the accomplishment of, the general object of the DECREE, which is the regulation of another. 11
the video industry through the Videogram Regulatory Board as expressed in its title.
The tax provision is not inconsistent with, nor foreign to that general subject and title. It is inherent in the power to tax that a state be free to select the subjects of
As a tool for regulation 6 it is simply one of the regulatory and control mechanisms taxation, and it has been repeatedly held that "inequities which result from a
scattered throughout the DECREE. The express purpose of the DECREE to include singling out of one particular class for taxation or exemption infringe no
taxation of the video industry in order to regulate and rationalize the heretofore constitutional limitation". 12 Taxation has been made the implement of the
uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. state's police power.13
Those preambles explain the motives of the lawmaker in presenting the measure.
The title of the DECREE, which is the creation of the Videogram Regulatory Board, is At bottom, the rate of tax is a matter better addressed to the taxing legislature.
comprehensive enough to include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to express all those objectives 3. Petitioner argues that there was no legal nor factual basis for the promulgation of
in the title or that the latter be an index to the body of the DECREE. 7 the DECREE by the former President under Amendment No. 6 of the 1973
Constitution providing that "whenever in the judgment of the President ... , there
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and exists a grave emergency or a threat or imminence thereof, or whenever the interim
oppressive, confiscatory, and in restraint of trade. However, it is beyond serious Batasang Pambansa or the regular National Assembly fails or is unable to act
question that a tax does not cease to be valid merely because it regulates, adequately on any matter for any reason that in his judgment requires immediate
discourages, or even definitely deters the activities taxed. 8 The power to impose action, he may, in order to meet the exigency, issue the necessary decrees, orders,
taxes is one so unlimited in force and so searching in extent, that the courts scarcely or letters of instructions, which shall form part of the law of the land."
venture to declare that it is subject to any restrictions whatever, except such as rest
TAX 1 batch 1 Page 68 of 193
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th BOARD, shall be prima facie evidence of violation of the Decree, whether the
"whereas" clause sufficiently summarizes the justification in that grave emergencies possession of such videogram be for private showing and/or public exhibition.
corroding the moral values of the people and betraying the national economic
recovery program necessitated bold emergency measures to be adopted with raises immediately a prima facie evidence of violation of the DECREE when the
dispatch. Whatever the reasons "in the judgment" of the then President, considering required proof of registration of any videogram cannot be presented and thus
that the issue of the validity of the exercise of legislative power under the said partakes of the nature of an ex post facto law.
Amendment still pends resolution in several other cases, we reserve resolution of the
question raised at the proper time. The argument is untenable. As this Court held in the recent case of Vallarta vs.
Court of Appeals, et al. 15
4. Neither can it be successfully argued that the DECREE contains an undue
delegation of legislative power. The grant in Section 11 of the DECREE of authority ... it is now well settled that "there is no constitutional objection to the
to the BOARD to "solicit the direct assistance of other agencies and units of the passage of a law providing that the presumption of innocence may be
government and deputize, for a fixed and limited period, the heads or personnel of overcome by a contrary presumption founded upon the experience of human
such agencies and units to perform enforcement functions for the Board" is not a conduct, and enacting what evidence shall be sufficient to overcome such
delegation of the power to legislate but merely a conferment of authority or discretion presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59,
as to its execution, enforcement, and implementation. "The true distinction is citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS,
between the delegation of power to make the law, which necessarily involves a 639-641). And the "legislature may enact that when certain facts have been
discretion as to what it shall be, and conferring authority or discretion as to its proved that they shall be prima facie evidence of the existence of the guilt of
execution to be exercised under and in pursuance of the law. The first cannot be the accused and shift the burden of proof provided there be a rational
done; to the latter, no valid objection can be made." 14 Besides, in the very language connection between the facts proved and the ultimate facts presumed so that
of the decree, the authority of the BOARD to solicit such assistance is for a "fixed the inference of the one from proof of the others is not unreasonable and
and limited period" with the deputized agencies concerned being "subject to the arbitrary because of lack of connection between the two in common
direction and control of the BOARD." That the grant of such authority might be the experience". 16
source of graft and corruption would not stigmatize the DECREE as unconstitutional.
Should the eventuality occur, the aggrieved parties will not be without adequate Applied to the challenged provision, there is no question that there is a rational
remedy in law. connection between the fact proved, which is non-registration, and the ultimate fact
presumed which is violation of the DECREE, besides the fact that the prima
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, facie presumption of violation of the DECREE attaches only after a forty-five-day
among other categories, one which "alters the legal rules of evidence, and period counted from its effectivity and is, therefore, neither retrospective in character.
authorizes conviction upon less or different testimony than the law required at the
time of the commission of the offense." It is petitioner's position that Section 15 of the 6. We do not share petitioner's fears that the video industry is being over-regulated
DECREE in providing that: and being eased out of existence as if it were a nuisance. Being a relatively new
industry, the need for its regulation was apparent. While the underlying objective of
All videogram establishments in the Philippines are hereby given a period of the DECREE is to protect the moribund movie industry, there is no question that
forty-five (45) days after the effectivity of this Decree within which to register public welfare is at bottom of its enactment, considering "the unfair competition
with and secure a permit from the BOARD to engage in the videogram posed by rampant film piracy; the erosion of the moral fiber of the viewing public
business and to register with the BOARD all their inventories of videograms, brought about by the availability of unclassified and unreviewed video tapes
including videotapes, discs, cassettes or other technical improvements or containing pornographic films and films with brutally violent sequences; and losses in
variations thereof, before they could be sold, leased, or otherwise disposed government revenues due to the drop in theatrical attendance, not to mention the
of. Thereafter any videogram found in the possession of any person engaged fact that the activities of video establishments are virtually untaxed since mere
in the videogram business without the required proof of registration by the
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payment of Mayor's permit and municipal license fees are required to engage in
business. 17

The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are seen to
have proliferated in many places notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and
expediency of the DECREE. These considerations, however, are primarily and
exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action

taken, may be the basis for declaring a statute invalid. This is as it ought to
be. The principle of separation of powers has in the main wisely allocated the G.R. No. L-36081 April 24, 1989
respective authority of each department and confined its jurisdiction to such a
sphere. There would then be intrusion not allowable under the Constitution if PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,
on a matter left to the discretion of a coordinate branch, the judiciary would vs.
substitute its own. If there be adherence to the rule of law, as there ought to QUEZON CITY, respondent.
be, the last offender should be courts of justice, to which rightly litigants
submit their controversy precisely to maintain unimpaired the supremacy of Jalandoni, Herrera, Del Castillo & Associates for petitioner.
legal norms and prescriptions. The attack on the validity of the challenged
provision likewise insofar as there may be objections, even if valid and cogent
on its wisdom cannot be sustained. 18
FELICIANO, J.:
In fine, petitioner has not overcome the presumption of validity which attaches to a
challenged statute. We find no clear violation of the Constitution which would justify On 24 December 1969, the City Council of respondent Quezon City adopted
us in pronouncing Presidential Decree No. 1987 as unconstitutional and void. Ordinance No. 7997, Series of 1969, otherwise known as the Market Code of
Quezon City, Section 3 of which provided:
WHEREFORE, the instant Petition is hereby dismissed.
Sec. 3. Supervision Fee.- Privately owned and operated public
No costs. markets shall submit monthly to the Treasurer's Office, a certified list
of stallholders showing the amount of stall fees or rentals paid daily by
SO ORDERED. each stallholder, ... and shall pay 10% of the gross receipts from stall
rentals to the City, ... , as supervision fee. Failure to submit said list
and to pay the corresponding amount within the period herein
prescribed shall subject the operator to the penalties provided in this
Code ... including revocation of permit to operate. ... .1

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972,
on 23 March 1972, which reads:
TAX 1 batch 1 Page 70 of 193
 SECTION 1. There is hereby imposed a five percent (5 %) tax on Ordinance No. 7997, had no personality to question, and was estopped from
gross receipts on rentals or lease of space in privately-owned public questioning, its validity; that the tax on gross receipts was not a tax on income but
markets in Quezon City. one imposed for the enjoyment of the privilege to engage in a particular trade or
business which was within the power of respondent to impose.
xxx xxx xxx
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid
SECTION 3. For the effective implementation of this Ordinance, under protest the five percent (5%) tax under Ordinance No. 9236 for the months of
owners of privately owned public markets shall submit ... a monthly June to September 1972. Two (2) days later, on 25 September 1972, petitioner
certified list of stallholders of lessees of space in their markets moved for judgment on the pleadings, alleging that the material facts had been
showing ... : admitted by the parties.

a. name of stallholder or lessee; On 21 October 1972, the lower court dismissed the petition, ruling 3 that the
questioned imposition is not a tax on income, but rather a privilege tax or license fee
b. amount of rental; which local governments, like respondent, are empowered to impose and collect.

c. period of lease, indicating therein whether the same is on a daily, Having failed to obtain reconsideration of said decision, petitioner came to us on the
monthly or yearly basis. present Petition for Review.

xxx xxx xxx The only issue to be resolved here is whether the tax imposed by respondent on
gross receipts of stall rentals is properly characterized as partaking of the nature of
SECTION 4. ... In case of consistent failure to pay the percentage tax an income tax or, alternatively, of a license fee.
for the (3) consecutive months, the City shall revoke the permit of the
privately-owned market to operate and/or take any other appropriate We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise
action or remedy allowed by law for the collection of the overdue known as the Revised Charter of Quezon City, authorizes the City Council:
percentage tax and surcharge.
xxx xxx xxx
xxx xxx xxx 2
(b) To provide for the levy and collection of taxes and other city
On 15 July 1972, petitioner Progressive Development Corporation, owner and revenues and apply the same to the payment of city expenses in
operator of a public market known as the "Farmers Market & Shopping Center" filed accordance with appropriations.
a Petition for Prohibition with Preliminary Injunction against respondent before the
then Court of First Instance of Rizal on the ground that the supervision fee or license (c) To tax, fix the license fee, and regulate the business of the
tax imposed by the above-mentioned ordinances is in reality a tax on income which following:
respondent may not impose, the same being expressly prohibited by Republic Act
No. 2264, as amended. ... preparation and sale of meat, poultry, fish, game, butter, cheese,
lard vegetables, bread and other provisions. 4
In its Answer, respondent, through the City Fiscal, contended that it had authority to
enact the questioned ordinances, maintaining that the tax on gross receipts imposed The scope of legislative authority conferred upon the Quezon City Council in respect
therein is not a tax on income. The Solicitor General also filed an Answer arguing of businesses like that of the petitioner, is comprehensive: the grant of authority is
that petitioner, not having paid the ten percent (10%) supervision fee prescribed by not only" [to] regulate" and "fix the license fee," but also " to tax" 5
TAX 1 batch 1 Page 71 of 193
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the although license fee is a legal concept distinguishable from tax: the former is
Local Autonomy Act, provides that: imposed in the exercise of police power primarily for purposes of regulation, while
the latter is imposed under the taxing power primarily for purposes of raising
Any provision of law to the contrary notwithstanding, all chartered revenues. 9 Thus, if the generating of revenue is the primary purpose and regulation
cities, municipalities and municipal districts shall have authority to is merely incidental, the imposition is a tax; but if regulation is the primary purpose,
impose municipal license taxes or fees upon persons engaged in any the fact that incidentally revenue is also obtained does not make the imposition a
occupation or business, or exercising privileges in chartered cities, tax. 10
municipalities or municipal districts by requiring them to secure
licenses at rates fixed by the municipal board or city council of the To be considered a license fee, the imposition questioned must relate to an
city, the municipal council of the municipality, or the municipal district occupation or activity that so engages the public interest in health, morals, safety and
council of the municipal district; to collect fees and charges for service development as to require regulation for the protection and promotion of such public
rendered by the city, municipality or municipal district; to regulate and interest; the imposition must also bear a reasonable relation to the probable
impose reasonable fees for services rendered in connection with any expenses of regulation, taking into account not only the costs of direct regulation but
business, profession or occupation being conducted within the city, also its incidental consequences as well. 11 When an activity, occupation or
municipality or municipal district and otherwise to levy for public profession is of such a character that inspection or supervision by public officials is
purposes just and uniform taxes licenses or fees: ... 6 reasonably necessary for the safeguarding and furtherance of public health, morals
and safety, or the general welfare, the legislature may provide that such inspection or
It is now settled that Republic Act No. 2264 confers upon local governments broad supervision or other form of regulation shall be carried out at the expense of the
taxing authority extending to almost "everything, excepting those which are persons engaged in such occupation or performing such activity, and that no one
mentioned therein," provided that the tax levied is "for public purposes, just and shall engage in the occupation or carry out the activity until a fee or charge sufficient
uniform," does not transgress any constitutional provision and is not repugnant to a to cover the cost of the inspection or supervision has been paid. 12 Accordingly, a
controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent charge of a fixed sum which bears no relation at all to the cost of inspection and
clearly show that respondent is authorized to fix the license fee collectible from and regulation may be held to be a tax rather than an exercise of the police power. 13
regulate the business of petitioner as operator of a privately-owned public market.
In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of
Petitioner, however, insist that the "supervision fee" collected from rentals, being a Resolution No. 7350 passed on 30 January 1967 by respondents's local legislative
return from capital invested in the construction of the Farmers Market, practically body authorizing petitioner to establish and operate a market with a permit to sell
operates as a tax on income, one of those expressly excepted from respondent's fresh meat, fish, poultry and other foodstuffs. 14 The same resolution imposed upon
taxing authority, and thus beyond the latter's competence. Petitioner cites the same petitioner, as a condition for continuous operation, the obligation to "abide by and
Section 2 of the Local Autonomy Act which goes on to state: 8 comply with the ordinances, rules and regulations prescribed for the establishment,
operation and maintenance of markets in Quezon City." 15
... Provided, however, That no city, municipality or municipal
district may levy or impose any of the following: The "Farmers' Market and Shopping Center" being a public market in the' sense of a
market open to and inviting the patronage of the general public, even though
xxx xxx xxx privately owned, petitioner's operation thereof required a license issued by the
respondent City, the issuance of which, applying the standards set forth above, was
(g) Taxes on income of any kind whatsoever; done principally in the exercise of the respondent's police power. 16 The operation of
a privately owned market is, as correctly noted by the Solicitor General, equivalent to
The term "tax" frequently applies to all kinds of exactions of monies which become or quite the same as the operation of a government-owned market; both are
public funds. It is often loosely used to include levies for revenue as well as levies for established for the rendition of service to the general public, which warrants close
regulatory purposes such that license fees are frequently called taxes supervision and control by the respondent City, 17 for the protection of the health of
TAX 1 batch 1 Page 72 of 193
the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in items sold in petitioner's privately owned market; and the higher the volume of goods
the market, compliance of all food stuffs sold therein with applicable food and drug sold in such private market, the greater the extent and frequency of inspection and
and related standards, for the prevention of fraud and imposition upon the buying supervision that may be reasonably required in the interest of the buying public.
public, and so forth. Moreover, what we started with should be recalled here: the authority conferred upon
the respondent's City Council is not merely "to regulate" but also embraces the
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. power "to tax" the petitioner's business.
9236 constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the Finally, petitioner argues that respondent is without power to impose a gross receipts
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee tax for revenue purposes absent an express grant from the national government. As
for the regulation of the business in which the petitioner is engaged. While it is true a general rule, there must be a statutory grant for a local government unit to impose
that the amount imposed by the questioned ordinances may be considered in lawfully a gross receipts tax, that unit not having the inherent power of
determining whether the exaction is really one for revenue or prohibition, instead of taxation. 21 The rule, however, finds no application in the instant case where what is
one of regulation under the police power, 18 it nevertheless will be presumed to be involved is an exercise of, principally, the regulatory power of the respondent City
reasonable. Local' governments are allowed wide discretion in determining the rates and where that regulatory power is expressly accompanied by the taxing power.
of imposable license fees even in cases of purely police power measures, in the
absence of proof as to particular municipal conditions and the nature of the business ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon
being taxed as well as other detailed factors relevant to the issue of arbitrariness or City, Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the Petition
unreasonableness of the questioned rates. 19 Thus: for lack of merit.

[A]n ordinance carries with it the presumption of validity. The question SO ORDERED.
of reasonableness though is open to judicial inquiry. Much should be
left thus to the discretion of municipal authorities. Courts will go slow
in writing off an ordinance as unreasonable unless the amount is so
excessive as to be prohibitory, arbitrary, unreasonable, oppressive, or
confiscatory. A rule which has gained acceptance is that factors
relevant to such an inquiry are the municipal conditions as a whole
and the nature of the business made subject to imposition. 20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably
large and excessive and so grossly disproportionate to the costs of the regulatory
service being performed by the respondent as to compel the Court to characterize
the imposition as a revenue measure exclusively. The lower court correctly held that
the gross receipts from stall rentals have been used only as a basis for computing
the fees or taxes due respondent to cover the latter's administrative expenses, i.e.,
for regulation and supervision of the sale of foodstuffs to the public. The use of the
gross amount of stall rentals as basis for determining the collectible amount of
license tax, does not by itself, upon the one hand, convert or render the license tax
into a prohibited city tax on income. Upon the other hand, it has not been suggested
that such basis has no reasonable relationship to the probable costs of regulation
and supervision of the petitioner's kind of business. For, ordinarily, the higher the
amount of stall rentals, the higher the aggregate volume of foodstuffs and related
TAX 1 batch 1 Page 73 of 193
 not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816;
and since it already paid the license fees aforesaid, the sales taxes paid by it —
G.R. No. L-16619             June 29, 1963 amounting to the sum of P15,208.00 — under the three ordinances mentioned
heretofore is an overpayment made by mistake, and therefore refundable.
COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,
vs. The City, on the other hand, contends that, for the permit issued to it granting proper
CITY OF MANILA, ET AL., defendants-appellants. authority to "conduct or engage in the sale of alcoholic beverages, or liquors"
Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358,
Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee. aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; that,
City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for even assuming that Tabacalera is not subject to the payment of the sales taxes
defendants-appellants. prescribed by the said three ordinances as regards its liquor sales, it is not entitled to
the refund demanded for the following reasons:.
DIZON, J.:
(a) The said amount was paid by the plaintiff voluntarily and without protest;
Appeal from the decision of the Court of First Instance of Manila ordering the City
Treasurer of Manila to refund the sum of P15,280.00 to Compania General de (b) If at all the alleged overpayment was made by mistake, such mistake was
Tabacos de Filipinas. one of law and arose from the plaintiff's neglect of duty; .

Appellee Compania General de Tabacos de Filipinas — hereinafter referred to (c) The said amount had been added by the plaintiff to the selling price of the
simply as Tabacalera — filed this action in the Court of First Instance of Manila to liquor sold by it and passed to the consumers; and
recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento —
also hereinafter referred to as the City — the sum of P15,280.00 allegedly overpaid (d) The said amount had been already expended by the defendant City for
by it as taxes on its wholesale and retail sales of liquor for the period from the third public improvements and essential services of the City government, the
quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. benefits of which are enjoyed, and being enjoyed by the plaintiff.
3634, 3301, and 3816.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the liquor license fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634,
City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to amending City Ordinance No. 3420, and City Ordinance No. 3816, amending City
1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also Ordinance No. 3301 were passed. By reason thereof, the City Treasurer issued the
paid the sales taxes required by Ordinances Nos. 3634, 3301, and regulations marked Exhibit A, according to which, the term "general merchandise as
3816.1äwphï1.ñët used in said ordinances, includes all articles referred to in Chapter 1, Sections 123 to
148 of the National Internal Revenue Code. Of these, Sections 133-135
In its sworn statements of wholesale, retail, and grocery sales of general included liquor among the taxable articles. Pursuant to said regulations, Tabacalera
merchandise from the third quarter of 1954 to the second quarter of 1957, inclusive, included its sales of liquor in its sworn quarterly declaration submitted to the City
Tabacalera included its liquor sales of the same period, and it is not denied that of Treasurer beginning from the third quarter of 1954 to the second quarter of 1957,
the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 with a total value of P722,501.09 and correspondingly paid a wholesaler's tax
subject to the action represents the tax corresponding to the liquor sales aforesaid. amounting to P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of
P15,208.00 — the amount sought to be recovered.
Tabacalera's action for refund is based on the theory that, in connection with
its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but It appears that in the year 1954, the City, through its treasurer, addressed a letter to
Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view that
TAX 1 batch 1 Page 74 of 193
liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance That Tabacalera is being subjected to double taxation is more apparent than real. As
No. 3358 are not subject to the wholesale and retail dealers' taxes prescribed by City already stated what is collected under Ordinance No. 3358 is a license fee for the
Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee privilege of engaging in the sale of liquor, a calling in which — it is obvious — not
stopped including its sales of liquor in its quarterly sworn declarations submitted in anyone or anybody may freely engage, considering that the sale of liquor
accordance with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on indiscriminately may endanger public health and morals. On the other hand, what the
December 3, 1957, it addressed a letter to the City Treasurer demanding refund of three ordinances mentioned heretofore impose is a tax for revenue purposes based
the alleged overpayment. As the claim was disallowed, the present action was on the sales made of the same article or merchandise. It is already settled in this
instituted. connection that both a license fee and a tax may be imposed on the same business
or occupation, or for selling the same article, this not being in violation of the rule
The term "tax" applies — generally speaking — to all kinds of exactions which against double taxation (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla.
become public funds. The term is often loosely used to include levies for revenue as 641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83). This
well as levies for regulatory purposes. Thus license fees are commonly called taxes. is precisely the case with the ordinances involved in the case at bar.
Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while Appellee's contention that the City is repudiating its previous view — expressed by
the latter is imposed under the taxing power for the purpose of raising revenues its Treasurer in a letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 —
(MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26). that a liquor dealer who pays the annual license fee under Ordinance No. 3358 is
exempted from the wholesalers and retailers taxes under the other three ordinances
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the mentioned heretofore is of no consequence. The government is not bound by the
privilege to engage in the business of selling liquor or alcoholic beverages, having errors or mistakes committed by its officers, specially on matters of law.
been enacted by the Municipal Board of Manila pursuant to its charter power to fix
license fees on, and regulate, the sale of intoxicating liquors, whether imported or Having arrived at the above conclusion, we deem it unnecessary to consider the
locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license other legal points raised by the City.
fees imposed by it are essentially for purposes of regulation, and are justified,
considering that the sale of intoxicating liquor is, potentially at least, harmful to public WHEREFORE, the decision appealed from is reversed, with the result that this case
health and morals, and must be subject to supervision or regulation by the state and should be, as it is hereby dismissed, with costs.
by cities and municipalities authorized to act in the premises. (MacQuillin, supra, p.
445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose
taxes on the sales of general merchandise, wholesale or retail, and are revenue
measures enacted by the Municipal Board of Manila by virtue of its power to tax
dealers for the sale of such merchandise. (Section 10 [o], Republic Act No. 409, as
amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly
includes liquor. Aside from this, we have held in City of Manila vs. Inter-Island Gas
Service, Inc., G.R. No. L-8799, August 31, 1956, that the word "merchandise" refers
to all subjects of commerce and traffic; whatever is usually bought and sold in trade
or market; goods or wares bought and sold for gain; commodities or goods to trade;
and commercial commodities in general.

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 G.R. Nos. L-19824, L-19825 and 19826             July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC.,
and TALISAY-SILAY MILLING COMPANY, defendants-appellants.

Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for
defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Antonio Torres and Solicitor Ceferino Padua, for plaintiff-appellee.
-- DUPLICATE --
REGALA, J.:
G.R. No. 99886 March 31, 1993
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao
JOHN H. OSMEÑA, petitioner, vs. OSCAR ORBOS, , respondents. Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one
controlling ownership and management, from a decision of the Court of First
Instance of Manila finding them liable for special assessments under Section 15 of
Republic Act No. 632.

Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for
short, a semi-public corporation created for the following purposes and objectives:

(a) To conduct research work for the sugar industry in all its phases, either
agricultural or industrial, for the purpose of introducing into the sugar industry
such practices or processes that will reduce the cost of production, increase
and improve the industrialization of the by-products of sugar cane, and
achieve greater efficiency in the industry;

(b) To improve existing methods of raising sugar cane and of sugar

manufacturing;

(c) To insure a permanent, sufficient and balanced production of sugar and its
by-products for local consumption and exportation;

(d) To establish and maintain such balanced relation between production and
consumption of sugar and its by-products, and such marketing conditions
therefor, as well insure stabilized prices at a level sufficient to cover the cost
of production plus a reasonable profit;

TAX 1 batch 1 Page 76 of 193

 (e) To promote the effective merchandising of sugar and its by-products in climatic conditions, and such other pertinent studies as will be useful in
the domestic and foreign markets so that those engaged in the sugar industry adjusting the sugar industry to a position independent of existing trade
will be placed on a basis of economic security; and preference in the American market;

(f) To improve the living and economic conditions of laborers engaged in the (b) To purchase such machinery, materials, equipment and supplies as may
sugar industry by the gradual and effective correction of the inequalities be necessary to prosecute successfully such researches and experimental
existing in the industry. (Section 2, Rep. Act 632) work;

To realize and achieve these ends, Sections 15 and 16 of the aforementioned law (c) To explore and expand the domestic and foreign markets for sugar and its
provide: by-products to assure mutual benefits to consumers and producers, and to
promote and maintain a sufficient general production of sugar and its by-
Sec. 15. Capitalization. — To raise the necessary funds to carry out the products by an efficient coordination of the component elements of the sugar
provisions of this Act and the purposes of the corporation, there shall be industry of the country;
levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per
picul of sugar to be collected for a period of five (5) years beginning the crop (d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws,
year 1951-1952. The amount shall be borne by the sugar cane planters and machineries, equipment, materials, merchant vessels, rails, railroad lines,
the sugar centrals in the proportion of their corresponding milling share, and and any other means of transportation, warehouses, buildings, and any other
said levy shall constitute a lien on their sugar quedans and/or warehouse equipment and material to the production, manufacture, handling,
receipts. transportation and warehousing of sugar and its by-products;

Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set (e) To grant loans, on reasonable terms, to planters when it deems such
aside to constitute a special fund to be known as the "Sugar Research and loans advisable;
Stabilization Fund," which shall be available exclusively for the use of the
corporation. All the income and receipts derived from the special fund herein (f) To enter, make and execute contracts of any kind as may be necessary or
created shall accrue to, and form part of the said fund to be available solely incidental to the attainment of its purposes with any person, firm, or public or
for the use of the corporation. private corporation, with the Government of the Philippines or of the United
States, or any state, territory, or persons therefor, or with any foreign
The specific and general powers of the Philsugin are set forth in Section 8 of the government and, in general, to do everything directly or indirectly necessary
same law, to wit: or incidental to, or in furtherance of, the purposes of the corporation;

Sec. 3. Specific and General Powers. — For carrying out the purposes (g) To do all such other things, transact all such business and perform such
mentioned in the preceding section, the PHILSUGIN shall have the following functions directly or indirectly necessary, incidental or conducive to the
powers: attainment of the purposes of the corporation; and

(a) To establish, keep, maintain and operate, or help establish, keep, (h) Generally, to exercise all the powers of a Corporation under the
maintain, and operate one central experiment station and such number of Corporation Law insofar as they are not inconsistent with the provisions of
regional experiment stations in any part of the Philippines as may be this Act.
necessary to undertake extensive research in sugar cane culture and
manufacture, including studies as to the feasibility of merchandising sugar The facts of this case bearing relevance to the issue under consideration, as recited
cane farms, the control and eradication of pests, the selected and by the lower court and accepted by the appellants, are the following:
propagation of high-yielding varieties of sugar cane suited to Philippine
TAX 1 batch 1 Page 77 of 193
 x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952- As such, the proceeds thereof may be devoted only to the specific purpose for which
1953, 1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia the assessment was authorized, a special assessment being a levy upon property
Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of predicated on the doctrine that the property against which it is levied derives some
P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid special benefit from the improvement. It is not a tax measure intended to raise
P117,613.44 but left unpaid balance of P235,800.20; defendant Talisay-Silay revenues for the Government. Consequently, once it has been determined that no
Milling Company has paid P251,812.43 but left unpaid balance of benefit accrues or inures to the property owners paying the assessment, or that the
P208,193.74; and defendant Central Azucarera del Danao made a payment proceeds from the said assessment are being misapplied to the prejudice of those
of P49,897.78 but left unpaid balance of P48,059.77. There is no question against whom it has been levied, then the authority to insist on the payment of the
regarding the correctness of the amounts paid and the amounts that remain said assessment ceases.
unpaid.
On the other hand, the lower court adjudged the appellants herein liable under the
From the evidence presented, on which there is no controversy, it was aforementioned law, Republic Act 632, upon the following considerations:
disclosed that on September 3, 1951, the Philippine Sugar Institute, known as
the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and
consideration of P3,070,909.60 payable, in accordance with the deed of sale operate machineries, equipment, merchant vessels, etc., and any other equipment
Exhibit A, in 3 installments from the process of the sugar tax to be collected, and material for the production, manufacture, handling, transportation and
under Republic Act 632. The evidence further discloses that the operation of warehousing of sugar and its by-products. It was, therefore, authorized to purchase
the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was and operate a sugar refinery.
disastrous in the sense that PHILSUGIN incurred tremendous losses as
shown by an examination of the statements of income and expenses marked Secondly, the corporate powers of the Philsugin are vested in and exercised by a
Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former board of directors composed of 5 members, 3 of whom shall be appointed upon
acting general manager of PHILSUGIN and at present technical consultant of recommendation of the National Federation of Sugar Cane Planters and 2 upon
said entity, presented by the defendants as witnesses, it has been shown that recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has
the operation of the Insular Sugar Refinery has consumed 70% of the not been shown that this particular provision was not observed in this case.
thinking time and effort of the PHILSUGIN management. x x x . Therefore, the appellants herein may not rightly claim that there had been a
misapplication of the Philsugin funds when the same was used to procure the Insular
Contending that the purchase of the Insular Sugar Refinery with money from the Sugar Refinery because the decision to purchase the said refinery was made by a
Philsugin Fund was not authorized by Republic ActM 632 and that the continued board in which the applicants were fully and duly represented, the appellants being
operation of the said refinery was inimical to theHHir interests, the appellants refused members of the Philippine Sugar Association.
to continue with their contributions to the said fund. They maintained that their
obligation to contribute or pay to the said Fund subsists only to the limit and extent Thirdly, all financial transactions of the Philsugin are audited by the General Auditing
that they are benefited by such contributions since Republic Act 632 is not a revenue Office, which must be presumed to have passed upon the legality and prudence of
measure but an Act which establishes a "Special assessments." Adverting to the the disbursements of the Fund. Additionally, other offices of the Government review
finding of the lower court that proceeds of the said Fund had been used or applied to such transactions as reflected in the annual report obliged of the Philsugin to
absorb the "tremendous losses" incurred by Philsugin in its "disastrous operation" of prepare. Among those offices are the Office of the President of the Philippines, the
the said refinery, the appellants herein argue that they should not only be released Administrator of Economic Coordination and the Presiding Officers of the two
from their obligation to pay the said assessment but be refunded, besides, of all that chambers of Congress. With all these safeguards against any imprudent or
they might have previously paid thereunder. unauthorized expenditure of Philsugin Funds, the acquisition of the Insular Sugar
Refinery must be upheld in its legality and propriety.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar"
authorized to be collected under Sec. 15 of Republic 632 is a special assessment.
TAX 1 batch 1 Page 78 of 193
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants This clearly indicates that "Sugar centrals" are not the same as "sugar mills"
herein to continue with their contribution to the Fund for that conduct is no different or "sugar refineries."
"from the case of an ordinary taxpayer who refuses to pay his taxes on the ground
that the money is being misappropriated by Government officials." This is taking the Second. The appellants' refusal to continue paying the assessment under Republic
law into their own hands. Act 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes
precisely because there is a substantial distinction between a "special assessment"
Against the above ruling of the trial court, the appellants contend: and an ordinary tax. The purpose of the former is to finance the improvement of
particular properties, with the benefits of the improvement accruing or inuring to the
First. It is fallacious to argue that no mismanagement or abuse of corporate power owners thereof who, after all, pay the assessment. The purpose of an ordinary tax,
could have been committed by Philsugin solely because its charter incorporates so on the other hand, is to provide the Government with revenues needed for the
many devices or safeguards to preclude such abuse. This reasoning of the lower financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes
court does not reconcile with that actually happened in this case. may not indeed be sanctioned because it would impair government functions, the
same would not hold true in the case of a refusal to comply with a special
Besides, the appellants contend that the issue on hand is not whether Philsugin assessment.
abused or not its powers when it purchased the Insular Sugar Refinery. The issue,
rather, is whether Philsugin had any power or authority at all to acquire the said Third. Upon a host of decisions of the United States Supreme Court, the imposition
refinery. The appellants deny that Philsugin is possessed of any such authority or collection of a special assessment upon property owners who receive no benefit
because what it is empowered to purchase is not a "sugar refinery but a central from such assessment amounts to a denial of due process. Thus, in the case
experiment station or perhaps at the most a sugar central to be used for that of Norwood vs. Baer, 172 US 269, the ruling was laid down that —
purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite the case
of Collector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled As already indicated, the principle underlying special assessments to meet
that — the cost of public improvements is that the property upon which they are
imposed is peculiarly benefited, and therefore, the panels do not, in fact, pay
We are of the opinion that a "sugar central," as that term is used in Section anything in excess of what they received by reason of such improvement.
189, applies to "a large mill that makes sugar out of the cane brought from a
wide surrounding territory," or a sugar mill which manufactures sugar for a unless a corresponding benefit is realized by the property owner, the exaction of a
number of plantations. The term "sugar central" could not have been intended special assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351)
by Congress to refer to all sugar mills or sugar factories as contended by and "palpably arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider
respondent. If respondent's interpretation is to be followed, even sugar mills Granite Co., 240 U.S. 57). In other words, the assessment is violative of the due
run by animal power (trapiche) would be considered sugar central. We do not process guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S.
think Congress ever intended to place owners of (trapiches) in the same 241).
category as operators of sugar centrals.
We find for the appellee.
That sugar mills are not the same as sugar centrals may also be gleaned
from Commonwealth Act No. 470 (Assessment Law). In prescribing the The nature of a "special assessment" similar to the case at bar has already been
principle governing valuation and assessment of real property. Section 4 of discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148.
said Act provides — For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar
Adjustment Act, levies on owners or persons in control of lands devoted to the
"Machinery permanently used or in stalled in sugar centrals, mills, or cultivation of sugar cane and ceded to others for a consideration, on lease or
refineries shall be assessed." otherwise —

TAX 1 batch 1 Page 79 of 193

 a tax equivalent to the difference between the money value of the rental or Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs.
consideration collected and the amount representing 12 per centum of the Mayo, 103 Fla. 552, 139 So. 121)
assessed value of such land. (Sec. 3).1äwphï1.ñët
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus
Under Section 6 of the said law, Commonwealth Act 567, all collections made industry in Florida —
thereunder "shall accrue to a special fund in the Philippine Treasury`, to be known as
the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or "The protection of a large industry constituting one of the great source
all of the following purposes or to attain any or all of the following objectives, as may of the state's wealth and therefore directly or indirectly affecting the
be provided by law." It then proceeds to enumerate the said purposes, among which welfare of so great a portion of the population of the State is affected
are "to place the sugar industry in a position to maintain itself; ... to readjust the to such an extent by public interests as to be within the police power
benefits derived from the sugar industry ... so that all might continue profitably to of the sovereign." (128 So. 857).
engage therein; to limit the production of sugar to areas more economically suited to
the production thereof; and to afford laborers employed in the industry a living wage Once it is conceded, as it must that the protection and promotion of the sugar
and to improve their living and working conditions. industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax expedient for its promotion. Here, the legislative discretion must be allowed
or special assessment was unconstitutional because it was being "levied for the aid full play, subject only to the test of reasonableness; and it is not contended
and support of the sugar industry exclusively," and therefore, not for a public that the means provided in Section 6 of the law (above quoted) bear no
purpose. In rejecting the theory advanced by the said plaintiff, this Court said: relation to the objective pursued or are oppressive in character. If objective
and methods are alike constitutionally valid, no reason is seen why the state
The basic defect in the plaintiff's position in his assumption that the tax may not levy taxes to raise funds for their prosecution and attainment.
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing Taxation may be made the implement of the state's police power. (Great Atl.
power. Analysis of the Act, and particularly Section 6, will show that the tax is & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler,
levied with a regulatory purpose, to provide means for the rehabilitation and 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed.
stabilization of the threatened sugar industry. In other words, the act is 579).
primarily an exercise of the police power.
On the authority of the above case, then, We hold that the special assessment at bar
This Court can take judicial notice of the fact that sugar production is one of may be considered as similarly as the above, that is, that the levy for the Philsugin
the great industries of our nation, sugar occupying a leading position among Fund is not so much an exercise of the power of taxation, nor the imposition of a
its export products; that it gives employment to thousands of laborers in fields special assessment, but, the exercise of the police power for the general welfare of
and factories; that it is a great source of the state's wealth, is one, of the the entire country. It is, therefore, an exercise of a sovereign power which no private
important sources to foreign exchange needed by our government, and is citizen may lawfully resist.
thus pivotal in the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement, therefore redounds Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct
greatly to the general welfare. Hence, it was competent for the Legislature to research work for the sugar industry in all its phases, either agricultural or industrial,
find that the general welfare demanded that the sugar industry should be for the purpose of introducing into the sugar industry such practices or processes
stabilized in turn; and in the wide field of its police power, the law-making that will reduce the cost of production, ..., and achieve greater efficiency in the
body could provide that the distribution of benefits therefrom be readjusted industry." This provision, first of all, more than justifies the acquisition of the refinery
among its components, to enable it to resist the added strain of the increase in question. The case dispute that the operation of a sugar refinery is a phase of
in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; sugar production and that from such operation may be learned methods of reducing
the cost of sugar manufactured no less than it may afford the opportunity to discover
TAX 1 batch 1 Page 80 of 193
the more effective means of achieving progress in the industry. Philsugin's
experience alone of running a refinery is a gain to the entire industry. That the
operation resulted in a financial loss is by no means an index that the industry did not
profit therefrom, as other farms of a different nature may have been realized. Thus,
from its financially unsuccessful venture, the Philsugin could very well have
advanced in its appreciation of the problems of management faced by sugar
centrals. It could have understood more clearly the difficulties of marketing sugar G.R. No. 173863               September 15, 2010
products. It could have known with better intimacy the precise area of the industry in
need of the more help from the government. The view of the appellants herein, CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES,
therefore, that they were not benefited by the unsuccessful operation of the refinery INC.), Petitioner,
in question is not entirely accurate. vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK
Furthermore, Section 2(a) specifies a field of research which, indeed, would be DEVELOPMENT CORPORATION, Respondents.
difficult to carry out save through the actual operation of a refinery. Quite obviously,
the most practical or realistic approach to the problem of what "practices or DECISION
processes" might most effectively cut the cost of production is to experiment on
production itself. And yet, how can such an experiment be carried out without the VILLARAMA, JR., J.:
tools, which is all that a refinery is?
This petition for review on certiorari assails the Decision1 dated November 30, 2005
In view of all the foregoing, the decision appealed from is hereby affirmed, with costs. of the Court of Appeals (CA) in CA-G.R. SP No. 87117, which affirmed the
Resolution2 dated August 2, 2004 and the Order3 dated September 30, 2004 of the
Office of the President in O.P. Case No. 04-D-170.

The facts follow.

On June 28, 2002, the Board of Directors of respondent Clark Development

Corporation (CDC) issued and approved Policy Guidelines on the Movement of
Petroleum Fuel to and from the Clark Special Economic Zone (CSEZ)4 which
provided, among others, for the following fees and charges:

1. Accreditation Fee

xxxx

2. Annual Inspection Fee

xxxx

3. Royalty Fees

TAX 1 batch 1 Page 81 of 193

 Suppliers delivering fuel from outside sources shall be assessed the following Petitioner elevated its protest before respondent Bases Conversion Development
royalty fees: Authority (BCDA) arguing that the royalty fees imposed had no reasonable relation to
the probable expenses of regulation and that the imposition on a per unit
- Php0.50 per liter – those delivering Coastal petroleum fuel to CSEZ locators measurement of fuel sales was for a revenue generating purpose, thus, akin to a
not sanctioned by CDC "tax". The protest was however denied by BCDA in a letter12 dated March 3, 2004.

- Php1.00 per liter – those bringing-in petroleum fuel (except Jet A-1) from Petitioner appealed to the Office of the President which dismissed13 the appeal for
outside sources lack of merit on August 2, 2004 and denied14 petitioner’s motion for reconsideration
thereof on September 30, 2004.
xxxx
Aggrieved, petitioner elevated the case to the CA which likewise dismissed15 the
4. Gate Pass Fee appeal for lack of merit on November 30, 2005 and denied16 the motion for
reconsideration on July 26, 2006.
x x x x5
The CA held that in imposing the challenged royalty fees, respondent CDC was
The above policy guidelines were implemented effective July 27, 2002. On October exercising its right to regulate the flow of fuel into CSEZ, which is bolstered by the
1, 2002, CDC sent a letter6 to herein petitioner Chevron Philippines, Inc. (formerly fact that it possesses exclusive right to distribute fuel within CSEZ pursuant to its
Caltex Philippines, Inc.), a domestic corporation which has been supplying fuel to Joint Venture Agreement (JVA)17 with Subic Bay Metropolitan Authority (SBMA) and
Nanox Philippines, a locator inside the CSEZ since 2001, informing the petitioner Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. The appellate court
that a royalty fee of ₱0.50 per liter shall be assessed on its deliveries to Nanox also found that royalty fees were assessed on fuel delivered, not on the sale, by
Philippines effective August 1, 2002. Thereafter, on October 21, 2002 a Statement of petitioner and that the basis of such imposition was petitioner’s delivery receipts to
Account7 was sent by CDC billing the petitioner for royalty fees in the amount of Nanox Philippines. The fact that revenue is incidentally also obtained does not make
₱115,000.00 for its fuel sales from Coastal depot to Nanox Philippines from August the imposition a tax as long as the primary purpose of such imposition is regulation.18
1-31 to September 3-21, 2002.
Petitioner filed a motion for reconsideration but the CA denied the same in its
Claiming that nothing in the law authorizes CDC to impose royalty fees or any fees Resolution19 dated July 26, 2006.
based on a per unit measurement of any commodity sold within the special economic
zone, petitioner sent a letter8 dated October 30, 2002 to the President and Chief Hence, this petition raising the following grounds:
Executive Officer of CDC, Mr. Emmanuel Y. Angeles, to protest the assessment for
royalty fees. Petitioner nevertheless paid the said fees under protest on November 4, I. THE ISSUE RAISED BEFORE THE COURT A QUO IS A QUESTION OF
2002. SUBSTANCE NOT HERETOFORE DETERMINED BY THE HONORABLE
SUPREME COURT.
On August 18, 2003, CDC again wrote a letter9 to petitioner regarding the latter’s
unsettled royalty fees covering the period of December 2002 to July 2003. Petitioner II. THE RULING OF THE COURT OF APPEALS THAT THE CDC HAS THE
responded through a letter10 dated September 8, 2003 reiterating its continuing POWER TO IMPOSE THE QUESTIONED "ROYALTY FEES" IS CONTRARY TO
objection over the assessed royalty fees and requested a refund of the amount paid LAW.
under protest on November 4, 2002. The letter also asked CDC to revoke the
imposition of such royalty fees. The request was denied by CDC in a letter11 dated III. THE COURT OF APPEALS WAS MANIFESTLY MISTAKEN AND COMMITTED
September 29, 2003. GRAVE ABUSE OF DISCRETION AND A CLEAR MISUNDERSTANDING OF
FACTS WHEN IT RULED CONTRARY TO THE EVIDENCE THAT: (i) THE
QUESTIONED "ROYALTY FEE" IS PRIMARILY FOR REGULATION; AND (ii) ANY
TAX 1 batch 1 Page 82 of 193
REVENUE EARNED THEREFROM IS MERELY INCIDENTAL TO THE PURPOSE of regulation. On the other hand, if the purpose is primarily to regulate, then it is
OF REGULATION. deemed a regulation and an exercise of the police power of the state, even though
incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy,24 the
IV. THE COURT OF APPEALS FAILED TO GIVE DUE WEIGHT AND Court stated:
CONSIDERATION TO THE EVIDENCE PRESENTED BY CPI SUCH AS THE
LETTERS COMING FROM RESPONDENT CDC ITSELF PROVING THAT THE The conservative and pivotal distinction between these two (2) powers rests in the
QUESTIONED ROYALTY FEES ARE IMPOSED ON THE BASIS OF FUEL SALES purpose for which the charge is made. If generation of revenue is the primary
(NOT DELIVERY OF FUEL) AND NOT FOR REGULATION BUT PURELY FOR purpose and regulation is merely incidental, the imposition is a tax; but if regulation is
INCOME GENERATION, I.E. AS PRICE OR CONSIDERATION FOR THE RIGHT the primary purpose, the fact that revenue is incidentally raised does not make the
TO MARKET AND DISTRIBUTE FUEL INSIDE THE CSEZ.20 imposition a tax.

CONTENTION
In the case at bar, we hold that the subject royalty fee was imposed primarily for
regulatory purposes, and not for the generation of income or profits as petitioner
Petitioner argues that CDC does not have any power to impose royalty fees on sale claims. The Policy Guidelines on the Movement of Petroleum Fuel to and from the
of fuel inside the CSEZ on the basis of purely income generating functions and its Clark Special Economic Zone25 provides:
exclusive right to market and distribute goods inside the CSEZ. Such imposition of
royalty fees for revenue generating purposes would amount to a tax, which the DECLARATION OF POLICY
respondents have no power to impose. Petitioner stresses that the royalty fee
imposed by CDC is not regulatory in nature but a revenue generating measure to It is hereby declared the policy of CDC to develop and maintain the Clark Special
increase its profits and to further enhance its exclusive right to market and distribute Economic Zone (CSEZ) as a highly secured zone free from threats of any kind,
fuel in CSEZ.21 which could possibly endanger the lives and properties of locators, would-be
investors, visitors, and employees.
Petitioner would also like this Court to note that the fees imposed, assuming
arguendo they are regulatory in nature, are unreasonable and are grossly in excess It is also declared the policy of CDC to operate and manage the CSEZ as a separate
of regulation costs. It adds that the amount of the fees should be presumed to be customs territory ensuring free flow or movement of goods and capital within, into
unreasonable and that the burden of proving that the fees are not unreasonable lies and exported out of the CSEZ.26 (Emphasis supplied.)
with the respondents.22
From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and
On the part of the respondents, they argue that the purpose of the royalty fees is to foremost, to ensure the safety, security, and good condition of the petroleum fuel
regulate the flow of fuel to and from the CSEZ. Such being its main purpose, and industry within the CSEZ. The questioned royalty fees form part of the regulatory
revenue (if any) just an incidental product, the imposition cannot be considered a tax. framework to ensure "free flow or movement" of petroleum fuel to and from the
It is their position that the regulation is a valid exercise of police power since it is CSEZ. The fact that respondents have the exclusive right to distribute and market
aimed at promoting the general welfare of the public. They claim that being the petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not
administrator of the CSEZ, CDC is responsible for the safe distribution of fuel diminish the regulatory purpose of the royalty fee for fuel products supplied by
products inside the CSEZ.23 petitioner to its client at the CSEZ.

The petition has no merit. As pointed out by the respondents in their Comment, from the time the JVA took
effect up to the time CDC implemented its Policy Guidelines on the Movement of
In distinguishing tax and regulation as a form of police power, the determining factor Petroleum Fuel to and from the CSEZ, suppliers/distributors were allowed to bring in
is the purpose of the implemented measure. If the purpose is primarily to raise petroleum products inside CSEZ without any charge at all. But this arrangement
revenue, then it will be deemed a tax even though the measure results in some form clearly negates CDC’s mandate under the JVA as exclusive distributor of CSBTI’s
TAX 1 batch 1 Page 83 of 193
fuel products within CSEZ and respondents’ ownership of the Subic-Clark (h) For the due and effective exercise of the powers conferred by law and to the
Pipeline.27 On this score, respondents were justified in charging royalty fees on fuel extend (sic) [extent] requisite therefor, to exercise exclusive jurisdiction and sole
delivered by outside suppliers. police authority over all areas owned or administered by the Authority. For this
purpose, the Authority shall have supervision and control over the bringing in or
However, it was erroneous for petitioner to argue that such exclusive right of taking out of the Zone, including the movement therein, of all cargoes, wares,
respondent CDC to market and distribute fuel inside CSEZ is the sole basis of the articles, machineries, equipment, supplies or merchandise of every type and
royalty fees imposed under the Policy Guidelines. Being the administrator of CSEZ, description;
the responsibility of ensuring the safe, efficient and orderly distribution of fuel
products within the Zone falls on CDC. Addressing specific concerns demanded by x x x x (Emphasis supplied.)
the nature of goods or products involved is encompassed in the range of services
which respondent CDC is expected to provide under the law, in pursuance of its In relation to the regulatory purpose of the imposed fees, this Court in Progressive
general power of supervision and control over the movement of all supplies and Development Corporation v. Quezon City,29 stated that "x x x the imposition
equipment into the CSEZ. questioned must relate to an occupation or activity that so engages the public
interest in health, morals, safety and development as to require regulation for the
Section 2 of Executive Order No. 8028 provides: protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of regulation, taking into account not
SEC. 2. Powers and Functions of the Clark Development Corporation. – The BCDA, only the costs of direct regulation but also its incidental consequences as well."
as the incorporator and holding company of its Clark subsidiary, shall determine the
powers and functions of the CDC. Pursuant to Section 15 of RA 7227, the CDC shall In the case at bar, there can be no doubt that the oil industry is greatly imbued with
have the specific powers of the Export Processing Zone Authority as provided for in public interest as it vitally affects the general welfare.30 In addition, fuel is a highly
Section 4 of Presidential Decree No. 66 (1972) as amended. combustible product which, if left unchecked, poses a serious threat to life and
property. Also, the reasonable relation between the royalty fees imposed on a "per
Among those specific powers granted to CDC under Section 4 of Presidential Decree liter" basis and the regulation sought to be attained is that the higher the volume of
No. 66 are: fuel entering CSEZ, the greater the extent and frequency of supervision and
inspection required to ensure safety, security, and order within the Zone.
(a) To operate, administer and manage the export processing zone established in
the Port of Mariveles, Bataan, and such other export processing zones as may be Respondents submit that increased administrative costs were triggered by security
established under this Decree; to construct, acquire, own, lease, operate and risks that have recently emerged, such as terrorist strikes in airlines and
maintain infrastructure facilities, factory building, warehouses, dams, reservoir, water military/government facilities. Explaining the regulatory feature of the charges
distribution, electric light and power system, telecommunications and transportation, imposed under the Policy Guidelines, then BCDA President Rufo Colayco in his
or such other facilities and services necessary or useful in the conduct of commerce letter dated March 3, 2004 addressed to petitioner’s Chief Corporate Counsel,
or in the attainment of the purposes and objectives of this Decree; stressed:

xxxx The need for regulation is more evident in the light of the 9/11 tragedy considering
that what is being moved from one location to another are highly combustible fuel
(g) To fix, assess and collect storage charges and fees, including rentals for the products that could cause loss of lives and damage to properties, hence, a set of
lease, use or occupancy of lands, buildings, structure, warehouses, facilities and guidelines was promulgated on 28 June 2002. It must be emphasized also that
other properties owned and administered by the Authority; and to fix and collect the greater security measure must be observed in the CSEZ because of the presence of
fees and charges for the issuance of permits, licenses and the rendering of the airport which is a vital public infrastructure.1avvphi1
services not enumerated herein, the provisions of law to the contrary
notwithstanding;
TAX 1 batch 1 Page 84 of 193
We are therefore constrained to sustain the imposition of the royalty fees on
deliveries of CPI’s fuel products to Nanox Philippines.31

As to the issue of reasonableness of the amount of the fees, we hold that no

evidence was adduced by the petitioner to show that the fees imposed are G.R. Nos. L-28508-9 July 7, 1989
unreasonable.
ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil
32
Administrative issuances have the force and effect of law.  They benefit from the Company), petitioner,
same presumption of validity and constitutionality enjoyed by statutes. These two vs.
precepts place a heavy burden upon any party assailing governmental THE COMMISSIONER OF INTERNAL REVENUE, respondent.
regulations.33 Petitioner’s plain allegations are simply not enough to overcome the
presumption of validity and reasonableness of the subject imposition. Padilla Law Office for petitioner.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court
of Appeals dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby
AFFIRMED. CRUZ, J.:

With costs against the petitioner. On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioner's
claims for refund of overpaid income taxes of P102,246.00 for 1959 and
SO ORDERED. P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively.

In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as
part of its ordinary and necessary business expenses, the amount it had spent for
drilling and exploration of its petroleum concessions. This claim was disallowed by
the respondent Commissioner of Internal Revenue on the ground that the expenses
should be capitalized and might be written off as a loss only when a "dry hole" should
result. ESSO then filed an amended return where it asked for the refund of
P323,279.00 by reason of its abandonment as dry holes of several of its oil wells.
Also claimed as ordinary and necessary expenses in the same return was the
amount of P340,822.04, representing margin fees it had paid to the Central Bank on
its profit remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the
claimed deduction for the margin fees paid.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year
1960, in the amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the
period from April 18,1961 to April 18, 1964, for a total of P434,232.92. The deficiency
TAX 1 batch 1 Page 85 of 193
arose from the disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the all taxes paid or accrued during or within the taxable year and which are related to
Central Bank on its profit remittances to its New York head office. the taxpayer's trade, business or profession are deductible from gross income.

ESSO settled this deficiency assessment on August 10, 1964, by applying the tax The petitioner maintains that margin fees are taxes and cites the background and
credit of P221,033.00 representing its overpayment on its income tax for 1959 and legislative history of the Margin Fee Law showing that R.A. 2609 was nothing less
paying under protest the additional amount of P213,201.92. On August 13, 1964, it than a revival of the 17% excise tax on foreign exchange imposed by R.A. 601. This
claimed the refund of P39,787.94 as overpayment on the interest on its deficiency was a revenue measure formally proposed by President Carlos P. Garcia to
income tax. It argued that the 18% interest should have been imposed not on the Congress as part of, and in order to balance, the budget for 1959-1960. It was
total deficiency of P367,944.00 but only on the amount of P146,961.00, the enacted by Congress as such and, significantly, properly originated in the House of
difference between the total deficiency and its tax credit of P221,033.00. Representatives. During its two and a half years of existence, the measure was one
of the major sources of revenue used to finance the ordinary operating expenditures
This claim was denied by the CIR, who insisted on charging the 18% interest on the of the government. It was, moreover, payable out of the General Fund.
entire amount of the deficiency tax. On May 4,1965, the CIR also denied the claims
of ESSO for refund of the overpayment of its 1959 and 1960 income taxes, holding On the claimed legislative intent, the Court of Tax Appeals, quoting established
that the margin fees paid to the Central Bank could not be considered taxes or principles, pointed out that —
allowed as deductible business expenses.
We are not unmindful of the rule that opinions expressed in debates, actual
ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, proceedings of the legislature, steps taken in the enactment of a law, or the history of
contending that the margin fees were deductible from gross income either as a tax or the passage of the law through the legislature, may be resorted to as an aid in the
as an ordinary and necessary business expense. It also claimed an overpayment of interpretation of a statute which is ambiguous or of doubtful meaning. The courts
its tax by P434,232.92 in 1960, for the same reason. Additionally, ESSO argued that may take into consideration the facts leading up to, coincident with, and in any way
even if the amount paid as margin fees were not legally deductible, there was still an connected with, the passage of the act, in order that they may properly interpret the
overpayment by P39,787.94 for 1960, representing excess interest. legislative intent. But it is also well-settled jurisprudence that only in extremely
doubtful matters of interpretation does the legislative history of an act of Congress
After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and become important. As a matter of fact, there may be no resort to the legislative
P434,234.92 for 1960 but sustained its claim for P39,787.94 as excess interest. This history of the enactment of a statute, the language of which is plain and
portion of the decision was appealed by the CIR but was affirmed by this Court unambiguous, since such legislative history may only be resorted to for the purpose
in Commissioner of Internal Revenue v. ESSO, G.R. No. L-28502- 03, promulgated of solving doubt, not for the purpose of creating it. [50 Am. Jur. 328.]
on April 18, 1989. ESSO for its part appealed the CTA decision denying its claims for
the refund of the margin fees P102,246.00 for 1959 and P434,234.92 for 1960. That Apart from the above consideration, there are at least two cases where we have held
is the issue now before us. that a margin fee is not a tax but an exaction designed to curb the excessive
demands upon our international reserve.
II
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through
The first question we must settle is whether R.A. 2009, entitled An Act to Authorize Justice Jose P. Bengzon:
the Central Bank of the Philippines to Establish a Margin Over Banks' Selling Rates
of Foreign Exchange, is a police measure or a revenue measure. If it is a revenue A margin levy on foreign exchange is a form of exchange control or
measure, the margin fees paid by the petitioner to the Central Bank on its profit restriction designed to discourage imports and encourage exports,
remittances to its New York head office should be deductible from ESSO's gross and ultimately, 'curtail any excessive demand upon the international
income under Sec. 30(c) of the National Internal Revenue Code. This provides that reserve' in order to stabilize the currency. Originally adopted to cope
with balance of payment pressures, exchange restrictions have come
TAX 1 batch 1 Page 86 of 193
 to serve various purposes, such as limiting non-essential imports, The applicable provision is Section 30(a) of the National Internal Revenue Code
protecting domestic industry and when combined with the use of reading as follows:
multiple currency rates providing a source of revenue to the
government, and are in many developing countries regarded as a SEC. 30. Deductions from gross income in computing net income
more or less inevitable concomitant of their economic development there shall be allowed as deductions
programs. The different measures of exchange control or restriction
cover different phases of foreign exchange transactions, i.e., in (a) Expenses:
quantitative restriction, the control is on the amount of foreign
exchange allowable. In the case of the margin levy, the immediate (1) In general. — All the ordinary and necessary expenses paid or
impact is on the rate of foreign exchange; in fact, its main function is incurred during the taxable year in carrying on any trade or business,
to control the exchange rate without changing the par value of the including a reasonable allowance for salaries or other compensation
peso as fixed in the Bretton Woods Agreement Act. For a member for personal services actually rendered; traveling expenses while
nation is not supposed to alter its exchange rate (at par value) to away from home in the pursuit of a trade or business; and rentals or
correct a merely temporary disequilibrium in its balance of payments. other payments required to be made as a condition to the continued
By its nature, the margin levy is part of the rate of exchange as fixed use or possession, for the purpose of the trade or business, of
by the government. property to which the taxpayer has not taken or is not taking title or in
which he has no equity.
As to the contention that the margin levy is a tax on the purchase of foreign
exchange and hence should not form part of the exchange rate, suffice it to state that (2) Expenses allowable to non-resident alien individuals and foreign
We have already held the contrary for the reason that a tax is levied to provide corporations. — In the case of a non-resident alien individual or a
revenue for government operations, while the proceeds of the margin fee are applied foreign corporation, the expenses deductible are the necessary
to strengthen our country's international reserves. expenses paid or incurred in carrying on any business or trade
conducted within the Philippines exclusively.
Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v.
Central Bank, 3 the same idea was expressed, though in connection with a different In the case of Atlas Consolidated Mining and Development Corporation v.
levy, through Justice J.B.L. Reyes: Commissioner of Internal Revenue, 4 the Court laid down the rules on the
deductibility of business expenses, thus:
Neither do we find merit in the argument that the 20% retention of
exporter's foreign exchange constitutes an export tax. A tax is a levy The principle is recognized that when a taxpayer claims a deduction,
for the purpose of providing revenue for government operations, while he must point to some specific provision of the statute in which that
the proceeds of the 20% retention, as we have seen, are applied to deduction is authorized and must be able to prove that he is entitled to
strengthen the Central Bank's international reserve. the deduction which the law allows. As previously adverted to, the law
allowing expenses as deduction from gross income for purposes of
We conclude then that the margin fee was imposed by the State in the exercise of its the income tax is Section 30(a) (1) of the National Internal Revenue
police power and not the power of taxation. which allows a deduction of 'all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade or
Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless business.' An item of expenditure, in order to be deductible under this
be considered necessary and ordinary business expenses and therefore still section of the statute, must fall squarely within its language.
deductible from its gross income. The fees were paid for the remittance by ESSO as
part of the profits to the head office in the Unites States. Such remittance was an We come, then, to the statutory test of deductibility where it is
expenditure necessary and proper for the conduct of its corporate affairs. axiomatic that to be deductible as a business expense, three
TAX 1 batch 1 Page 87 of 193
 conditions are imposed, namely: (1) the expense must be ordinary fees paid by petitioner on its profit remittance to its Head Office in
and necessary, (2) it must be paid or incurred within the taxable year, New York appropriate and helpful in the taxpayer's business in the
and (3) it must be paid or incurred in carrying on a trade or business. Philippines? Were the margin fees incurred for purposes proper to the
In addition, not only must the taxpayer meet the business test, he conduct of the affairs of petitioner's branch in the Philippines? Or were
must substantially prove by evidence or records the deductions the margin fees incurred for the purpose of realizing a profit or of
claimed under the law, otherwise, the same will be disallowed. The minimizing a loss in the Philippines? Obviously not. As stated in the
mere allegation of the taxpayer that an item of expense is ordinary Lopez case, the margin fees are not expenses in connection with the
and necessary does not justify its deduction. production or earning of petitioner's incomes in the Philippines. They
were expenses incurred in the disposition of said incomes; expenses
While it is true that there is a number of decisions in the United States for the remittance of funds after they have already been earned by
delving on the interpretation of the terms 'ordinary and necessary' as petitioner's branch in the Philippines for the disposal of its Head Office
used in the federal tax laws, no adequate or satisfactory definition of in New York which is already another distinct and separate income
those terms is possible. Similarly, this Court has never attempted to taxpayer.
define with precision the terms 'ordinary and necessary.' There are
however, certain guiding principles worthy of serious consideration in xxx
the proper adjudication of conflicting claims. Ordinarily, an expense
will be considered 'necessary' where the expenditure is appropriate Since the margin fees in question were incurred for the remittance of
and helpful in the development of the taxpayer's business. It is funds to petitioner's Head Office in New York, which is a separate and
'ordinary' when it connotes a payment which is normal in relation to distinct income taxpayer from the branch in the Philippines, for its
the business of the taxpayer and the surrounding circumstances. The disposal abroad, it can never be said therefore that the margin fees
term 'ordinary' does not require that the payments be habitual or were appropriate and helpful in the development of petitioner's
normal in the sense that the same taxpayer will have to make them business in the Philippines exclusively or were incurred for purposes
often; the payment may be unique or non-recurring to the particular proper to the conduct of the affairs of petitioner's branch in the
taxpayer affected. Philippines exclusively or for the purpose of realizing a profit or of
minimizing a loss in the Philippines exclusively. If at all, the margin
There is thus no hard and fast rule on the matter. The right to a fees were incurred for purposes proper to the conduct of the corporate
deduction depends in each case on the particular facts and the affairs of Standard Vacuum Oil Company in New York, but certainly
relation of the payment to the type of business in which the taxpayer not in the Philippines.
is engaged. The intention of the taxpayer often may be the controlling
fact in making the determination. Assuming that the expenditure is ESSO has not shown that the remittance to the head office of part of its profits was
ordinary and necessary in the operation of the taxpayer's business, made in furtherance of its own trade or business. The petitioner merely presumed
the answer to the question as to whether the expenditure is an that all corporate expenses are necessary and appropriate in the absence of a
allowable deduction as a business expense must be determined from showing that they are illegal or ultra vires. This is error. The public respondent is
the nature of the expenditure itself, which in turn depends on the correct when it asserts that "the paramount rule is that claims for deductions are a
extent and permanency of the work accomplished by the expenditure. matter of legislative grace and do not turn on mere equitable considerations ... . The
taxpayer in every instance has the burden of justifying the allowance of any
In the light of the above explanation, we hold that the Court of Tax Appeals did not deduction claimed." 5
err when it held on this issue as follows:
It is clear that ESSO, having assumed an expense properly attributable to its head
Considering the foregoing test of what constitutes an ordinary and office, cannot now claim this as an ordinary and necessary expense paid or incurred
necessary deductible expense, it may be asked: Were the margin in carrying on its own trade or business.
TAX 1 batch 1 Page 88 of 193
WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC.
claims for refund of P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, (PECO), Respondents.
with costs against the petitioner.
DECISION
SO ORDERED.
NACHURA, J.:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist

Consumers Network, Inc. (ECN) (petitioners), come before this Court in this original
action praying that Section 34 of Republic Act (RA) 9136, otherwise known as the
"Electric Power Industry Reform Act of 2001" (EPIRA), imposing the Universal
Charge,1 and Rule 18 of the Rules and Regulations (IRR)2 which seeks to implement
the said imposition, be declared unconstitutional. Petitioners also pray that the
Universal Charge imposed upon the consumers be refunded and that a preliminary
injunction and/or temporary restraining order (TRO) be issued directing the
respondents to refrain from implementing, charging, and collecting the said
charge.3 The assailed provision of law reads:

SECTION 34. Universal Charge. — Within one (1) year from the effectivity of this
Act, a universal charge to be determined, fixed and approved by the ERC, shall be
imposed on all electricity end-users for the following purposes:

(a) Payment for the stranded debts4 in excess of the amount assumed by the
National Government and stranded contract costs of NPC5 and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;

(b) Missionary electrification;6

(c) The equalization of the taxes and royalties applied to indigenous or

renewable sources of energy vis-à-vis imported energy fuels;
G.R. No. 159796               July 17, 2007 (d) An environmental charge equivalent to one-fourth of one centavo per
kilowatt-hour (₱0.0025/kWh), which shall accrue to an environmental fund to
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST be used solely for watershed rehabilitation and management. Said fund shall
CONSUMERS NETWORK, INC. (ECN), Petitioners, be managed by NPC under existing arrangements; and
vs.
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (e) A charge to account for all forms of cross-subsidies for a period not
(ERC), NATIONAL POWER CORPORATION (NPC), POWER SECTOR ASSETS exceeding three (3) years.
AND LIABILITIES MANAGEMENT GROUP (PSALM Corp.), STRATEGIC POWER

TAX 1 batch 1 Page 89 of 193

The universal charge shall be a non-bypassable charge which shall be passed on SPUG) in the Order dated December 20, 2002 is hereby modified to the effect that
and collected from all end-users on a monthly basis by the distribution utilities. an additional amount of ₱0.0205 per kilowatt-hour should be added to the ₱0.0168
Collections by the distribution utilities and the TRANSCO in any given month shall be per kilowatt-hour provisionally authorized by the Commission in the said Order.
remitted to the PSALM Corp. on or before the fifteenth (15th) of the succeeding Accordingly, a total amount of ₱0.0373 per kilowatt-hour is hereby APPROVED for
month, net of any amount due to the distribution utility. Any end-user or self- withdrawal from the Special Trust Fund managed by PSALM as its share from the
generating entity not connected to a distribution utility shall remit its corresponding Universal Charge for Missionary Electrification (UC-ME) effective on the following
universal charge directly to the TRANSCO. The PSALM Corp., as administrator of billing cycles:
the fund, shall create a Special Trust Fund which shall be disbursed only for the
purposes specified herein in an open and transparent manner. All amount collected (a) June 26-July 25, 2003 for National Transmission Corporation
for the universal charge shall be distributed to the respective beneficiaries within a (TRANSCO); and
reasonable period to be provided by the ERC.
(b) July 2003 for Distribution Utilities (Dus).
The Facts
Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.7 amount of ₱0.0373 per kilowatt-hour and remit the same to PSALM on or before the
15th day of the succeeding month.
On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities
Group8 (NPC-SPUG) filed with respondent Energy Regulatory Commission (ERC) a In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a
petition for the availment from the Universal Charge of its share for Missionary detailed report to include Audited Financial Statements and physical status
Electrification, docketed as ERC Case No. 2002-165.9 (percentage of completion) of the projects using the prescribed format.1avvphi1

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. Let copies of this Order be furnished petitioner NPC-SPUG and all distribution
2002-194, praying that the proposed share from the Universal Charge for the utilities (Dus).
Environmental charge of ₱0.0025 per kilowatt-hour (/kWh), or a total of
₱119,488,847.59, be approved for withdrawal from the Special Trust Fund (STF) SO ORDERED.
managed by respondent Power Sector Assets and
On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC,
Liabilities Management Group (PSALM)10 for the rehabilitation and management of among others,14 to set aside the above-mentioned Decision, which the ERC granted
watershed areas.11 in its Order dated October 7, 2003, disposing:

On December 20, 2002, the ERC issued an Order12 in ERC Case No. 2002-165 WHEREFORE, the foregoing premises considered, the "Motion for Reconsideration"
provisionally approving the computed amount of ₱0.0168/kWh as the share of the filed by petitioner National Power Corporation-Small Power Utilities Group (NPC-
NPC-SPUG from the Universal Charge for Missionary Electrification and authorizing SPUG) is hereby GRANTED. Accordingly, the Decision dated June 26, 2003 is
the National Transmission Corporation (TRANSCO) and Distribution Utilities to hereby modified accordingly.
collect the same from its end-users on a monthly basis.
Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:
On June 26, 2003, the ERC rendered its Decision13 (for ERC Case No. 2002-165)
modifying its Order of December 20, 2002, thus: 1. Projects for CY 2002 undertaken;

WHEREFORE, the foregoing premises considered, the provisional authority granted 2. Location
to petitioner National Power Corporation-Strategic Power Utilities Group (NPC-
TAX 1 batch 1 Page 90 of 193
 3. Actual amount utilized to complete the project; 3) The imposition of the Universal Charge on all end-users is oppressive and
confiscatory and amounts to taxation without representation as the
4. Period of completion; consumers were not given a chance to be heard and represented.18

5. Start of Operation; and Petitioners contend that the Universal Charge has the characteristics of a tax and is
collected to fund the operations of the NPC. They argue that the cases19 invoked by
6. Explanation of the reallocation of UC-ME funds, if any. the respondents clearly show the regulatory purpose of the charges imposed therein,
which is not so in the case at bench. In said cases, the respective funds20 were
SO ORDERED.15 created in order to balance and stabilize the prices of oil and sugar, and to act as
buffer to counteract the changes and adjustments in prices, peso devaluation, and
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the other variables which cannot be adequately and timely monitored by the legislature.
NPC to draw up to ₱70,000,000.00 from PSALM for its 2003 Watershed Thus, there was a need to delegate powers to administrative bodies.21 Petitioners
Rehabilitation Budget subject to the availability of funds for the Environmental Fund posit that the Universal Charge is imposed not for a similar purpose.
component of the Universal Charge.16
On the other hand, respondent PSALM through the Office of the Government
On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. Corporate Counsel (OGCC) contends that unlike a tax which is imposed to provide
(PECO) charged petitioner Romeo P. Gerochi and all other end-users with the income for public purposes, such as support of the government, administration of the
Universal Charge as reflected in their respective electric bills starting from the month law, or payment of public expenses, the assailed Universal Charge is levied for a
of July 2003.17 specific regulatory purpose, which is to ensure the viability of the country's electric
power industry. Thus, it is exacted by the State in the exercise of its inherent police
power. On this premise, PSALM submits that there is no undue delegation of
Hence, this original action.
legislative power to the ERC since the latter merely exercises a limited authority or
discretion as to the execution and implementation of the provisions of the EPIRA.22
Petitioners submit that the assailed provision of law and its IRR which sought to
implement the same are unconstitutional on the following grounds:
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the
Solicitor General (OSG), share the same view that the Universal Charge is not a tax
1) The universal charge provided for under Sec. 34 of the EPIRA and sought because it is levied for a specific regulatory purpose, which is to ensure the viability
to be implemented under Sec. 2, Rule 18 of the IRR of the said law is a tax of the country's electric power industry, and is, therefore, an exaction in the exercise
which is to be collected from all electric end-users and self-generating of the State's police power. Respondents further contend that said Universal Charg
entities. The power to tax is strictly a legislative function and as such, the e does not possess the essential characteristics of a tax, that its imposition would
delegation of said power to any executive or administrative agency like the redound to the benefit of the electric power industry and not to the public, and that its
ERC is unconstitutional, giving the same unlimited authority. The assailed rate is uniformly levied on electricity end-users, unlike a tax which is imposed based
provision clearly provides that the Universal Charge is to be determined, fixed on the individual taxpayer's ability to pay. Moreover, respondents deny that there is
and approved by the ERC, hence leaving to the latter complete discretionary undue delegation of legislative power to the ERC since the EPIRA sets forth
legislative authority. sufficient determinable standards which would guide the ERC in the exercise of the
powers granted to it. Lastly, respondents argue that the imposition of the Universal
2) The ERC is also empowered to approve and determine where the funds Charge is not oppressive and confiscatory since it is an exercise of the police power
collected should be used. of the State and it complies with the requirements of due process.23

On its part, respondent PECO argues that it is duty-bound to collect and remit the
amount pertaining to the Missionary Electrification and Environmental Fund
TAX 1 batch 1 Page 91 of 193
components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the 2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law
Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be or the rules of court may provide, final judgments and orders of lower courts
held liable under Sec. 4624 of the EPIRA, which imposes fines and penalties for any in:
violation of its provisions or its IRR.25
(a) All cases in which the constitutionality or validity of any treaty, international or
The Issues executive agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.
The ultimate issues in the case at bar are:
But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo
1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA warranto, and habeas corpus, while concurrent with that of the regional trial courts
is a tax; and and the Court of Appeals, does not give litigants unrestrained freedom of choice of
forum from which to seek such relief.28 It has long been established that this Court
2) Whether or not there is undue delegation of legislative power to tax on the will not entertain direct resort to it unless the redress desired cannot be obtained in
part of the ERC.26 the appropriate courts, or where exceptional and compelling circumstances justify
availment of a remedy within and call for the exercise of our primary
Before we discuss the issues, the Court shall first deal with an obvious procedural jurisdiction.29 This circumstance alone warrants the outright dismissal of the present
lapse. action.

Petitioners filed before us an original action particularly denominated as a Complaint This procedural infirmity notwithstanding, we opt to resolve the constitutional issue
assailing the constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge raised herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA is not
and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus standi. They resolved now, the issue will certainly resurface in the near future, resulting in a
impugn the constitutionality of Sec. 34 of the EPIRA because they sustained a direct repeat of this litigation, and probably involving the same parties. In the public interest
injury as a result of the imposition of the Universal Charge as reflected in their and to avoid unnecessary delay, this Court renders its ruling now.
electric bills.
The instant complaint is bereft of merit.
However, petitioners violated the doctrine of hierarchy of courts when they filed this
"Complaint" directly with us. Furthermore, the Complaint is bereft of any allegation of The First Issue
grave abuse of discretion on the part of the ERC or any of the public respondents, in
order for the Court to consider it as a petition for certiorari or prohibition. To resolve the first issue, it is necessary to distinguish the State’s power of taxation
from the police power.
Article VIII, Section 5(1) and (2) of the 1987 Constitution27 categorically provides that:
The power to tax is an incident of sovereignty and is unlimited in its range,
SECTION 5. The Supreme Court shall have the following powers: acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the
1. Exercise original jurisdiction over cases affecting ambassadors, other constituency that is to pay it.30 It is based on the principle that taxes are the lifeblood
public ministers and consuls, and over petitions for certiorari, prohibition, of the government, and their prompt and certain availability is an imperious
mandamus, quo warranto, and habeas corpus. need.31 Thus, the theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.32

TAX 1 batch 1 Page 92 of 193

On the other hand, police power is the power of the state to promote public welfare (e) To ensure fair and non-discriminatory treatment of public and private
by restraining and regulating the use of liberty and property.33 It is the most sector entities in the process of restructuring the electric power industry;
pervasive, the least limitable, and the most demanding of the three fundamental
powers of the State. The justification is found in the Latin maxims salus populi est (f) To protect the public interest as it is affected by the rates and services of
suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut electric utilities and other providers of electric power;
alienum non laedas (so use your property as not to injure the property of others). As
an inherent attribute of sovereignty which virtually extends to all public needs, police (g) To assure socially and environmentally compatible energy sources and
power grants a wide panoply of instruments through which the State, as parens infrastructure;
patriae, gives effect to a host of its regulatory powers.34 We have held that the power
to "regulate" means the power to protect, foster, promote, preserve, and control, with (h) To promote the utilization of indigenous and new and renewable energy
due regard for the interests, first and foremost, of the public, then of the utility and of resources in power generation in order to reduce dependence on imported
its patrons.35 energy;

The conservative and pivotal distinction between these two powers rests in the (i) To provide for an orderly and transparent privatization of the assets and
purpose for which the charge is made. If generation of revenue is the primary liabilities of the National Power Corporation (NPC);
purpose and regulation is merely incidental, the imposition is a tax; but if regulation is
the primary purpose, the fact that revenue is incidentally raised does not make the (j) To establish a strong and purely independent regulatory body and system
imposition a tax.36 to ensure consumer protection and enhance the competitive operation of the
electricity market; and
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's
police power, particularly its regulatory dimension, is invoked. Such can be deduced (k) To encourage the efficient use of energy and other modalities of demand
from Sec. 34 which enumerates the purposes for which the Universal Charge is side management.
imposed37 and which can be amply discerned as regulatory in character. The EPIRA
resonates such regulatory purposes, thus:
From the aforementioned purposes, it can be gleaned that the assailed Universal
Charge is not a tax, but an exaction in the exercise of the State's police power.
SECTION 2. Declaration of Policy. — It is hereby declared the policy of the State: Public welfare is surely promoted.
(a) To ensure and accelerate the total electrification of the country; Moreover, it is a well-established doctrine that the taxing power may be used as an
implement of police power.38 In Valmonte v. Energy Regulatory Board, et al.39 and
(b) To ensure the quality, reliability, security and affordability of the supply of in Gaston v. Republic Planters Bank,40 this Court held that the Oil Price Stabilization
electric power; Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the
exercise of the police power. The doctrine was reiterated in Osmeña v. Orbos41 with
(c) To ensure transparent and reasonable prices of electricity in a regime of respect to the OPSF. Thus, we disagree with petitioners that the instant case is
free and fair competition and full public accountability to achieve greater different from the aforementioned cases. With the Universal Charge, a Special Trust
operational and economic efficiency and enhance the competitiveness of Fund (STF) is also created under the administration of PSALM.42 The STF has some
Philippine products in the global market; notable characteristics similar to the OPSF and the SSF, viz.:

(d) To enhance the inflow of private capital and broaden the ownership base 1) In the implementation of stranded cost recovery, the ERC shall conduct a
of the power generation, transmission and distribution sectors; review to determine whether there is under-recovery or over recovery and
adjust (true-up) the level of the stranded cost recovery charge. In case of an

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 over-recovery, the ERC shall ensure that any excess amount shall be In the face of the increasing complexity of modern life, delegation of legislative power
remitted to the STF. A separate account shall be created for these amounts to various specialized administrative agencies is allowed as an exception to this
which shall be held in trust for any future claims of distribution utilities for principle.48 Given the volume and variety of interactions in today's society, it is
stranded cost recovery. At the end of the stranded cost recovery period, any doubtful if the legislature can promulgate laws that will deal adequately with and
remaining amount in this account shall be used to reduce the electricity rates respond promptly to the minutiae of everyday life. Hence, the need to delegate to
to the end-users.43 administrative bodies - the principal agencies tasked to execute laws in their
specialized fields - the authority to promulgate rules and regulations to implement a
2) With respect to the assailed Universal Charge, if the total amount collected given statute and effectuate its policies. All that is required for the valid exercise of
for the same is greater than the actual availments against it, the PSALM shall this power of subordinate legislation is that the regulation be germane to the objects
retain the balance within the STF to pay for periods where a shortfall and purposes of the law and that the regulation be not in contradiction to, but in
occurs.44 conformity with, the standards prescribed by the law. These requirements are
denominated as the completeness test and the sufficient standard test.
3) Upon expiration of the term of PSALM, the administration of the STF shall
be transferred to the DOF or any of the DOF attached agencies as Under the first test, the law must be complete in all its terms and conditions when it
designated by the DOF Secretary.45 leaves the legislature such that when it reaches the delegate, the only thing he will
have to do is to enforce it. The second test mandates adequate guidelines or
The OSG is in point when it asseverates: limitations in the law to determine the boundaries of the delegate's authority and
prevent the delegation from running riot.49
Evidently, the establishment and maintenance of the Special Trust Fund, under the
last paragraph of Section 34, R.A. No. 9136, is well within the pervasive and non- The Court finds that the EPIRA, read and appreciated in its entirety, in relation to
waivable power and responsibility of the government to secure the physical and Sec. 34 thereof, is complete in all its essential terms and conditions, and that it
economic survival and well-being of the community, that comprehensive sovereign contains sufficient standards.
authority we designate as the police power of the State.46
Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the
This feature of the Universal Charge further boosts the position that the same is an effectivity thereof, a Universal Charge to be determined, fixed and approved by the
exaction imposed primarily in pursuit of the State's police objectives. The STF ERC, shall be imposed on all electricity end-users," and therefore, does not state the
reasonably serves and assures the attainment and perpetuity of the purposes for specific amount to be paid as Universal Charge, the amount nevertheless is made
which the Universal Charge is imposed, i.e., to ensure the viability of the country's certain by the legislative parameters provided in the law itself. For one, Sec. 43(b)(ii)
electric power industry. of the EPIRA provides:

The Second Issue SECTION 43. Functions of the ERC. — The ERC shall promote competition,
encourage market development, ensure customer choice and penalize abuse of
The principle of separation of powers ordains that each of the three branches of market power in the restructured electricity industry. In appropriate cases, the ERC is
government has exclusive cognizance of and is supreme in matters falling within its authorized to issue cease and desist order after due notice and hearing. Towards
own constitutionally allocated sphere. A logical corollary to the doctrine of separation this end, it shall be responsible for the following key functions in the restructured
of powers is the principle of non-delegation of powers, as expressed in the Latin industry:
maxim potestas delegata non delegari potest (what has been delegated cannot be
delegated). This is based on the ethical principle that such delegated power xxxx
constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of
another. 47
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(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in the EPIRA such as, among others, "to ensure the total electrification of the country
accordance with law, a National Grid Code and a Distribution Code which shall and the quality, reliability, security and affordability of the supply of electric
include, but not limited to the following: power"59 and "watershed rehabilitation and management"60 meet the requirements
for valid delegation, as they provide the limitations on the ERC’s power to formulate
xxxx the IRR. These are sufficient standards.

(ii) Financial capability standards for the generating companies, the TRANSCO, It may be noted that this is not the first time that the ERC's conferred powers were
distribution utilities and suppliers: Provided, That in the formulation of the financial challenged. In Freedom from Debt Coalition v. Energy Regulatory Commission,61 the
capability standards, the nature and function of the entity shall be considered: Court had occasion to say:
Provided, further, That such standards are set to ensure that the electric power
industry participants meet the minimum financial standards to protect the public In determining the extent of powers possessed by the ERC, the provisions of the
interest. Determine, fix, and approve, after due notice and public hearings the EPIRA must not be read in separate parts. Rather, the law must be read in its
universal charge, to be imposed on all electricity end-users pursuant to Section 34 entirety, because a statute is passed as a whole, and is animated by one general
hereof; purpose and intent. Its meaning cannot to be extracted from any single part thereof
but from a general consideration of the statute as a whole. Considering the intent of
Moreover, contrary to the petitioners’ contention, the ERC does not enjoy a wide Congress in enacting the EPIRA and reading the statute in its entirety, it is plain to
latitude of discretion in the determination of the Universal Charge. Sec. 51(d) and (e) see that the law has expanded the jurisdiction of the regulatory body, the ERC in this
of the EPIRA50 clearly provides: case, to enable the latter to implement the reforms sought to be accomplished by the
EPIRA. When the legislators decided to broaden the jurisdiction of the ERC, they did
SECTION 51. Powers. — The PSALM Corp. shall, in the performance of its functions not intend to abolish or reduce the powers already conferred upon ERC's
and for the attainment of its objective, have the following powers: predecessors. To sustain the view that the ERC possesses only the powers and
functions listed under Section 43 of the EPIRA is to frustrate the objectives of the
xxxx law.

(d) To calculate the amount of the stranded debts and stranded contract In his Concurring and Dissenting Opinion62 in the same case, then Associate Justice,
costs of NPC which shall form the basis for ERC in the determination of now Chief Justice, Reynato S. Puno described the immensity of police power in
the universal charge; relation to the delegation of powers to the ERC and its regulatory functions over
electric power as a vital public utility, to wit:
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from
sales and other property contributed to it, including the proceeds from the Over the years, however, the range of police power was no longer limited to the
universal charge. preservation of public health, safety and morals, which used to be the primary social
interests in earlier times. Police power now requires the State to "assume an
Thus, the law is complete and passes the first test for valid delegation of legislative affirmative duty to eliminate the excesses and injustices that are the concomitants of
power. an unrestrained industrial economy." Police power is now exerted "to further the
public welfare — a concept as vast as the good of society itself." Hence, "police
power is but another name for the governmental authority to further the welfare of
As to the second test, this Court had, in the past, accepted as sufficient standards
society that is the basic end of all government." When police power is delegated to
the following: "interest of law and order;"51 "adequate and efficient
administrative bodies with regulatory functions, its exercise should be given a wide
instruction;"52 "public interest;"53 "justice and equity;"54 "public convenience and
latitude. Police power takes on an even broader dimension in developing countries
welfare;"55 "simplicity, economy and efficiency;"56 "standardization and regulation of
such as ours, where the State must take a more active role in balancing the many
medical education;"57 and "fair and equitable employment practices."58 Provisions of
conflicting interests in society. The Questioned Order was issued by the ERC, acting
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as an agent of the State in the exercise of police power. We should have Thus, the EPIRA provides a framework for the restructuring of the industry, including
exceptionally good grounds to curtail its exercise. This approach is more compelling the privatization of the assets of the National Power Corporation (NPC), the transition
in the field of rate-regulation of electric power rates. Electric power generation and to a competitive structure, and the delineation of the roles of various government
distribution is a traditional instrument of economic growth that affects not only a few agencies and the private entities. The law ordains the division of the industry into
but the entire nation. It is an important factor in encouraging investment and four (4) distinct sectors, namely: generation, transmission, distribution and supply.
promoting business. The engines of progress may come to a screeching halt if the
delivery of electric power is impaired. Billions of pesos would be lost as a result of Corollarily, the NPC generating plants have to privatized and its transmission
power outages or unreliable electric power services. The State thru the ERC should business spun off and privatized thereafter.67
be able to exercise its police power with great flexibility, when the need arises.
Finally, every law has in its favor the presumption of constitutionality, and to justify its
This was reiterated in National Association of Electricity Consumers for Reforms v. nullification, there must be a clear and unequivocal breach of the Constitution and
Energy Regulatory Commission63 where the Court held that the ERC, as regulator, not one that is doubtful, speculative, or argumentative.68 Indubitably, petitioners failed
should have sufficient power to respond in real time to changes wrought by to overcome this presumption in favor of the EPIRA. We find no clear violation of the
multifarious factors affecting public utilities. Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA and
Rule 18 of its IRR are unconstitutional and void.
From the foregoing disquisitions, we therefore hold that there is no undue delegation
of legislative power to the ERC. WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

Petitioners failed to pursue in their Memorandum the contention in the Complaint that SO ORDERED.
the imposition of the Universal Charge on all end-users is oppressive and
confiscatory, and amounts to taxation without representation. Hence, such
contention is deemed waived or abandoned per Resolution64 of August 3,
2004.65 Moreover, the determination of whether or not a tax is excessive, oppressive
or confiscatory is an issue which essentially involves questions of fact, and thus, this
Court is precluded from reviewing the same.66

As a penultimate statement, it may be well to recall what this Court said of EPIRA:

One of the landmark pieces of legislation enacted by Congress in recent years is the
EPIRA. It established a new policy, legal structure and regulatory framework for the
electric power industry. The new thrust is to tap private capital for the expansion and
improvement of the industry as the large government debt and the highly capital-
intensive character of the industry itself have long been acknowledged as the critical
constraints to the program. To attract private investment, largely foreign, the jaded
structure of the industry had to be addressed. While the generation and transmission
sectors were centralized and monopolistic, the distribution side was fragmented with
over 130 utilities, mostly small and uneconomic. The pervasive flaws have caused a
low utilization of existing generation capacity; extremely high and uncompetitive
power rates; poor quality of service to consumers; dismal to forgettable performance
of the government power sector; high system losses; and an inability to develop a
clear strategy for overcoming these shortcomings.
TAX 1 batch 1 Page 96 of 193
 AR
CA

Judge1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila
G.R. No. L-29646 November 10, 1978 on February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas
of Manila on March 27, 1968. 2
MAYOR ANTONIO J. VILLEGAS, petitioner,
vs. City Ordinance No. 6537 is entitled:
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner. A CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY
PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF
Sotero H. Laurel for respondents. TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF
MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT
FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

FERNANDEZ, J.: Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to
engage or participate in any position or occupation or business enumerated therein,
This is a petition for certiorari to review tile decision dated September 17, 1968 of whether permanent, temporary or casual, without first securing an employment
respondent Judge Francisco Arca of the Court of First Instance of Manila, Branch I, permit from the Mayor of Manila and paying the permit fee of P50.00 except persons
in Civil Case No. 72797, the dispositive portion of winch reads. employed in the diplomatic or consular missions of foreign countries, or in the
technical assistance programs of both the Philippine Government and any foreign
Wherefore, judgment is hereby rendered in favor of the petitioner and government, and those working in their respective households, and members of
against the respondents, declaring Ordinance No. 6 37 of the City of religious orders or congregations, sect or denomination, who are not paid monetarily
Manila null and void. The preliminary injunction is made permanent. or in kind.
No pronouncement as to cost.
Violations of this ordinance is punishable by an imprisonment of not less than three
SO ORDERED. (3) months to six (6) months or fine of not less than P100.00 but not more than
P200.00 or both such fine and imprisonment, upon conviction. 5
Manila, Philippines, September 17, 1968.
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in
(SG Manila, filed a petition with the Court of First Instance of Manila, Branch I,
D.) denominated as Civil Case No. 72797, praying for the issuance of the writ of
FR preliminary injunction and restraining order to stop the enforcement of Ordinance No.
AN 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void. 6
CIS
CO In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for
wanting the ordinance declared null and void:

TAX 1 batch 1 Page 97 of 193

 1) As a revenue measure imposed on aliens employed in the City of RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND
Manila, Ordinance No. 6537 is discriminatory and violative of the rule PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537
of the uniformity in taxation; VIOLATED THE DUE PROCESS AND EQUAL PROTECTION
CLAUSES OF THE CONSTITUTION.
2) As a police power measure, it makes no distinction between useful
and non-useful occupations, imposing a fixed P50.00 employment Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null
permit, which is out of proportion to the cost of registration and that it and void on the ground that it violated the rule on uniformity of taxation because the
fails to prescribe any standard to guide and/or limit the action of the rule on uniformity of taxation applies only to purely tax or revenue measures and that
Mayor, thus, violating the fundamental principle on illegal delegation Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police
of legislative powers: power of the state, it being principally a regulatory measure in nature.

3) It is arbitrary, oppressive and unreasonable, being applied only to The contention that Ordinance No. 6537 is not a purely tax or revenue measure
aliens who are thus, deprived of their rights to life, liberty and property because its principal purpose is regulatory in nature has no merit. While it is true that
and therefore, violates the due process and equal protection clauses the first part which requires that the alien shall secure an employment permit from
of the Constitution.7 the Mayor involves the exercise of discretion and judgment in the processing and
approval or disapproval of applications for employment permits and therefore is
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on regulatory in character the second part which requires the payment of P50.00 as
September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void employee's fee is not regulatory but a revenue measure. There is no logic or
and making permanent the writ of preliminary injunction. 8 justification in exacting P50.00 from aliens who have been cleared for employment. It
is obvious that the purpose of the ordinance is to raise money under the guise of
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. regulation.
Villegas filed the present petition on March 27, 1969. Petitioner assigned the
following as errors allegedly committed by respondent Judge in the latter's decision The P50.00 fee is unreasonable not only because it is excessive but because it fails
of September 17,1968: 9 to consider valid substantial differences in situation among individual aliens who are
required to pay it. Although the equal protection clause of the Constitution does not
I forbid classification, it is imperative that the classification should be based on real
and substantial differences having a reasonable relation to the subject of the
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND particular legislation. The same amount of P50.00 is being collected from every
PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 employed alien whether he is casual or permanent, part time or full time or whether
VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION. he is a lowly employee or a highly paid executive

II Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor
in the exercise of his discretion. It has been held that where an ordinance of a
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND municipality fails to state any policy or to set up any standard to guide or limit the
PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 mayor's action, expresses no purpose to be attained by requiring a permit,
VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF enumerates no conditions for its grant or refusal, and entirely lacks standard, thus
LEGISLATIVE POWER. conferring upon the Mayor arbitrary and unrestricted power to grant or deny the
issuance of building permits, such ordinance is invalid, being an undefined and
unlimited delegation of power to allow or prevent an activity per se lawful. 10
III

TAX 1 batch 1 Page 98 of 193

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law
granted a government agency power to determine the allocation of wheat flour
among importers, the Supreme Court ruled against the interpretation of uncontrolled
power as it vested in the administrative officer an arbitrary discretion to be exercised
without a policy, rule, or standard from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso  12 that the authority and discretion to grant
and refuse permits of all classes conferred upon the Mayor of Manila by the Revised
Charter of Manila is not uncontrolled discretion but legal discretion to be exercised
within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or
criterion to guide the mayor in the exercise of the power which has been granted to
him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule
of the Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of G.R. No. 106052 October 22, 1999
Manila who may withhold or refuse it at will is tantamount to denying him the basic
right of the people in the Philippines to engage in a means of livelihood. While it is
PLANTERS PRODUCTS, INC., petitioner,
true that the Philippines as a State is not obliged to admit aliens within its territory,
vs.
once an alien is admitted, he cannot be deprived of life without due process of law.
COURT OF APPEALS AND FERTIPHIL CORPORATION, INC., respondents.
This guarantee includes the means of livelihood. The shelter of protection under the
due process and equal protection clause is given to all persons, both aliens and
citizens. 13 PURISIMA, J.:

The trial court did not commit the errors assigned. At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court seeking to annul the Decision 1 of the Court of Appeals, dated June 19, 1992,
in CA-G.R. No. 2776, which denied the petition to set aside the Order 2 dated April 8,
WHEREFORE, the decision appealed from is hereby affirmed, without
1992 of the Regional Trial Court of Makati, Branch 146, in Civil Case No. 17835.
pronouncement as to costs.
The antecedent facts are as follows:
SO ORDERED.
On June 3, 1985, for the purpose of rehabilitating Philippine Planters, Inc., the then
President Ferdinand E. Marcos issued Letter of Instruction (LOI) No. 1465 which
imposed a charge of P10.00 per bag of fertilizer on all domestic sales of fertilizer in
the Philippines.1âwphi1.nêt

Respondent Fertiphil Corporation, a domestic entity engaged in the fertilizer

business, questioned the constitutionality of LOI NO. 1465 and brought an action to
TAX 1 batch 1 Page 99 of 193
recover its accumulated payment thereunder in the amount of P6,698,144.00, the executed pending appeal. It has been held that the filing of a bond by
case docketed as Civil Case No. 17835 before Branch 147 of the Regional Trial the prevailing party constitutes good reason for the issuance of a writ
Court of Makati. of execution pending appeal . . . .

On November 20, 1991, the court of origin declared Letter of Instruction No. 1465 WHEREFORE, in view of the foregoing, the court hereby grants
unconstitutional and ordered the petitioner to pay the private respondent the amount plaintiff's motion for execution pending appeal. Let a writ of execution
it paid pursuant thereto; disposing as follows: issue upon the filing of a bond in the amount of P6,698,000.00 subject
to the approval of the Court.
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant Planters SO ORDERED. 4
Product, Inc., ordering the latter to pay the former:
On April 13, 1997, upon the posting of the requisite bond, Fertiphil caused the
1.) the sum of P6,698,144.00 with interest at 12% from the time of closure of petitioner's warehouse in Sta. Ana, Metro Manila. Stored in that
judicial demand; warehouse were 70,000 bags of fertilizer (estimated by Fertiphil to be 47,000 bags
only). Also levied upon were twenty-four (24) Suzuki motorcycles, five (5) Suzuki
2.) the sum of P100,000.00 as attorney's fees; jeeps and two (2) UV FMA 220-D motor vehicles. On April 20, 1992, the properties
thus levied upon were sold at public auction, with Fertiphil as the highest bidder.
3) the costs of suit.
On April 14, 1992, petitioner filed with the Court a quo an "Urgent Omnibus Motion",
SO ORDERED.  3 asked for the approval of its supersedeas bond in the amount of P10,477,902.45,
and prayed that pending approval of the said supersedeas bond, the lower court:
On February 20, 1992, simultaneously with the filing of petitioner's notice of appeal,
the private respondent presented a motion to execute the said decision pending . . . immediately issue an Order (1) DIRECTING plaintiff (Fertiphil)
appeal, but the motion was opposed by the petitioner on the ground that there was and/or the Sheriff of this Honorable Court, as well as all the persons
no good reason to warrant execution pending appeal. acting under their supervision and/or instruction to immediately cease
and desist from performing any act or all acts in furtherance of the
On April 8, 1992, the lower court granted the motion for execution pending appeal execution of the Decision dated November 1991, and (2) DIRECTING
and directed the issuance of the corresponding writ of execution upon the posting by the immediate release of defendant PPI's abovementioned bank
private respondent of a bond in the amount of P6,698,000.00; ratiocinating thus: accounts and funds from garnishment. 6

Thus, it is clear from the foregoing discussion that the tax imposition Petitioner further prayed that the order of execution pending appeal as well as the
under LOI No. 1465 is null and void and cannot be justified even writ issued by virtue thereof be set aside and dissolved; and its omnibus motion be
under the police power of the state. As a matter of fact, because it is heard on the following day, April 15, 1992. Acting thereupon on the same day, the
an invalid tax imposition, the same was discontinued upon the advent lower court issued an order giving the private respondent ten (10) days to submit its
of a free and democratic regime after the EDSA revolution. Hence, the opposition to the motion of petitioner, and also giving petitioner ten (10) days from
Court finds that the appeal of the defendant is not only dilatory but receipt of the opposition to reply thereto, if so desired.
also frivolous.
Five (5) days later, or on April 20, 1993, to be precise, petitioner brought a petition
Anyway, in the remote event of reversal by the appellate court, there for certiorari before the Court of Appeals on the alleged ground that the lower court
is the bond to answer for the return of these assets which may be unreasonably failed to act on its "Urgent Omnibus Motion" dated April 14, 1992.

TAX 1 batch 1 Page 100 of 193

On April 21, 1992, the Court of Appeals issued a Temporary Restraining Order BECAUSE LOI No. 1465 IS UNCONSTITUTIONAL; AND ii) FILING
effective until May 11, 1992, enjoining the private respondent and all persons acting OF THE BOND OF P6,698,144;
under their supervision and/or instruction from executing any further the decision in
Civil Case No. 17835. After the lapse of said period, on May 5, 1992, petitioner IV
presented an Urgent Motion for the issuance of a writ of preliminary injunction to
prevent private respondent from executing any further the decision of the trial THAT THE TRIAL COURT DID NOT GRAVELY ABUSE ITS
court.1âwphi1.nêt DISCRETION WHEN IT GAVE FERTIPHIL 10 DAYS TO OPPOSE
PPI'S SUBMISSION OF SUPERSEDEAS BOND.
On May 21, 1992, petitioner asked the Court of Appeals to admit its supplemental
petition for certiorari imputing abuse of discretion, amounting to lack or excess of V
jurisdiction, on the part of the lower court in granting private respondent's motion for
execution pending appeal. THAT THE COLLECTION UNDER LOI No. 1465 WAS FOR THE
BENEFIT OF PPI AND RECEIVED BY IT WITHOUT
On June 19, 1992, the Court of Appeals came out with its decision to the following CONSIDERATION; and
effect:
VI
WHEREFORE, the petition and supplemental petition are hereby
DENIED. The prayer for the issuance of a preliminary injunction is THAT THE IMPOSITION UNDER LOI 1465 WAS IMPROPER
likewise denied. Costs against petitioner. EXERCISE OF TAXATION. 7

SO ORDERED. 6 The petition is impressed with merit.

Dissatisfied therewith, petitioner found its way to this Court via the present Petition, It is true that the Supplemental Petition could have been raised in the original petition
contending: filed with the Court of Appeals. However, the Court discerns no legal infirmity, and
perceives no ground to deny due course to the said Supplemental Petition imputing
I abuse of discretion on the part of the trial court in issuing the order of execution
pending appeal, as this was precisely the bottom line of the two petitions before the
THAT THE SUPPLEMENTAL PETITION COULD NO LONGER Court of Appeals. It bears stressing that the rules of procedure are not to be applied
QUESTION THE SPECIAL EXECUTION SINCE THIS WAS NOT in a very rigid and technical manner, as rules of procedure are used only to help
RAISED IN THE ORIGINAL PETITION; secure substantial justice. 8 They cannot be blindly adhered to if they would serve no
other purpose than to put into oblivion the very lis mota of the controversy under
II scrutiny.

THAT PPI ADMITTED THE CORRECTNESS OF THE SPECIAL Sec. 2, Rule 39, of the Rules of Court which was the applicable provision when the
EXECUTION WHEN IT FILED THE SUPERSEDEAS BOND; trial court allowed the execution pending appeal, provided:

III Sec. 2. Execution pending appeal.— On motion of the prevailing party

with notice to the adverse party, the court may, in its discretion, order
THAT THE FOLLOWING WERE "GOOD REASONS" TO JUSTIFY execution to issue, even before the expiration of the time to appeal,
ADVANCE EXECUTION: i) FRIVOLOUSNESS OF THE APPEAL upon good reasons to be stated in the special order. If a record on
TAX 1 batch 1 Page 101 of 193
 appeal is filed thereafter the motion and the special order shall be Motion" before the trial court, petitioner prayed that the Order of the lower court
included therein. dated April 8, 1992, directing execution pending appeal, be set aside.

The prevailing doctrine then — which is the same as provided in paragraph 2, Then too, it can be gleaned that there is no good reason to grant execution pending
Section 2 of Rule 39 of the 1997 Rules of Civil Procedure — is that discretionary appeal, under the premises. To repeat, the ground for granting execution pending
execution is permissible when good reasons exist for immediately executing the appeal must be a good reason. Thus, when the Court has already granted a stay of
judgment before finality or pending appeal or even before the expiration of the time execution upon the adverse party's filing of a supersedeas bond, the circumstances
to appeal. Good reasons consist of compelling circumstances justifying the justifying execution despite the supersedeas bond, must be paramount; they should
immediate execution lest the judgment becomes illusory, or the prevailing party may outweigh the security offered by the supersedeas bond. 16 In the present case,
after the lapse of time become unable to enjoy it. 9 however, the Court discerns no reason paramount enough to warrant the execution
pending appeal. To rule otherwise would be to make the remedy of execution
In the present case, the supposed good reasons relied upon by the trial court, and pending appeal a tool of oppression and inequity instead of being an instrument of
upheld in by the respondent Court in granting execution pending appeal are that: 1) solicitude and justice. 17
The appeal is frivolous because LOI No. 1465 is unconstitutional; and 2) Fertiphil
posted a bond. Anent the fourth error assigned, the Court upholds the ruling that the respondent
court is not under obligation to act immediately on the supersedeas bond submitted
Although ascertainment of the special reasons for execution pending appeal lies by the petitioners. Under Section 3, Rule 39 of the Revised Rules of Court, 18 the
within the sound discretion of the trial court, and the appellate Court should not judgment debtor is not entitled to a suspension as a matter of right. Indeed, it was in
normally disturb such finding, intervention by the appellate court may be proper, if it the exercise of its sound judgment that the trial court required the filing of a written
is shown that there has been an abuse of discretion. 10 That the appeal was merely opposition from Fertiphil and a possible reply from the petitioner.
dilatory because the assailed letter of instruction is unconstitutional, does not
constitute "good reason" to justify execution pending appeal. Well-settled is the rule The constitutional issues posed are not the proper subjects of the instant petition
that it is not for the trial court to determine the merit of a decision it rendered as this seeking to set aside the assailed decision of the Court of Appeals, considering that
is the role of the appellate Court. 11 Hence, it is not within the competence of the trial the said Court did not, and could not, in its challenged decision, rule on the
court, in resolving the motion for execution pending appeal, to rule that the appeal is constitutionality of LOI No. 1465. The remedy of certiorari under Rule 65 of the
patently dilatory and rely on the same as the basis for finding good reason to grant Revised Rules of Court is limited to acts of any tribunal, board, or office exercising
the motion. 12 judicial function without or in excess of jurisdiction or with grave abuse of
discretion 19 and is not available for the correction of errors of judgment which may
So also, mere issuance of a bond to answer for damages is no longer considered a be raised only on appeal. 20 In the case before the Court, while the respondent court
good reason for execution pending appeal. To consider the mere posting of a bond referred to the findings of the trial court that LOI No. 1465 is unconstitutional, it did
as a "good reason" would precisely make immediate execution of judgment pending not hold that such finding is correct or incorrect. The Court of Appeals properly
appeal routinary, the rule rather than the exception. 13 deferred ruling on the correctness of the judgment sought to be executed, as the
merits of the case itself were duly submitted to the jurisdiction of the said Court in the
The rule on execution pending appeal must be strictly construed being an exception proper case, by way of a regular appeal. Time honored is the rule that jurisdiction
to the general rule. 14 Applying the rule on statutory construction, it should be once acquired is not lost upon the instance of the parties but continues until the case
interpreted only so far as the language thereof fairly warrants, and all doubts should is terminated. 21 Therefore, the Court of Appeals which first acquired jurisdiction over
be resolved in favor of the general rule rather than the the constitutionality of LOI No. 1465 by way of regular appeal, excludes all others,
exceptions. 15 In light of the foregoing, this Court is unable to agree with the Court of including this court from passing upon the validity of subject letter of instruction.
Appeals that the petitioner admitted the correctness of the special or discretionary
execution when it posted the supersedeas bond. Besides, in its "Urgent Omnibus In this disposition, the Court limits itself to the wisdom of the exercise of discretion by
the trial court in ordering the execution of its judgment pending appeal. It is
TAX 1 batch 1 Page 102 of 193
imperative that this Court allows the main appeal pending before the Court of G.R. No. L-12647             May 31, 1961
Appeals to takes its normal course. 22
AMERICAN MAIL LINE, ET AL., plaintiffs-appellees,
Premises studiedly considered, the Court is of the ineluctable conclusion, and so vs.
holds, that the Court of Appeals erred in granting the motion trial to execute pending CITY OF BASILAN, ET AL., defendants-appellants.
appeal the judgment of the trial court in Civil Case No. 17835.1âwphi1.nêt
Ross, Selph and Carrascoso for plaintiffs-appellees.
WHEREFORE, the Petition is GRANTED; the decision of the Court of Appeals, Office of the Solicitor General for defendants-appellants.
dated June 19, 1992, in CA-G.R. No. 27769 and the Order dated November 20,
1991, of the Regional Trial Court of Makati, Branch 147, in Civil Case No. 27769 are DIZON, J.:
SET ASIDE. Fertiphil is hereby ordered to return all the properties of Philippine
Planters, Inc., taken and sold at the public auction to satisfy the judgment of the trial Appeal from the decision of the Court of First Instance of Manila "declaring illegal
court in Civil Case No. 17385, or if return thereof is not feasible to pay Philippine and void Ordinance No. 180, Series of 1955, of the City of Basilan," and dismissing
Planters, Inc. the value of the said properties, as of the date of the sale thereof. No defendants, counterclaim for lack of merit.
pronouncement as to costs.
On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180,
SO ORDERED. Series of 1955, (Exh. N) amending Title IV, Ordinance No. 7, Series of 1948, (Exh.
A) by adding thereto Section 1 (D) and Sections 2 (C) and (D). The first reads as
follows:

Section 1. Article IV of ordinance numbered seven entitled, 'The Port Area

Ordinance', is hereby amended to read as follows:

ARTICLE IV. REGULATION FOR BERTHING, MOORING, DOCKING

AND ANCHORING AT PIERS OR WHARVES AT ANY POINT
WITHIN THE CITY OF BASILAN AND FOR ANCHORING AT ANY
OPEN BAY, CHANNEL OR ANY OTHER POINT WITHIN THE
TERRITORIAL WATERS OF THE CITY OF BASILAN

Sec. 2. Section 1 of Ordinance No. 7 is hereby amended and adding thereto

a new paragraph to be known as Section 1 (D), to read as follows:

"Section 1 (D). Any foreign vessel engaged in coastwise trade which may
anchor at any open bay, channel, or any loading point within the territorial
waters of the City of Basilan for the purpose of loading or unloading logs or
passengers and other cargoes shall pay an anchorage fee of 1/2 centavo
(P.005) per registered gross ton of the vessel for the first twenty-four (24)
hours, or part thereof, and for succeeding hours, or part thereof, PROVIDED,
that maximum charge shall not exceed, seventy-five pesos (P75.00) per day,
irrespective of the greater tonnage of the vessels."

TAX 1 batch 1 Page 103 of 193

Appellees are foreign shipping companies licensed to do business in the Philippines, Under paragraph (a) transcribed above, it is clear that the City of Basilan may only
with offices in Manila. Their vessels call at Basilan City and anchor in the bay or levy and collect taxes for general and special purposes in accordance with or as
channel within its territorial waters. As the city treasurer assessed and attempted to provided by law; in other words, the city of Basilan was not granted a blanket power
collect from them the anchorage fees prescribed in the aforesaid amendatory of taxation. The use of the phrase "in accordance with law" — which, in our opinion,
ordinance, they filed the present action for Declaratory Relief to have the courts means the same as "provided by law" — clearly discloses the legislative intent to
determine its validity. Upon their petition the lower court issued a writ of preliminary limit the taxing power of the City.
injunction restraining appellants from collecting or attempting to collect from them the
fees prescribed therein. The next point to be considered whether the questioned ordinance may be upheld
under the provisions of Section 14(v) of Republic Act No. 288. After a careful
After the denial of appellants' motion to dismiss the complaint on the ground of consideration of the language employed therein, we have reached the conclusion
wrong venue, they filed their answer alleging therein that the City of Basilan had that said provision does not authorize the City of Basilan to promulgate ordinances
authority, through its city council, to enact the questioned ordinance in the exercise providing for the collection of "Anchorage" fees. This is clearly not included in the
of either its revenue-raising power or of its police power. They also filed a power granted by the provision under consideration "to fix the charges to be paid by
counterclaim to recover alleged uncollected anchorage dues amounting to all watercraft landing at or using public wharves, docks, levees, or landing places."
P7,500.00, and the sum of P2,000.00 for expenses incurred in defending the suit. That this is so is shown by the need which the City of Basilan had to enact the
amendatory ordinance.
The question to be resolved is whether the City of Basilan has the authority to enact
Ordinance 180 and to collect the anchorage fees prescribed therein. Appellants also argue that the ordinance in question was validly enacted in the
exercise of the city's police power and that the fees imposed therein are for purely
In support of the affirmative, appellant city relies upon the following provisions of its regulatory purposes. In this connection it has been held that the power to regulate as
Charter (Republic Act 288): an exercise of police power does not include the power to impose fees for revenue
purposes (Cu Unijeng vs. Patstone, 42 Phil. 818; Pacific Commercial Co. vs.
SEC. 14. General Powers and Duties of the Council. — Except as otherwise Romualdez etc. et al., 46 Phil. 917; Arquiza etc. vs. Municipality of Zamboanga, 55
provided by law, and subject to the conditions and limitations thereof, the Phil. 653). In the Cu Unjieng case it was held that fees for purely regulatory purposes
Council shall have the following legislative powers: "may only be of sufficient amount to include the expenses of issuing the license and
the cost of the necessary inspection or police surveillance, taking into account not
(a) To levy and collect taxes for general and special purposes in accordance only the expense of direct regulation but also incidental expenses. In Manila Electric
with law. Co. vs. Auditor General, 73 Phil. 129-135, it was also held that the regulatory fee
"must be more than sufficient to cover the actual cost of inspection or examination as
xxx     xxx     xxx nearly as the same can be estimated. If it were possible to prove in advance the
exact cost, that would be the limit of the fee."
(c) To enact ordinances for the maintenance and preservation of peace and
good morals. To support the claim that the fees imposed are merely regulatory it is said that the
City of Basilan is an island with mountainous coasts and fringed by numerous coves
and island bays and islets, and may become a veritable haven for smugglers if the
xxx     xxx     xxx
city has no funds or means to suppress their illegal activities, but we believe that, this
notwithstanding, the fees required are extended for revenue purposes. In the first
(v) To fix the charges to be paid by all watercraft landing at or using public place, being cased upon the tonnage of the vessels, the fees have no proper or
wharves, docks, levees, or landing places. reasonable relation to the cost of issuing the permits and the cost of inspection or
surveillance. In the second place, the fee imposed on foreign vessels — 1/2 centavo
per registered gross ton for the first 24 hours and which shall not exceed P75.00 per
TAX 1 batch 1 Page 104 of 193
day — exceeds even the harbor fee imposed by the National Government, which is
only P50.00 for foreign vessels (sec. 2702 of the Tariff and Customs Code, Republic
Act No. 1937, taken from Sec. 2, Republic Act No. 1317 which was enacted by G.R. No. L- 41383 August 15, 1988
Congress to raise revenues for the Port Works Fund). Moreover, Mariano Mancao,
Port Inspector of the City of Basilan, in his affidavit dated February 17, 1956 (Exh. PHILIPPINE AIRLINES, INC., plaintiff-appellant,
O), states that were it not for the injunction issued by the lower court in this case, the vs.
city "would have collected considerable amounts from the plaintiffs for anchorage ROMEO F. EDU in his capacity as Land Transportation Commissioner, and
fees". All these circumstances point to the conclusion that the fees were intended for UBALDO CARBONELL, in his capacity as National Treasurer, defendants-
revenue purposes. appellants.

Lastly, appellant city's own contention that the questioned ordinance was enacted in Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
the exercise of its power of taxation, makes it obvious that the fees imposed are not
merely regulatory.

WHEREFORE, the decision appealed from is affirmed, and the preliminary injunction GUTIERREZ, JR., J.:
issued heretofore is made final. Without costs.
What is the nature of motor vehicle registration fees? Are they taxes or regulatory
fees?

This question has been brought before this Court in the past. The parties are, in
effect, asking for a re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court
of Appeals in a case where the then Court of First Instance of Rizal dismissed the
portion-about complaint for refund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo
F. Elevate pursuant to Section 8, Republic Act No. 4136, otherwise known as the
Land Transportation and Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws
of the Philippines and engaged in the air transportation business under a legislative
franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its
franchise, PAL is exempt from the payment of taxes. The pertinent provision of the
franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby

granted, the grantee shall pay to the National Government during the
life of this franchise a tax of two per cent of the gross revenue or
gross earning derived by the grantee from its operations under this
TAX 1 batch 1 Page 105 of 193
 franchise. Such tax shall be due and payable quarterly and shall be in incident of the exercise of the police power of the state. They contended that while
lieu of all taxes of any kind, nature or description, levied, established Act 4271 exempts PAL from the payment of any tax except two per cent on its gross
or collected by any municipal, provincial or national automobiles, revenue or earnings, it does not exempt the plaintiff from paying regulatory fees,
Provided, that if, after the audit of the accounts of the grantee by the such as motor vehicle registration fees. The resolution of the motion to dismiss was
Commissioner of Internal Revenue, a deficiency tax is shown to be deferred by the Court until after trial on the merits.
due, the deficiency tax shall be payable within the ten days from the
receipt of the assessment. The grantee shall pay the tax on its real On April 24, 1973, the trial court rendered a decision dismissing the appellant's
property in conformity with existing law. complaint "moved by the later ruling laid down by the Supreme Court in the case
or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of appealed to the Court of Appeals which certified the case to us.
1956) PAL has, since 1956, not been paying motor vehicle registration fees.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a (supra) cited by PAL and Commissioner Romeo F. Edu respectively, discuss the
regulation requiring all tax exempt entities, among them PAL to pay motor vehicle main points of contention in the case at bar.
registration fees.
Resolving the issue in the Philippine Rabbit case, this Court held:
Despite PAL's protestations, the appellee refused to register the appellant's motor
vehicles unless the amounts imposed under Republic Act 4136 were paid. The "The registration fee which defendant-appellee had to pay was
appellant thus paid, under protest, the amount of P19,529.75 as registration fees of imposed by Section 8 of the Revised Motor Vehicle Law (Republic Act
its motor vehicles. No. 587 [1950]). Its heading speaks of "registration fees." The term is
repeated four times in the body thereof. Equally so, mention is made
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, of the "fee for registration." (Ibid., Subsection G) A subsection starts
to Commissioner Edu demanding a refund of the amounts paid, invoking the ruling with a categorical statement "No fees shall be charged."
in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle (lbid., Subsection H) The conclusion is difficult to resist therefore that
registration fees are in reality taxes from the payment of which PAL is exempt by the Motor Vehicle Act requires the payment not of a tax but of a
virtue of its legislative franchise. registration fee under the police power. Hence the incipient, of the
section relied upon by defendant-appellee under the Back Pay Law, It
Appellee Edu denied the request for refund basing his action on the decision is not held liable for a tax but for a registration fee. It therefore cannot
in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to make use of a backpay certificate to meet such an obligation.
the effect that motor vehicle registration fees are regulatory exceptional. and not
revenue measures and, therefore, do not come within the exemption granted to Any vestige of any doubt as to the correctness of the above
PAL? under its franchise. Hence, PAL filed the complaint against Land conclusion should be dissipated by Republic Act No. 5448. ([1968].
Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Section 3 thereof as to the imposition of additional tax on privately-
Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed owned passenger automobiles, motorcycles and scooters was
as Civil Case No. Q-15862. amended by Republic Act No. 5470 which is (sic) approved on May
30, 1969.) A special science fund was thereby created and its title
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell expressly sets forth that a tax on privately-owned passenger
in his capacity as National Treasurer, filed a motion to dismiss alleging that the automobiles, motorcycles and scooters was imposed. The rates
complaint states no cause of action. In support of the motion to dismiss, defendants thereof were provided for in its Section 3 which clearly specifies the"
repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that Philippine tax."(Cooley to be paid as distinguished from the
registration fees of motor vehicles are not taxes, but regulatory fees imposed as an registration fee under the Motor Vehicle Act. There cannot be any
TAX 1 batch 1 Page 106 of 193
 clearer expression therefore of the legislative will, even on the As a matter of fact, the Revised Motor Vehicle Law itself now regards
assumption that the earlier legislation could by subdivision the point those fees as taxes, for it provides that "no other taxes or fees than
be susceptible of the interpretation that a tax rather than a fee was those prescribed in this Act shall be imposed," thus implying that the
levied. What is thus most apparent is that where the legislative body charges therein imposed—though called fees—are of the category of
relies on its authority to tax it expressly so states, and where it is taxes. The provision is contained in section 70, of subsection (b), of
enacting a regulatory measure, it is equally exploded (at p. 22,1969 the law, as amended by section 17 of Republic Act 587, which reads:

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on Sec. 70(b) No other taxes or fees than those
the other hand, held: prescribed in this Act shall be imposed for the
registration or operation or on the ownership of any
The charges prescribed by the Revised Motor Vehicle Law for the motor vehicle, or for the exercise of the profession of
registration of motor vehicles are in section 8 of that law called "fees". chauffeur, by any municipal corporation, the provisions
But the appellation is no impediment to their being considered taxes if of any city charter to the contrary
taxes they really are. For not the name but the object of the charge notwithstanding: Provided, however, That any
determines whether it is a tax or a fee. Geveia speaking, taxes are for provincial board, city or municipal council or board, or
revenue, whereas fees are exceptional. for purposes of regulation and other competent authority may exact and collect such
inspection and are for that reason limited in amount to what is reasonable and equitable toll fees for the use of such
necessary to cover the cost of the services rendered in that bridges and ferries, within their respective jurisdiction,
connection. Hence, a charge fixed by statute for the service to be as may be authorized and approved by the Secretary
person,-When by an officer, where the charge has no relation to the of Public Works and Communications, and also for the
value of the services performed and where the amount collected use of such public roads, as may be authorized by the
eventually finds its way into the treasury of the branch of the President of the Philippines upon the recommendation
government whose officer or officers collected the chauffeur, is not a of the Secretary of Public Works and Communications,
fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.) but in none of these cases, shall any toll fee." be
charged or collected until and unless the approved
From the data submitted in the court below, it appears that the schedule of tolls shall have been posted levied, in a
expenditures of the Motor Vehicle Office are but a small portion— conspicuous place at such toll station. (at pp. 213-214)
about 5 per centum—of the total collections from motor vehicle
registration fees. And as proof that the money collected is not Motor vehicle registration fees were matters originally governed by the Revised
intended for the expenditures of that office, the law itself provides that Motor Vehicle Law (Act 3992 [19511) as amended by Commonwealth Act 123 and
all such money shall accrue to the funds for the construction and Republic Acts Nos. 587 and 1621.
maintenance of public roads, streets and bridges. It is thus obvious
that the fees are not collected for regulatory purposes, that is to say, Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the
as an incident to the enforcement of regulations governing the Land Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D.
operation of motor vehicles on public highways, for their express Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).
object is to provide revenue with which the Government is to
discharge one of its principal functions—the construction and Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and
maintenance of public highways for everybody's use. They are remained unsegregated, by Rep. Act Nos. 587 and 1603) states:
veritable taxes, not merely fees.
Section 73. Disposal of moneys collected.—Twenty per centum of the
money collected under the provisions of this Act shall accrue to the
TAX 1 batch 1 Page 107 of 193
 road and bridge funds of the different provinces and chartered cities in Fees may be properly regarded as taxes even though they also serve as an
proportion to the centum shall during the next previous year and the instrument of regulation, As stated by a former presiding judge of the Court of Tax
remaining eighty per centum shall be deposited in the Philippine Appeals and writer on various aspects of taxpayers
Treasury to create a special fund for the construction and
maintenance of national and provincial roads and bridges. as well as It is possible for an exaction to be both tax arose. regulation. License
the streets and bridges in the chartered cities to be alloted by the fees are changes. looked to as a source of revenue as well as a
Secretary of Public Works and Communications for projects means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for
recommended by the Director of Public Works in the different example, of automobile license fees. Isabela such case, the fees may
provinces and chartered cities. .... properly be regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if
Presently, Sec. 61 of the Land Transportation and Traffic Code provides: revenue is at least one of the real and substantial purposes, then the
exaction is properly called a tax. (1955 CCH Fed. tax Course, Par.
Sec. 61. Disposal of Mortgage. Collected—Monies collected under the 3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v.
provisions of this Act shall be deposited in a special trust account in Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These
the National Treasury to constitute the Highway Special Fund, which exactions are sometimes called regulatory taxes. (See Secs. 4701,
shall be apportioned and expended in accordance with the provisions 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue
of the" Philippine Highway Act of 1935. "Provided, however, That the Code of 1954, which classify taxes on tobacco and alcohol as
amount necessary to maintain and equip the Land Transportation regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13,
Commission but not to exceed twenty per cent of the total collection citing Cooley on Taxation, 2nd Edition, 591-593).
during one year, shall be set aside for the purpose. (As amended by
RA 64-67, approved August 6, 1971). Indeed, taxation may be made the implement of the state's police power (Lutz v.
Araneta, 98 Phil. 148).
It appears clear from the above provisions that the legislative intent and purpose
behind the law requiring owners of vehicles to pay for their registration is mainly to If the purpose is primarily revenue, or if revenue is, at least, one of the real and
raise funds for the construction and maintenance of highways and to a much lesser substantial purposes, then the exaction is properly called a tax (Umali, Id.) Such is
degree, pay for the operating expenses of the administering agency. On the other the case of motor vehicle registration fees. The conclusions become inescapable in
hand, the Philippine Rabbit case mentions a presumption arising from the use of the view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same
term "fees," which appears to have been favored by the legislature to distinguish provision appears as Section 591-593). in the Land Transportation code. It is patent
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which therefrom that the legislators had in mind a regulatory tax as the law refers to the
reads: imposition on the registration, operation or ownership of a motor vehicle as a "tax or
fee." Though nowhere in Rep. Act 4136 does the law specifically state that the
Sec. 13. Payment of taxes upon registration.—No original registration imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration
of motor vehicles subject to payment of taxes, customs s duties or or operation or on the ownership of any motor vehicle, or for the exercise of the
other charges shall be accepted unless proof of payment of the taxes profession of chauffeur ..." making the intent to impose a tax more apparent. Thus,
due thereon has been presented to the Commission. even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where
the law could have referred to an original tax and not one in addition to the tax
referring to taxes other than those imposed on the registration, operation or already imposed on the registration, operation, or ownership of a motor vehicle under
ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136, as amended). Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a
regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep.
Act 4136 also speaks of other "fees," such as the special permit fees for certain
types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec.
TAX 1 batch 1 Page 108 of 193
11). These are not to be understood as taxes because such fees are very minimal to authority whatsoever, municipal, provincial, or national from which
be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes the grantee is hereby expressly exempted." The issue raised to
taxes like the motor vehicle registration fee and chauffers' license fee. Such fees are this Court now is the validity of the respondent court's decision which
to go into the expenditures of the Land Transportation Commission as provided for in ruled that the exemption under Republic Act No. 41-42). was repealed
the last proviso of see. 61, aforequoted. by Section 24 of Republic Act No. 5448 dated June 27, 1968 which
reads:
It is quite apparent that vehicle registration fees were originally simple exceptional.
intended only for rigidly purposes in the exercise of the State's police powers. Over "(d) The provisions of existing special or general laws
the years, however, as vehicular traffic exploded in number and motor vehicles to the contrary notwithstanding, all corporate taxpayers
became absolute necessities without which modem life as we know it would stand not specifically exempt under Sections 24 (c) (1) of this
still, Congress found the registration of vehicles a very convenient way of raising Code shall pay the rates provided in this section. All
much needed revenues. Without changing the earlier deputy. of registration corporations, agencies, or instrumentalities owned or
payments as "fees," their nature has become that of "taxes." controlled by the government, including the
Government Service Insurance System and the Social
In view of the foregoing, we rule that motor vehicle registration fees as at present Security System but excluding educational institutions,
exacted pursuant to the Land Transportation and Traffic Code are actually taxes shall pay such rate of tax upon their taxable net income
intended for additional revenues. of government even if one fifth or less of the as are imposed by this section upon associations or
amount collected is set aside for the operating expenses of the agency administering corporations engaged in a similar business or industry.
the program. "

May the respondent administrative agency be required to refund the amounts stated An examination of Section 24 of the Tax Code as amended shows
in the complaint of PAL? clearly that the law intended all corporate taxpayers to pay income
tax as provided by the statute. There can be no doubt as to the power
The answer is NO. of Congress to repeal the earlier exemption it granted. Article XIV,
Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
The claim for refund is made for payments given in 1971. It is not clear from the Constitution as amended in 1973 expressly provide that no franchise
records as to what payments were made in succeeding years. We have ruled that shall be granted to any individual, firm, or corporation except under
Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax the condition that it shall be subject to amendment, alteration, or
exemptions Of corporate taxpayers found in legislative franchises similar to that repeal by the legislature when the public interest so requires. There is
invoked by PAL in this case. no question as to the public interest involved. The country needs
increased revenues. The repealing clause is clear and unambiguous.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. There is a listing of entities entitled to tax exemption. The petitioner is
No. 615)." July 11, 1985), this Court ruled: not covered by the provision. Considering the foregoing, the Court
Resolved to DENY the petition for lack of merit. The decision of the
respondent court is affirmed.
Under its original franchise, Republic Act No. 21); enacted in 1957,
petitioner Radio Communications of the Philippines, Inc., was subject
to both the franchise tax and income tax. In 1964, however, Any registration fees collected between June 27, 1968 and April 9, 1979, were
petitioner's franchise was amended by Republic Act No. 41-42). to the correctly imposed because the tax exemption in the franchise of PAL was repealed
effect that its franchise tax of one and one-half percentum (1-1/2%) of during the period. However, an amended franchise was given to PAL in 1979.
all gross receipts was provided as "in lieu of any and all taxes of any Section 13 of Presidential Decree No. 1590, now provides:
kind, nature, or description levied, established, or collected by any
TAX 1 batch 1 Page 109 of 193
 In consideration of the franchise and rights hereby granted, the charge on the registration and licensing of the petitioner's motor vehicles from April
grantee shall pay to the Philippine Government during the lifetime of 9, 1979 as provided in Presidential Decree No. 1590.
this franchise whichever of subsections (a) and (b) hereunder will
result in a lower taxes.) SO ORDERED.

(a) The basic corporate income tax based on the

grantee's annual net taxable income computed in
accordance with the provisions of the Internal Revenue
Code; or

(b) A franchise tax of two per cent (2%) of the gross

revenues. derived by the grantees from all specific.
without distinction as to transport or nontransport
corporations; provided that with respect to international
airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be
subject to this law.

The tax paid by the grantee under either of the above alternatives
shall be in lieu of all other taxes, duties, royalties, registration, license
and other fees and charges of any kind, nature or description
imposed, levied, established, assessed, or collected by any municipal,
city, provincial, or national authority or government, agency, now or in
the future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license,
acquisition, and transfer of airtransport equipment, motor vehicles,
and all other personal or real property of the gravitates (Pres. Decree
1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in
the earlier law. PAL is now exempt from the payment of any tax, fee, or other charge G.R. No. 189999               June 27, 2012
on the registration and licensing of motor vehicles. Such payments are already
included in the basic tax or franchise tax provided in Subsections (a) and (b) of ANGELES UNIVERSITY FOUNDATION, Petitioner,
Section 13, P.D. 1590, and may no longer be exacted. vs.
CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as Treasurer of
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of Angeles City and ENGR. DONATO N. DIZON, in his capacity as Acting Angeles
registration fees paid in 1971 is DENIED. The Land Transportation Franchising and City Building Official, Respondents.
Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other
TAX 1 batch 1 Page 110 of 193
 DECISION December 6, 2005, cited previous issuances of his office (Opinion No. 157, s. 1981
and Opinion No. 147, s. 1982) declaring petitioner to be exempt from the payment of
VILLARAMA, JR., J.: building permit fees. Under the 1st Indorsement dated January 6, 2006, BLGF
reiterated the aforesaid opinion of the DOJ stating further that "xxx the Department of
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Finance, thru this Bureau, has no authority to review the resolution or the decision of
Civil Procedure, as amended, which seeks to reverse and set aside the the DOJ."7
Decision1 dated July 28, 2009 and Resolution2 dated October 12, 2009 of the Court of
Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed the Decision3 dated Petitioner wrote the respondents reiterating its request to reverse the disputed
September 21, 2007 of the Regional Trial Court of Angeles City, Branch 57 in Civil assessments and invoking the DOJ legal opinions which have been affirmed by
Case No. 12995 declaring petitioner exempt from the payment of building permit and Secretary Gonzalez. Despite petitioner’s plea, however, respondents refused to
other fees and ordering respondents to refund the same with interest at the legal issue the building permits for the construction of the AUF Medical Center in the main
rate. campus and renovation of a school building located at Marisol Village. Petitioner then
appealed the matter to City Mayor Carmelo F. Lazatin but no written response was
The factual antecedents: received by petitioner.8

Petitioner Angeles University Foundation (AUF) is an educational institution Consequently, petitioner paid under protest9 the following:
established on May 25, 1962 and was converted into a non-stock, non-profit
education foundation under the provisions of Republic Act (R.A.) No. 60554 on Medical Center (new construction)  
December 4, 1975.    
Building Permit and Electrical Fee P 217,475.20
Sometime in August 2005, petitioner filed with the Office of the City Building Official Locational Clearance Fee 283,741.64
an application for a building permit for the construction of an 11-storey building of the Fire Code Fee 144,690.00
Angeles University Foundation Medical Center in its main campus located at   Total - P 645,906.84
MacArthur Highway, Angeles City, Pampanga. Said office issued a Building Permit
   
Fee Assessment in the amount of P126,839.20. An Order of Payment was also
issued by the City Planning and Development Office, Zoning Administration Unit School Building (renovation)  
requiring petitioner to pay the sum of P238,741.64 as Locational Clearance Fee.5    
Building Permit and Electrical Fee P 37,857.20
In separate letters dated November 15, 2005 addressed to respondents City Locational Clearance Fee 6,000.57
Treasurer Juliet G. Quinsaat and Acting City Building Official Donato N. Dizon, Fire Code Fee 5,967.74
petitioner claimed that it is exempt from the payment of the building permit and   Total - P 49,825.51
locational clearance fees, citing legal opinions rendered by the Department of Justice
(DOJ). Petitioner also reminded the respondents that they have previously issued Petitioner likewise paid the following sums as required by the City Assessor’s Office:
building permits acknowledging such exemption from payment of building permit fees
on the construction of petitioner’s 4-storey AUF Information Technology Center
Real Property Tax – Basic Fee P 86,531.10  
building and the AUF Professional Schools building on July 27, 2000 and March 15,
2004, respectively.6 SEF 43,274.54  
Locational Clearance Fee 1,125.00  
Respondent City Treasurer referred the matter to the Bureau of Local Government   Total – P130,930.6
Finance (BLGF) of the Department of Finance, which in turn endorsed the query to   [GRAND TOTAL - P 826,662.
the DOJ. Then Justice Secretary Raul M. Gonzalez, in his letter-reply dated        
TAX 1 batch 1 Page 111 of 193
By reason of the above payments, petitioner was issued the corresponding Building a. Plaintiff is exempt from the payment of building permit and other fees
Permit, Wiring Permit, Electrical Permit and Sanitary Building Permit. On June 9, Ordering the Defendants to refund the total amount of Eight Hundred Twenty
2006, petitioner formally requested the respondents to refund the fees it paid under Six Thousand Six Hundred Sixty Two Pesos and 99/100 Centavos
protest. Under letters dated June 15, 2006 and August 7, 2006, respondent City (P826,662.99) plus legal interest thereon at the rate of twelve percent (12%)
Treasurer denied the claim for refund.11 per annum commencing on the date of extra-judicial demand or June 14,
2006, until the aforesaid amount is fully paid.
On August 31, 2006, petitioner filed a Complaint12 before the trial court seeking the
refund of P826,662.99 plus interest at the rate of 12% per annum, and also praying b. Finding the Defendants liable for attorney’s fees in the amount of Seventy
for the award of attorney’s fees in the amount of P300,000.00 and litigation Thousand Pesos (Php70,000.00), plus litigation expenses.
expenses.
c. Ordering the Defendants to pay the costs of the suit.
13 
In its Answer, respondents asserted that the claim of petitioner cannot be granted
because its structures are not among those mentioned in Sec. 209 of the National SO ORDERED.17
Building Code as exempted from the building permit fee. Respondents argued that
R.A. No. 6055 should be considered repealed on the basis of Sec. 2104 of Respondents appealed to the CA which reversed the trial court, holding that while
the National Building Code. Since the disputed assessments are regulatory in petitioner is a tax-free entity, it is not exempt from the payment of regulatory fees.
nature, they are not taxes from which petitioner is exempt. As to the real property The CA noted that under R.A. No. 6055, petitioner was granted exemption only from
taxes imposed on petitioner’s property located in Marisol Village, respondents income tax derived from its educational activities and real property used exclusively
pointed out that said premises will be used as a school dormitory which cannot be for educational purposes. Regardless of the repealing clause in the National Building
considered as a use exclusively for educational activities. Code, the CA held that petitioner is still not exempt because a building permit cannot
be considered as the other "charges" mentioned in Sec. 8 of R.A. No. 6055 which
Petitioner countered that the subject building permit are being collected on the basis refers to impositions in the nature of tax, import duties, assessments and other
of Art. 244 of the Implementing Rules and Regulations of the Local Government collections for revenue purposes, following the ejusdem generisrule. The CA further
Code, which impositions are really taxes considering that they are provided under stated that petitioner has not shown that the fees collected were excessive and more
the chapter on "Local Government Taxation" in reference to the "revenue raising than the cost of surveillance, inspection and regulation. And while petitioner may be
power" of local government units (LGUs). Moreover, petitioner contended that, as exempt from the payment of real property tax, petitioner in this case merely alleged
held in Philippine Airlines, Inc. v. Edu,14 fees may be regarded as taxes depending on that "the subject property is to be used actually, directly and exclusively for
the purpose of its exaction. In any case, petitioner pointed out that the Local educational purposes," declaring merely that such premises is intended to house the
Government Code of 1991 provides in Sec. 193 that non-stock and non-profit sports and other facilities of the university but by reason of the occupancy of informal
educational institutions like petitioner retained the tax exemptions or incentives which settlers on the area, it cannot yet utilize the same for its intended use. Thus, the CA
have been granted to them. Under Sec. 8 of R.A. No. 6055 and applicable concluded that petitioner is not entitled to the refund of building permit and related
jurisprudence and DOJ rulings, petitioner is clearly exempt from the payment of fees, as well as real property tax it paid under protest.
building permit fees.15
Petitioner filed a motion for reconsideration which was denied by the CA.
On September 21, 2007, the trial court rendered judgment in favor of the petitioner
and against the respondents. The dispositive portion of the trial court’s Hence, this petition raising the following grounds:
decision16 reads:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A
WHEREFORE, premises considered, judgment is rendered as follows: QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND
THE APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
TAX 1 batch 1 Page 112 of 193
PROCEEDINGS NECESSITATING THE HONORABLE COURT’S EXERCISE OF conversion. These incentives necessarily included exemption from payment of
ITS POWER OF SUPERVISION CONSIDERING THAT: building permit and related fees as otherwise there would have been no incentives
for educational foundations if the privilege were only limited to exemption from
I. IN REVERSING THE TRIAL COURT’S DECISION DATED 21 SEPTEMBER 2007, taxation, which is already provided under the Constitution.
THE COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF
EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL Petitioner further contends that this Court has consistently held in several cases that
FOUNDATIONS BY VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE the primary purpose of the exaction determines its nature. Thus, a charge of a fixed
AUTHORITY OF THE COURT OF APPEALS TO DO. sum which bears no relation to the cost of inspection and which is payable into the
general revenue of the state is a tax rather than an exercise of the police power. The
A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE standard set by law in the determination of the amount that may be imposed as
AND EFFECT. HENCE, THE COURT OF APPEALS ERRED WHEN license fees is such that is commensurate with the cost of regulation, inspection and
IT RULED IN THE QUESTIONED DECISION THAT NON-STOCK, licensing. But in this case, the amount representing the building permit and related
NON-PROFIT EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT. fees and/or charges is such an exorbitant amount as to warrant a valid imposition;
such amount exceeds the probable cost of regulation. Even with the alleged criteria
B. THE COURT OF APPEALS’ APPLICATION OF THE PRINCIPLE submitted by the respondents (e.g., character of occupancy or use of
OF EJUSDEM GENERIS IN RULING IN THE QUESTIONED building/structure, cost of construction, floor area and height), and the construction
DECISION THAT THE TERM "OTHER CHARGES IMPOSED BY by petitioner of an 11-storey building, the costs of inspection will not amount to
THE GOVERNMENT" UNDER SECTION 8 OF RA 6055 DOES NOT P645,906.84, presumably for the salary of inspectors or employees, the expenses of
INCLUDE BUILDING PERMIT AND OTHER RELATED FEES transportation for inspection and the preparation and reproduction of documents.
AND/OR CHARGES IS BASED ON ITS ERRONEOUS AND Petitioner thus concludes that the disputed fees are substantially and mainly for
UNWARRANTED ASSUMPTION THAT THE TAXES, IMPORT purposes of revenue rather than regulation, so that even these fees cannot be
DUTIES AND ASSESSMENTS AS PART OF THE PRIVILEGE OF deemed "charges" mentioned in Sec. 8 of R.A. No. 6055, they should properly be
EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT treated as tax from which petitioner is exempt.
EDUCATIONAL FOUNDATIONS ARE LIMITED TO COLLECTIONS
FOR REVENUE PURPOSES. In their Comment, respondents maintain that petitioner is not exempt from the
payment of building permit and related fees since the only exemptions provided in
C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER the National Building Code are public buildings and traditional indigenous family
RELATED FEES AND/OR CHARGES ARE NOT INCLUDED IN THE dwellings. Inclusio unius est exclusio alterius. Because the law did not include
TERM "OTHER CHARGES IMPOSED BY THE GOVERNMENT" petitioner’s buildings from those structures exempt from the payment of building
UNDER SECTION 8 OF RA 6055, ITS IMPOSITION IS GENERALLY permit fee, it is therefore subject to the regulatory fees imposed under the National
A TAX MEASURE AND THEREFORE, STILL COVERED UNDER Building Code.
THE PRIVILEGE OF EXEMPTION.
Respondents assert that the CA correctly distinguished a building permit fee from
II. THE COURT OF APPEALS’ DENIAL OF PETITIONER AUF’S EXEMPTION those "other charges" mentioned in Sec. 8 of R.A. No. 6055. As stated by petitioner
FROM REAL PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION itself, charges refer to pecuniary liability, as rents, and fees against persons or
AND QUESTIONED RESOLUTION IS CONTRARY TO APPLICABLE LAW AND property. Respondents point out that a building permit is classified under the term
JURISPRUDENCE.18 "fee." A fee is generally imposed to cover the cost of regulation as activity or privilege
and is essentially derived from the exercise of police power; on the other hand,
Petitioner stresses that the tax exemption granted to educational stock corporations impositions for services rendered by the local government units or for conveniences
which have converted into non-profit foundations was broadened to include any furnished, are referred to as "service charges".
other charges imposed by the Government as one of the incentives for such
TAX 1 batch 1 Page 113 of 193
Respondents also disagreed with petitioner’s contention that the fees imposed and (IRR)."20 Building permit fees refers to the basic permit fee and other charges
collected are exorbitant and exceeded the probable expenses of regulation. These imposed under the National Building Code.
fees are based on computations and assessments made by the responsible officials
of the City Engineer’s Office in accordance with the Schedule of Fees and criteria Exempted from the payment of building permit fees are: (1) public buildings and (2)
provided in the National Building Code. The bases of assessment cited by petitioner traditional indigenous family dwellings.21 Not being expressly included in the
(e.g. salary of employees, expenses of transportation and preparation and enumeration of structures to which the building permit fees do not apply, petitioner’s
reproduction of documents) refer to charges and fees on business and occupation claim for exemption rests solely on its interpretation of the term "other charges
under Sec. 147 of the Local Government Code, which do not apply to building permit imposed by the National Government" in the tax exemption clause of R.A. No. 6055.
fees. The parameters set by the National Building Code can be considered as
complying with the reasonable cost of regulation in the assessment and collection of A "charge" is broadly defined as the "price of, or rate for, something," while the word
building permit fees. Respondents likewise contend that the presumption of regularity "fee" pertains to a "charge fixed by law for services of public officers or for use of a
in the performance of official duty applies in this case. Petitioner should have privilege under control of government."22 As used in the Local Government Code of
presented evidence to prove its allegations that the amounts collected are exorbitant 1991 (R.A. No. 7160), charges refers to pecuniary liability, as rents or fees against
or unreasonable. persons or property, while fee means a charge fixed by law or ordinance for the
regulation or inspection of a business or activity.23
For resolution are the following issues: (1) whether petitioner is exempt from the
payment of building permit and related fees imposed under the National Building That "charges" in its ordinary meaning appears to be a general term which could
Code; and (2) whether the parcel of land owned by petitioner which has been cover a specific "fee" does not support petitioner’s position that building permit fees
assessed for real property tax is likewise exempt. are among those "other charges" from which it was expressly exempted. Note that
the "other charges" mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which "imposed by the Government on all x x x property used exclusively for the
converted to non-stock, non-profit educational foundations. Section 8 of said law educational activities of the foundation." Building permit fees are not impositions on
provides: property but on the activity subject of government regulation. While it may be argued
that the fees relate to particular properties, i.e., buildings and structures, they are
SECTION 8. The Foundation shall be exempt from the payment of all taxes, import actually imposed on certain activities the owner may conduct either to build such
duties, assessments, and other charges imposed by the Government onall income structures or to repair, alter, renovate or demolish the same. This is evident from the
derived from or property, real or personal, used exclusively for the educational following provisions of the National Building Code:
activities of the Foundation.(Emphasis supplied.)
Section 102. Declaration of Policy
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting
the National Building Code of the Philippines. The said Code requires every person, It is hereby declared to be the policy of the State to safeguard life, health, property,
firm or corporation, including any agency or instrumentality of the government to and public welfare, consistent with theprinciples of sound environmental
obtain a building permit for any construction, alteration or repair of any building or management and control; and tothis end, make it the purpose of this Code to provide
structure.19 Building permit refers to "a document issued by the Building Official x x x for allbuildings and structures, a framework of minimum standards and requirements
to an owner/applicant to proceed with the construction, installation, addition, to regulate and control their location, site, design quality of materials, construction,
alteration, renovation, conversion, repair, moving, demolition or other work activity of use, occupancy, and maintenance.
a specific project/building/structure or portions thereof after the accompanying
principal plans, specifications and other pertinent documents with the duly notarized Section 103. Scope and Application
application are found satisfactory and substantially conforming with the National
Building Code of the Philippines x x x and its Implementing Rules and Regulations (a) The provisions of this Code shall apply to the design,location, sitting,
construction, alteration, repair,conversion, use, occupancy, maintenance, moving,
TAX 1 batch 1 Page 114 of 193
demolitionof, and addition to public and private buildings andstructures, except 1. Character of occupancy or use of building
traditional indigenous family dwellingsas defined herein.
2. Cost of construction " 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)
xxxx
3. Floor area
Section 301. Building Permits
4. Height
No person, firm or corporation, including any agency orinstrumentality of the
government shall erect, construct, alter, repair, move, convert or demolish any Petitioner failed to demonstrate that the above bases of assessment were arbitrarily
building or structure or causethe same to be done without first obtaining a building determined or unrelated to the activity being regulated. Neither has petitioner
permittherefor from the Building Official assigned in the place where thesubject adduced evidence to show that the rates of building permit fees imposed and
building is located or the building work is to be done. (Italics supplied.) collected by the respondents were unreasonable or in excess of the cost of
regulation and inspection.
That a building permit fee is a regulatory imposition is highlighted by the fact that in
processing an application for a building permit, the Building Official shall see to it that In Chevron Philippines, Inc. v. Bases Conversion Development Authority,29 this Court
the applicant satisfies and conforms with approved standard requirements on zoning explained:
and land use, lines and grades, structural design, sanitary and sewerage,
environmental health, electrical and mechanical safety as well as with other rules In distinguishing tax and regulation as a form of police power, the determining factor
and regulations implementing the National Building Code.24 Thus, ancillary permits is the purpose of the implemented measure. If the purpose is primarily to raise
such as electrical permit, sanitary permit and zoning clearance must also be secured revenue, then it will be deemed a tax even though the measure results in some form
and the corresponding fees paid before a building permit may be issued. And as can of regulation. On the other hand, if the purpose is primarily to regulate, then it is
be gleaned from the implementing rules and regulations of the National Building deemed a regulation and an exercise of the police power of the state, even though
Code, clearances from various government authorities exercising and enforcing incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy, the
regulatory functions affecting buildings/structures, like local government units, may Court stated:
be further required before a building permit may be issued.25
"The conservative and pivotal distinction between these two (2) powers rests in the
Since building permit fees are not charges on property, they are not impositions from purpose for which the charge is made. If generation of revenue is the primary
which petitioner is exempt. purpose and regulation is merely incidental, the imposition is a tax; but if regulation is
the primary purpose, the fact that revenue is incidentally raised does not make the
As to petitioner’s argument that the building permit fees collected by respondents are imposition a tax."30 (Emphasis supplied.)
in reality taxes because the primary purpose is to raise revenues for the local
government unit, the same does not hold water. Concededly, in the case of building permit fees imposed by the National Government
under the National Building Code, revenue is incidentally generated for the benefit of
A charge of a fixed sum which bears no relation at all to the cost of inspection and local government units. Thus:
regulation may be held to be a tax rather than an exercise of the police power.26 In
this case, the Secretary of Public Works and Highways who is mandated to prescribe Section 208. Fees
and fix the amount of fees and other charges that the Building Official shall collect in
connection with the performance of regulatory functions,27 has promulgated and Every Building Official shall keep a permanent record and accurate account of all
issued the Implementing Rules and Regulations28 which provide for the bases of fees and other charges fixed and authorized by the Secretary to be collected and
assessment of such fees, as follows: received under this Code.
TAX 1 batch 1 Page 115 of 193
Subject to existing budgetary, accounting and auditing rules and regulations, the SECTION 234. Exemptions from Real Property Tax.– The following are exempted
Building Official is hereby authorized to retain not more than twenty percent of his from payment of the real property tax:
collection for the operating expenses of his office.
xxxx
The remaining eighty percent shall be deposited with the provincial, city or municipal
treasurer and shall accrue to the General Fund of the province, city or municipality (b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
concerned. mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
Petitioner’s reliance on Sec. 193 of the Local Government Code of 1991 is likewise educational purposes;
misplaced. Said provision states:
x x x x (Emphasis supplied.)
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently enjoyed In Lung Center of the Philippines v. Quezon City,31 this Court held that only portions
by all persons, whether natural or juridical, including government-owned or controlled of the hospital actually, directly and exclusively used for charitable purposes are
corporations, except local water districts, cooperatives duly registered under R.A. exempt from real property taxes, while those portions leased to private entities and
No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby individuals are not exempt from such taxes. We explained the condition for the tax
withdrawn upon the effectivity of this Code. (Emphasis supplied.) exemption privilege of charitable and educational institutions, as follows:

Considering that exemption from payment of regulatory fees was not among those Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled
"incentives" granted to petitioner under R.A. No. 6055, there is no such incentive that to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof,
is retained under the Local Government Code of 1991. Consequently, no reversible that (a) it is a charitable institution; and (b) its real properties
error was committed by the CA in ruling that petitioner is liable to pay the subject are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
building permit and related fees. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and "exclusively" is defined, "in a manner to
Now, on petitioner’s claim that it is exempted from the payment of real property tax exclude; as enjoying a privilege exclusively." If real property is used for one or more
assessed against its real property presently occupied by informal settlers. commercial purposes, it is not exclusively used for the exempted purposes but is
subject to taxation. The words "dominant use" or "principal use" cannot be
Section 28(3), Article VI of the 1987 Constitution provides: substituted for the words "used exclusively" without doing violence to the
Constitutions and the law. Solely is synonymous with exclusively.1âwphi1
xxxx
What is meant by actual, direct and exclusive use of the property for charitable
(3) Charitable institutions, churches and parsonages or convents appurtenant purposes is the direct and immediate and actual application of the property itself to
thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, the purposes for which the charitable institution is organized. It is not the use of the
actually, directly and exclusively used for religious, charitable or educational income from the real property that is determinative of whether the property is used
purposes shall be exempt from taxation. for tax-exempt purposes.32 (Emphasis and underscoring supplied.)

x x x x (Emphasis supplied.) Petitioner failed to discharge its burden to prove that its real property is actually,
directly and exclusively used for educational purposes. While there is no allegation or
Section 234(b) of the Local Government Code of 1991 implements the foregoing proof that petitioner leases the land to its present occupants, still there is no
constitutional provision by declaring that -- compliance with the constitutional and statutory requirement that said real property is
actually, directly and exclusively used for educational purposes. The respondents
TAX 1 batch 1 Page 116 of 193
correctly assessed the land for real property taxes for the taxable period during
which the land is not being devoted solely to petitioner’s educational activities.
Accordingly, the CA did not err in ruling that petitioner is likewise not entitled to a G.R. No. L-21183             September 27, 1968
refund of the real property tax it paid under protest.
VICTORIAS MILLING CO., INC., plaintiff-appellant,
WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and vs.
Resolution dated October 12, 2009 of the Court of Appeals in CA-G.R. CV No. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS
90591 are AFFIRMED. OCCIDENTAL, defendant-appellant.

No pronouncement as to costs. Hilado & Hilado for plaintiff-appellant.

The Provincial Fiscal of Negros Occidental for defendant-appellant.
SO ORDERED.

SANCHEZ, J.:

This case calls into question the validity of Ordinance No. 1, series of 1956, of the
Municipality of Victorias, Negros Occidental.

The disputed ordinance was approved by the municipal Council of Victorias on

September 22, 1956 by way of an amendment to two municipal ordinances
separately imposing license taxes on operators of sugar centrals 1 and sugar
refineries. 2 The changes were: with respect to sugar centrals, by increasing the rates
of license taxes; and as to sugar refineries, by increasing the rates of license taxes
as well as the range of graduated schedule of annual output capacity.

Ordinance No. 1 3 is labeled "An Ordinance Amending Ordinance No. 25, Series of
1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the
Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on
Capacity Annual Output Respectively". It was, as the ordinance itself states, enacted
pursuant to the taxing power conferred by Commonwealth Act 472. By Section 1 of
the Ordinance: "Any person, corporation or other forms of companies, operating
sugar central or engage[d] in the manufacture of centrifugal sugar shall be required
to pay the following annual municipal license tax, payable quarterly, to wit: . . ."
Section 1 referred to prescribes a wide range of schedule. It starts with a sugar
central with mill having an annual output capacity of not less than 50,000 piculs of
centrifugal sugar, in which case an annual municipal license tax of P1,000.00 is
provided. Depending upon the annual output capacity the schedule of taxes
continues with P2,000.00 progressively upward in twelve other grades until an output
TAX 1 batch 1 Page 117 of 193
capacity of 1,500,001 piculs or more shall have been reached. For this, the annual protest; directing the officials of Victorias and the Province of Negros Occidental to
tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar rates. observe, during the pendency of the action, the provisions of section 357 of the
It also starts with P1,000.00 for a refinery with mill having an annual output capacity Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities,
of not less than 25,000 bags of 100 lbs. of refined sugar. Then, it continues with the 1954 edition, 5 regarding the treatment of license taxes paid under protest by virtue of
second bracket of from 25,001 bags to 75,000 bags of 100 lbs. Here, the municipal a disputed ordinance; and other reliefs. 6
license tax is P1,500.00. Then follow the other rates in the graduated scale with the
ceiling placed at a capacity of 1,750,001 bags or more. The annual municipal license The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts
tax for the last mentioned output capacity is P40,000.00. fixed in Provincial Circular 12-A issued by the Finance Department on February 27,
1940; (b) it is discriminatory since it singles out plaintiff which is the only operator of
Of importance are the provisions of Section 1(m) relating to sugar centrals and a sugar central and a sugar refinery within the jurisdiction of defendant municipality;
Section 2(m) covering sugar refineries with specific reference to the maximum (c) it constitutes double taxation; and (d) the national government has preempted the
annual license tax, viz: field of taxation with respect to sugar centrals or refineries.

Section No. 1 — Any person, corporation or other forms of Companies, Upon the complaint as supplemented and amended, and the answer thereto, and
operating Sugar Central or engage[d] in the manufacture of centrifugal sugar following hearing on the merits, the trial court rendered its judgment. After declaring
shall be required to pay the following annual municipal license tax, payable that "[t]here is no doubt that" the ordinance in question refers to license taxes or
quarterly, to wit: fees," and that "[i]t is settled that a license tax should be limited to the cost of
licensing, regulating and surveillance," 7 the trial court ruled that said license taxes in
xxx     xxx     xxx dispute are unreasonable, 8 and held that: "If the defendant has the power to tax the
plaintiff for purposes of revenue, it may do so by proper municipal legislation, but not
(m) Sugar Central with mill having a capacity of producing an annual output in the guise of a license tax." 9 The court added: "The Court is not, however, prepared
of from 1,500,001 piculs or more shall be required to pay an annual municipal to order the refund of all the license taxes paid by the plaintiff under protest and
license tax of — P40,000.00. amounting, up to the second quarter of 1960, to P280,000.00, considering that the
plaintiff appears to have agreed to the payment of the license taxes at the rates fixed
Section No. 2 — Any person, corporation or other forms of Companies shall prior to Ordinance No. 1, series of 1956; that the defendant had evidently not
be required to pay an annual municipal license tax for the operation of Sugar complied with the provisions of Section 357 of the Revised Manual of Instructions to
Refinery Mill at the following rates: Treasurers of Provinces, Cities and Municipalities, 1954 Edition, as the plaintiff
herein seeks an order enjoining the defendant and its appropriate officials to carry
xxx     xxx     xxx out said provisions; that the financial position of the defendant would surely be
disrupted if ordered to refund, while the plaintiff may perhaps easily forego or forget
what it had already parted with". 10 It disposes of the suit in the following manner:
(m) Sugar Refinery with mill having a capacity of producing an annual output
of from 1,750,001 bags of 100 lbs. or more shall be required to pay an annual
municipal license tax of — P40,000.00. WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1,
series of 1956, of the municipality of Victorias, Negros Occidental, is invalid;
(b) ordering all officials of the defendant to observe the provisions of Section
For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and
357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities
its sugar refinery located in the Municipality of Victorias comes within these items in
and Municipalities, 1954 Edition, with particular reference to any license taxes
the schedule.
paid by the plaintiff under said Ordinance No. 1, series of 1956, after notice of
this decision; and (c) ordering the defendant to refund to the plaintiff any and
Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of all such license taxes paid under protest after notice of this decision. 11
1956, null and void; ordering the refund of all license taxes paid and to be paid under

TAX 1 batch 1 Page 118 of 193

Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that To be recalled at this point is that Ordinance No. 1, series of 1956, is but an
portion of the decision denying the refund of the license taxes paid under protest in amendment of Ordinance No. 18, series of 1947, in reference to refineries, and
the amount of P280,000 covering the period from the first quarter of 1957 to the Ordinance No. 25, series of 1953, covering sugar centrals. Ordinance No. 18
second quarter of 1960; and balked at the court's order limiting refund to "any and all imposes "municipal taxes on persons, firms or corporations operating refinery mills in
such license taxes paid under protest after notice of this decision." Defendant, upon this municipality." 15 Ordinance No. 25 speaks of municipal taxes "relative to
the other hand, challenges the correctness of the court's decision invalidating the output of the sugar centrals." 16
Ordinance No. 1, series of 1956.
What are these taxes for? Resolution No. 60 of the municipal council of
The questions raised in the appeals will be discussed in their proper sequence. Victorias, 17 adopted also on September 22, 1956 in conjunction with Ordinance No.
1, series of 1956, furnishes a ready answer. It reads in part:
1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956,
passed by defendant's municipal council as a regulatory enactment or as a revenue WHEREAS, the Municipal Treasurer informed the Municipal Council of the
measure? revenue of the Municipality and the heavy obligations which confront it
because of the implementation of Minimum Wage Law on the salaries and
The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance wages it pays to its municipal employees and laborers thus greatly draining
in question did exceed the cost of licensing, regulating and surveillance, and that the Municipal Treasury;
defendant cannot impose a tax — for revenue — in the guise of a police or a
regulatory measure. Our finding, however, is the other way.1awphîl.nèt WHEREAS, this local administration is committed to the plan of ameliorating
the deplorable situation existing in the barrios, sitios and rural areas by giving
The ordinance itself recites that its source of taxing power emanates from them essential and necessary facilities calculated to improve conditions
Commonwealth Act 472, Section 1 of which reads: thereat thru improvements of roads and feeder roads;

Section 1. A municipal council or municipal district council shall have WHEREAS, one of the causes of the municipality's financial difficulty is low
authority to impose municipal license taxes upon persons engaged in any rates of municipal taxes imposed by some of the ordinances enacted by the
occupation or business, or exercising privileges in the municipality or local legislative body;
municipal district, by requiring them to secure licenses at rates fixed by the
municipal council, or municipal district council, and to collect fees and WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of
charges for services rendered by the municipality or municipal district and 1953, dealing on the operation of Sugar Central, and Ordinance No. 18,
shall otherwise have power to levy for public local purposes, and for school Series of 1947, which exclusively deals with the operation of Sugar Refinery
purposes, including teachers' salaries, just and uniform taxes other than Mill, the rates so given are rates suggested and determined by the Provincial
percentage taxes and taxes on specified articles. Circular No. 12-A, dated February 27, 1940 issued by the Department of
Finance as regards to Sugar Centrals;
Under the statute just quoted and pertinent jurisprudence, a municipality is
authorized to impose three kinds of licenses: (1) license for regulation of useful WHEREAS, the Municipal Council has come to the conclusion that the rates
occupations or enterprises; (2) license for restriction or regulation of non-useful provided for in such ordinances are no longer adequate if made in keeping
occupations or enterprises; and (3) license for revenue. 12 The first two easily fall with the present high cost of living;
within the broad police power granted under the general welfare clause. 13 The third
class, however, is for revenue purposes. It is not a license fee, properly speaking, WHEREAS, the Municipal Council has also taken cognizance of the fact that
and yet it is generally so termed. It rests on the taxing power. That taxing power must the price of sugar per picul today is more than twice its pre-war average
be expressly conferred by statute upon the municipality. 14 It is so granted under price; . . . . 18
Commonwealth Act 472.
TAX 1 batch 1 Page 119 of 193
Given the purposes just mentioned, we find no warrant in logic to give our assent to license tax imposed by the ordinance in question is an occupation tax, imposed not
the view that the ordinance in question is solely for regulatory purpose. Plain is the under the police or regulatory power of the municipality but by virtue of its taxing
meaning conveyed. The ordinance is for raising money. To say otherwise is to power for purposes of revenue, and is in accordance with the last part of Section 1 of
misread the purpose of the ordinance.1awphîl.nèt Commonwealth Act No. 472. It is, therefore, valid." 26

We should not hang so heavy a meaning on the use of the term "municipal license The present case is not to be analogized with Panaligan vs. City of Tacloban cited in
tax". This does not necessarily connote the idea that the tax is imposed — as the the decision below. 27 For there, the inspection fee sought to be collected — upon
lower court would want it — to mean a revenue measure in the guise of a license tax. every head of specified animals to be transported out of the City of Tacloban (P2.00
For really, this runs counter to the declared purpose to make money. per hog, P10.00 per cow and 20.00 per carabao) — was in reality an export tax
specifically withheld from municipal taxing power under Section 2287 of the Revised
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used Administrative Code.
indiscriminately to designate impositions exacted for the exercise of various
privileges." 19 It does not refer solely to a license for regulation. In many instances, it So also do we say that the cases of Pacific Commercial Co. vs.
refers to "revenue-raising exactions on privileges or activities." 20 On the other Romualdez, 28 Lacson vs. City of Bacolod, 29 and Santos vs. Municipal Government
hand, license fees are commonly called taxes. But, legally speaking, the latter are of Caloocan, 30 used by plaintiff as references, are entirely inopposite. In Pacific
"for the purpose of raising revenues," in contrast to the former which are imposed "in Commercial, the tax involved — on frozen meat — was nullified because tax
the exercise of police power for purposes of regulation." 21 measures on cold stores were not then within the legislative grant to the City of
Manila. In Lacson, the City of Bacolod taxed every admission ticket sold in the
We accordingly say that the designation given by the municipal authorities does not moviehouses. And justification for this imposition was moored to the general welfare
decide whether the imposition is properly a license tax or a license fee. The clause of the city charter. This Court held the ordinance ultra vires for the reason that
determining factors are the purpose and effect of the imposition as may be apparent the authority to tax cannot be derived from the general welfare clause. In Santos, the
from the provisions of the ordinance. 22 Thus, "[w]hen no police inspection, taxes in controversy were internal organs fees, meat inspection fees and corral fees,
supervision, or regulation is provided, nor any standard set for the applicant 23 to separate from the slaughter or slaughterhouse fees. In annulling the taxes there
establish, or that he agrees to attain or maintain, but any and all persons engaged in questioned, this Court declared: "[W]hen the Council ordained the payment of
the business designated, without qualification or hindrance, may come, and a license internal organs fees, meat inspection fees and corral fees, aside from the slaughter
on payment of the stipulated sum will issue, to do business, subject to no prescribed or slaughterhouse fees, it overstepped the limits of its statutory grant [Sec. 1, C.A.
rule of conduct and under no guardian eye, but according to the unrestrained 655]. Only one fee was allowed by that law to be charged and that was slaughter or
judgment or fancy of the applicant and licensee, the presumption is strong that the slaughterhouse fees."
power of taxation, and not the police power, is being exercised." 24
In the cases cited then, the tax ordinances did not find plain and clear statutory prop.
Precisely because of these considerations the present imposition must be treated as Such infirmity is not present here.
a levy for revenue purposes. A quick glance at the big amount of maximum annual
tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of
sugar refineries, will readily convince one that the tax is really a revenue tax. And Victorias, was promulgated not in the exercise of the municipality's regulatory power
then, we read in the ordinance nothing which would as much as indicate that the tax but as a revenue measure — a tax on occupation or business. The authority to
imposed is merely for police inspection, supervision or regulation. impose such tax is backed by the express grant of power in Section 1 of
Commonwealth Act 472.
Our view that the tax imposed by the ordinance is for revenue purposes finds support
in judicial pronouncements which have gained foothold in this jurisdiction. 2. Not that the disputed ordinance lacks the imprimatur of the Secretary of Finance
In Standard Vacuum vs. Antigua, 25 this Court had occasion to pass upon a similar required in paragraph 2, Section 4, of Commonwealth Act 472. This legal provision
ordinance. In categorical terms, we there stated: "We are satisfied that the graduated necessitates such approval "[w]henever the rate of fixed municipal license taxes on
TAX 1 batch 1 Page 120 of 193
businesses not excepted in this Act or otherwise covered by the preceding by the National Government." With certain exceptions specified in Section 3 of the
paragraph and subject to the fixed annual tax imposed in section one hundred same statute. Our case does not fall within the exceptions. It would therefore be futile
eighty-two of the National Internal Revenue Law, is in excess of fifty pesos per to argue that Congress exclusively reserved to the national government the right to
annum; . . . ." impose the disputed taxes.

The ordinance here challenged was recommended by the Provincial Board of We rule that there is no preemption.
Negros Occidental in its resolution (No. 1864) of October 26, 1956. 31 And, the
Undersecretary of Finance in his letter to the municipal council of Victorias on 4. Petitioner advances the theory that the ordinance is excessive.
December 18, 1956 approved said ordinance. But considering that it is amendatory
in nature, that approval was coupled with the mandate that the ordinance "should An ordinance carries with it the presumption of validity. The question of
take effect at the beginning of the ensuing calendar year [1957] pursuant to Section reasonableness though is open to judicial inquiry. Much should be left thus to the
2309 of the Revised Administrative Code." 32 discretion of municipal authorities. Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be prohibitive, arbitrary,
3. Plaintiff argues that the municipality is bereft of authority to enact the ordinance in unreasonable, oppressive, or confiscatory. 36 A rule which has gained acceptance is
question because the national government "had preempted it from entering the field that factors relevant to such an inquiry are the municipal conditions as a whole and
of taxation of sugar centrals and sugar refineries." 33 Plaintiff seeks refuge in Section the nature of the business made subject to imposition. 37
189 of the National Internal Revenue Code which subjects proprietors or operators of
sugar centrals or sugar refineries to percentage tax. Plaintiff has however not sufficiently proven that, taking these factors together, the
license taxes are unreasonable. The presumption of validity subsists. For, plaintiff
The implausibility of this position is at once apparent. We are not dealing here with has limited itself to insisting that the amounts levied exceed the cost of regulation
percentage tax. Rather, we are concerned with a tax specifically for operators of and that the municipality has adequate funds for the alleged purposes as evidenced
sugar centrals and sugar refineries. The rates imposed are based on the maximum by the municipality's cash surplus for the fiscal year ending 1956.
annual output capacity. Which is not a percentage. Because it is not a share. Nor is it
a tax based on the amount of the proceeds realized out of the sale of sugar, The cost of regulation cannot be taken as a gauge, if the municipality really intended
centrifugal or refined. 34 to enact a revenue ordinance. For, "if the charge exceeds the expense of issuance of
a license and costs of regulation, it is a tax." 38 And if it is, and it is validly imposed, as
What can be said at most is that the national government has preempted the field of in this case, "the rule that license fees for regulation must bear a reasonable relation
percentage taxation. Section 1 of Commonwealth Act 472, while granting to the expense of the regulation has no application." 39
municipalities power to levy taxes, expressly removes from them the power to exact
"percentage taxes". And then, a cash surplus alone cannot stop a municipality from enacting a revenue
ordinance increasing license taxes in anticipation of municipal needs. Discretion to
It is correct to say that preemption in the matter of taxation simply refers to an determine the amount of revenue required for the needs of the municipality is lodged
instance where the national government elects to tax a particular area, impliedly with the municipal authorities. Again, judicial intervention steps in only when there is
withholding from the local government the delegated power to tax the same field. a flagrant, oppressive and excessive abuse of power by said municipal authorities. 40
This doctrine primarily rests upon the intention of Congress. 35 Conversely, should
Congress allow municipal corporations to cover fields of taxation it already occupies, Not that defendant municipality was without reason. On February 27, 1940, the
then the doctrine of preemption will not apply. Secretary of Finance, later President, Manuel A. Roxas, issued Provincial Circular
12-A. In that circular, the then Finance Secretary stated that his "Department has
In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and specifically reached the conclusion that a tax on the basis of one centavo for every picul of
allows municipal councils to tax persons engaged in "the same businesses or annual output capacity of sugar centrals ... would be just and reasonable." At that
occupation" on which "fixed internal revenue privilege taxes" are "regularly imposed time, the price of sugar was around P6.00 per picul. Sixteen years later — 1956 —
TAX 1 batch 1 Page 121 of 193
when Ordinance No. 1 was approved, the market quotation for export sugar ranged discriminatory and hostile, inasmuch as it is and will be applicable to any person or
from P12.00 to P15.00 per picul. 41 And yet, since then the rate per output capacity of firm who exercises such calling or occupation." And in Ormoc Sugar Company, Inc.
a sugar central in Ordinance No. 1 was merely from one centavo to two centavos. vs. Municipal Board of Ormoc City, 46 declaratory relief was sought to test the validity
There is a statement in the municipality's brief 42 that thereafter the price of sugar had of a municipal ordinance which provides a city tax of twenty centavos per picul of
never gone below P16.00 per picul; instead it had gone up. centrifugal sugar and one per centum on the gross sale of its derivatives and by-
products "produced by the Ormoc Sugar Company, Incorporated, or by any other
The reasonableness of the ordinance may not be disputed. It is not confiscatory. sugar mill in Ormoc City." Mr. Justice Enrique Fernando, delivering the opinion of this
Court, declared that the ordinance did not suffer "from a constitutional or statutory
There was misapprehension in the decision below in its statement that the increase infirmity." And yet, in Ormoc, it is to be observed that Section 1 of the ordinance
of rates for refineries was 2,000%. We should not overlook the fact that the original spelled out Ormoc Sugar Company, Incorporated specifically by name. Not even the
maximum rate covering refineries in Ordinance No. 18, series of 1947, was name of plaintiff herein was ever mentioned in the ordinance now disputed.
P2,000.00; but that was only for a refinery with an output capacity of 90,000 or more
sacks. Under Section 2(c) of Ordinance No. 1, series of 1956, where the refineries No discrimination exists.
have an output capacity of from 75,001 bags to 100,000 bags, the tax remains at
P2,000.00. From here on, the ordinance provides for ten more scales for the 6. As infirm is plaintiff's stand that its business is not confined to the Municipality of
graduation of the tax depending upon the output capacity (P3,000.00, P4,000.00, Victorias. It suffices that plantiff engages in a business or occupation subject to an
P5,000.00, P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, exaction by the municipality — within the territorial boundaries of that municipality.
P35,000.00 and P40,000.00). But it is only where a refinery has an output capacity of Plaintiff's sugar central and sugar refinery are located within the Municipality of
1,750,001 or more bags that the present ordinance imposes a tax of P40,000.00. Victorias. In this central and refinery, plaintiff manufactures centrifugal sugar and
The happenstance that plaintiff's refinery is in the last bracket calling upon it to pay refined sugar, respectively.
P40,000.00 per annum does not make the ordinance in question unreasonable.
But plaintiff insists that plaintiff's sugar milling and refining operations are not wholly
Neither may we tag the ordinance with excessiveness if we consider the capital performed within the territorial limits of Victorias. According to plaintiff, transportation
invested by plaintiff in both its sugar central and sugar refinery and its annual income of canes from plantation to the mill site, operation and maintenance of telephone
from both. Plaintiff's capital investment in the sugar central and sugar refinery is system, inspection of crop progress and other related activities, are conducted not
more or less P26,000,000.00. 43 And here are its annual net income: for the year only in defendant's municipality but also in the municipalities of Cadiz, Manapla,
1956 — P3,852,910; for the year 1957 — P3,854,520; for the year 1958 — Sagay and Saravia as well. 47 We fail to see the relevance of these facts. Because, if
P7,230,493; for the year 1959 — P5,951,187; and for the year 1960 — we follow plaintiff's ratiocination, neither Victorias nor any of the municipalities just
P7,809,250. 44 If these figures mean anything at all, they show that the ordinance in adverted to would be able to impose the tax. One thing certain, of course, is that the
question is neither confiscatory nor unjust and unreasonable. tax is imposed upon the business of operating a sugar central and a sugar refinery.
And the situs of that business is precisely the Municipality of Victorias.
5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator
of a sugar central and sugar refinery, plaintiff now presses its argument that 7. Plaintiff finally impleads double taxation. Its reason is that in computing the
Ordinance No. 1, series of 1956, is discriminatory. The ordinance does not single out amount of taxes to be paid by the sugar refinery the cost of the raw sugar coming
Victorias as the only object of the ordinance. Said ordinance is made to apply to any from the sugar central is not deducted; ergo, plaintiff is taxed twice on the raw sugar.
sugar central or sugar refinery which may happen to operate in the municipality. So it
is, that the fact that plaintiff is actually the sole operator of a sugar central and a Double taxation has been otherwise described as "direct duplicate taxation." 48 For
sugar refinery does not make the ordinance discriminatory. Argument along the double taxation to exist, "the same property must be taxed twice, when it should be
same lines was rejected in Shell Co. of P.I., Ltd. vs. Vaño, 45 this Court holding that taxed but once." 49 Double taxation has also been "defined as taxing the same
the circumstance "that there is no other person in the locality who exercises" the person twice by the same jurisdiction for the same thing." 50 As stated in Manila
occupation designated as installation manager "does not make the ordinance Motor Company, Inc. vs. Ciudad de Manila, 51 there is double taxation "cuando la
TAX 1 batch 1 Page 122 of 193
misma propiedad se sujeta a dos impuestos por la misma entidad o Gobierno, para
el mismo fin y durante el mismo periodo de tiempo."

With the foregoing precepts in mind, we find no difficulty in saying that plaintiff's
argument on double taxation does not inspire assent. First. The two taxes cover two
different objects. Section 1 of the ordinance taxes a person operating sugar centrals
or engaged in the manufacture of centrifugal sugar. While under Section 2, those
taxed are the operators of sugar refinery mills. One occupation or business is
different from the other. Second. The disputed taxes are imposed on occupation or
business. Both taxes are not on sugar. The amount thereof depends on the annual
output capacity of the mills concerned, regardless of the actual sugar milled.
Plaintiff's argument perhaps could make out a point if the object of taxation here G.R. No. L-16254             February 21, 1922
were the sugar it produces, not the business of producing it.
G.A. CUUNJIENG, plaintiff-appellee,
There is no double taxation. vs.
FRED L. PATSTONE, engineer of the city of Manila, defendant-appellant.
For the reasons given —
City Fiscal Diaz for appellant.
The judgment under review is hereby reversed; and Gabriel La O for appellee.

Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, OSTRAND, J.:
series of 1956, of the Municipality of Victorias, Province of Negros Occidental; and
(b) dismissing plaintiff's complaint as supplemented and amended. Costs against This is a for a writ of mandamus to compel the city engineer of Manila to issue a
plaintiff. So ordered. building permit. There is no dispute as to the facts. The plaintiff desires a erect a
warehouse on Azcarraga Street but is denied a building permit until be shall have
made provision fopr the construction of an arcade over the side walk in front of the
building and until he shall have further complied with section 1 of Ordinance No.301
of the city of Manila, with reads as follow:

Whenever the owner,, preson in charge, or any other person or entering

having a right in any property located of the principal streets and avenues of
the city of Manila, such as Legarda,R. Hidalgo, Carriedo, Echague, Moriones,
Azcarraga, Rizal, Taft, San Miguel, and others which may, by ordinance,
hereafter be desiganted by the Municipal Board, desires to erect to
reconstruct a building or any other construction of said property, the same
shall pay, once the plan of the work has been approved by the city engineer,
one-half of the assessed value of the city land as a licence fee for the use
and occupation of said land: Provided, That the construction of arcades on
streets having a width of twenty or more meters, not hereinbefore mentioned
in this section, shall be not be carriedout, until after the plan of the work has

TAX 1 batch 1 Page 123 of 193

 been approved by the city of engineer, said aracadeshas been paid for by licences are not inherent in municipal corporations but must be granted by statute
owner, person in charge or any other person or entity having a right in the either expressly or by necessary implication. Like other delegated powers, theyare
building which is to be erected or constructed, as a licence fee for the use subject to scrict construction.
and occupation of said land.
That the city does not possses such an extraordinary power as that of compelling
The plaintiff refuses to construct the arcade and to comply with the ordinance in property holders to lease the portions of the public sidewalks which adkoin their
question on the grounds that the arcade is unnecessary aand unsuitable for his lands requires no argument. The charge of one-half of the assessed value imposed
warehouse and that the city has no power to require its constructin; and that the on applicants for building permits can therefore, not beconsidered as rent, and to be
ordinance in exacting the payment of a fee of one-half of the assessed value of the valid must either be a tax or a licence fe.. The legislative powers of the city in regard
city of land covered by the arcade is in eexcess of the legislative powers of the to taxes and licence fee are enumerated in the following subsections of section 2444
Municipal Board and, therefore, unconstitutional. It sems, however, to be conceded of the Administrative Code, as amended ny section 8 of Act No. 2774, and in section
that under the climatic constditions here existing , arcades are both useful and 2507 of the Administrative Code:
desirable from the standpoint of public convenience and that the Municipal Board,
under the general welfare of the city charter, has power to provide for the SEC. 2444. General powers and duties of the Baord. — Except as otherwise
construction of arcades on certain by assignment of error and the discussion may, provided by law, and subject to the shall have the following legislative
therefore, properly be limited to two points: First, whether the question of the powers:
constitutionality of statutes or city ordinance may be raised in mandamus
proceedings and second, whether under the charter, the city of Manila may, under (a) To provide for the levy and collection of taxes for general and special
the guise of a licence fee and as a prerequisite for the issuance for a building permit, purposes in accordance with law.
exact the payment of one-half of the assessed value of the portion of the sidewalk
covered by the arcade. (b) To fix the tartiff of fees and charges for all services rendered by the city or
any of its departments, branches, or officials.
Upon the first point th authorities are not entirely in harmony, but in modern practice
it has been generally held by the writ will lie where, as in the present generally the xxx     xxx     xxx
question of constitutionally is raised by the petitioner. (See State ex rel.,
Fooshe vs. Burley, 16 L. A. [N.S.], 266, with its case note.) The rule is different (h) To established fire limits, determine the kinds of buildings or structures
where the respondent relies on the unconstitutionality of a statute as a defense in that may be eracted within siad limits, regulate the manner of constructing
mandamus proceedings. In such cases the courts have generally declined to and repairing the same, and fix fees for permits for the construction, repair, or
consider questions of costitutionality. (See State ex rel., New Orleans Canal & demolition of building and structures.
Banking Co. vs. Heaard, 47 L.R.A., 512, and the case note thereto.) The reason fir
this is obvious: It might seriously hinder the transanction of public business if
xxx     xxx     xxx
ministerial constitutionality of statutes and ordinances imposing duties upon them
and which have not judicially beem declared uncostitutional. The same reasons do
not exist where the validity of the statutes is attacked by the petitioner. ( j ) To regulate the use of lights in stavbles, shops, and other buildings and
places, to regulate and restrict the issuance of permits for the building of
bonfires and the use of fircrackers, fireworks torpedoes, candles, skyrockets,
There being no other adequate remedy and there appearing to be no reason in
and other pyrotechnic displays, and to fix the fees for such permits.
principlee why we should not in mandamus proceedings, we are of the opinion, and
so hold, that the present action has been properly brought.
xxx     xxx     xxx
The second point above-mentioned merits a more extended consideration. In
discussing it we must bear in mind that legislative powers in regard to taxes and
TAX 1 batch 1 Page 124 of 193
(l) To regulate and fix the amount of the licence fees for the following: (q) To probit, or regulate and fix the licence fees for, the keeping of dogs, and
Hawkers, peddlers, hucksters, not including huckster or peddlers who sell authorized their impounding and destruction when running at large contrary to
only native vegetables, fruit, of foods, personally by the huckstersor peddlers; ordinanaces, and to tax and reguate the keeping or training of fighting cocks.
auctioneers, plumbers, barbers, embamers, collecting agencies, mercantile
agencies, shipping and intelligence offices, private detective agencies, xxx     xxx     xxx
advertising agencies, massagist, tatooers, judglers, acroboats, hotels, clubs,
restaurants, cafe, lodging houses, boarding houses, livery garages, livery (u) Subject to the provisions of sections nineteen hundred and for nineteen
stables, boarding stables, dealers in large cattle, public billiard tables, hundred and five of this Code, to provide for laying out, construction, and
laundries, cleaning and dyeing establishements, public warehouse, dance improvement, and to regulate the use, of streets avenues, alleys, sidewalks,
halls, cabarets, circus and othe similar parades, public vehicles, race tracks, wharves, piers, parks, cemeteries, and othe public places; to provide for
house races, bowling alleys, shooting galleries, slot machines, merry-go- lighting, cleaning and sprinkling of streets and public places; to reegulate, fix
arounds, pawshops, dealers in second-hand merchandise, junk dealers, licence fees for and prohibit the use of the same for processions, signs,
brewers,distillers rectifyers, money changers and brokers, public ferries, signspost, awnings, awning post, the carrying or displaying of banners,
theatrs, theatrical performances, cimnematographs, public exhibitions, placards, advertisements, or hand bills, or the flying of signs, flags, or
circuses and all othe perfermances, and place of amusement, and the banners, whether along, across ovr, or from buildings along the same; to
keeping, preparation, and sale of meat, poultry, fish, game, butter, cheese, prohibit the placing, throwing, depositing, or leaving of obstacles of any kind,
lard, vegetables, bread, and other provisions. offal, garbage, refuse, or other offensive matter or matter liable to cause
damage, in the streets and other public places, and to provide for the
(m) To tax, fix the licence fee for, regulate the business, and fix the location of collection and disposition thereof; to provide for the inspection of, fix the
match factories, blacksmith shops, foundaries, steam biolers, lumber yards, license fees for, and regulate the openings in the same for the laying of gas,
ship tards, the storage and sale of gunpowder, tar, pitch, resin, coal, oil, water, sewer, and other pipes, the building and repair of tunnels, sewers, and
gasoline, benzine, turpentine, hemp, cotton, nitroglycerin, petroleum, or any drains, and all structures in an under the same, and the erecting of poles and
products thereof, and of all other highly combustible or explosive materials, the strining of wires therein; to provides for and regulate crosswalks, curbs,
and other tablishment likelyto endanger the public safety or give rise to and gutters therein; to name streets without a name and provide for a
conflagrations, or explosions, and, subject to the provisions of ordinance with regulate the numbering of houses and lots fronting thereon or in the interior of
alw, tenneries, renderies, tallow chandleries, bone factories, and soap the blocks; to regulate traffic and sales upon the streets and other public
factories, and soap factories. places; to provide for the abatement of nuisances in the same and punish the
authors or owners thereof; to provide for the construction and maintenance,
(n) To tax motor and other vehicles and draft animals not paying the public and regulate the use, of bridges, viaducts, and culverts; to prohibit and
vehicles licence fee or any other Isular tax. regulate ball playing, kite flying, hoop rolling, and other amusements which
may annoy persons using the street and public places, or frighten horses or
(o) To regulate the method of using steam engines and boilers, other than other animals; to regulate the speed of horses and other animals, motor and
marine or belonging to the Federal or Insular Governments; to provide for th other vehicles, cars, and locomotives with the limits of the city; to regulate the
inspection thereof, and for a reasonable fee for such inspection, and to lights use on all such vehicles, cars, and locomotives; to regulate the locating,
regulate, and to fix the fees for the licence of the engineers engaged in constructing and laying of the track of horse, electric, and other forms of
operaating the same. railroad in the streets or othre public places of the city authorized by law; to
provide for and change the location, grade, and crossings of railroads, and to
xxx     xxx     xxx compel any such railroad to rais or lower its tracks to conform to such
provisions or changes; and to require railroad to raise or lower its tracks to
conform to such provisions or changes; and to require railroad companies to
fence their property, or any part thereof, to provide suitable protection against
TAX 1 batch 1 Page 125 of 193
injury to persons or property, and to construct and repair ditches, drains, hundred peso fine or sx month's imprisonment, or both such fine and
sewer, and culvertes along and under their tracts, so that the natural drainage imprisonment, for a single offense.
of the streets and adjacent property shall not be obstructed.
SEC. 2507. Power to levy special assessments for certain purposes. — The
xxx     xxx     xxx Municipal Board may, by ordinance duly approved, provide for the levying
and collection, by special assessment of the real estate comprised within the
(w) To fix the charges to be paid by all water craft landing at or using public district or section of the city especially benefited, of a part not to exceed sixty
wharves, docks, levees, or landing places: Provided, That the provisions of per centum of the cost of laying out, not to exceed sixty per centrum of the
this subsection shall not apply to the public wharves, docks, levees, or cost of laying out, opening, cconstructing, straightening, widening, extending,
landing places constructed with the breakwater, on the bndks of the canal grading, paving, curbing, walling, deepening, or otherwise establishing,
connecting the Pasig River with the inner basin, and on both sides of said repairin, enlarging, or improving public avenues, roads, streets, alleys,
river below the Jones Bridge. sidewalks, prks, plazas, bridges, landing places, wharves, piers, docks,
levees, reservoirs, waterworks, water mains, water courses, esteros, canals,
xxx     xxx     xxx drains, and swers, including the cost of acquiring the necessary land. Within
the meaning of this article, all real estate comprised withn the district
(z) Subject to the provisions of ordinances issued by the Philippine Health benefited, except lands or buildings owned by the United States of America,
Service in accordance with law, to provide for the establishement and the Govenment of the Philippine Islands, or the city of Manila, shall be subject
maintenance and fix the fees for the use of , and regulate public stables, to the payment of the special assessment, based upon the valuation of such
laundries, and baths, and public markets and slautherhouses, and prohibit real estate as shown by the books of the city assessor and collector, or its
the establishmet or operation within the city limits of public markets and present value as fixed by said officer in the first instance if the property does
slaughterhouses by any person, entity, association, or corporation other than not appear of record in his books according to the valuation whereof the
the city. special tax has to be made, computed, and assessed.

(aa) To regulate, inspect, and provide measures preventing any Conceivably, there may be other instances where the police power to regulate
discrimination the exclusion of any race or races in or from any institution, carries with it impliedly the power to prescribe fees, but they have no relation to the
establishment, or service open to the public within the city limits, or in the sale issues here involved.
and supply of gas or electricity, or in the telephone and street-railway service;
to fix and regulate charges therefor where the same have not been fixed by Examining the provisions quoted, it is clear that the only one which can possibly by
Act of Congress or of the Philippine Legislature; to regulate and provide for applied to the present case is subsection (h) of section 2444 authorizing the fixing of
the inspection of all gas, electric, telephone, and street-railway conduits, fees for building permits and that if the charge in question possesses any validity
mains, meters, and other apparatus, and provide for the condemnation, whatever it must be as a license fee under that subsection.
substitution or removal of the same when defective or dangerous.
The allowable amount of a license fee or tax depends so much on the special
xxx     xxx     xxx circumstances of each particular case that it is difficult to harmonize the numerous
decisions on the subject and to formulate definite rules; but, generally speaking, the
(ee) To enact all ordinances it may deem necessary and proper for the adjudications appear to recognize three classes been taken into consideration in
sanitation and safey , the furtherance of the prosperity, and the promotion of determining the reasonableness of the license fee: First, license for the regulation of
the morality, peace, good order, comfort, convenience, and general welfare of useful occupation or enterprises; secondly, license for the regulation or restriction of
the city and its inhabitants, and such others as may be necessary to carry non-useful occupation or enterprises, and thirdly, license for revenue only.
into effect and discharge the powers and duties conferred by the chapter; and
to fix penalities for the violation of ordinances which shall not exceed a two
TAX 1 batch 1 Page 126 of 193
(1) The first two of these classes is based on the exercise of the police power and, license fees clearly in the nature of privilege taxes for revenue have frequently been
though there is some conflict of authority on this point, the better rule seems to be upheld, especially in cases of licenses for the sale of liquors. In fact, in the latter
that the conferred power to regulate and to issue such liscenses carries with it the cases the fees have rarely been declared unreasonable. (Swarth vs. Peoplle, 109
right to fix a lcense fee. It is well settled that in the absence of special authority to Ill.., 621; Dennehy vs. City of Chicago, 120 Ill., 6278 N.E., 227; United States
impose a tax for revenue the fee for this class of licenses may be only be of a Distilling Co. vs. City of Chicago, 112 Ill., 19; Drew Country vs. Bennett, 43 Ark., 364;
sufficient amount to include the expense of issuing the license and the cost of the Merced County vs. Fleming, 111 Cal., 46; 43 Pac., 392; Williams vs. City Council of
necessary inspection or police surveillance, taking into account not only the expense West Point, 68 Ga., 816; Cheny vs. Shellbyvile, 19 Ind., 84; Wiley vs.Owens, 39 Ind.,
of direct regulation but also incidetnal consequences. 429; Sweet vs. City of Wabash, 41 Ind., 7; Jones vs. Grady, 25 La. Ann., 646;
People ex rel., Cramer vs. Medberry, 39 N.Y.S., 207; 17 Misc. Rep.., 8;
Cooley on Constitutional Limitations, 6th ed., at page 242, says: McGuigan vs. Town of Belmont, 89 Wis., 637; 62 N.W., 421; Ex parte Burnett, 30
Ala,, 461; Craig vs. Burnett, 32 Ala., 728, and Muhlenbrinck vs. Long Branch
A right to license an employment does not imply a right to charge a license Commissioners, 42 N.J.L., 364; 36 Am. Rep., 518.)
fee therefore with a view to revenue, unless such seems to be the manifest
purpose of the power; but the authority of the corporation will be limited to (3) The fee in the third class of cases, those for revenue purposes, is, perhaps, not a
such a charge for the license as will cover the necessary expenses of issuing license fee properly speaking but is generally so termed. It rests upon the taxing
it, and the additional labor of officers and other expenses thereby imposed. power as distinguished from the police power, and the power of the municipality to
(Davis vs. Petrinovich, 112 Al., 654; 21 So., 344; 36 L.R.A., 615; Ft. exact such fees must be expressly granted by character or statute and is not to be
Smith vs. Hunt, 72 Ark., 556; 82 S.W., 163; 105 A.S.R., 51; 66 L.R.A., 238; implied from the conferred power to license and regulate merely. Judge Cooley,
Waters-Pierce Oil Co. vs. Hot Springs, 85 Arl, 509; 109 S.W., 293 16 L.R.A citing numerous authorities, says:
[N.S.], 1035; Ex parte Dickey, 144 Cal., 234; 77 Pac., 924; 103 A.S.R., 82; 1
Ann. Cas., 428 and note; 66 L.R.A., 928; Morton vs. Macon, 111 Ga., 162; 36 A license is issued under the police power; but the exaction of a license fee
S.E., 627; 50 L.R.A., 485; State vs. Ashbrook, 154 Mo., 375; 55 S.W., 627; with a view to revenue would be an exercise of the power of taxation; and the
77 A.S.R., 765; 48 LR.A., 265; St. Louis vs. Grafeman Dairy Co., 190 Mo., character must plainly show an intent to confer that power, or the municipal
492; 89 S.W., 617; 1 L.R.A. [N.S.], 936; Johnson vs. Great Falls, 38 Mont., corporation cannot assume it. (Cooley, Constitutional Limitations, 6th ed., pp.
369; 99 Pac., 1059; 16 Ann. Cas., 974; Rosenbloom vs. State, 64 Neb., 242-243. See also Mayor vs. Beasly, 34 Am. Dec., 646, and Ki vs. City of
342; ;89 N.W., 1053; 57 L.R.A., 922; State vs. Boyd, 63 Neb., 829; 89 N.W., Paterson, 26 N.J.L., 298.)
417; 58 L.R.A., 108; Hughes vs. Snell, 28 Okla., 828; 115 Pac., 1105, Ann.
Cas. [1912D] 374; 34 L.R.A. [N.S.], 1133; Ellis vs. Frazier, 38 Ore., 462; 63 License taxes for revenue on useful occupations fall within this class.
Pac., 642; 53 L.R.A. 454; lAURENS VS. aNDERSON, 75 S.C., 62; 55 S.E.,
136; 117 A.S.R., 885; 9 Ann. Cas., 1003; Seattle vs. Dencker, 58 Wash., 501; When the power to license for revenue has been clearly granted, the rule as to the
108 Pac., 1086; 137 A.S.R., 1076; 28 L.R.A. [N.S.], 446.) amount of the tax or fee laid down in Fire Department vs. Stanton (159 N.Y., 225), is
applicable to the municipality as much as to the state:
(2) Licenses for non-useful occupations are also incidental to the police power and
the right to exact a fee may be implied from the power to license regulate, but in The legislature of the state is not without power to impose a tax on a
fixing the amount of the license fees the municipal corporations are allowed a much business in the form of a license fee, when it deems such to be warranted by
wider discretion in this class of cases than in the former, and aside from applying the considerations of public interest and for the general welfare, and the only
well-known legal principle that muncipal ordinances must not be unreasonable, limitation upon its exercise of power, in tha respect, is that there shall be no
oppressive, or tyrannical, courts have, as a general rule, declined to interfere with discrimination or oppression, and that the burden shall be equally charged
such discretion. The desirability of imposing restraint upon the number of persons upon all person in similar circumstanes.
who might otherwise engage in non-useful enterprises is, of course, generally an
important factor in the determination of the amount of this kind of license fee. Hence
TAX 1 batch 1 Page 127 of 193
Applying the legal principles above stated to the case at bar, we are constrained to
hold that in imposing a fee equal to one-half of the assessed value of the portion of
the sidwalk covered by the arcade in question, the Municipal Board of the city of
Manila exceeded its powers. The construction of buildings is a useful enterprises and
the amount of the license fee should therefore be limited to the cost of licensing,
regulating, and suverveillance. It appears that without the arcade the normal fee for
the building permit would have been about P31, with the arcade the fee exacted is
P525.60. It does not appear tha the cost of licensing, regulaitng, and surveillance
would be materially increased through the construction of the arcade, and it is
therefore clear that the excess fee is imposed for the purpose of revenue

Theree is nothing in the character of the city of Manila indicating an intention on the
part of the Legislature to confer power on the Municipal Board to impose a license
tax for revenue on the construction of buildings. The power conferred in relation to G.R. No. L-12647             May 31, 1961
such construction is considered merely as police power from which, as we have
seen, taxing power is not inferred. Under the circumstances, to hold the fee in this AMERICAN MAIL LINE, ET AL., plaintiffs-appellees,
case valid would amount to judicial legislation, particularly undesirable in the present vs.
instance where the Legislature, upon its attention being called to the matter, would CITY OF BASILAN, ET AL., defendants-appellants.
no doubt willingly grant as much power as could wisely be placed in the hands of the
municipality. Ross, Selph and Carrascoso for plaintiffs-appellees.
Office of the Solicitor General for defendants-appellants.
The judgment of the Court of First Instance holding that the city of Manila has the
power to require the construction of arcades in certain circumstances but that the DIZON, J.:
license fee prescribed by city Ordinance No. 301 is ilegal, is therefore hereby
affirmed. No costs will be allowed. So ordered.
Appeal from the decision of the Court of First Instance of Manila "declaring illegal
and void Ordinance No. 180, Series of 1955, of the City of Basilan," and dismissing
defendants, counterclaim for lack of merit.

On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180,
Series of 1955, (Exh. N) amending Title IV, Ordinance No. 7, Series of 1948, (Exh.
A) by adding thereto Section 1 (D) and Sections 2 (C) and (D). The first reads as
follows:

Section 1. Article IV of ordinance numbered seven entitled, 'The Port Area

Ordinance', is hereby amended to read as follows:

ARTICLE IV. REGULATION FOR BERTHING, MOORING, DOCKING

AND ANCHORING AT PIERS OR WHARVES AT ANY POINT
WITHIN THE CITY OF BASILAN AND FOR ANCHORING AT ANY

TAX 1 batch 1 Page 128 of 193

 OPEN BAY, CHANNEL OR ANY OTHER POINT WITHIN THE (a) To levy and collect taxes for general and special purposes in accordance
TERRITORIAL WATERS OF THE CITY OF BASILAN with law.

Sec. 2. Section 1 of Ordinance No. 7 is hereby amended and adding thereto xxx     xxx     xxx
a new paragraph to be known as Section 1 (D), to read as follows:
(c) To enact ordinances for the maintenance and preservation of peace and
"Section 1 (D). Any foreign vessel engaged in coastwise trade which may good morals.
anchor at any open bay, channel, or any loading point within the territorial
waters of the City of Basilan for the purpose of loading or unloading logs or xxx     xxx     xxx
passengers and other cargoes shall pay an anchorage fee of 1/2 centavo
(P.005) per registered gross ton of the vessel for the first twenty-four (24) (v) To fix the charges to be paid by all watercraft landing at or using public
hours, or part thereof, and for succeeding hours, or part thereof, PROVIDED, wharves, docks, levees, or landing places.
that maximum charge shall not exceed, seventy-five pesos (P75.00) per day,
irrespective of the greater tonnage of the vessels." Under paragraph (a) transcribed above, it is clear that the City of Basilan may only
levy and collect taxes for general and special purposes in accordance with or as
Appellees are foreign shipping companies licensed to do business in the Philippines, provided by law; in other words, the city of Basilan was not granted a blanket power
with offices in Manila. Their vessels call at Basilan City and anchor in the bay or of taxation. The use of the phrase "in accordance with law" — which, in our opinion,
channel within its territorial waters. As the city treasurer assessed and attempted to means the same as "provided by law" — clearly discloses the legislative intent to
collect from them the anchorage fees prescribed in the aforesaid amendatory limit the taxing power of the City.
ordinance, they filed the present action for Declaratory Relief to have the courts
determine its validity. Upon their petition the lower court issued a writ of preliminary The next point to be considered whether the questioned ordinance may be upheld
injunction restraining appellants from collecting or attempting to collect from them the under the provisions of Section 14(v) of Republic Act No. 288. After a careful
fees prescribed therein. consideration of the language employed therein, we have reached the conclusion
that said provision does not authorize the City of Basilan to promulgate ordinances
After the denial of appellants' motion to dismiss the complaint on the ground of providing for the collection of "Anchorage" fees. This is clearly not included in the
wrong venue, they filed their answer alleging therein that the City of Basilan had power granted by the provision under consideration "to fix the charges to be paid by
authority, through its city council, to enact the questioned ordinance in the exercise all watercraft landing at or using public wharves, docks, levees, or landing places."
of either its revenue-raising power or of its police power. They also filed a That this is so is shown by the need which the City of Basilan had to enact the
counterclaim to recover alleged uncollected anchorage dues amounting to amendatory ordinance.
P7,500.00, and the sum of P2,000.00 for expenses incurred in defending the suit.
Appellants also argue that the ordinance in question was validly enacted in the
The question to be resolved is whether the City of Basilan has the authority to enact exercise of the city's police power and that the fees imposed therein are for purely
Ordinance 180 and to collect the anchorage fees prescribed therein. regulatory purposes. In this connection it has been held that the power to regulate as
an exercise of police power does not include the power to impose fees for revenue
In support of the affirmative, appellant city relies upon the following provisions of its purposes (Cu Unijeng vs. Patstone, 42 Phil. 818; Pacific Commercial Co. vs.
Charter (Republic Act 288): Romualdez etc. et al., 46 Phil. 917; Arquiza etc. vs. Municipality of Zamboanga, 55
Phil. 653). In the Cu Unjieng case it was held that fees for purely regulatory purposes
SEC. 14. General Powers and Duties of the Council. — Except as otherwise "may only be of sufficient amount to include the expenses of issuing the license and
provided by law, and subject to the conditions and limitations thereof, the the cost of the necessary inspection or police surveillance, taking into account not
Council shall have the following legislative powers: only the expense of direct regulation but also incidental expenses. In Manila Electric
Co. vs. Auditor General, 73 Phil. 129-135, it was also held that the regulatory fee
TAX 1 batch 1 Page 129 of 193
"must be more than sufficient to cover the actual cost of inspection or examination as
nearly as the same can be estimated. If it were possible to prove in advance the
exact cost, that would be the limit of the fee."

To support the claim that the fees imposed are merely regulatory it is said that the
City of Basilan is an island with mountainous coasts and fringed by numerous coves
and island bays and islets, and may become a veritable haven for smugglers if the
city has no funds or means to suppress their illegal activities, but we believe that, this
notwithstanding, the fees required are extended for revenue purposes. In the first
place, being cased upon the tonnage of the vessels, the fees have no proper or
reasonable relation to the cost of issuing the permits and the cost of inspection or
surveillance. In the second place, the fee imposed on foreign vessels — 1/2 centavo
per registered gross ton for the first 24 hours and which shall not exceed P75.00 per
day — exceeds even the harbor fee imposed by the National Government, which is
only P50.00 for foreign vessels (sec. 2702 of the Tariff and Customs Code, Republic
Act No. 1937, taken from Sec. 2, Republic Act No. 1317 which was enacted by
Congress to raise revenues for the Port Works Fund). Moreover, Mariano Mancao,
Port Inspector of the City of Basilan, in his affidavit dated February 17, 1956 (Exh.
O), states that were it not for the injunction issued by the lower court in this case, the
city "would have collected considerable amounts from the plaintiffs for anchorage G.R. No. 147062-64      December 14, 2001
fees". All these circumstances point to the conclusion that the fees were intended for
revenue purposes. REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner,
Lastly, appellant city's own contention that the questioned ordinance was enacted in vs.
the exercise of its power of taxation, makes it obvious that the fees imposed are not COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR.
merely regulatory. and the SANDIGANBAYAN (First Division) respondents.

WHEREFORE, the decision appealed from is affirmed, and the preliminary injunction PANGANIBAN, J.:
issued heretofore is made final. Without costs.
The right to vote sequestered shares of stock registered in the names of private
individuals or entitles and alleged to have been acquired with ill-gotten wealth shall,
as a rule, be exercised by the registered owner. The PCGG may, however, be
granted such voting right provided in can (1) show prima facie evidence that the
wealth and/or the shares are indeed ill-gotten; and (2) demonstrate imminent danger
of dissipation of the assets, thus necessitating their continued sequestration and
voting by the government until a decision, ruling with finality on their ownership, is
promulgated by the proper court.1âwphi1.nêt

However, the foregoing "two-tiered" test does not apply when the sequestered stocks
are acquired with funds that are prima facie public in character or, at least, are
affected with public interest. Inasmuch as the subject UCPB shares in the present
TAX 1 batch 1 Page 130 of 193
case were undisputably acquired with coco levy funds which are public in character, Government (PCGG) was created by Executive Order No. 1 to assist the President
then the right to vote them shall be exercised by the PCGG. In sum, the "public in the recovery of the ill-gotten wealth thus accumulated whether located in the
character" test, not the "two-tiered" one, applies in the instant controversy. Philippines or abroad."8

The Case Executive Order No. 2 states that the ill-gotten assets and properties are in the form
of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping
Before us is a Petition for Certiorari with a prayer for the issuance of a temporary centers, condominiums, mansions, residences, estates, and other kinds of real and
restraining order and/or a writ of preliminary injunction under Rule 65 of the Rules of personal properties in the Philippines and in various countries of the world.9
Court, seeking to set aside the February 28, 2001 Order2 of the First Division of the
Sandiganbayan3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent Executive Order No. 14, on the other hand, empowered the PCGG, with the
portions of the assailed Order read as follows: assistance of the Office of the Solicitor General and other government
agencies, inter alia, to file and prosecute all cases investigated by it under EO Nos. 1
"In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as and 2.
Eduardo Cojuangco, et al., who were acknowledged to be registered
stockholders of the UCPB are authorized, as are all other registered Pursuant to these laws, the PCGG issued and implemented numerous
stockholders of the United Coconut Planters Bank, until further orders from sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten
this Court, to exercise their rights to vote their shares of stock and companies, assets and properties, real or personal.10
themselves to be voted upon in the United Coconut Planters Bank (UCPB) at
the scheduled Stockholders' Meeting on March 6, 2001 or on any subsequent Among the properties sequestered by the Commission were shares of stock in the
continuation or resetting thereof, and to perform such acts as will normally United Coconut Planters Bank (UCPB) registered in the names of the alleged "one
follow in the exercise of these rights as registered stockholders. million coconut farmers," the so-called Coconut Industry Investment Fund companies
(CIIF companies) and Private Respondent Eduardo Cojuangco Jr. (hereinafter
"Since by way of form, the pleadings herein had been labeled as praying for "Cojuangco").
an injunction, the right of the movants to exercise their right as
abovementioned will be subject to the posting of a nominal bond in the In connection with the sequestration of the said UCPB shares, the PCGG, on July
amount of FIFTY THOUSAND PESOS (P50,000.00) jointly for the defendants 31, 1987, instituted an action for reconveyance, reversion, accounting, restitution and
COCOFED, et al. and Ballares, et al., as well as all other registered damages docketed as Case No. 0033 in the Sandiganbayan.
stockholders of sequestered shares in that bank, and FIFTY THOUSAND
PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et al., to answer for any On November 15, 1990, upon Motion11 of Private Respondent COCOFED, the
undue damage or injury to the United Coconut Planters Bank as may be Sandiganbayan issued a Resolution12 lifting the sequestration of the subject UCPB
attributed to their exercise of their rights as registered stockholders."4 shares on the ground that herein private respondents – in particular, COCOFED and
the so-called CIIF companies – had not been impleaded by the PCGG as parties-
The Antecedents defendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting,
restitution and damages. The Sandiganbayan ruled that the Writ of Sequestration
The very roots of this case are anchored on the historic events that transpired during issued by the Commission was automatically lifted for PCGG's failure to commence
the change of government in 1986. Immediately after the 1986 EDSA Revolution, the corresponding judicial action within the six-month period ending on August 2,
then President Corazon C. Aquino issued Executive Order (EO) Nos. 1,5 26 and 14.7 1987 provided under Section 26, Article XVIII of the 1987 Constitution. The anti-graft
court noted that though these entities were listed in an annex appended to the
"On the explicit premise that 'vast resources of the government have been amassed Complaint, they had not been named as parties-respondents.
by former President Ferdinand E. Marcos, his immediate family, relatives, and close
associates both here and abroad,' the Presidential Commission on Good
TAX 1 batch 1 Page 131 of 193
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Six years later, on February 13, 2001, the Board of Directors of UCPB received from
Certiorari docketed as GR No. 96073 in this Court. Meanwhile, upon motion of the ACCRA Law Office a letter written on behalf of the COCOFED and the alleged
Cojuangco, the anti-graft court ordered the holding of elections for the Board of nameless one million coconut farmers, demanding the holding of a stockholders'
Directors of UCPB. However, the PCGG applied for and was granted by this Court a meeting for the purpose of, among others, electing the board of directors. In
Restraining Order enjoining the holding of the election. Subsequently, the Court lifted response, the board approved a Resolution calling for a stockholders' meeting on
the Restraining Order and ordered the UCPB to proceed with the election of its board March 6, 2001 at three o'clock in the afternoon.
of directors. Furthermore, it allowed the sequestered shares to be voted by their
registered owners. On February 23, 2001, "COCOFED, et al. and Ballares, et al." filed the "Class Action
Omnibus Motion"17 referred to earlier in Sandiganbayan Civil Case Nos. 0033-A,
The victory of the registered shareholders was fleeting because the Court, acting on 0033-B and 0033-F, asking the court a quo:
the solicitor general's Motion for Clarification/Manifestation, issued a Resolution on
February 16, 1993, declaring that "the right of petitioners [herein private "1. To enjoin the PCGG from voting the UCPB shares of stock registered in
respondents] to vote stock in their names at the meetings of the UCPB cannot be the respective names of the more than one million coconut farmers; and
conceded at this time. That right still has to be established by them before the
Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of "2. To enjoin the PCGG from voting the SMC shares registered in the names
UCPB stock and cannot be accorded the right to vote them."13 The dispositive portion of the 14 CIIF holding companies including those registered in the name of
of the said Resolution reads as follows: the PCGG."18

"IN VIEW OF THE FOREGOING, the Court recalls and sets aside the On February 28, 2001, respondent court, after hearing the parties on oral argument,
Resolution dated March 3, 1992 and, pending resolution on the merits of the issued the assailed Order.
action at bar, and until further orders, suspends the effectivity of the lifting of
the sequestration decreed by the Sandiganbayan on November 15, 1990, Hence, this Petition by the Republic of the Philippines represented by the PCGG.19
and directs the restoration of the status quo ante, so as to allow the PCGG to
continue voting the shares of stock under sequestration at the meetings of The case had initially been raffled to this Court's Third Division which, by a vote of 3-
the United Coconut Planters Bank."14 2,20 issued a Resolution21 requiring the parties to maintain the status quo existing
before the issuance of the questioned Sandiganbayan Order dated February 28,
On January 23, 1995, the Court rendered its final Decision in GR No. 96073, 2001. On March 7, 2001, Respondent COCOFED et al. moved that the instant
nullifying and setting aside the November 15, 1990 Resolution of the Sandiganbayan Petition be heard by the Court en banc.22 The Motion was unanimously granted by
which, as earlier stated, lifted the sequestration of the subject UCPB shares. The the Third Division.
express impleading of herein Respondents COCOFED et al. was deemed
unnecessary because "the judgment may simply be directed against the shares of On March 13, 2001, the Court en banc resolved to accept the Third Division's
stock shown to have been issued in consideration of ill-gotten referral.23 It heard the case on Oral Argument in Baguio City on April 17, 2001.
wealth."15 Furthermore, the companies "are simply the res in the actions for the During the hearing, it admitted the intervention of a group of coconut farmers and
recovery of illegally acquires wealth, and there is, in principle, no cause of action farm worker organizations, the Pambansang Koalisyon ng mga Samahang
against them and no ground to implead them as defendants in said case."16 Magsasaka at Manggagawa ng Niyugan (PKSMMN). The coalition claims that its
members have been excluded from the benefits of the coconut levy fund. Inter alia, it
A month thereafter, the PCGG – pursuant to an Order of the Sandiganbayan – joined petitioner in praying for the exclusion of private respondents in voting the
subdivided Case No. 0033 into eight Complaints and docketed them as Case Nos. sequestered shares.
0033-A to 0033-H.
Issues

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Petitioner submits the following issues for our consideration:24 General Rule: Sequestered Shares

"A. Are Voted by the Registered Holder

Despite the fact that the subject sequestered shares were purchased with At the outset, it is necessary to restate the general rule that the registered owner of
coconut levy funds (which were declared public in character) and the the shares of a corporation exercises the right and the privilege of voting.25 This
continuing effectivity of Resolution dated February 16, 1993 in G.R. No. principle applies even to shares that are sequestered by the government, over which
96073 which allows the PCGG to vote said sequestered shares, Respondent the PCGG as a mere conservator cannot, as a general rule, exercise acts of
Sandiganbayan, with grave abuse of discretion, issued its Order dated dominion.26 On the other hand, it is authorized to vote these sequestered shares
February 20, 2001 enjoining PCGG from voting the sequestered shares of registered in the names of private persons and acquired with allegedly ill-gotten
stock in UCPB. wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v.
Calpo27 and PCGG v. Cojuangco Jr.,28 as follows:
"B.
(1) Is there prima facie evidence showing that the said shares are ill-gotten
The Respondent Sandiganbayan violated petitioner's right to due process by and thus belong to the State?
taking cognizance of the Class Action Omnibus Motion dated 23 February
2001 despite gross lack of sufficient notice and by issuing the writ of (2) Is there an imminent danger of dissipation, thus necessitating their
preliminary injunction despite the obvious fact that there was no actual continued sequestration and voting by the PCGG, while the main issue is
pressing necessity or urgency to do so." pending with the Sandiganbayan?

In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in Sequestered Shares Acquired with Public Funds are an Exception
the instant case simply as follows:
From the foregoing general principle, the Court in Baseco v. PCGG29 (hereinafter
This Court's Ruling "Baseco") and Cojuangco Jr. v. Roxas30 ("Cojuangco-Roxas") has provided two clear
"public character" exceptions under which the government is granted the authority to
The Petition is impressed with merit. vote the shares:

Main Issue: (1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and
Who May Vote the Sequestered Shares of Stock?
(2) Where the capitalization or shares that were acquired with public funds
Simply stated, the gut substantive issue to be resolved in the present Petition is: somehow landed in private hands.
"Who may vote the sequestered UCPB shares while the main case for their
reversion to the State is pending in the Sandiganbayan?" The exceptions are based on the common-sense principle that legal fiction must
yield to truth; that public property registered in the names of non-owners is affected
This Court holds that the government should be allowed to continue voting those with trust relations; and that the prima facie beneficial owner should be given the
shares inasmuch as they were purchased with coconut levy funds – that are prima privilege of enjoying the rights flowing from the prima facie fact of ownership.
facie public in character or, at the very least, are "clearly affected with public
interest." In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co.
was placed under sequestration by the PCGG. Explained the Court:
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 "The facts show that the corporation known as BASECO was owned and hands of private persons, as in the case of BASECO. To my mind, however,
controlled by President Marcos 'during his administration, through nominees, caution and prudence should be exercised in the case of sequestered shares
by taking undue advantage of his public office and/or using his powers, of an on-going private business enterprise, specially the sensitive ones, since
authority, or influence,' and that it was by and through the same means, that the true and real ownership of said shares is yet to be determined and proven
BASECO had taken over the business and/or assets of the National Shipyard more conclusively by the Courts."34 (Italics supplied)
and Engineering Co., Inc., and other government-owned or controlled
entities."31 The exception was cited again by the Court in Cojuangco-Roxas35 in this wise:

Given this factual background, the Court discussed PCGG's right over BASECO in "The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform
the following manner: acts of strict ownership of sequestered property. It is a mere conservator. It
may not vote the shares in a corporation and elect the members of the board
"Now, in the special instance of a business enterprise shown by evidence to of directors. The only conceivable exception is in a case of a takeover of a
have been 'taken over by the government of the Marcos Administration or by business belonging to the government or whose capitalization comes from
entities or persons close to former President Marcos,' the PCGG is given public funds, but which landed in private hands as in BASECO."36 (Italics
power and authority, as already adverted to, to 'provisionally take (it) over in supplied)
the public interest or to prevent * * (its) disposal or dissipation;' and since the
term is obviously employed in reference to going concerns, or business The "public character" test was reiterated in many subsequent cases; most recently,
enterprises in operation, something more than mere physical custody is in Antiporda v. Sandiganbayan.37 Expressly citing Conjuangco-Roxas,38 this Court
connoted; the PCGG may in this case exercise some measure of control in said that in determining the issue of whether the PCGG should be allowed to vote
the operation, running, or management of the business itself."32 sequestered shares, it was crucial to find out first whether these were purchased
with public funds, as follows:
Citing an earlier Resolution, it ruled further:
"It is thus important to determine first if the sequestered corporate shares
"Petitioner has failed to make out a case of grave abuse or excess of came from public funds that landed in private hands."39
jurisdiction in respondents' calling and holding of a stockholders' meeting for
the election of directors as authorized by the Memorandum of the President * In short, when sequestered shares registered in the names of private individuals or
* (to the PCGG) dated June 26, 1986, particularly, where as in this case, the entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered
government can, through its designated directors, properly exercise control test is applied. However, when the sequestered shares in the name of private
and management over what appear to be properties and assets owned and individuals or entities are shown, prima facie, to have been (1) originally government
belonging to the government itself and over which the persons who appear in shares, or (2) purchased with public funds or those affected with public interest, then
this case on behalf of BASECO have failed to show any right or even any the two-tiered test does not apply. Rather, the public character exceptions in Baseco
shareholding in said corporation."33 (Italics supplied) v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the
shares.
The Court granted PCGG the right to vote the sequestered shares because they
appeared to be "assets belonging to the government itself." The Concurring Opinion UCPB Shares Were Acquired With Coconut Levy Funds
of Justice Ameurfina A. Melencio-Herrera, in which she was joined by Justice
Florentino P. Feliciano, explained this principle as follows: In the present case before the Court, it is not disputed that the money used to
purchase the sequestered UCPB shares came from the Coconut Consumer
"I have no objection to according the right to vote sequestered stock in case Stabilization Fund (CCSF), otherwise known as the coconut levy funds.
of a take-over of business actually belonging to the government or whose
capitalization comes from public funds but which, somehow, landed in the
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This fact was plainly admitted by private respondent's counsel, Atty. Teresita J. shareholders – cannot be accorded the right to vote them. We quote the said
Herbosa, during the Oral Arguments held on April 17, 2001 in Baguio City, as Resolution in part, as follows:
follows:
"The coconut levy funds being 'clearly affected with public interest, it follows
"Justice Panganiban: that the corporations formed and organized from those funds, and all assets
acquired therefrom should also be regarded as 'clearly affected with public
"In regard to the theory of the Solicitor General that the funds used to interest.'"43
purchase [both] the original 28 million and the subsequent 80 million came
from the CCSF, Coconut Consumers Stabilization Fund, do you agree with x x x      x x x      x x x
that?
"Assuming, however, for purposes of argument merely, the lifting of
"Atty. Herbosa: sequestration to be correct, may it also be assumed that the lifting of
sequestration removed the character of the coconut levy companies of being
"Yes, Your Honor. affected with public interest, so that they and their stock and assets may now
be considered to be of private ownership? May it be assumed that the lifting
x x x      x x x      x x x of sequestration operated to relieve the holders of stock in the coconut levy
companies – affected with public interest – of the obligation of proving how
"Justice Panganiban: that stock had been legitimately transferred to private ownership, or that
those stockholders who had had some part in the collection, administration,
"So it seems that the parties [have] agreed up to that point that the funds or disposition of the coconut levy funds are now deemed qualified to acquire
used to purchase 72% of the former First United Bank came from the said stock, and freed from any doubt or suspicion that they had taken
Coconut Consumer Stabilization Fund? advantage of their special or fiduciary relation with the agencies in charge of
the coconut levies and the funds thereby accumulated? The obvious answer
to each of the questions is a negative one. It seems plain that the lifting of
"Atty. Herbosa:
sequestration has no relevance to the nature of the coconut levy companies
or their stock or property, or to the legality of the acquisition by private
"Yes, Your Honor."40 persons of their interest therein, or to the latter's capacity or disqualification to
acquire stock in the companies or any property acquired from coconut levy
Indeed in Cocofed v. PCGG,41 this Court categorically declared that the funds.
UCPB was acquired "with the use of the Coconut Consumers Stabilization
Fund in virtue of Presidential Decree No. 755, promulgated on July 29, 1975." "This being so, the right of the [petitioners] to vote stock in their names at the
meetings of the UCPB cannot be conceded at this time. That right still has to
Coconut Levy Funds Are Affected With Public Interest be established by them before the Sandiganbayan. Until that is done, they
cannot be deemed legitimate owners of UCPB stock and cannot be accorded
Having conclusively shown that the sequestered UCPB shares were purchased with the right to vote them."44 (Italics supplied)
coconut levies, we hold that these funds and shares are, at the very least, "affected
with public interest." It is however contended by respondents that this Resolution was in the nature of a
temporary restraining order. As such, it was supposedly interlocutory in character
The Resolution issued by the Court on February 16, 1993 in Republic v. and became functus oficio when this Court decided GR No. 96073 on January 23,
Sandiganbayan42 stated that coconut levy funds were "clearly affected with public 1995.
interest"; thus, herein private respondents – even if they are the registered
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This argument is aptly answered by petitioner in its Memorandum, which we quote: In the present case, the sequestered UCPB shares are confirmed to have been
acquired with coco levies, not with alleged ill-gotten wealth. Hence, by parity of
"The ruling made in the Resolution dated 16 February 1993 confirming the reasoning, the right to vote them is not subject to the "two-tiered test" but to the
public nature of the coconut levy funds and denying claimants their purported public character of their acquisition, which per Antiporda v. Sandiganbayan cited
right to vote is an affirmation of doctrines laid down in the cases earlier, must first be determined.
of COCOFED v. PCGG supra, Baseco v. PCGG, supra, and Cojuangco v.
Roxas, supra. Therefore it is of no moment that the Resolution dated 16 Coconut Levy Funds Are Prima Facie Public Funds
February 1993 has not been ratified. Its jurisprudential based
remain."45 (Italics supplied) To avoid misunderstanding and confusion, this Court will even be more categorical
and positive than its earlier pronouncements: the coconut levy funds are not only
To repeat, the foregoing juridical situation has not changed. It is still the truth today: affected with public interest; they are, in fact, prima facie public funds.
"the coconut levy funds are clearly affected with public interest." Private respondents
have not "demonstrated satisfactorily that they have legitimately become private Public funds are those moneys belonging to the State or to any political subdivision
funds." of the State; more specifically, taxes, customs duties and moneys raised by
operation of law for the support of the government or for the discharge of its
If private respondents really and sincerely believed that the final Decision of the obligations.48 Undeniably, coconut levy funds satisfy this general definition of
Court in Republic v. Sandiganbayan (GR No. 96073, promulgated on January 23, public funds, because of the following reasons:
1995) granted them the right to vote, why did they wait for the lapse of six long years
before definitively asserting it (1) through their letter dated February 13, 2001, 1. Coconut levy funds are raised with the use of the police and taxing powers
addressed to the UCPB Board of Directors, demanding the holding of a of the State.
shareholders' meeting on March 6, 2001; and (2) through their Omnibus Motion
dated February 23, 2001 filed in the court a quo, seeking to enjoin PCGG from voting 2. They are levies imposed by the State for the benefit of the coconut industry
the subject sequestered shares during the said stockholders' meeting? Certainly, if and its farmers.
they even half believed their submission now – that they already had such right in
1995 – why are they suddenly and imperiously claiming it only now? 3. Respondents have judicially admitted that the sequestered shares were
purchased with public funds.
It should be stressed at this point that the assailed Sandiganbayan Order dated
February 28, 2001 – allowing private respondents to vote the sequestered shares – 4. The Commission on Audit (COA) reviews the use of coconut levy funds.
is not based on any finding that the coconut levies and the shares have "legitimately
become private funds." Neither is it based on the alleged lifting of the TRO issued by 5. The Bureau of Internal Revenue (BIR), with the acquiescence of private
this Court on February 16, 1993. Rather, it is anchored on the grossly mistaken respondents, has treated them as public funds.
application of the two-tiered test mentioned earlier in this Decision.
6. The very laws governing coconut levies recognize their public character.
To stress, the two-tiered test is applied only when the sequestered asset in the
hands of a private person is alleged to have been acquired with ill-gotten wealth.
We shall now discuss each of the foregoing reasons, any one of which is enough to
Hence, in PCGG v. Cojuangco,47 we allowed Eduardo Cojuangco Jr. to vote the
show their public character.
sequestered shares of the San Miguel Corporation (SMC) registered in his name but
alleged to have been acquired with ill-gotten wealth. We did so on his representation
that he had acquired them with borrowed funds and upon failure of the PCGG to 1. Coconut Levy Funds Are Raised Through the State's Police and Taxing
satisfy the "two-tiered" test. This test was, however, not applied to sequestered SMC Powers.
shares that were purchased with coco levy funds.
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Indeed, coconut levy funds partake of the nature of taxes which, in general, are Like other tax measures, they were not voluntary payments or donations by
enforced proportional contributions from persons and properties, exacted by the the people. They were enforced contributions exacted on pain of penal
State by virtue of its sovereignty for the support of government and for all public sanctions, as provided under PD No. 276:
needs.49
"3. Any person or firm who violates any provision of this Decree or the rules
Based on this definition, a tax has three elements, namely: a) it is an enforced and regulations promulgated thereunder, shall, in addition to penalties
proportional contribution from persons and properties; b) it is imposed by the State already prescribed under existing administrative and special law, pay a fine of
by virtue of its sovereignty; and c) it is levied for the support of the government. The not less than P2,500 or more than P10,000, or suffer cancellation of licenses
coconut levy funds fall squarely into these elements for the following reasons: to operate, or both, at the discretion of the Court."54

(a) They were generated by virtue of statutory enactments imposed on the Such penalties were later amended thus:
coconut farmers requiring the payment of prescribed amounts. Thus, PD No.
276, which created the Coconut Consumer Stabilization Fund (CCSF), "Whenever any person or entity willfully and deliberately violates any of the
mandated the following: provisions of this Act, or any rule or regulation legally promulgated hereunder
by the Authority, the person or persons responsible for such violation shall be
"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its punished by a fine of not more than P20,000.00 and by imprisonment of not
equivalent in other coconut products, shall be imposed on every first sale, in more than five years. If the offender be a corporation, partnership or a
accordance with the mechanics established under RA 6260, effective at the juridical person, the penalty shall be imposed on the officer or officers
start of business hours on August 10, 1973. authorizing, permitting or tolerating the violation. Aliens found guilty of any
offenses shall, after having served his sentence, be immediately deported
"The proceeds from the levy shall be deposited with the Philippine National and, in the case of a naturalized citizen, his certificate of naturalization shall
Bank or any other government bank to the account of the Coconut be cancelled."55
Consumers Stabilization Fund, as a separate trust fund which shall not form
part of the general fund of the government."50 (b) The coconut levies were imposed pursuant to the laws enacted by the
proper legislative authorities of the State. Indeed, the CCSF was collected
The coco levies were further clarified in amendatory laws, specifically PD No. under PD No. 276, issued by former President Ferdinand E. Marcos who was
96151 and PD No. 146852 – in this wise: then exercising legislative powers.56

"The Authority (Philippine Coconut Authority) is hereby empowered to impose (c) They were clearly imposed for a public purpose. There is absolutely no
and collect a levy, to be known as the Coconut Consumers Stabilization Fund question that they were collected to advance the government's avowed policy
Levy, on every one hundred kilos of copra resecada, or its equivalent in other of protecting the coconut industry. This Court takes judicial notice of the fact
coconut products delivered to, and/or purchased by, copra exporters, oil that the coconut industry is one of the great economic pillars of our nation,
millers, desiccators and other end-users of copra or its equivalent in other and coconuts and their byproducts occupy a leading position among the
coconut products. The levy shall be paid by such copra exporters, oil millers, country's export products; that it gives employment to thousands of Filipinos;
desiccators and other end-users of copra or its equivalent in other coconut that it is a great source of the state's wealth; and that it is one of the important
products under such rules and regulations as the Authority may prescribe. sources of foreign exchange needed by our country and, thus, pivotal in the
Until otherwise prescribed by the Authority, the current levy being collected plans of a government committed to a policy of currency stability.
shall be continued."53
Taxation is done not merely to raise revenues to support the government, but also to
provide means for the rehabilitation and the stabilization of a threatened industry,

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which is so affected with public interest as to be within the police power of the State, "The stabilization fees in question are levied by the State upon sugar millers,
as held in Caltex Philippines v. COA57 and Osmeña v. Orbos.58 planters and producers for a special purpose – that of 'financing the growth
and development of the sugar industry and all its components, stabilization of
Even if the money is allocated for a special purpose and raised by special means, it the domestic market including the foreign market.' The fact that the State has
is still public in character. In the case before us, the funds were even used to taken possession of moneys pursuant to law is sufficient to constitute them
organize and finance State offices. In Cocofed v. PCGG,59 the Court observed that as state funds, even though they are held for a special purpose (Lawrence v.
certain agencies or enterprises "were organized and financed with revenues derived American Surety Co., 263 Mich 586. 294 ALR 535, cited in 42 Am. Jur., Sec.
from coconut levies imposed under a succession of laws of the late dictatorship x x x 2., p. 718). Having been levied for a special purpose, the revenues collected
with deposed Ferdinand Marcos and his cronies as the suspected authors and chief are to be treated as a special fund, to be, in the language of the statute,
beneficiaries of the resulting coconut industry monopoly."60 The Court continued: "x x 'administered in trust' for the purpose intended. Once the purpose has been
x. It cannot be denied that the coconut industry is one of the major industries fulfilled or abandoned, the balance, if any, is to be transferred to the general
supporting the national economy. It is, therefore, the State's concern to make it a funds of the Government. That is the essence of the trust intended (see 1987
strong and secure source not only of the livelihood of a significant segment of the Constitution, Art. VI, Sec. 29[3], lifted from the 1935 Constitution, Article VI,
population, but also of export earnings the sustained growth of which is one of the Sec. 23[1]. (Italics supplied)
imperatives of economic stability. x x x."61
"The character of the Stabilization Fund as a special fund is emphasized by
2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its the fact that the funds are deposited in the Philippine National Bank and not
Farmers. in the Philippine Treasury, moneys from which may be paid out only in
pursuance of an appropriation made by law (1987 Constitution, Article VI,
Just like the sugar levy funds, the coconut levy funds constitute state funds even Sec. 29[1], 1973 Constitution, Article VIII, Sec. 18[1]).
though they may be held for a special public purpose.
"That the fees were collected from sugar producers, planters and millers, and
In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut that the funds were channeled to the purchase of shares of stock in
levy funds to the sugar levy funds, both being special public funds acquired respondent Bank do not convert the funds into a trust fund for their benefit
through the taxing and police powers of the State. The sugar levy funds, which nor make them the beneficial owners of the shares so purchased. It is but
are strikingly similar to the coconut levies in their imposition and purpose, were rational that the fees be collected from them since it is also they who are to
declared public funds by this Court in Gaston v. Republic Planters Bank,62 from be benefited from the expenditure of the funds derived from it. The
which we quote: investment in shares of respondent Bank is not alien to the purpose intended
because of the Bank's character as a commodity bank for sugar conceived
"The stabilization fees collected are in the nature of a tax which is within the for the industry's growth and development. Furthermore, of note is the fact
power of the state to impose for the promotion of the sugar industry (Lutz vs. that one-half (1/2) or P0.50 per picul, of the amount levied under P.D. No.
Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). 388 is to be utilized for the 'payment of salaries and wages of personnel,
The collections made accrue to a 'Special Fund,' a 'Development and fringe benefits and allowances of officers and employees of PHILSUCOM'
Stabilization Fund,' almost identical to the 'Sugar Adjustment and thereby immediately negating the claim that the entire amount levied is in
Stabilization Fund' created under Section 6 of Commonwealth Act 567. The trust for sugar, producers, planters and millers.
tax collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide means for the stabilization of the sugar "To rule in petitioners' favor would contravene the general principle that
industry. The levy is primarily in the exercise of the police power of the State. revenues derived from taxes cannot be used for purely private purposes or
(Lutz vs. Araneta, supra.)."63 for the exclusive benefit of private persons. The Stabilization Fund is to be
utilized for the benefit of the entire sugar industry, 'and all its components,
The Court further explained:64
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 stabilization of the domestic market including the foreign market,' the industry Thus, the coconut levy funds – like the sugar levy and the oil stabilization funds, as
being of vital importance to the country's economy and to national interest." well as the monies generated by the On-line Lottery System – are funds exacted by
the State. Being enforced contributions, the are prima facie public funds.
In the same manner, this Court has also ruled that the oil stabilization funds were
public in character and subject to audit by COA. It ruled in this wise: 3. Respondents Judicially Admit That the Levies Are Government Funds.

"Hence, it seems clear that while the funds collected may be referred to as Equally important as the fact that the coconut levy funds were raised through the
taxes, they are exacted in the exercise of the police power of the State. taxing and police powers of the State is respondents' effective judicial admission that
Moreover, that the OPSF is a special fund is plain from the special treatment these levies are government funds. As shown by the attachments to their
given it by E.O. 137. It is segregated from the general fund; and while it is pleadings,68 respondents concede that the Coconut Consumers Stabilization Fund
placed in what the law refers to as a 'trust liability account,' the fund (CCSF) and the Coconut Investment Development Fund "constitute government
nonetheless remains subject to the scrutiny and review of the COA. The funds x x x for the benefit of coconut farmers."
Court is satisfied that these measures comply with the constitutional
description of a 'special fund.' Indeed, the practice is not without precedent."65 "Collections on both levies constitute government funds. However, unlike
other taxes that the Government levies and collects such as income tax, tariff
In his Concurring Opinion in Kilosbayan v. Guingona,66 Justice Florentino P. and customs duties, etc., the collections on the CCSF and CIDF are, by
Feliciano explained that the funds raised by the On-line Lottery System were also express provision of the laws imposing them, for a definite purpose, not just
public in nature. In his words: for any governmental purpose. As stated above part of the collections on the
CCSF levy should be spent for the benefit of the coconut farmers. And in
"x x x. In the case presently before the Court, the funds involved are clearly respect of the collections on the CIDF levy, P.D. 582 mandatorily requires
public in nature. The funds to be generated by the proposed lottery are to be that the same should be spent exclusively for the establishment, operation
raised from the population at large. Should the proposed operation be as and maintenance of a hybrid coconut seed garden and the distribution, for
successful as its proponents project, those funds will come from well-nigh free, to the coconut farmers of the hybrid coconut seednuts produced from
every town and barrio of Luzon. The funds here involved are public in another that seed garden.
very real sense: they will belong to the PCSO, a government owned or
controlled corporation and an instrumentality of the government and are "On the other hand, the laws which impose special levies on specific
destined for utilization in social development projects which, at least in industries, for example on the mining industry, sugar industry, timber industry,
principle, are designed to benefit the general public. x x x. The interest of a etc., do not, by their terms, expressly require that the collections on those
private citizen in seeing to it that public funds, from whatever source they may levies be spent exclusively for the benefit of the industry concerned. And if
have been derived, go only to the uses directed and permitted by law is as the enabling law thus so provide, the fact remains that the governmental
real and personal and substantial as the interest of a private taxpayer in agency entrusted with the duty of implementing the purpose for which the
seeing to it that tax monies are not intercepted on their way to the public levy is imposed is vested with the discretionary power to determine when and
treasury or otherwise diverted from uses prescribed or allowed by law. It is how the collections should be appropriated."69
also pertinent to note that the more successful the government is in raising
revenues by non-traditional methods such as PAGCOR operations and 4. The COA Audit Shows the Public Nature of the Funds.
privatization measures, the lesser will be the pressure upon the traditional
sources of public revenues, i.e., the pocket books of individual taxpayers and Under COA Office Order No. 86-9470 dated April 15, 1986,70 the COA reviewed the
importers."67 expenditure and use of the coconut levies allocated for the acquisition of the UCPB.
The audit was aimed at ascertaining whether these were utilized for the purpose for
which they had been intended.71 Under the 1987 Constitution, the powers of the COA
are as follows:
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 "The Commission on Audit shall have the power, authority, and duty to general funds of the State all existing special and fiduciary funds including the CCSF.
examine, audit, and settle all accounts pertaining to the revenue and receipts On the other hand, PD No. 1234 specifically declared the CCSF as a special fund for
of, and expenditures or uses of funds and property, owned or held in trust by, a special purpose, which should be treated as a special account in the National
or pertaining to, the Government, or any of its subdivisions, agencies, or Treasury.
instrumentalities x x x."72
Moreover, even President Marcos himself, as the sole legislative/executive authority
Because these funds have been subjected to COA audit, there can be no other during the martial law years, struck off the phrase which is a private fund of the
conclusion than that are prima facie public in character. coconut farmers from the original copy of Executive Order No. 504 dated May 31,
1978, and we quote:
5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.
"WHEREAS, by means of the Coconut Consumers Stabilization Fund
In response to a query posed by the administrator of the Philippine Coconut Authority ('CCSF'), which is the private fund of the coconut farmers (deleted),
regarding the character of the coconut levy funds, the Bureau of Internal Revenue essential coconut-based products are made available to household
has affirmed that these funds are public in character. It held as follows: "[T]he consumers at socialized prices." (Emphasis supplied)
coconut levy is not a public trust fund for the benefit of the coconut farmers, but is in
the nature of a tax and, therefore, x x x public funds that are subject to government The phrase in bold face -- which is the private fund of the coconut farmers – was
administration and disposition."73 crossed out and duly initialed by its author, former, President Marcos. This deletion,
clearly visible in "Attachment C" of petitioner's Memorandum,75 was a categorical
Furthermore, the executive branch treats the coconut levies as public funds. Thus, legislative intent to regard the CCSF as public, not private, funds.
Executive Order No. 277, issued on September 24, 1995, directed the mode of
treatment, utilization, administration and management of the coconut levy funds. It Having Been Acquired With Public Funds, UCPB Shares Belong, Prima Facie,
provided as follows: to the Government

'(a) The coconut levy funds, which include all income, interests, proceeds or Having shown that the coconut levy funds are not only affected with public interest,
profits derived therefrom, as well as all assets, properties and shares of but are in fact prima facie public funds, this Court believes that the government
stocks procured or obtained with the use of such funds, shall be treated, should be allowed to vote the questioned shares, because they belong to it as
utilized, administered and managed as public funds consistent with the uses the prima facie beneficial and true owner.
and purposes under the laws which constituted them and the development
priorities of the government, including the government's coconut productivity, As stated at the beginning, voting is an act of dominion that should be exercised by
rehabilitation, research extension, farmers organizations, and market the share owner. One of the recognized rights of an owner is the right to vote at
promotions programs, which are designed to advance the development of the meetings of the corporation. The right to vote is classified as the right to
coconut industry and the welfare of the coconut farmers."74 (Italics supplied) control.76 Voting rights may be for the purpose of, among others, electing or
removing directors, amending a charter, or making or amending by laws.77 Because
Doctrinally, acts of the executive branch are prima facie valid and binding, unless the subject UCPB shares were acquired with government funds, the government
declared unconstitutional or contrary to law. becomes their prima facie beneficial and true owner.

6. Laws Governing Coconut Levies Recognize Their Public Nature. Ownership includes the right to enjoy, dispose of, exclude and recover a thing
without limitations other than those established by law or by the owner.78 Ownership
Finally and tellingly, the very laws governing the coconut levies recognize their public has been aptly described as the most comprehensive of all real rights.79 And the right
character. Thus, the third Whereas clause of PD No. 276 treats them as special to vote shares is a mere incident of ownership. In the present case, the government
funds for a specific public purpose. Furthermore, PD No. 711 transferred to the
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has been shown to be the prima facie owner of the funds used to purchase the character. In short, the main issue of who may vote the shares cannot be determined
shares. Hence, it should be allowed the rights and privileges flowing from such fact. without passing upon the question of the public/private character of the shares and
the funds used to acquire them. The latter issue, although not specifically raised in
And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should the Court a quo, should still be resolved in order to fully adjudicate the main issue.
continue to vote those shares until and unless private respondents are able to
demonstrate, in the main cases pending before the Sandiganbayan, that "they [the Indeed, this Court has "the authority to waive the lack of proper assignment of errors
sequestered UCPB shares] have legitimately become private." if the unassigned errors closely relate to errors properly pinpointed out or if the
unassigned errors refer to matters upon which the determination of the questions
Procedural and Incidental Issues: raised by the errors properly assigned depend."83

Grave Abuse of Discretion, Improper Arguments and Intervenors' Relief Therefore, "where the issues already raised also rest on other issues not specifically
presented as long as the latter issues bear relevance and close relation to the former
Procedurally, respondents argue that petitioner has failed to demonstrate that the and as long as they arise from matters on record, the Court has the authority to
Sandiganbayan committed grave abuse of discretion, a demonstration required in include them in its discussion of the controversy as well as to pass upon them."84
every petition under Rule 65.80
No Positive Relief For Intervenors
We disagree. We hold that the Sandiganbayan gravely abused its discretion when it
contravened the rulings of this Court in Baseco and Cojuangco-Roxas – thereby Intervenors anchor their interest in this case on an alleged right that they are trying to
unlawfully, capriciously and arbitrarily depriving the government of its right to vote enforce in another Sandiganbayan case docketed as SB Case No. 0187.85 In that
sequestered shares purchased with coconut levy funds which are prima facie public case, they seek the recovery of the subject UCPB shares from herein private
funds. respondents and the corporations controlled by them. Therefore, the rights sought to
be protected and the reliefs prayed for by intervenors are still being litigated in the
Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or said case. The purported rights they are invoking are mere expectancies wholly
contravenes the Constitution, the law or existing jurisprudence. In one case,81 this dependent on the outcome of that case in the Sandiganbayan.
Court ruled that the lower court's resolution was "tantamount to overruling a judicial
pronouncement of the highest Court x x x and unmistakably a very grave abuse of Clearly, we cannot rule on intervenors' alleged right to vote at this time and in this
discretion."82 case. That right is dependent upon the Sandiganbayan's resolution of their action for
the recovery of said sequestered shares. Given the patent fact that intervenors are
The Public Character of Shares Is a Valid Issue not registered stockholders of UCPB as of the moment, their asserted rights cannot
be ruled upon in the present proceedings. Hence, no positive relief can be given
Private respondents also contend that the public nature of the coconut levy funds them now, except insofar as they join petitioner in barring private respondents from
was not raised as an issue before the Sandiganbayan. Hence, it could not be taken voting the subject shares.
up before this Court.
Epilogue
Again we disagree. By ruling that the two-tiered test should be applied in evaluating
private respondents' claim of exercising voting rights over the sequestered shares, In sum, we hold that the Sandiganbayan committed grave abuse of discretion in
the Sandiganbayan effectively held that the subject assets were private in character. grossly contradicting and effectively reversing existing jurisprudence, and in
Thus, to meet this issue, the Office of the Solicitor General countered that the shares depriving the government of its right to vote the sequestered UCPB shares which
were not private in character, and that quite the contrary, they were and are public in are prima facie public in character.
nature because they were acquired with coco levy funds which are public in

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In making this ruling, we are in no way preempting the proceedings the
Sandiganbayan may conduct or the final judgment it may promulgate in Civil Case
Nos. 0033-A, 0033-B and 0033-F. Our determination here is merely prima facie, and
should not bar the anti-graft court from making a final ruling, after proper trial and
hearing, on the issues and prayers in the said civil cases, particularly in reference to
the ownership of the subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima
facie public in character, we are not ruling in any final manner on their classification –
whether they are general or trust or special funds – since such classification is not at
issue here. Suffice it to say that the public nature of the coco levy funds is decreed
by the Court only for the purpose of determining the right to vote the shares, pending
the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held
by Respondent Cojuangco are, as he claims, the result of private enterprise. This
factual matter should also be taken up in the final decision in the cited cases that are
pending in the court a quo. Again suffice it to say that the only issue settled here is
the right of PCGG to vote the sequestered shares, pending the final outcome of said
cases.

This matter involving the coconut levy funds and the sequestered UCPB shares has
been straddling the courts for about 15 years. What we are discussing in the present
Petition, we stress, is just an incident of the main cases which are pending in the
anti-graft court – the cases for the reconveyance, reversion and restitution to the
State of these UCPB shares.

The resolution of the main cases has indeed been long overdue. Every effort, both
by the parties and the Sandiganbayan, should be exerted to finally settle this
controversy.

WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET

ASIDE. The PCGG shall continue voting the sequestered shares until
Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally and
completely resolved. Furthermore, the Sandiganbayan is ORDERED to decide with
finality the aforesaid civil cases within a period of six (6) months from notice. It shall
report to this Court on the progress of the said cases every three (3) months, on pain
of contempt. The Petition in Intervention is DISMISSED inasmuch as the reliefs G.R. No. 76778 June 6, 1990
prayed for are not covered by the main issues in this case. No costs.
FRANCISCO I. CHAVEZ, petitioner,
SO ORDERED. vs.
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JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, NOW, THEREFORE, I. CORAZON C. AQUINO, President of the
in her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, Philippines, do hereby order:
respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor. SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision of
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and assessments shall take effect beginning January 1, 1987 for purposes
Oppression (Bonifacio) for petitioner. of real property tax collection.

Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners SEC. 2. The Minister of Finance shall promulgate the necessary rules
Association. and regulations to implement this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby
repealed.
MEDIALDEA, J.:
SEC. 4. All laws, orders, issuances, and rules and regulations or parts
The petition seeks to declare unconstitutional Executive Order No. 73 dated thereof inconsistent with this Executive Order are hereby repealed or
November 25, 1986, which We quote in full, as follows (78 O.G. 5861): modified accordingly.

EXECUTIVE ORDER No. 73 SEC. 5. This Executive Order shall take effect immediately.

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES On March 31, 1987, Memorandum Order No. 77 was issued suspending the
BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED implementation of Executive Order No. 73 until June 30, 1987.
FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE,
AS AMENDED The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of
land. He alleges the following: that Executive Order No. 73 accelerated the
WHEREAS, the collection of real property taxes is still based on the application of the general revision of assessments to January 1, 1987 thereby
1978 revision of property values; mandating an excessive increase in real property taxes by 100% to 400% on
improvements, and up to 100% on land; that any increase in the value of real
WHEREAS, the latest general revision of real property assessments property brought about by the revision of real property values and assessments
completed in 1984 has rendered the 1978 revised values obsolete; would necessarily lead to a proportionate increase in real property taxes; that sheer
oppression is the result of increasing real property taxes at a period of time when
WHEREAS, the collection of real property taxes based on the 1984 harsh economic conditions prevail; and that the increase in the market values of real
real property values was deferred to take effect on January 1, 1988 property as reflected in the schedule of values was brought about only by inflation
instead of January 1, 1985, thus depriving the local government units and economic recession.
of an additional source of revenue;
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is
WHEREAS, there is an urgent need for local governments to augment the national association of owners-lessors, joins Chavez in his petition to declare
their financial resources to meet the rising cost of rendering effective unconstitutional Executive Order No. 73, but additionally alleges the following: that
services to the people; Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional
one percent (1%) tax on all property owners to raise funds for education, as real
property tax is admittedly a local tax for local governments; that the General Revision
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of Assessments does not meet the requirements of due process as regards ROAP which questioned the constitutionality thereof. Furthermore, Presidential
publication, notice of hearing, opportunity to be heard and insofar as it authorizes Decree No. 464 furnishes the procedure by which a tax assessment may be
"replacement cost" of buildings (improvements) which is not provided in Presidential questioned:
Decree No. 464, but only in an administrative regulation of the Department of
Finance; and that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is SEC. 30. Local Board of Assessment Appeals. — Any owner who is
even more oppressive and unconstitutional as it imposes successive increase of not satisfied with the action of the provincial or city assessor in the
150% over the 1986 tax. assessment of his property may, within sixty days from the date of
receipt by him of the written notice of assessment as provided in this
The Office of the Solicitor General argues against the petition. Code, appeal to the Board of Assessment Appeals of the province or
city, by filing with it a petition under oath using the form prescribed for
The petition is not impressed with merit. the purpose, together with copies of the tax declarations and such
affidavit or documents submitted in support of the appeal.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive
Order No. 73 insofar as the revision of the assessments and the effectivity thereof xxx xxx xxx
are concerned. It should be emphasized that Executive Order No. 73 merely directs,
in Section 1 thereof, that: SEC. 34. Action by the Local Board of assessment Appeals. — The
Local Board of Assessment Appeals shall decide the appeal within
SECTION 1. Real property values as of December 31, 1984 as one hundred and twenty days from the date of receipt of such appeal.
determined by the local assessors during the latest general revision of The decision rendered must be based on substantial evidence
assessments shall take effect beginning January 1, 1987 for purposes presented at the hearing or at least contained in the record and
of real property tax collection. (emphasis supplied) disclosed to the parties or such relevant evidence as a reasonable
mind might accept as adequate to support the conclusion.
The general revision of assessments completed in 1984 is based on Section 21 of
Presidential Decree No. 464 which provides, as follows: In the exercise of its appellate jurisdiction, the Board shall have the
power to summon witnesses, administer oaths, conduct ocular
SEC. 21. General Revision of Assessments. — Beginning with the inspection, take depositions, and issue subpoena and
assessor shall make a calendar year 1978, the provincial or city subpoena duces tecum. The proceedings of the Board shall be
general revision of real property assessments in the province or city to conducted solely for the purpose of ascertaining the truth without-
take effect January 1, 1979, and once every five years thereafter: necessarily adhering to technical rules applicable in judicial
Provided; however, That if property values in a province or city, or in proceedings.
any municipality, have greatly changed since the last general revision,
the provincial or city assesor may, with the approval of the Secretary The Secretary of the Board shall furnish the property owner and the
of Finance or upon bis direction, undertake a general revision of Provincial or City Assessor with a copy each of the decision of the
assessments in the province or city, or in any municipality before the Board. In case the provincial or city assessor concurs in the revision
fifth year from the effectivity of the last general revision. or the assessment, it shall be his duty to notify the property owner of
such fact using the form prescribed for the purpose. The owner or
Thus, We agree with the Office of the Solicitor General that the attack on Executive administrator of the property or the assessor who is not satisfied with
Order No. 73 has no legal basis as the general revision of assessments is a the decision of the Board of Assessment Appeals, may, within thirty
continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, days after receipt of the decision of the local Board, appeal to the
it is Presidential Decree No. 464 which should be challenged as constitutionally Central Board of Assessment Appeals by filing his appeal under oath
infirm. However, Chavez failed to raise any objection against said decree. It was with the Secretary of the proper provincial or city Board of
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 Assessment Appeals using the prescribed form stating therein the the constitutional guarantee of due process, invoking the cases of Ermita-Malate
grounds and the reasons for the appeal, and attaching thereto any Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849)
evidence pertinent to the case. A copy of the appeal should be also and Sison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
furnished the Central Board of Assessment Appeals, through its
Chairman, by the appellant. The reliance on these two cases is certainly misplaced because the due process
requirement called for therein applies to the "power to tax." Executive Order No. 73
Within ten (10) days from receipt of the appeal, the Secretary of the does not impose new taxes nor increase taxes.
Board of Assessment Appeals concerned shall forward the same and
all papers related thereto, to the Central Board of Assessment Indeed, the government recognized the financial burden to the taxpayers that will
Appeals through the Chairman thereof. result from an increase in real property taxes. Hence, Executive Order No. 1019 was
issued on April 18, 1985, deferring the implementation of the increase in real
xxx xxx xxx property taxes resulting from the revised real property assessments, from January 1,
1985 to January 1, 1988. Section 5 thereof is quoted herein as follows:
SEC. 36. Scope of Powers and Functions. — The Central Board of
Assessment Appeals shall have jurisdiction over appealed SEC. 5. The increase in real property taxes resulting from the revised
assessment cases decided by the Local Board of Assessment real property assessments as provided for under Section 21 of
Appeals. The said Board shall decide cases brought on appeal within Presidential Decree No. 464, as amended by Presidential Decree No.
twelve (12) months from the date of receipt, which decision shall 1621, shall be collected beginning January 1, 1988 instead of January
become final and executory after the lapse of fifteen (15) days from 1, 1985 in order to enable the Ministry of Finance and the Ministry of
the date of receipt of a copy of the decision by the appellant. Local Government to establish the new systems of tax collection and
assessment provided herein and in order to alleviate the condition of
In the exercise of its appellate jurisdiction, the Central Board of the people, including real property owners, as a result of temporary
Assessment Appeals, or upon express authority, the Hearing economic difficulties. (emphasis supplied)
Commissioner, shall have the power to summon witnesses,
administer oaths, take depositions, and The issuance of Executive Order No. 73 which changed the date of implementation
issue subpoenas and subpoenas duces tecum. of the increase in real property taxes from January 1, 1988 to January 1, 1987 and
therefore repealed Executive Order No. 1019, also finds ample justification in its
The Central Board of assessment Appeals shall adopt and "whereas' clauses, as follows:
promulgate rules of procedure relative to the conduct of its business.
WHEREAS, the collection of real property taxes based on the 1984
Simply stated, within sixty days from the date of receipt of the, written notice of real property values was deferred to take effect on January 1, 1988
assessment, any owner who doubts the assessment of his property, may appeal to instead of January 1, 1985, thus depriving the local government units
the Local Board of Assessment Appeals. In case the, owner or administrator of the of an additional source of revenue;
property or the assessor is not satisfied with the decision of the Local Board of
Assessment Appeals, he may, within thirty days from the receipt of the decision, WHEREAS, there is an urgent need for local governments to
appeal to the Central Board of Assessment Appeals. The decision of the Central augment their financial resources to meet the rising cost of rendering
Board of Assessment Appeals shall become final and executory after the lapse of effective services to the people; (emphasis supplied)
fifteen days from the date of receipt of the decision.
xxx xxx xxx
Chavez argues further that the unreasonable increase in real property taxes brought
about by Executive Order No. 73 amounts to a confiscation of property repugnant to
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The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is
not proper to be resolved in the present petition. As stated at the outset, the issue
here is limited to the constitutionality of Executive Order No. 73. Intervention is not
an independent proceeding, but an ancillary and supplemental one which, in the
nature of things, unless otherwise provided for by legislation (or Rules of Court),
must be in subordination to the main proceeding, and it may be laid down as a
general rule that an intervention is limited to the field of litigation open to the original
parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).
G.R. No. 193007               July 19, 2011
We agree with the observation of the Office of the Solicitor General that without
Executive Order No. 73, the basis for collection of real property taxes win still be the RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,
1978 revision of property values. Certainly, to continue collecting real property taxes vs.
based on valuations arrived at several years ago, in disregard of the increases in the THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
value of real properties that have occurred since then, is not in consonance with a REVENUE, Respondents.
sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax
system, requires that sources of revenues must be adequate to meet government DECISION
expenditures and their variations.
ABAD, J.:
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
May toll fees collected by tollway operators be subjected to value- added tax?
SO ORDERED.
The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition
for declaratory relief1 assailing the validity of the impending imposition of value-
added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have an
interest as regular users of tollways in stopping the BIR action. Additionally, Diaz
claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded
VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue
Code or the NIRC) at the House of Representatives. Timbol, on the other hand,
claims that she served as Assistant Secretary of the Department of Trade and
Industry and consultant of the Toll Regulatory Board (TRB) in the past
administration.

Petitioners allege that the BIR attempted during the administration of President
Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred,
however, in view of the consistent opposition of Diaz and other sectors to such
move. But, upon President Benigno C. Aquino III’s assumption of office in 2010, the
TAX 1 batch 1 Page 146 of 193
BIR revived the idea and would impose the challenged tax on toll fees beginning rounding off the toll rate and putting any excess collection in an escrow account. But
August 16, 2010 unless judicially enjoined. this would be illegal since only the Congress can modify VAT rates and authorize its
disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to 2010), which directs toll companies to record an accumulated input VAT of zero
include toll fees within the meaning of "sale of services" that are subject to VAT; that balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC
a toll fee is a "user’s tax," not a sale of services; that to impose VAT on toll fees which grants entities that first become liable to VAT a transitional input tax credit of
would amount to a tax on public service; and that, since VAT was never factored into 2% on beginning inventory. For this reason, the VAT on toll fees cannot be
the formula for computing toll fees, its imposition would violate the non-impairment implemented.
clause of the constitution.
The Issues Presented
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining
the implementation of the VAT. The Court required the government, represented by The case presents two procedural issues:
respondents Cesar V. Purisima, Secretary of the Department of Finance, and Kim S.
Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition 1. Whether or not the Court may treat the petition for declaratory relief as one
within 10 days from notice.2 Later, the Court issued another resolution treating the for prohibition; and
petition as one for prohibition.3
2. Whether or not petitioners Diaz and Timbol have legal standing to file the
On August 23, 2010 the Office of the Solicitor General filed the government’s action.
comment.4 The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the law The case also presents two substantive issues:
provides otherwise; that the Court should seek the meaning and intent of the law
from the words used in the statute; and that the imposition of VAT on tollway 1. Whether or not the government is unlawfully expanding VAT coverage by
operations has been the subject as early as 2003 of several BIR rulings and including tollway operators and tollway operations in the terms "franchise
circulars.5 grantees" and "sale of services" under Section 108 of the Code; and

The government also argues that petitioners have no right to invoke the non- 2. Whether or not the imposition of VAT on tollway operators a) amounts to a
impairment of contracts clause since they clearly have no personal interest in tax on tax and not a tax on services; b) will impair the tollway operators’ right
existing toll operating agreements (TOAs) between the government and tollway to a reasonable return of investment under their TOAs; and c) is not
operators. At any rate, the non-impairment clause cannot limit the State’s sovereign administratively feasible and cannot be implemented.
taxing power which is generally read into contracts.
The Court’s Rulings
Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT. In any A. On the Procedural Issues:
event, it cannot be claimed that the rights of tollway operators to a reasonable rate of
return will be impaired by the VAT since this is imposed on top of the toll rate.
On August 24, 2010 the Court issued a resolution, treating the petition as one for
Further, the imposition of VAT on toll fees would have very minimal effect on
prohibition rather than one for declaratory relief, the characterization that petitioners
motorists using the tollways.
Diaz and Timbol gave their action. The government has sought reconsideration of
the Court’s resolution,7 however, arguing that petitioners’ allegations clearly made
In their reply6 to the government’s comment, petitioners point out that tollway out a case for declaratory relief, an action over which the Court has no original
operators cannot be regarded as franchise grantees under the NIRC since they do jurisdiction. The government adds, moreover, that the petition does not meet the
not hold legislative franchises. Further, the BIR intends to collect the VAT by
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requirements of Rule 65 for actions for prohibition since the BIR did not exercise whether personal or real; warehousing services; lessors or distributors of
judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll cinematographic films; persons engaged in milling, processing, manufacturing or
fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate repacking goods for others; proprietors, operators or keepers of hotels, motels,
remedy in the ordinary course of law against the BIR action in the form of an appeal resthouses, pension houses, inns, resorts; proprietors or operators of restaurants,
to the Secretary of Finance. refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation contractors on their transport
But there are precedents for treating a petition for declaratory relief as one for of goods or cargoes, including persons who transport goods or cargoes for hire and
prohibition if the case has far-reaching implications and raises questions that need to other domestic common carriers by land relative to their transport of goods or
be resolved for the public good.8 The Court has also held that a petition for cargoes; common carriers by air and sea relative to their transport of passengers,
prohibition is a proper remedy to prohibit or nullify acts of executive officials that goods or cargoes from one place in the Philippines to another place in the
amount to usurpation of legislative authority.9 Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities, telephone
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition and telegraph, radio and television broadcasting and all other franchise grantees
would impact, not only on the more than half a million motorists who use the tollways except those under Section 119 of this Code and non-life insurance companies
everyday, but more so on the government’s effort to raise revenue for funding (except their crop insurances), including surety, fidelity, indemnity and bonding
various projects and for reducing budgetary deficits. companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. (Underscoring
To dismiss the petition and resolve the issues later, after the challenged VAT has supplied)
been imposed, could cause more mischief both to the tax-paying public and the
government. A belated declaration of nullity of the BIR action would make any It is plain from the above that the law imposes VAT on "all kinds of services"
attempt to refund to the motorists what they paid an administrative nightmare with no rendered in the Philippines for a fee, including those specified in the list. The
solution. Consequently, it is not only the right, but the duty of the Court to take enumeration of affected services is not exclusive.11 By qualifying "services" with the
cognizance of and resolve the issues that the petition raises. words "all kinds," Congress has given the term "services" an all-encompassing
meaning. The listing of specific services are intended to illustrate how pervasive and
Although the petition does not strictly comply with the requirements of Rule 65, the broad is the VAT’s reach rather than establish concrete limits to its application. Thus,
Court has ample power to waive such technical requirements when the legal every activity that can be imagined as a form of "service" rendered for a fee should
questions to be resolved are of great importance to the public. The same may be be deemed included unless some provision of law especially excludes it.
said of the requirement of locus standi which is a mere procedural requisite.10
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112
B. On the Substantive Issues: or the Toll Operation Decree establishes the legal basis for the services that tollway
operators render. Essentially, tollway operators construct, maintain, and operate
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is expressways, also called tollways, at the operators’ expense. Tollways serve as
levied, assessed, and collected, according to Section 108, on the gross receipts alternatives to regular public highways that meander through populated areas and
derived from the sale or exchange of services as well as from the use or lease of branch out to local roads. Traffic in the regular public highways is for this reason
properties. The third paragraph of Section 108 defines "sale or exchange of services" slow-moving. In consideration for constructing tollways at their expense, the
as follows: operators are allowed to collect government-approved fees from motorists using the
tollways until such operators could fully recover their expenses and earn reasonable
returns from their investments.
The phrase ‘sale or exchange of services’ means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
stock, real estate, commercial, customs and immigration brokers; lessors of property, latter’s use of the tollway facilities over which the operator enjoys private proprietary
TAX 1 batch 1 Page 148 of 193
rights12 that its contract and the law recognize. In this sense, the tollway operator is Petitioners of course contend that tollway operators cannot be considered "franchise
no different from the following service providers under Section 108 who allow others grantees" under Section 108 since they do not hold legislative franchises. But
to use their properties or facilities for a fee: nothing in Section 108 indicates that the "franchise grantees" it speaks of are those
who hold legislative franchises. Petitioners give no reason, and the Court cannot
1. Lessors of property, whether personal or real; surmise any, for making a distinction between franchises granted by Congress and
franchises granted by some other government agency. The latter, properly
2. Warehousing service operators; constituted, may grant franchises. Indeed, franchises conferred or granted by local
authorities, as agents of the state, constitute as much a legislative franchise as
3. Lessors or distributors of cinematographic films; though the grant had been made by Congress itself.15 The term "franchise" has been
broadly construed as referring, not only to authorizations that Congress directly
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension issues in the form of a special law, but also to those granted by administrative
houses, inns, resorts; agencies to which the power to grant franchises has been delegated by Congress.16

5. Lending investors (for use of money); Tollway operators are, owing to the nature and object of their business, "franchise
grantees." The construction, operation, and maintenance of toll facilities on public
improvements are activities of public consequence that necessarily require a special
6. Transportation contractors on their transport of goods or cargoes, including
grant of authority from the state. Indeed, Congress granted special franchise for the
persons who transport goods or cargoes for hire and other domestic common
operation of tollways to the Philippine National Construction Company, the former
carriers by land relative to their transport of goods or cargoes; and
tollway concessionaire for the North and South Luzon Expressways. Apart from
Congress, tollway franchises may also be granted by the TRB, pursuant to the
7. Common carriers by air and sea relative to their transport of passengers, exercise of its delegated powers under P.D. 1112.17 The franchise in this case is
goods or cargoes from one place in the Philippines to another place in the evidenced by a "Toll Operation Certificate."18
Philippines.
Petitioners contend that the public nature of the services rendered by tollway
It does not help petitioners’ cause that Section 108 subjects to VAT "all kinds of operators excludes such services from the term "sale of services" under Section 108
services" rendered for a fee "regardless of whether or not the performance thereof of the Code. But, again, nothing in Section 108 supports this contention. The reverse
calls for the exercise or use of the physical or mental faculties." This means that is true. In specifically including by way of example electric utilities, telephone,
"services" to be subject to VAT need not fall under the traditional concept of services, telegraph, and broadcasting companies in its list of VAT-covered businesses,
the personal or professional kinds that require the use of human knowledge and Section 108 opens other companies rendering public service for a fee to the
skills. imposition of VAT. Businesses of a public nature such as public utilities and the
collection of tolls or charges for its use or service is a franchise.19
And not only do tollway operators come under the broad term "all kinds of services,"
they also come under the specific class described in Section 108 as "all other Nor can petitioners cite as binding on the Court statements made by certain
franchise grantees" who are subject to VAT, "except those under Section 119 of this lawmakers in the course of congressional deliberations of the would-be law. As the
Code." Court said in South African Airways v. Commissioner of Internal
Revenue,20 "statements made by individual members of Congress in the
Tollway operators are franchise grantees and they do not belong to exceptions (the consideration of a bill do not necessarily reflect the sense of that body and are,
low-income radio and/or television broadcasting companies with gross annual consequently, not controlling in the interpretation of law." The congressional will is
incomes of less than ₱10 million and gas and water utilities) that Section ultimately determined by the language of the law that the lawmakers voted on.
11913 spares from the payment of VAT. The word "franchise" broadly covers Consequently, the meaning and intention of the law must first be sought "in the
government grants of a special right to do an act or series of acts of public concern.14 words of the statute itself, read and considered in their natural, ordinary, commonly
TAX 1 batch 1 Page 149 of 193
accepted and most obvious significations, according to good and approved usage was whether or not Parañaque City could sell airport lands and buildings under MIAA
and without resorting to forced or subtle construction." administration at public auction to satisfy unpaid real estate taxes. Since local
governments have no power to tax the national government, the Court held that the
Two. Petitioners argue that a toll fee is a "user’s tax" and to impose VAT on toll fees City could not proceed with the auction sale. MIAA forms part of the national
is tantamount to taxing a tax.21 Actually, petitioners base this argument on the government although not integrated in the department framework."24 Thus, its airport
following discussion in Manila International Airport Authority (MIAA) v. Court of lands and buildings are properties of public dominion beyond the commerce of man
Appeals:22 under Article 420(1)25 of the Civil Code and could not be sold at public auction.

No one can dispute that properties of public dominion mentioned in Article 420 of the As can be seen, the discussion in the MIAA case on toll roads and toll fees was
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the made, not to establish a rule that tollway fees are user’s tax, but to make the point
State," are owned by the State. The term "ports" includes seaports and airports. The that airport lands and buildings are properties of public dominion and that the
MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under collection of terminal fees for their use does not make them private properties.
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR
public dominion and thus owned by the State or the Republic of the Philippines. and do not go to the general coffers of the government.

x x x The operation by the government of a tollway does not change the character of It would of course be another matter if Congress enacts a law imposing a user’s tax,
the road as one for public use. Someone must pay for the maintenance of the road, collectible from motorists, for the construction and maintenance of certain roadways.
either the public indirectly through the taxes they pay the government, or only those The tax in such a case goes directly to the government for the replenishment of
among the public who actually use the road through the toll fees they pay upon using resources it spends for the roadways. This is not the case here. What the
the road. The tollway system is even a more efficient and equitable manner of taxing government seeks to tax here are fees collected from tollways that are constructed,
the public for the maintenance of public roads. maintained, and operated by private tollway operators at their own expense under
the build, operate, and transfer scheme that the government has adopted for
The charging of fees to the public does not determine the character of the property expressways.26 Except for a fraction given to the government, the toll fees essentially
whether it is for public dominion or not. Article 420 of the Civil Code defines property end up as earnings of the tollway operators.
of public dominion as "one intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under In sum, fees paid by the public to tollway operators for use of the tollways, are not
the same terms and conditions as the rest of the public. The charging of fees, the taxes in any sense. A tax is imposed under the taxing power of the government
limitation on the kind of vehicles that can use the road, the speed restrictions and principally for the purpose of raising revenues to fund public expenditures.27 Toll
other conditions for the use of the road do not affect the public character of the road. fees, on the other hand, are collected by private tollway operators as reimbursement
for the costs and expenses incurred in the construction, maintenance and operation
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA of the tollways, as well as to assure them a reasonable margin of income. Although
charges to airlines, constitute the bulk of the income that maintains the operations of toll fees are charged for the use of public facilities, therefore, they are not
MIAA. The collection of such fees does not change the character of MIAA as an government exactions that can be properly treated as a tax. Taxes may be imposed
airport for public use. Such fees are often termed user’s tax. This means taxing those only by the government under its sovereign authority, toll fees may be demanded by
among the public who actually use a public facility instead of taxing all the public either the government or private individuals or entities, as an attribute of ownership.28
including those who never use the particular public facility. A user’s tax is more
equitable – a principle of taxation mandated in the 1987 Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the
Constitution."23 (Underscoring supplied) nature of VAT as an indirect tax. In indirect taxation, a distinction is made between
the liability for the tax and burden of the tax. The seller who is liable for the VAT may
Petitioners assume that what the Court said above, equating terminal fees to a shift or pass on the amount of VAT it paid on goods, properties or services to the
"user’s tax" must also pertain to tollway fees. But the main issue in the MIAA case
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buyer. In such a case, what is transferred is not the seller’s liability but merely the – by rounding off the toll rate and putting any excess collection in an escrow account
burden of the VAT.29 – is also illegal, while the alternative of giving "change" to thousands of motorists in
order to meet the exact toll rate would be a logistical nightmare. Thus, according to
Thus, the seller remains directly and legally liable for payment of the VAT, but the them, the VAT on tollway operations is not administratively feasible.33
buyer bears its burden since the amount of VAT paid by the former is added to the
selling price. Once shifted, the VAT ceases to be a tax30 and simply becomes part of Administrative feasibility is one of the canons of a sound tax system. It simply means
the cost that the buyer must pay in order to purchase the good, property or service. that the tax system should be capable of being effectively administered and enforced
with the least inconvenience to the taxpayer. Non-observance of the canon,
Consequently, VAT on tollway operations is not really a tax on the tollway user, but however, will not render a tax imposition invalid "except to the extent that specific
on the tollway operator. Under Section 105 of the Code, 31 VAT is imposed on any constitutional or statutory limitations are impaired."34 Thus, even if the imposition of
person who, in the course of trade or business, sells or renders services for a fee. In VAT on tollway operations may seem burdensome to implement, it is not necessarily
other words, the seller of services, who in this case is the tollway operator, is the invalid unless some aspect of it is shown to violate any law or the Constitution.
person liable for VAT. The latter merely shifts the burden of VAT to the tollway user
as part of the toll fees. Here, it remains to be seen how the taxing authority will actually implement the VAT
on tollway operations. Any declaration by the Court that the manner of its
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees implementation is illegal or unconstitutional would be premature. Although the
were deemed as a "user’s tax." VAT is assessed against the tollway operator’s gross transcript of the August 12, 2010 Senate hearing provides some clue as to how the
receipts and not necessarily on the toll fees. Although the tollway operator may shift BIR intends to go about it,35 the facts pertaining to the matter are not sufficiently
the VAT burden to the tollway user, it will not make the latter directly liable for the established for the Court to pass judgment on. Besides, any concern about how the
VAT. The shifted VAT burden simply becomes part of the toll fees that one has to VAT on tollway operations will be enforced must first be addressed to the BIR on
pay in order to use the tollways.32 whom the task of implementing tax laws primarily and exclusively rests. The Court
cannot preempt the BIR’s discretion on the matter, absent any clear violation of law
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract or the Constitution.
clause on behalf of private investors in the tollway projects. She will neither be
prejudiced by nor be affected by the alleged diminution in return of investments that For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-
may result from the VAT imposition. She has no interest at all in the profits to be 2010 which directs toll companies to record an accumulated input VAT of zero
earned under the TOAs. The interest in and right to recover investments solely balance in their books as of August 16, 2010, the date when the VAT imposition was
belongs to the private tollway investors. supposed to take effect. The issuance allegedly violates Section 111(A)36 of the
Code which grants first time VAT payers a transitional input VAT of 2% on beginning
Besides, her allegation that the private investors’ rate of recovery will be adversely inventory.
affected by imposing VAT on tollway operations is purely speculative. Equally
presumptuous is her assertion that a stipulation in the TOAs known as the Material In this connection, the BIR explained that BIR RMC 63-2010 is actually the product
Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot of negotiations with tollway operators who have been assessed VAT as early as
rule on matters that are manifestly conjectural. Neither can it prohibit the State from 2005, but failed to charge VAT-inclusive toll fees which by now can no longer be
exercising its sovereign taxing power based on uncertain, prophetic grounds. collected. The tollway operators agreed to waive the 2% transitional input VAT, in
exchange for cancellation of their past due VAT liabilities. Notably, the right to claim
Four. Finally, petitioners assert that the substantiation requirements for claiming the 2% transitional input VAT belongs to the tollway operators who have not
input VAT make the VAT on tollway operations impractical and incapable of questioned the circular’s validity. They are thus the ones who have a right to
implementation. They cite the fact that, in order to claim input VAT, the name, challenge the circular in a direct and proper action brought for the purpose.
address and tax identification number of the tollway user must be indicated in the
VAT receipt or invoice. The manner by which the BIR intends to implement the VAT Conclusion
TAX 1 batch 1 Page 151 of 193
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or
expand the VAT law’s coverage when she sought to impose VAT on tollway
operations. Section 108(A) of the Code clearly states that services of all other
franchise grantees are subject to VAT, except as may be provided under Section 119
of the Code. Tollway operators are not among the franchise grantees subject to
franchise tax under the latter provision. Neither are their services among the VAT-
exempt transactions under Section 109 of the Code.

If the legislative intent was to exempt tollway operations from VAT, as petitioners so
strongly allege, then it would have been well for the law to clearly say so. Tax
exemptions must be justified by clear statutory grant and based on language in the
law too plain to be mistaken.37 But as the law is written, no such exemption obtains
for tollway operators. The Court is thus duty-bound to simply apply the law as it is
found.1avvphi1

Lastly, the grant of tax exemption is a matter of legislative policy that is within the
exclusive prerogative of Congress. The Court’s role is to merely uphold this
legislative policy, as reflected first and foremost in the language of the tax statute.
Thus, any unwarranted burden that may be perceived to result from enforcing such
policy must be properly referred to Congress. The Court has no discretion on the
matter but simply applies the law.
G.R. No. L-28896 February 17, 1988
The VAT on franchise grantees has been in the statute books since 1994 when R.A.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
7716 or the Expanded Value-Added Tax law was passed. It is only now, however,
vs.
that the executive has earnestly pursued the VAT imposition against tollway
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
operators. The executive exercises exclusive discretion in matters pertaining to the
implementation and execution of tax laws. Consequently, the executive is more
properly suited to deal with the immediate and practical consequences of the VAT CRUZ, J.:
imposition.
Taxes are the lifeblood of the government and so should be collected without
WHEREFORE, the Court DENIES respondents Secretary of Finance and unnecessary hindrance On the other hand, such collection should be made in
Commissioner of Internal Revenue’s motion for reconsideration of its August 24, accordance with law as any arbitrariness will negate the very reason for government
2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. itself. It is therefore necessary to reconcile the apparently conflicting interests of the
Timbol’s petition for lack of merit, and SETS ASIDE the Court’s temporary restraining authorities and the taxpayers so that the real purpose of taxation, which is the
order dated August 13, 2010. promotion of the common good, may be achieved.

SO ORDERED. The main issue in this case is whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by private respondent Algue
as legitimate business expenses in its income tax returns. The corollary issue is
whether or not the appeal of the private respondent from the decision of the Collector
of Internal Revenue was made on time and in accordance with law.
TAX 1 batch 1 Page 152 of 193
We deal first with the procedural question. and the warrant was finally served on it. Hence, when the appeal was filed on April
23, 1965, only 20 days of the reglementary period had been consumed.
The record shows that on January 14, 1965, the private respondent, a domestic
corporation engaged in engineering, construction and other allied activities, received Now for the substantive question.
a letter from the petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965, Algue The petitioner contends that the claimed deduction of P75,000.00 was properly
flied a letter of protest or request for reconsideration, which letter was stamp disallowed because it was not an ordinary reasonable or necessary business
received on the same day in the office of the petitioner. 2 On March 12, 1965, a expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it
warrant of distraint and levy was presented to the private respondent, through its held that the said amount had been legitimately paid by the private respondent for
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the actual services rendered. The payment was in the form of promotional fees. These
pending protest. 3 A search of the protest in the dockets of the case proved fruitless. were collected by the Payees for their work in the creation of the Vegetable Oil
Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Investment Corporation of the Philippines and its subsequent purchase of the
Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was properties of the Philippine Sugar Estate Development Company.
finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be Parenthetically, it may be observed that the petitioner had Originally claimed these
served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the promotional fees to be personal holding company income 12 but later conformed to
decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6 the decision of the respondent court rejecting this assertion.13 In fact, as the said
court found, the amount was earned through the joint efforts of the persons among
The above chronology shows that the petition was filed seasonably. According to whom it was distributed It has been established that the Philippine Sugar Estate
Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the Development Company had earlier appointed Algue as its agent, authorizing it to sell
decision or ruling challenged.7 It is true that as a rule the warrant of distraint and levy its land, factories and oil manufacturing process. Pursuant to such authority, Alberto
is "proof of the finality of the assessment" 8 and renders hopeless a request for Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
reconsideration," 9 being "tantamount to an outright denial thereof and makes the Sanchez, worked for the formation of the Vegetable Oil Investment Corporation,
said request deemed rejected." 10 But there is a special circumstance in the case at inducing other persons to invest in it.14 Ultimately, after its incorporation largely
bar that prevents application of this accepted doctrine. through the promotion of the said persons, this new corporation purchased the
PSEDC properties.15 For this sale, Algue received as agent a commission of
The proven fact is that four days after the private respondent received the petitioner's P126,000.00, and it was from this commission that the P75,000.00 promotional fees
notice of assessment, it filed its letter of protest. This was apparently not taken into were paid to the aforenamed individuals.16
account before the warrant of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It was only after Atty. Guevara There is no dispute that the payees duly reported their respective shares of the fees
gave the BIR a copy of the protest that it was, if at all, considered by the tax in their income tax returns and paid the corresponding taxes thereon.17 The Court of
authorities. During the intervening period, the warrant was premature and could Tax Appeals also found, after examining the evidence, that no distribution of
therefore not be served. dividends was involved.18

As the Court of Tax Appeals correctly noted," 11 the protest filed by private The petitioner claims that these payments are fictitious because most of the payees
respondent was not pro forma and was based on strong legal considerations. It thus are members of the same family in control of Algue. It is argued that no indication
had the effect of suspending on January 18, 1965, when it was filed, the was made as to how such payments were made, whether by check or in cash, and
reglementary period which started on the date the assessment was received, viz., there is not enough substantiation of such payments. In short, the petitioner suggests
January 14, 1965. The period started running again only on April 7, 1965, when the a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary
private respondent was definitely informed of the implied rejection of the said protest deduction.

TAX 1 batch 1 Page 153 of 193

We find that these suspicions were adequately met by the private respondent when test and its practical application may be further stated and illustrated
its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that as follows:
the payments were not made in one lump sum but periodically and in different
amounts as each payee's need arose. 19 It should be remembered that this was a Any amount paid in the form of compensation, but not in fact as the
family corporation where strict business procedures were not applied and immediate purchase price of services, is not deductible. (a) An ostensible salary
issuance of receipts was not required. Even so, at the end of the year, when the paid by a corporation may be a distribution of a dividend on stock.
books were to be closed, each payee made an accounting of all of the fees received This is likely to occur in the case of a corporation having few
by him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed stockholders, Practically all of whom draw salaries. If in such a case
to be informal. This arrangement was understandable, however, in view of the close the salaries are in excess of those ordinarily paid for similar services,
relationship among the persons in the family corporation. and the excessive payment correspond or bear a close relationship to
the stockholdings of the officers of employees, it would seem likely
We agree with the respondent court that the amount of the promotional fees was not that the salaries are not paid wholly for services rendered, but the
excessive. The total commission paid by the Philippine Sugar Estate Development excessive payments are a distribution of earnings upon the stock. . . .
Co. to the private respondent was P125,000.00. 21 After deducting the said fees, (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
Algue still had a balance of P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission. This was a reasonable It is worth noting at this point that most of the payees were not in the regular employ
proportion, considering that it was the payees who did practically everything, from of Algue nor were they its controlling stockholders. 23
the formation of the Vegetable Oil Investment Corporation to the actual purchase by
it of the Sugar Estate properties. This finding of the respondent court is in accord The Solicitor General is correct when he says that the burden is on the taxpayer to
with the following provision of the Tax Code: prove the validity of the claimed deduction. In the present case, however, we find
that the onus has been discharged satisfactorily. The private respondent has proved
SEC. 30. Deductions from gross income.--In computing net income that the payment of the fees was necessary and reasonable in the light of the efforts
there shall be allowed as deductions — exerted by the payees in inducing investors and prominent businessmen to venture
in an experimental enterprise and involve themselves in a new business requiring
(a) Expenses: millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business, It is said that taxes are what we pay for civilization society. Without taxes, the
including a reasonable allowance for salaries or other compensation government would be paralyzed for lack of the motive power to activate and operate
for personal services actually rendered; ... 22 it. Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute his
and Revenue Regulations No. 2, Section 70 (1), reading as follows: share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives
SEC. 70. Compensation for personal services.--Among the ordinary of the people and enhance their moral and material values. This symbiotic
and necessary expenses paid or incurred in carrying on any trade or relationship is the rationale of taxation and should dispel the erroneous notion that it
business may be included a reasonable allowance for salaries or is an arbitrary method of exaction by those in the seat of power.
other compensation for personal services actually rendered. The test
of deductibility in the case of compensation payments is whether they But even as we concede the inevitability and indispensability of taxation, it is a
are reasonable and are, in fact, payments purely for service. This test requirement in all democratic regimes that it be exercised reasonably and in
and deductibility in the case of compensation payments is whether accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
they are reasonable and are, in fact, payments purely for service. This complain and the courts will then come to his succor. For all the awesome power of
TAX 1 batch 1 Page 154 of 193
the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner
was filed on time with the respondent court in accordance with Rep. Act No. 1125. G.R. No. L-29059 December 15, 1987
And we also find that the claimed deduction by the private respondent was permitted
under the Internal Revenue Code and should therefore not have been disallowed by COMMISSIONER OF INTERNAL REVENUE, petitioner,
the petitioner. vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is APPEALS, respondents.
AFFIRMED in toto, without costs.

SO ORDERED.
CRUZ, J.:

By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as
modified on appeal by the Supreme Court on February 27, 1965, the Commissioner
of Internal Revenue was ordered to refund to the Cebu Portland Cement Company
the amount of P 359,408.98, representing overpayments of ad valorem taxes on
cement produced and sold by it after October 1957. 1

On March 28, 1968, following denial of motions for reconsideration filed by both the
petitioner and the private respondent, the latter moved for a writ of execution to
enforce the said judgment . 2

The motion was opposed by the petitioner on the ground that the private respondent
had an outstanding sales tax liability to which the judgment debt had already been
credited. In fact, it was stressed, there was still a balance owing on the sales taxes in
the amount of P 4,789,279.85 plus 28% surcharge. 3

On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the
alleged sales tax liability of the private respondent was still being questioned and
therefore could not be set-off against the refund. 4

In his petition to review the said resolution, the Commissioner of Internal Revenue
claims that the refund should be charged against the tax deficiency of the private
respondent on the sales of cement under Section 186 of the Tax Code. His position
is that cement is a manufactured and not a mineral product and therefore not exempt
from sales taxes. He adds that enforcement of the said tax deficiency was properly
effected through his power of distraint of personal property under Sections 316 and
318 5 of the said Code and, moreover, the collection of any national internal revenue
TAX 1 batch 1 Page 155 of 193
tax may not be enjoined under Section 305, 6 subject only to the exception amended Section 246, reclassified cement as a mineral product that
prescribed in Rep. Act No. 1125. 7 This is not applicable to the instant case. The was not subject to sales tax. ...
petitioner also denies that the sales tax assessments have already prescribed
because the prescriptive period should be counted from the filing of the sales tax xxx xxx xxx
returns, which had not yet been done by the private respondent.
After a careful study of the foregoing, we conclude that reliance on the
For its part, the private respondent disclaims liability for the sales taxes, on the decision penned by Justice Angeles is misplaced. The said decision is
ground that cement is not a manufactured product but a mineral product. 8 As such, it no authority for the proposition that after the enactment of Republic
was exempted from sales taxes under Section 188 of the Tax Code after the Act No. 1299 in 1955 (defining mineral product as things with at least
effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu Portland 80% mineral content), cement became a 'mineral product," as
Cement Co. v. Collector of Internal Revenue, 9 decided in 1968. Here Justice distinguished from a "manufactured product," and therefore ceased to
Eugenio Angeles declared that "before the effectivity of Rep. Act No. 1299, be subject to sales tax. It was not necessary for the Court to so rule. It
amending Section 246 of the National Internal Revenue Code, cement was taxable was enough for the Court to say in effect that even assuming Republic
as a manufactured product under Section 186, in connection with Section 194(4) of Act No. 1299 had reclassified cement was a mineral product, the
the said Code," thereby implying that it was not considered a manufactured product reclassification could not be given retrospective application (so as to
afterwards. Also, the alleged sales tax deficiency could not as yet be enforced justify the refund of sales taxes paid before Republic Act 1299 was
against it because the tax assessment was not yet final, the same being still under adopted) because laws operate prospectively only, unless the
protest and still to be definitely resolved on the merits. Besides, the assessment had legislative intent to the contrary is manifest, which was not so in the
already prescribed, not having been made within the reglementary five-year period case of Republic Act 1266. [The situation would have been different if
from the filing of the tax returns. 10 the Court instead had ruled in favor of refund, in which case it would
have been absolutely necessary (1) to make an unconditional ruling
Our ruling is that the sales tax was properly imposed upon the private respondent for that Republic Act 1299 re-classified cement as a mineral product (not
the reason that cement has always been considered a manufactured product and not subject to sales tax), and (2) to declare the law retroactive, as a basis
a mineral product. This matter was extensively discussed and categorically resolved for granting refund of sales tax paid before Republic Act 1299.]
in Commissioner of Internal Revenue v. Republic Cement Corporation, 11 decided
on August 10, 1983, where Justice Efren L. Plana, after an exhaustive review of the In any event, we overrule the CEPOC decision of October 29, 1968
pertinent cases, declared for a unanimous Court: (G.R. No. L-20563) insofar as its pronouncements or any implication
therefrom conflict with the instant decision.
From all the foregoing cases, it is clear that cement qua cement was
never considered as a mineral product within the meaning of Section The above views were reiterated in the resolution 12 denying reconsideration of the
246 of the Tax Code, notwithstanding that at least 80% of its said decision, thus:
components are minerals, for the simple reason that cement is the
product of a manufacturing process and is no longer the mineral The nature of cement as a "manufactured product" (rather than a
product contemplated in the Tax Code (i.e.; minerals subjected to "mineral product") is well-settled. The issue has repeatedly presented
simple treatments) for the purpose of imposing the ad valorem tax. itself as a threshold question for determining the basis for computing
the ad valorem mining tax to be paid by cement Companies. No
What has apparently encouraged the herein respondents to maintain pronouncement was made in these cases that as a "manufactured
their present posture is the case of Cebu Portland Cement Co. v. product" cement is subject to sales tax because this was not at issue.
Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA 789)
penned by Justice Eugenio Angeles. For some portions of that The decision sought to be reconsidered here referred to the legislative
decision give the impression that Republic Act No. 1299, which history of Republic Act No. 1299 which introduced a definition of the
TAX 1 batch 1 Page 156 of 193
 terms "mineral" and "mineral products" in Sec. 246 of the Tax Code. returns filed by CEPOC, the statute of stations in Sec. 331 did not
Given the legislative intent, the holding in the CEPOC case (G.R. No. begin to run against the government. The assessment made by the
L-20563) that cement was subject to sales tax prior to the effectivity Commissioner in 1968 on CEPOC's cement sales during the period
f Republic Act No. 1299 cannot be construed to mean that, after the from July 1, 1959 to December 31, 1960 is not barred by the five-year
law took effect, cement ceased to be so subject to the tax. To erase prescriptive period. Absent a return or when the return is false or
any and all misconceptions that may have been spawned by reliance fraudulent, the applicable period is ten (10) days from the discovery of
on the case of Cebu Portland Cement Co. v. Collector of Internal the fraud, falsity or omission. The question in this case is: When was
Revenue, L-20563, October 29, 1968 (28 SCRA 789) penned by CEPOC's omission to file tha return deemed discovered by the
Justice Eugenio Angeles, the Court has expressly overruled it insofar government, so as to start the running of said period? 13
as it may conflict with the decision of August 10, 1983, now subject of
these motions for reconsideration. The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of
On the question of prescription, the private respondent claims that the five-year the government." If the payment of taxes could be postponed by simply questioning
reglementary period for the assessment of its tax liability started from the time it filed their validity, the machinery of the state would grind to a halt and all government
its gross sales returns on June 30, 1962. Hence, the assessment for sales taxes functions would be paralyzed. That is the reason why, save for the exception already
made on January 16, 1968 and March 4, 1968, were already out of time. We noted, the Tax Code provides:
disagree. This contention must fail for what CEPOC filed was not the sales returns
required in Section 183(n) but the ad valorem tax returns required under Section 245 Sec. 291. Injunction not available to restrain collection of tax. — No
of the Tax Code. As Justice Irene R. Cortes emphasized in the aforestated court shall have authority to grant an injunction to restrain the
resolution: collection of any national internal revenue tax, fee or charge imposed
by this Code.
In order to avail itself of the benefits of the five-year prescription
period under Section 331 of the Tax Code, the taxpayer should have It goes without saying that this injunction is available not only when the assessment
filed the required return for the tax involved, that is, a sales tax return. is already being questioned in a court of justice but more so if, as in the instant case,
(Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, the challenge to the assessment is still-and only-on the administrative level. There is
16 SCRA 277). Thus CEPOC should have filed sales tax returns of its all the more reason to apply the rule here because it appears that even after
gross sales for the subject periods. Both parties admit that returns crediting of the refund against the tax deficiency, a balance of more than P 4 million
were made for the ad valorem mining tax. CEPOC argues that said is still due from the private respondent.
returns contain the information necessary for the assessment of the
sales tax. The Commissioner does not consider such returns as To require the petitioner to actually refund to the private respondent the amount of
compliance with the requirement for the filing of tax returns so as to the judgment debt, which he will later have the right to distrain for payment of its
start the running of the five-year prescriptive period. sales tax liability is in our view an Idle ritual. We hold that the respondent Court of
Tax Appeals erred in ordering such a charade.
We agree with the Commissioner. It has been held in Butuan Sawmill
Inc. v. CTA, supra, that the filing of an income tax return cannot be WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in
considered as substantial compliance with the requirement of filing CTA Case No. 786 is SET ASIDE, without any pronouncement as to costs.
sales tax returns, in the same way that an income tax return cannot
be considered as a return for compensating tax for the purpose of SO ORDERED.
computing the period of prescription under Sec. 331. (Citing Bisaya
Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R.
Nos. L-12100 and L-11812, May 29, 1959). There being no sales tax
TAX 1 batch 1 Page 157 of 193
 Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty
Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums
on insurance it has originally underwritten in the Philippines, in consideration for the
assumption by the latter of liability on an equivalent portion of the risks insured. Said
reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by
the foreign reinsurers outside the Philippines, except the contract with Swiss
Reinsurance Company, which was signed by both parties in Switzerland.

The reinsurance contracts made the commencement of the reinsurers' liability

simultaneous with that of Philippine Guaranty Co., Inc. under the original insurance.
Philippine Guaranty Co., Inc. was required to keep a register in Manila where the
risks ceded to the foreign reinsurers where entered, and entry therein was binding
upon the reinsurers. A proportionate amount of taxes on insurance premiums not
recovered from the original assured were to be paid for by the foreign reinsurers. The
foreign reinsurers further agreed, in consideration for managing or administering their
affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc., in an
amount equal to 5% of the reinsurance premiums. Conflicts and/or differences
between the parties under the reinsurance contracts were to be arbitrated in Manila.
Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their
contract shall be construed by the laws of the Philippines.

Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded
to the foreign reinsurers the following premiums:

G.R. No. L-22074             April 30, 1965 1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71

THE PHILIPPINE GUARANTY CO., INC., petitioner, 1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income
APPEALS, respondents. when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold
or pay tax on them. Consequently, per letter dated April 13, 1959, the Commissioner
Josue H. Gustilo and Ramirez and Ortigas for petitioner. of Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax
Office of the Solicitor General and Attorney V.G. Saldajena for respondents. on the ceded reinsurance premiums, thus:

BENGZON, J.P., J.: 1953

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into Gross premium per investigation . . . . . . . . . . P768,580.00
reinsurance contracts, on various dates, with foreign insurance companies not doing Withholding tax due thereon at 24% . . . . . . . . P184,459.00
business in the Philippines namely: Imperio Compañia de Seguros, La Union y El
Fenix Español, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd.,
TAX 1 batch 1 Page 158 of 193
 Compromise for non-filing of withholding Petitioner maintain that the reinsurance premiums in question did not constitute
100.00 income from sources within the Philippines because the foreign reinsurers did not
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
engage in business in the Philippines, nor did they have office here.

TOTAL AMOUNT DUE & COLLECTIBLE . . . . P230,673.00 The reinsurance contracts, however, show that the transactions or activities that
========== constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against loses
arising from the original insurances in the Philippines were performed in the
1954
Philippines. The liability of the foreign reinsurers commenced simultaneously with the
Gross premium per investigation . . . . . . . . . . P780.880.68 liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine
Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign
Withholding tax due thereon at 24% . . . . . . . . P184,411.00 reinsurers. Entries made in such register bound the foreign resinsurers, localizing in
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00 the Philippines the actual cession of the risks and premiums and assumption of the
reinsurance undertaking by the foreign reinsurers. Taxes on premiums imposed by
Compromise for non-filing of withholding Section 259 of the Tax Code for the privilege of doing insurance business in the
100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . . Philippines were payable by the foreign reinsurers when the same were not
recoverable from the original assured. The foreign reinsurers paid Philippine
Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in
TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00
consideration for administration and management by the latter of the affairs of the
==========
former in the Philippines in regard to their reinsurance activities here. Disputes and
differences between the parties were subject to arbitration in the City of Manila. All
Philippine Guaranty Co., Inc., protested the assessment on the ground that the reinsurance contracts, except that with Swiss Reinsurance Company, were
reinsurance premiums ceded to foreign reinsurers not doing business in the signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by the
Philippines are not subject to withholding tax. Its protest was denied and it appealed foreign reinsurers abroad. Although the contract between Philippine Guaranty Co.,
to the Court of Tax Appeals. Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland, the
same specifically provided that its provision shall be construed according to the laws
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive of the Philippines, thereby manifesting a clear intention of the parties to subject
portion: themselves to Philippine law.

IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Section 24 of the Tax Code subjects foreign corporations to tax on their income from
Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal sources within the Philippines. The word "sources" has been interpreted as the
Revenue the respective sums of P202,192.00 and P173,153.00 or the total activity, property or service giving rise to the income. 1 The reinsurance premiums
sum of P375,345.00 as withholding income taxes for the years 1953 and were income created from the undertaking of the foreign reinsurance companies to
1954, plus the statutory delinquency penalties thereon. With costs against reinsure Philippine Guaranty Co., Inc., against liability for loss under original
petitioner. insurances. Such undertaking, as explained above, took place in the Philippines.
These insurance premiums, therefore, came from sources within the Philippines and,
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the hence, are subject to corporate income tax.
Commissioner of Internal Revenue's assessment for withholding tax on the
reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers. The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions 2 while
activity may consist of only a single transaction. An activity may occur outside the
place of business. Section 24 of the Tax Code does not require a foreign corporation
TAX 1 batch 1 Page 159 of 193
to engage in business in the Philippines in subjecting its income to tax. It suffices that ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954,
the activity creating the income is performed or done in the Philippines. What is no withholding tax was due.
controlling, therefore, is not the place of business but the place of activity that
created an income. The pertinent section of the Tax Code States:

Petitioner further contends that the reinsurance premiums are not income from Sec. 54. Payment of corporation income tax at source. — In the case of
sources within the Philippines because they are not specifically mentioned in Section foreign corporations subject to taxation under this Title not engaged in trade
37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it merely or business within the Philippines and not having any office or place of
directs that the kinds of income mentioned therein should be treated as income from business therein, there shall be deducted and withheld at the source in the
sources within the Philippines but it does not require that other kinds of income same manner and upon the same items as is provided in Section fifty-three a
should not be considered likewise.1äwphï1.ñët tax equal to twenty-four per centum thereof, and such tax shall be returned
and paid in the same manner and subject to the same conditions as provided
The power to tax is an attribute of sovereignty. It is a power emanating from in that section.
necessity. It is a necessary burden to preserve the State's sovereignty and a means
to give the citizenry an army to resist an aggression, a navy to defend its shores from The applicable portion of Section 53 provides:
invasion, a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's territory, and (b) Nonresident aliens. — All persons, corporations and general
facilities and protection which a government is supposed to provide. Considering that copartnerships (compañias colectivas), in what ever capacity acting, including
the reinsurance premiums in question were afforded protection by the government lessees or mortgagors of real or personal property, trustees acting in any
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our trust capacity, executors, administrators, receivers, conservators, fiduciaries,
laws, such reinsurance premiums and reinsurers should share the burden of employers, and all officers and employees of the Government of the
maintaining the state. Philippines having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities,
Petitioner would wish to stress that its reliance in good faith on the rulings of the compensation, remunerations, emoluments, or other fixed or determinable
Commissioner of Internal Revenue requiring no withholding of the tax due on the annual or periodical gains, profits, and income of any nonresident alien
reinsurance premiums in question relieved it of the duty to pay the corresponding individual, not engaged in trade or business within the Philippines and not
withholding tax thereon. This defense of petitioner may free if from the payment of having any office or place of business therein, shall (except in the case
surcharges or penalties imposed for failure to pay the corresponding withholding tax, provided for in subsection [a] of this section) deduct and withhold from such
but it certainly would not exculpate if from liability to pay such withholding tax The annual or periodical gains, profits, and income a tax equal to twelve per
Government is not estopped from collecting taxes by the mistakes or errors of its centum thereof: Provided That no deductions or withholding shall be required
agents.3 in the case of dividends paid by a foreign corporation unless (1) such
corporation is engaged in trade or business within the Philippines or has an
In respect to the question of whether or not reinsurance premiums ceded to foreign office or place of business therein, and (2) more than eighty-five per
reinsurers not doing business in the Philippines are subject to withholding tax under centum of the gross income of such corporation for the three-year period
Section 53 and 54 of the Tax Code, suffice it to state that this question has already ending with the close of its taxable year preceding the declaration of such
been answered in the affirmative in Alexander Howden & Co., Ltd. vs. Collector of dividends (or for such part of such period as the corporation has been in
Internal Revenue, L-19393, April 14, 1965. existence)was derived from sources within the Philippines as determined
under the provisions of section thirty-seven: Provided, further, That the
Finally, petitioner contends that the withholding tax should be computed from the Collector of Internal Revenue may authorize such tax to be deducted and
amount actually remitted to the foreign reinsurers instead of from the total amount withheld from the interest upon any securities the owners of which are not
known to the withholding agent.
TAX 1 batch 1 Page 160 of 193
The above-quoted provisions allow no deduction from the income therein
enumerated in determining the amount to be withheld. According, in computing the
withholding tax due on the reinsurance premium in question, no deduction shall be
recognized.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co.,
Inc. is hereby ordered to pay to the Commissioner of Internal Revenue the sums of G.R. No. 106611 July 21, 1994
P202,192.00 and P173,153.00, or a total amount of P375,345.00, as withholding tax
for the years 1953 and 1954, respectively. If the amount of P375,345.00 is not paid COMMISSIONER OF INTERNAL REVENUE, petitioner,
within 30 days from the date this judgement becomes final, there shall be collected a vs.
surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month from COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF
the date of delinquency to the date of payment, provided that the maximum amount TAX APPEALS, respondents.
that may be collected as interest shall not exceed the amount corresponding to a
period of three (3) years. With costs againsts petitioner. The Solicitor General for petitioner.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon Palaez, Adriano & Gregorio for private respondent.
and Regala, JJ., concur.
Makalintal and Zaldivar, JJ., took no part.

REGALADO, J.:

The judicial proceedings over the present controversy commenced with CTA Case
No. 4099, wherein the Court of Tax Appeals ordered herein petitioner Commissioner
of Internal Revenue to grant a refund to herein private respondent Citytrust Banking
Corporation (Citytrust) in the amount of P13,314,506.14, representing its overpaid
income taxes for 1984 and 1985, but denied its claim for the alleged refundable
amount reflected in its 1983 income tax return on the ground of prescription.1 That
judgment of the tax court was affirmed by respondent Court of Appeals in its
judgment in CA-G.R. SP
No. 26839.2 The case was then elevated to us in the present petition for review
on certiorari wherein the latter judgment is impugned and sought to be nullified
and/or set aside.

It appears that in a letter dated August 26, 1986, herein private respondent
corporation filed a claim for refund with the Bureau of Internal Revenue (BIR) in the
amount of P19,971,745.00 representing the alleged aggregate of the excess of its
carried-over total quarterly payments over the actual income tax due, plus carried-
over withholding tax payments on government securities and rental income, as
computed in its final income tax return for the calendar year ending December 31,
1985.3

TAX 1 batch 1 Page 161 of 193

Two days later, or on August 28, 1986, in order to interrupt the running of the The tax court denied the motion to suspend proceedings on the ground that the case
prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, docketed had already been submitted for decision since February 20, 1991.9
therein as CTA Case No. 4099, claiming the refund of its income tax overpayments
for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00.4 Thereafter, said court rendered its decision in the case, the decretal portion of which
declares:
In the answer filed by the Office of the Solicitor General, for and in behalf of therein
respondent commissioner, it was asserted that the mere averment that Citytrust WHEREFORE, in view of the foregoing, petitioner is entitled to a
incurred a net loss in 1985 does not ipso facto merit a refund; that the amounts of refund but only for the overpaid taxes incurred in 1984 and 1985. The
P6,611,223.00, P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income refundable amount as shown in its 1983 income tax return is hereby
tax overpayment, taxes withheld on proceeds of government securities investments, denied on the ground of prescription. Respondent is hereby ordered
as well as on rental income, respectively, are not properly documented; that to grant a refund to petitioner Citytrust Banking Corp. in the amount of
assuming arguendo that petitioner is entitled to refund, the right to claim the same P13,314,506.14 representing the overpaid income taxes for 1984 and
has prescribed 1985, recomputed as follows:
with respect to income tax payments prior to August 28, 1984, pursuant to Sections
292 and 295 of the National Internal Revenue Code of 1977, as amended, since the 1984 Income tax due P 4,715,533.00
petition was filed only on August 28, 1986.5 Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits —
On February 20, 1991, the case was submitted for decision based solely on the W/T on int. on gov't. sec. 1,921,245.37*
pleadings and evidence submitted by herein private respondent Citytrust. Herein W/T on rental inc. 26,604.30* 18,162,448.67
petitioner could not present any evidence by reason of the repeated failure of the Tax ——————— ———————
Credit/Refund Division of the BIR to transmit the records of the case, as well as the Tax Overpayment (13,446,915.67)
investigation report thereon, to the Solicitor General.6 Less: FCDU payable 150,252.00
———————
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation Amount refundable for 1984 P (13,296,663.67)
and motion praying for the suspension of the proceedings in the said case on the
ground that the claim of Citytrust for tax refund in the amount of P19,971,745.00 was 1985 Income tax due (loss) P — 0 —
already being processed by the Tax Credit/Refund Division of the BIR, and that said Less: W/T on rentals 36,716.47*
bureau was only awaiting the submission by Citytrust of the required confirmation ———————
receipts which would show whether or not the aforestated amount was actually paid Tax Overpayment (36,716.47)*
and remitted to the BIR.7 Less: FCDU payable 18,874.00
———————
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals Amount Refundable for 1985 P (17,842.47)
already acquired jurisdiction over the case, it could no longer be divested of the
same; and, further, that the proceedings therein could not be suspended by the mere * Note:
fact that the claim for refund was being administratively processed, especially where
the case had already been submitted for decision. These credits are smaller than the claimed amount
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, because only the above figures are well supported by
Y-1, Y-2 and Y-3 adduced in the case, which clearly showed that there was an the various exhibits presented during the hearing.
overpayment of income taxes and for which a tax credit or refund was due to
Citytrust. The Foregoing exhibits are allegedly conclusive proof of and an admission No pronouncement as to costs.
by herein petitioner that there had been an overpayment of income taxes.8
TAX 1 batch 1 Page 162 of 193
 SO ORDERED.10 claim for refund of Citytrust, considering that, firstly, said private respondent failed to
prove and substantiate its claim for such refund; and, secondly, the bureau's findings
The order for refund was based on the following findings of the Court of Tax Appeals: of deficiency income and business tax liabilities against private respondent for the
(1) the fact of withholding has been established by the statements and certificates of year 1984 bars such payment.16
withholding taxes accomplished by herein private respondent's withholding agents,
the authenticity of which were neither disputed nor controverted by herein petitioner; After a careful review of the records, we find that under the peculiar circumstances of
(2) no evidence was presented which could effectively dispute the correctness of the this case, the ends of substantial justice and public interest would be better
income tax return filed by herein respondent corporation and other material facts subserved by the remand of this case to the Court of Tax Appeals for further
stated therein; (3) no deficiency assessment was issued by herein petitioner; and (4) proceedings.
there was an audit report submitted by the BIR Assessment Branch, recommending
the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which It is the sense of this Court that the BIR, represented herein by petitioner
enjoys the presumption of regularity in the performance of official duty.11 Commissioner of Internal Revenue, was denied its day in court by reason of the
mistakes and/or negligence of its officials and employees. It can readily be gleaned
A motion for the reconsideration of said decision was initially filed by the Solicitor from the records that when it was herein petitioner's turn to present evidence,
General on the sole ground that the statements and certificates of taxes allegedly several postponements were sought by its counsel, the Solicitor General, due to the
withheld are not conclusive evidence of actual payment and remittance of the taxes unavailability of the necessary records which were not transmitted by the Refund
withheld to the BIR.12 A supplemental motion for reconsideration was thereafter filed, Audit Division of the BIR to said counsel, as well as the investigation report made by
wherein it was contended for the first time that herein private respondent had the Banks/Financing and Insurance Division of the said bureau/ despite repeated
outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter- requests.17 It was under such a predicament and in deference to the tax court that
office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he ultimately, said records being still unavailable, herein petitioner's counsel was
came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the constrained to submit the case for decision on February 20, 1991 without presenting
amount of P56,588,740.91 representing deficiency income and business taxes any evidence.
covered by Demand/Assessment Notice No. FAS-1-84-003291-003296.13
For that matter, the BIR officials and/or employees concerned also failed to heed the
Oppositions to both the basic and supplemental motions for reconsideration were order of the Court of Tax Appeals to remand the records to it pursuant to Section 2,
filed by private respondent Citytrust.14 Thereafter, the Court of Tax Appeals issued a Rule 7 of the Rules of the Court of Tax Appeals which provides that the
resolution denying both motions for the reason that Section 52 (b) of the Tax Code, Commissioner of Internal Revenue and the Commissioner of Customs shall certify
as implemented by Revenue Regulation and forward to the Court of Tax Appeals, within ten days after filing his answer, all
6-85, only requires that the claim for tax credit or refund must show that the income the records of the case in his possession, with the pages duly numbered, and if the
received was declared as part of the gross income, and that the fact of withholding records are in separate folders, then the folders shall also be numbered.
was duly established. Moreover, with regard to the argument raised in the
supplemental motion for reconsideration anent the deficiency tax assessment The aforestated impassé came about due to the fact that, despite the filing of the
against herein petitioner, the tax court ruled that since that matter was not raised in aforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax
the pleadings, the same cannot be considered, invoking therefor the salutary Appeals, the Tax Refund Division of the BIR still continued to act administratively on
purpose of the omnibus motion rule which is to obviate multiplicity of motions and to the claim for refund previously filed therein, instead of forwarding the records of the
discourage dilatory pleadings.15 case to the Court of Tax Appeals as ordered.18

As indicated at the outset, a petition for review was filed by herein petitioner with It is a long and firmly settled rule of law that the Government is not bound by the
respondent Court of Appeals which in due course promulgated its decision affirming errors committed by its agents.19 In the performance of its governmental functions,
the judgment of the Court of Tax Appeals. Petitioner eventually elevated the case to the State cannot be estopped by the neglect of its agent and officers. Although the
this Court, maintaining that said respondent court erred in affirming the grant of the Government may generally be estopped through the affirmative acts of public officers
TAX 1 batch 1 Page 163 of 193
acting within their authority, their neglect or omission of public duties as exemplified deficiency assessment should subsequently be upheld, the Government will be
in this case will not and should not produce that effect. forced to institute anew a proceeding for the recovery of erroneously refunded taxes
which recourse must be filed within the prescriptive period of ten years after
Nowhere is the aforestated rule more true than in the field of taxation.20 It is discovery of the falsity, fraud or omission in the false or fraudulent return
axiomatic that the Government cannot and must not be estopped particularly in involved.23 This would necessarily require and entail additional efforts and expenses
matters involving taxes. Taxes are the lifeblood of the nation through which the on the part of the Government, impose a burden on and a drain of government
government agencies continue to operate and with which the State effects its funds, and impede or delay the collection of much-needed revenue for governmental
functions for the welfare of its constituents.21 The errors of certain administrative operations.
officers should never be allowed to jeopardize the Government's financial
position,22 especially in the case at bar where the amount involves millions of pesos Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both
the collection whereof, if justified, stands to be prejudiced just because of logically necessary and legally appropriate that the issue of the deficiency tax
bureaucratic lethargy. assessment against Citytrust be resolved jointly with its claim for tax refund, to
determine once and for all in a single proceeding the true and correct amount of tax
Further, it is also worth nothing that the Court of Tax Appeals erred in denying due or refundable.
petitioner's supplemental motion for reconsideration alleging bringing to said court's
attention the existence of the deficiency income and business tax assessment In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be
against Citytrust. The fact of such deficiency assessment is intimately related to and only just and fair that the taxpayer and the Government alike be given equal
inextricably intertwined with the right of respondent bank to claim for a tax refund for opportunities to avail of remedies under the law to defeat each other's claim and to
the same year. To award such refund despite the existence of that deficiency determine all matters of dispute between them in one single case. It is important to
assessment is an absurdity and a polarity in conceptual effects. Herein private note that in determining whether or not petitioner is entitled to the refund of the
respondent cannot be entitled to refund and at the same time be liable for a tax amount paid, it would necessary to determine how much the Government is entitled
deficiency assessment for the same year. to collect as taxes. This would necessarily include the determination of the correct
liability of the taxpayer and, certainly, a determination of this case would constitute
The grant of a refund is founded on the assumption that the tax return is valid, that is, res judicata on both parties as to all the matters subject thereof or necessarily
the facts stated therein are true and correct. The deficiency assessment, although involved therein.
not yet final, created a doubt as to and constitutes a challenge against the truth and
accuracy of the facts stated in said return which, by itself and without unquestionable The Court cannot end this adjudication without observing that what caused the
evidence, cannot be the basis for the grant of the refund. Government to lose its case in the tax court may hopefully be ascribed merely to the
ennui or ineptitude of officialdom, and not to syndicated intent or corruption. The
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was evidential cul-de-sac in which the Solicitor General found himself once again gives
the applicable law when the claim of Citytrust was filed, provides that "(w)hen an substance to the public perception and suspicion that it is another proverbial tip in
assessment is made in case of any list, statement, or return, which in the opinion of the iceberg of venality in a government bureau which is pejoratively rated over the
the Commissioner of Internal Revenue was false or fraudulent or contained any years. What is so distressing, aside from the financial losses to the Government, is
understatement or undervaluation, no tax collected under such assessment shall be the erosion of trust in a vital institution wherein the reputations of so many honest
recovered by any suits unless it is proved that the said list, statement, or return was and dedicated workers are besmirched by the acts or omissions of a few. Hence, the
not false nor fraudulent and did not contain any understatement or undervaluation; liberal view we have here taken pro hac vice, which may give some degree of
but this provision shall not apply to statements or returns made or to be made in assurance that this Court will unhesitatingly react to any bane in the government
good faith regarding annual depreciation of oil or gas wells and mines." service, with a replication of such response being likewise expected by the people
from the executive authorities.
Moreover, to grant the refund without determination of the proper assessment and
the tax due would inevitably result in multiplicity of proceedings or suits. If the
TAX 1 batch 1 Page 164 of 193
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. x--------------------x
26839 is hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax
Appeals for further proceedings and appropriate action, more particularly, the G.R. No. 112800             April 26, 2005
reception of evidence for petitioner and the corresponding disposition of CTA Case
No. 4099 not otherwise inconsistent with our adjudgment herein. PHILIPPINE NATIONAL BANK, Petitioner,
vs.
SO ORDERED. THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B.
SAVELLANO and COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine
National Oil Company (PNOC)1 and the Philippine National Bank (PNB),<2 assailing
the decisions of the Court of Appeals in CA-G.R. SP No. 295833 and CA-G.R. SP No.
29526,4 respectively, which both affirmed the decision of the Court of Tax Appeals
(CTA) in CTA Case No. 4249.5

The Petitions before this Court originated from a sworn statement submitted by
private respondent Tirso B. Savellano (Savellano) to the Bureau of Internal Revenue
(BIR) on 24 June 1986.  Through his sworn statement, private respondent Savellano
informed the BIR that PNB had failed to withhold the 15% final tax on interest
earnings and/or yields from the money placements of PNOC with the said bank, in
violation of Presidential Decree (P.D.) No. 1931.  P.D. No. 1931, which took effect on
11 June 1984, withdrew all tax exemptions of government-owned and controlled
corporations.

In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for
taxes on the interests earned by its money placements with PNB and which PNB did
not withhold.6   PNOC wrote the BIR on 25 September 1986, and made an offer to
compromise its tax liability, which it estimated to be in the sum of P304,419,396.83,
excluding interest and surcharges, as of 31 July 1986.  PNOC proposed to set-off its
tax liability against a claim for tax refund/credit of the National Power Corporation
G.R. No. 109976             April 26, 2005 (NAPOCOR), then pending with the BIR, in the amount of P335,259,450.21.  The
amount of the claim for tax refund/credit was supposedly a receivable account of
PHILIPPINE NATIONAL OIL COMPANY, Petitioner, PNOC from NAPOCOR.7
vs.
THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for
REVENUE and TIRSO SAVELLANO, Respondents. the payment of the final tax on the interest earnings and/or yields from PNOC's
money placements with the bank, from 15 October 1984 to 15 October 1986, in the
TAX 1 batch 1 Page 165 of 193
total amount of P376,301,133.33.8   On the same date, the BIR also mailed a letter to Savellano
PNOC informing it of the demand letter sent to PNB.9 Outstanding balance P   43,800,915.2515

PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private
tax liability through the set-off of the said tax liability against NAPOCOR'S pending respondent Savellano was already fully paid the informer's reward equivalent to 15%
claim for tax refund/credit.10   The BIR replied on 11 November 1986 that the of the amount of tax actually collected by the BIR pursuant to its compromise
proposal for set-off was premature since NAPOCOR's claim was still under process.  agreement with PNOC.  BIR Commissioner Tan further explained that the
Once more, BIR requested PNOC to settle its tax liability in the total amount compromise was in accordance with the provisions of E.O. No. 44, Revenue
of P385,961,580.82, consisting of P303,343,765.32 final tax, plus P82,617,815.50 Memorandum Order (RMO) No. 39-86, and RMO No. 4-87.16
interest computed until 15 November 1986.11
Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR
On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability.  This Commissioner Tan, seeking reconsideration of his decision to compromise the tax
time, however, PNOC proposed a compromise by paying P91,003,129.89, liability of PNOC.  In the same letter, private respondent Savellano questioned the
representing 30% of the P303,343,766.29 basic tax, in accordance with the legality of the compromise agreement entered into by the BIR and PNOC and
provisions of Executive Order (E.O.) No. 44.12 claimed that the tax liability should have been collected in full.17

Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending
accepted the compromise.  The BIR received a total tax payment on the interest with the BIR, private respondent Savellano filed a Petition for Review ad
earnings and/or yields from PNOC's money placements with PNB in the amount cautelam with the CTA, docketed as CTA Case No. 4249.  He claimed therein that
of P93,955,479.12, broken down as follows: BIR Commissioner Tan acted "with grave abuse of discretion and/or whimsical
exercise of jurisdiction" in entering into a compromise agreement that resulted in "a
Previous payment made by PNB P        2,952,349.23 gross and unconscionable diminution" of his reward.  Private respondent Savellano
Add: Payment made by PNOC pursuant to P      91,003,129.89 prayed for the enforcement and collection of the total tax assessment against
the compromise agreement of June 22, 1987 taxpayer PNOC and/or withholding agent PNB; and the payment to him by the BIR
Total tax payment P      93,955,479.1213 Commissioner of the 15% informer's reward on the total tax collected.18 He would
later amend his Petition to implead PNOC and PNB as necessary and indispensable
Private respondent Savellano, through four installments, was paid the informer's parties since they were parties to the compromise agreement.19
reward in the total amount of P14,093,321.89, representing 15% of
the P93,955,479.12 tax collected by the BIR from PNOC and PNB.  He received the In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition
last installment on 01 December 1987.14 stated no cause of action against him, and that private respondent Savellano was
already paid the informer's reward due him.  Alleging that the Petition was baseless
On 07 January 1988, private respondent Savellano, through his legal counsel, wrote and malicious, BIR Commissioner Tan filed a counterclaim for exemplary damages
the BIR to demand payment of the balance of his informer's reward, computed as against private respondent Savellano.20
follows:
PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked
BIR tax assessment P    385,961,580.82 jurisdiction to decide the case.21 In its Resolution, dated 28 November 1988, the CTA
denied the Motions to Dismiss since the question of lack of jurisdiction and/or cause
Final tax rate 0.15
of action do not appear to be indubitable.22
Informer's reward due (BIR deficiency tax P      57,894,237.12
assessment x Final tax rate)
After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their
Less: Payment received by private respondent P      14,093,321.89 respective Answers to the amended Petition.  PNOC averred, among other things,
TAX 1 batch 1 Page 166 of 193
that (1) it had no privity with private respondent Savellano; (2) the BIR Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May
Commissioner's discretionary act in entering into the compromise agreement had 1991, resolved to allow private respondent Savellano to withdraw his previous
legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the Motion for Suspension of Proceeding and to admit the supplementary evidence
CTA had no jurisdiction to resolve the case against it.23 On the other hand, PNB being offered by the same party.35
asserted that (1) the CTA lacked jurisdiction over the case; and (2) the BIR
Commissioner's decision to accept the compromise was discretionary on his part In its Order, dated 03 June 1991, the CTA considered the case submitted for
and, therefore, cannot be reviewed or interfered with by the courts.24 PNOC and PNB decision as of the following day, 04 June 1991.36
later filed their amended Answer invoking an opinion of the Commission on Audit
(COA) disallowing the payment by the BIR of informer's reward to private respondent On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR
Savellano.25 assessment, dated 16 January 1991, for deficiency withholding tax in the sum
of P294,958,450.73.  PNB alleged that its appeal to the DOJ was sanctioned under
The CTA, thereafter, ordered the parties to submit their evidence,26 to be followed by P.D. No. 242, which provided for the administrative settlement of disputes between
their respective Memoranda.27 government offices, agencies, and instrumentalities, including government-owned
and controlled corporations.37
On 23 November 1990, private respondent Savellano, filed a Manifestation with
Motion for Suspension of Proceedings, claiming that his pending Motion for Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings
Reconsideration with the BIR Commissioner may soon be resolved.28 Both PNOC before the CTA since it had a pending appeal before the DOJ.38 On 04 July 1991,
and PNB opposed the said Motion.29 PNB filed with the CTA a Motion for Reconsideration of its Order, dated 03 June
1991, submitting the case for decision as of 04 June 1991, and prayed that the CTA
Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16 hold its resolution of the case in view of PNB's appeal pending before the DOJ.39
January 1991, demanded that PNB pay deficiency withholding tax on the interest
earnings and/or yields from PNOC's money placements, in the amount of On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR.  It
P294,958,450.73, computed as follows: alleged that despite its request for reconsideration of the deficiency withholding tax
assessment, dated 16 January 1991, BIR Commissioner Ong sent another letter,
Withholding tax, plus interest under the letter P     385,961,580.82 dated 23 April 1991, demanding payment of the P294,958,450.73 deficiency
of demand dated November 11, 1986 withholding tax on the interest earnings and/or yields from PNOC's money
Less: Amount paid under E.O. No. 44 P       91,003,129.89 placements.  The same letter informed PNB that this was the BIR Commissioner's
Amount still due and collectible P     294,958,450.7330 final decision on the matter and that the BIR Commissioner was set to issue a
warrant of distraint and/or levy against PNB's deposits with the Central Bank of the
Philippines.  PNB further alleged that the levy and distraint of PNB's deposits, unless
This BIR letter was received by PNB on 06 February 1991,31 and was protested by it
restrained by the CTA, would cause great and irreparable prejudice not only to PNB,
through a letter, dated 11 April 1991.32 The BIR denied PNB's protest on the ground
a government-owned and controlled corporation, but also to the Government itself.40
that it was filed out of time and, thus, the assessment had already become final.33
Pursuant to the Order of the CTA, during the hearing on 19 July 1991,41 the parties
Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion
submitted their respective Memoranda on PNB's Motion to Suspend Proceedings.42
moving to withdraw his previous Motion for Suspension of Proceeding since BIR
Commissioner Ong had finally resolved his Motion for Reconsideration, and
submitting by way of supplemental offer of evidence (1) the letter of BIR On 20 September 1991, private respondent Savellano filed another Omnibus Motion
Commissioner Ong, dated 13 February 1991, informing private respondent calling the attention of the CTA to the fact that the BIR already issued, on 12 August
Savellano of the action on his Motion for Reconsideration; and (2) the demand-letter 1991, a warrant of garnishment addressed to the Central Bank Governor and against
of BIR Commissioner Ong to PNB, dated 16 January 1991.34 PNB.  In compliance with the said warrant, the Central Bank issued, on 23 August
1991, a debit advice against the demand deposit account of PNB with the Central
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Bank for the amount of P294,958,450.73, with a corresponding transfer of the same issues in their previous pleadings and which had already been passed upon and
amount to the demand deposit-in-trust of BIR with the Central Bank.  Since the resolved adversely against them.46
assessment had already been enforced, PNB's Motion to Suspend Proceedings
became moot and academic.  Private respondent Savellano, thus, moved for the PNOC and PNB filed separate appeals with the Court of Appeals seeking the
denial of PNB's Motion to Suspend Proceedings and for an order requiring BIR to reversal of the CTA decision in CTA Case No. 4249, dated 28 May 1992, and the
deposit with the CTA the amount of P44,243,767.00 as his informer's reward, CTA Resolution in the same case, dated 16 November 1992.  PNOC's appeal was
representing 15% of the deficiency withholding tax collected.43 docketed as CA-G.R. SP No. 29583, while PNB's appeal was CA-G.R. SP No.
29526.  In both cases, the Court of Appeals affirmed the decision of the CTA.
Both PNOC and PNB opposed private respondent Savellano's Omnibus Motion,
dated 20 September 1991, arguing that the DOJ already ordered the suspension of In the meantime, the Central Bank again issued on 02 September 1992 a debit
the collection of the tax deficiency.  There was therefore no basis for private advice against the demand deposit account of PNB with the Central Bank for the
respondent Savellano's Motion as the same was premised on the erroneous amount of P294,958,450.73,47 and on 15 September 1992, credited the same
assumption that the tax deficiency had been collected. When the DOJ denied the amount to the demand deposit account of the Treasurer of the Republic of the
BIR Commissioner's Motion to Dismiss and required him to file his answer, the DOJ Philippines.48   On 04 November 1992, the Treasurer of the Republic issued a journal
assumed jurisdiction over PNB's appeal, and the CTA should first suspend its voucher transferring P294,958,450.73 to the account of the BIR.49   PNB, in turn,
proceedings to give the DOJ the opportunity to decide the validity and propriety of debited P294,958,450.73 from the deposit account of PNOC with PNB.50
the tax assessment against PNB.44
PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court,
The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction praying that the decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-
and disposed of the case as follows: G.R. SP No. 29526, respectively, both affirming the decision of the CTA in CTA Case
No. 4249, be reversed and set aside.  These two Petitions were consolidated since
WHEREFORE, judgment is rendered declaring the COMPROMISE they involved identical parties and factual background, and the resolution of related,
AGREEMENT between the Bureau of Internal Revenue, on the one hand, if not exactly, the same issues.
and the Philippine National Oil Company and Philippine National Bank, on the
other, as WITHOUT FORCE AND EFFECT; In its Petition for Review, PNOC alleged the following errors committed by the Court
of Appeals in CA-G.R. SP No. 29583:
The Commissioner of Internal Revenue is hereby ordered to ENFORCE the
ASSESSMENT of January 16, 1991 against Philippine National Bank which 1.  The Court of Appeals erred in holding that the deficiency taxes of PNOC
has become final and unappealable by collecting from Philippine National could not be the subject of a compromise under Executive Order No. 44; and
Bank the deficiency withholding tax, plus interest totalling
(sic) P294,958,450.73; 2.  The Court of Appeals erred in holding that Savellano is entitled to
additional informer's reward.51
Petitioner may be paid, upon collection of the deficiency withholding tax, the
balance of his entitlement to informer's reward based on fifteen percent PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in
(15%) of the deficiency withholding total tax collected in this case CA-G.R. SP No. 29526, assigning the following errors:
or P44,243.767.00 subject to existing rules and regulations governing
payment of reward to informers.45 1.  Respondent Court erred in not finding that the Court of Tax Appeals lacks
jurisdiction on the controversy involving BIR and PNB (both government
In a Resolution, dated 16 November 1992, the CTA denied the Motions for instrumentalities) regarding the new assessment of BIR against PNB;
Reconsideration filed by PNOC and PNB since they substantially raised the same

TAX 1 batch 1 Page 168 of 193

 2.  The respondent Court erred in not finding that the Court of Tax Appeals 1986, to PNB, as withholding agent, demanding payment of the tax it had failed to
has no jurisdiction to question the compromise agreement entered into by the withhold on the interest earnings and/or yields from PNOC's money placements. 
Commissioner of Internal Revenue; and PNOC wrote the BIR three succeeding letters offering to compromise its tax liability;
PNB, on the other hand, did not act on the demand letter it received, dated 08
3.  The respondent Court erred in not ruling that the Commissioner of Internal October 1986.  The BIR and PNOC eventually reached a compromise agreement on
Revenue cannot unilaterally annul tax compromises validly entered into by 22 June 1987.  Private respondent Savellano questioned the validity of the
his predecessor.52 compromise agreement because the reduced amount of tax collected from PNOC,
by virtue of the compromise agreement, also proportionately reduced his informer's
The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No. reward.  Private respondent Savellano then requested the BIR Commissioner to
29526, affirmed the decision of the CTA in CTA Case No. 4249.  The resolution, review and reconsider the compromise agreement.  Acting on the request of private
therefore, of the assigned errors in the Court of Appeals' decisions essentially respondent Savellano, the new BIR Commissioner declared the compromise
requires a review of the CTA decision itself. agreement to be without basis and issued the demand letter, dated 16 January 1991,
against PNB, as the withholding agent for PNOC.
In consolidating the present Petitions, this Court finds that PNOC and PNB are
basically questioning the (1) Jurisdiction of the CTA in CTA Case No. 4249; (2) It is clear from the foregoing that the BIR demand letter, dated 16 January 1991,
Declaration by the CTA that the compromise agreement was without force and could not stand alone as a new assessment.  It should always be considered in the
effect; (3) Finding of the CTA that the deficiency withholding tax assessment against factual context summarized above.
PNB had already become final and unappealable and, thus, enforceable; and (4)
Order of the CTA directing payment of additional informer's reward to private In fact, the demand letter, dated 16 January 1991, actually referred to the
respondent Savellano. withholding tax assessment first issued in 1986 and its eventual settlement through a
compromise agreement.  In addition, the computation of the deficiency withholding
I tax was based on the figures from the 1986 assessments against PNOC and PNB,
and BIR no longer conducted a new audit or investigation of either PNOC and PNB
Jurisdiction of the CTA before it issued the demand letter on 16 January 1991.

A. The demand letter, dated 16 January 1991 did not constitute a new These constant references to past events and circumstances demonstrate that the
assessment against PNB. demand letter, dated 16 January 1991, was not a new assessment, but rather, the
latest action taken by the BIR to collect on the tax assessments issued against
The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. PNOC and PNB in 1986.
4249 is that the BIR demand letter, dated 16 January 1991,53 should be considered
as a new assessment against PNB.  As a new assessment, it gave rise to a new PNB argues that the demand letter, dated 16 January 1991, introduced a new
dispute and controversy solely between the BIR and PNB that should be controversy.  We see it differently as the said demand letter presented the resolution
administratively settled or adjudicated, as provided in P.D. No. 242. by BIR Commissioner Ong of the previous controversy involving the compromise of
the 1986 tax assessments.  BIR Commissioner Ong explicitly declared therein that
This argument is without merit.  The issuance by the BIR of the demand letter, dated the compromise agreement was without legal basis, and requested PNB, as the
16 January 1991, was merely a development in the continuing effort of the BIR to withholding agent, to pay the amount of withholding tax still due.
collect the tax assessed against PNOC and PNB way back in 1986.
B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue
BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to of Republic Act No. 1125.
settle its tax liability.  The BIR subsequently sent another letter, dated 08 October

TAX 1 batch 1 Page 169 of 193

Having established that the BIR demand letter, dated 16 January 1991, did not PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency
constitute a new assessment, then, there could be no basis for PNB's claim that any withholding tax assessment by virtue of P.D. No. 242.  Provisions on jurisdiction of
dispute arising from the new assessment should only be between BIR and PNB. P.D. No. 242 read:

Still proceeding from the argument that there was a new dispute between PNB and SECTION 1.  Provisions of law to the contrary notwithstanding, all disputes,
BIR, PNB sought the suspension of the proceedings in CTA Case No.  4249, after it claims and controversies solely between or among the departments, bureaus,
contested the deficiency withholding tax assessment against it and the demand for offices, agencies, and instrumentalities of the National Government, including
payment thereof before the DOJ, pursuant to P.D. No. 242.  The CTA, however, government-owned or controlled corporations, but excluding constitutional
correctly sustained its jurisdiction and continued the proceedings in CTA Case No. offices or agencies, arising from the interpretation and application of statutes,
4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or contracts or agreements, shall henceforth be administratively settled or
adjudicate BIR's assessment against PNB. adjudicated as provided hereinafter; Provided, That this shall not apply to
cases already pending in court at the time of the effectivity of this decree.
The CTA assumed jurisdiction over the Petition for Review filed by private
respondent Savellano based on the following provision of Rep. Act No. 1125, the Act SECTION 2.  In all cases involving only questions of law, the same shall be
creating the Court of Tax Appeals: submitted to and settled or adjudicated by the Secretary of Justice, as
Attorney General and ex officio legal adviser of all government-owned or
SECTION 7.  Jurisdiction. – The Court of Tax Appeals shall controlled corporations and entities, in consonance with Section 83 of the
exercise exclusive appellate jurisdiction to review by appeal, as herein Revised Administrative Code.  His ruling or determination of the question in
provided - each case shall be conclusive and binding upon all the parties concerned.

(1)   Decisions of the Collector of Internal Revenue in cases involving SECTION 3.  Cases involving mixed questions of law and of fact or only
disputed assessments, refunds of internal revenue taxes, fees or factual issues shall be submitted to and settled or adjudicated by:
other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part (a)  The Solicitor General, with respect to disputes or claims
of law administered by the Bureau of Internal controversies between or among the departments, bureaus, offices
Revenue; . . . (Underscoring ours.) and other agencies of the National Government;

In his Petition before the CTA, private respondent Savellano requested a review of (b)  The Government Corporate Counsel, with respect to disputes or
the decisions of then BIR Commissioner Tan to enter into a compromise agreement claims or controversies between or among government-owned or
with PNOC and to reject his claim for additional informer's reward.  He submitted controlled corporations or entities being served by the Office of the
before the CTA questions of law involving the interpretation and application of (1) Government Corporate Counsel; and
E.O. No. 44, and its implementing rules and regulations, which authorized the BIR
Commissioner to compromise delinquent accounts and disputed assessments (c)  The Secretary of Justice, with respect to all other disputes or
pending as of 31 December 1985; and (2) Section 316(1) of the National Internal claims or controversies which do not fall under the categories
Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer mentioned in paragraphs (a) and (b).
a reward equivalent to 15% of the actual amount recovered or collected by the
BIR.54 These should undoubtedly be considered as matters arising from the NIRC The PNB and DOJ are of the same position that P.D. No. 242, the more recent law,
and other laws being administered by the BIR, thus, appealable to the CTA under repealed Section 7(1) of Rep. Act No. 1125,55 based on the pronouncement of this
Section 7(1) of Rep. Act No. 1125. Court in Development Bank of the Philippines v. Court of Appeals, et al., 56]  quoted
below:

TAX 1 batch 1 Page 170 of 193

 The Court … expresses its entire agreement with the conclusion of the Court ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St.
of Appeals — and the basic premises thereof — that there is an Louis & S. F. R. Co., 204 Fed. Rep., 970.)
"irreconcilable repugnancy…between Section 7(2) of R.A. No. 1125 and P.D.
No. 242," and hence, that the later enactment (P.D. No. 242), being the latest Where there are two acts or provisions, one of which is special and particular,
expression of the legislative will, should prevail over the earlier. and certainly includes the matter in question, and the other general, which, if
standing alone, would include the same matter and thus conflict with the
In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of special act or provision, the special must be taken as intended to constitute
Rep. Act No. 1125, which provides for the exclusive appellate jurisdiction of the CTA an exception to the general act or provision, especially when such general
over decisions of the Commissioner of Customs.  PNB contends that P.D. No. 242 and special acts or provisions are contemporaneous, as the Legislature is not
should be deemed to have likewise repealed Section 7(1) of Rep. Act No. 1125, to be presumed to have intended a conflict. (Crane v. Reeder and Reeder, 22
which provide for the exclusive appellate jurisdiction of the CTA over decisions of the Mich., 322, 334; University of Utah vs. Richards, 77 Am. St. Rep., 928.)60
BIR Commissioner.57
It has, thus, become an established rule of statutory construction that between a
After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. general law and a special law, the special law prevails – Generalia specialibus non
242, this Court finds itself in disagreement with the pronouncement made derogant.61
in Development Bank of the Philippines v. Court of Appeals, et al.,58 and refers to the
earlier case of Lichauco & Company, Inc. v. Apostol, et al.,59 for the guidelines in Sustained herein is the contention of private respondent Savellano that P.D. No. 242
determining the relation between the two statutes in question, to wit: is a general law that deals with administrative settlement or adjudication of disputes,
claims and controversies between or among government offices, agencies and
The cases relating to the subject of repeal by implication all proceed on the instrumentalities, including government-owned or controlled corporations. Its
assumption that if the act of later date clearly reveals an intention on the part coverage is broad and sweeping, encompassing all disputes, claims and
of the law making power to abrogate the prior law, this intention must be controversies.  It has been incorporated as Chapter 14, Book IV of E.O. No. 292,
given effect; but there must always be a sufficient revelation of this intention, otherwise known as the Revised Administrative Code of the Philippines.62 On the
and it has become an unbending rule of statutory construction that the other hand, Rep. Act No. 1125 is a special law63 dealing with a specific subject matter
intention to repeal a former law will not be imputed to the Legislature when it – the creation of the CTA, which shall exercise exclusive appellate jurisdiction over
appears that the two statutes, or provisions, with reference to which the the tax disputes and controversies enumerated therein.
question arises bear to each other the relation of general to
special.  (Underscoring ours.) Following the rule on statutory construction involving a general and a special law
previously discussed, then P.D. No. 242 should not affect Rep. Act No. 1125.  Rep.
When there appears to be an inconsistency or conflict between two statutes and one Act No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes
of the statutes is a general law, while the other is a special law, then repeal by an exception to P.D. No. 242.  Disputes, claims and controversies, falling under
implication is not the primary rule applicable.  The following rule should principally Section 7 of Rep. Act No. 1125, even though solely among government offices,
govern instead: agencies, and instrumentalities, including government-owned and controlled
corporations, remain in the exclusive appellate jurisdiction of the CTA.  Such a
Specific legislation upon a particular subject is not affected by a general law construction resolves the alleged inconsistency or conflict between the two statutes,
upon the same subject unless it clearly appears that the provisions of the two and the fact that P.D. No. 242 is the more recent law is no longer significant.
laws are so repugnant that the legislators must have intended by the later to
modify or repeal the earlier legislation. The special act and the general law Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No.
must stand together, the one as the law of the particular subject and the other 1125, the present dispute would still not be covered by P.D. No. 242.  Section 1 of
as the general law of the land. (Ex Parte United States, 226 U. S., 420; 57 L. P.D. No. 242 explicitly provides that only disputes, claims and
controversies solely between or among departments, bureaus, offices, agencies,
TAX 1 batch 1 Page 171 of 193
and instrumentalities of the National Government, including constitutional offices or A. PNOC could not apply for a compromise under E.O. No. 44 because its
agencies, as well as government-owned and controlled corporations, shall be tax liability was not a delinquent account or a disputed assessment as of 31
administratively settled or adjudicated.  While the BIR is obviously a government December 1985.
bureau, and both PNOC and PNB are government-owned and controlled
corporations, respondent Savellano is a private citizen.  His standing in the PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case
controversy could not be lightly brushed aside.  It was private respondent Savellano No. 4249 declaring the compromise agreement between BIR and PNOC without
who gave the BIR the information that resulted in the investigation of PNOC and force and effect.
PNB; who requested the BIR Commissioner to reconsider the compromise
agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for PNOC asserts that the compromise agreement was in accordance with E.O. No. 44,
Review. and its implementing rules and regulations, and should be binding upon the parties
thereto.
In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this Court
upheld the jurisdiction of the Court of Industrial Relations over the ordinary courts E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives
and justified its decision in the following manner: the power to compromise any disputed assessment or delinquent account pending
as of 31 December 1985, upon the payment of an amount equal to 30% of the basic
We are unprepared to break away from the teaching in the cases just tax assessed; in which case, the corresponding interests and penalties shall be
adverted to.  To draw a tenuous jurisdictional line is to undermine stability in condoned.  E.O. No. 44 took effect on 04 September 1986 and remained effective
labor litigations.  A piecemeal resort to one court and another gives rise to until 31 March 1987.
multiplicity of suits.  To force the employees to shuttle from one court to
another to secure full redress is a situation gravely prejudicial.  The time to be The disputed assessments or delinquent accounts that the BIR Commissioner could
lost, effort wasted, anxiety augmented, additional expense incurred – these compromise under E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-
are considerations which weigh heavily against split jurisdiction.  Indeed, it is 86, as follows:
more in keeping with orderly administration of justice that all the causes of
action here "be cognizable and heard by only one court:  the Court of a)   Delinquent account – Refers to the amount of tax due on or before
Industrial Relations." December 31, 1985 from a taxpayer who failed to pay the same within the
time prescribed for its payment arising from (1) a self assessed tax, whether
The same justification is used in the present case to reject DOJ's jurisdiction over the or not a tax return was filed, or (2) a deficiency assessment issued by the BIR
BIR and PNB, to the exclusion of the other parties.  The rights of all four parties in which has become final and executory.
CTA Case No. 4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB,
the withholding agent; and private respondent Savellano, the informer claiming his Where no return was filed, the taxpayer shall be considered delinquent as of
reward; arose from the same factual background and were so closely interrelated, the time the tax on such return was due, and in availing of the compromise, a
that a pronouncement as to one would definitely have repercussions on the others.  tax return shall be filed as a basis for computing the amount of compromise
The ends of justice were best served when the CTA continued to exercise its to be paid.
jurisdiction over CTA Case No. 4249.  The CTA, which had assumed jurisdiction over
all the parties to the controversy, could render a comprehensive resolution of the b)  Disputed assessment – refers to a tax assessment disputed or protested
issues raised and grant complete relief to the parties. on or before December 31, 1985 under any of the following categories:
II 1)       if the same is administratively protested within thirty (30) days from the
date the taxpayer received the assessment, or
Validity of the Compromise Agreement

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 2.)      if the decision of the BIR on the taxpayer's administrative protest is payment shall be computed based on the amount reflected in the tax return
appealed by the taxpayer before an appropriate court. submitted by the taxpayer himself.

PNOC's tax liability could not be considered a delinquent account since (1) it was not Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively,
self-assessed, because the BIR conducted an investigation and assessment of conducted self-assessment in this case.  There is no showing that in the absence of
PNOC and PNB after obtaining information regarding the non-withholding of tax from the tax assessment issued by the BIR against them, that PNOC and/or PNB would
private respondent Savellano; and (2) the demand letter, issued against it on 08 have voluntarily admitted their tax liabilities, already amounting to P385,961,580.82,
August 1986, could not have been a deficiency assessment that became final and as of 15 November 1986, and would have offered to compromise the same.  In fact,
executory by 31 December 1985. both PNOC and PNB were conspicuously silent about their tax liabilities until they
were assessed thereon.
The dissenting opinion contends, however, that the tax liability of PNOC constitutes a
self-assessed tax, and is, therefore, a delinquent account as of 31 December 1985, Any attempt by PNOC and PNB to assess and declare by themselves their tax
qualifying for a compromise under E.O. No. 44.  It anchors its argument on the liabilities had already been overtaken by the BIR's conduct of its audit and
declaration made by this Court in Tupaz v. Ulep,65 that internal revenue taxes are investigation and subsequent issuance of the assessments, dated 08 August 1986
self-assessing. and 08 October 1986, against PNOC and PNB, respectively.  The said tax
assessments, uncontested and undisputed, presented the results of the BIR audit
It is not denied herein that the self-assessing system governs Philippine internal and investigation and the computation of the total amount of tax liabilities of PNOC
revenue taxes.  The dissenting opinion itself defines self-assessed tax as, "a tax that and PNB.  They should be controlling in this case, and should not be so easily and
the taxpayer himself assesses or computes and pays to the taxing authority."  conveniently ignored and set aside.  It would be a contradiction to claim that the tax
Clearly, such a system imposes upon the taxpayer the obligation to conduct an liabilities of PNOC and PNB are self-assessed and, at the same time, BIR-assessed;
assessment of himself so he could determine and declare the amount to be used as when it is clear and simple that it had been the BIR that conducted the assessment
tax basis, any deductions therefrom, and finally, the tax due. and determined the tax liabilities of PNOC and PNB.

E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed.  The That the BIR-assessed tax liability should be differentiated from a self-assessed one,
phrase "whether or not a tax return was filed" only refers to the compliance by the is supported by the provisions of RR No. 17-86 on the basis for computing the
taxpayer with the obligation to file a return on the dates specified by law, but it does amount of compromise payment.  Note that where tax liabilities are self-assessed,
not do away with the requisite that the tax must be self-assessed in order for the the compromise payment shall be computed based on the tax return filed by the
taxpayer to avail of the compromise.  The second paragraph of Section 2(a) of RR taxpayer.66 On the other hand, where the BIR already issued an assessment, the
No. 17-86 expressly commands, and still imposes upon the taxpayer, who is availing compromise payment shall be computed based on the tax due on the assessment
of the compromise under E.O. No. 44, and who has not previously filed any return, notice.67
the duty to conduct self-assessment by filing a tax return that would be used as the
basis for computing the amount of compromise to be paid. For instances where the BIR had already issued an assessment against the
taxpayer, the tax liability could still be compromised under E.O. No. 44 only if: (1) the
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after assessment had been final and executory on or before 31 December 1985 and,
conducting a self-assessment, discovers or becomes aware that he had failed to pay therefore, considered a delinquent account as of said date;68 or (2) the assessment
a tax due on or before 31 December 1985, regardless of whether he had previously had been disputed or protested on or before 31 December 1985.69
filed a return to reflect such tax; voluntarily comes forward and admits to the BIR his
tax liability; and applies for a compromise thereof.  In case the taxpayer has not RMO No. 39-86, which provides the guidelines for the implementation of E.O. No.
previously filed any return, he must fill out such a return reflecting therein his own 44, does mention different types of assessments that may be compromised under
declaration of the taxable amount and computation of the tax due.  The compromise said statute (i.e., jeopardy assessments, arbitrary assessments, and tax
assessments of doubtful validity).  RMO No. 39-86 may not have expressly stated
TAX 1 batch 1 Page 173 of 193
any qualification for these particular types of assessments; nonetheless, E.O. No. 44 assessed, not anymore pursuant to E.O. No. 44, but pursuant to Section 246 of the
specifically refers only to assessments that were delinquent or disputed as of 31 NIRC of 1977, as amended.
December 1985.
Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the
E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so authority to compromise the payment of any internal revenue tax under the following
that they are harmonized and consistent with each other.  Accordingly, this Court circumstances: (1) there exists a reasonable doubt as to the validity of the claim
finds that the different types of assessments mentioned in RMO No. 39-86 would still against the taxpayer; or (2) the financial position of the taxpayer demonstrates a
have to qualify as delinquent accounts or disputed assessments as of 31 Dcember clear inability to pay the assessed tax.71
1985, so that they could be compromised under E.O. No. 44.
There are substantial differences in circumstances under which compromises may
The BIR had first written to PNOC on 08 August 1986, demanding payment of the be granted under Section 246 of the NIRC of 1977, as amended, and E.O. No. 44. 
income tax on the interest earnings and/or yields from PNOC's money placements Although PNOC and PNB have extensively argued their entitlement to compromise
with PNB from 15 October 1984 to 15 October 1986.  This demand letter could be under E.O. No. 44, neither of them has alleged, much less, has presented any
regarded as the first assessment notice against PNOC. evidence to prove that it may compromise its tax liability under Section 246 of the
NIRC of 1977, as amended.
Such an assessment, issued only on 08 August 1986, could not have been final and
executory as of 31 December 1985 so as to constitute a delinquent account.  Neither B. The tax liability of PNB as withholding agent also did not qualify for
was the assessment against PNOC an assessment that could have been disputed or compromise under E.O. No. 44.
protested on or before 31 December 1985, having been issued on a later date.
Before proceeding any further, this Court reconsiders the conclusion made by BIR
Given that PNOC's tax liability did not constitute a delinquent account or a disputed Commissioner Ong in his demand letter, dated 16 January 1991, that the
assessment as of 31 December 1985, then it could not be compromised under E.O. compromise settlement executed between the BIR and PNOC was without legal
No. 44. basis because withholding taxes were not actually taxes that could be compromised,
but a penalty for PNB's failure to withhold and for which it was made personally
The assessment against PNOC, instead, was more appropriately covered by liable.
Revenue Memorandum Circular (RMC) No. 31-86.  RMC No. 31-86 clarifies the
scope of availment of the tax amnesty under E.O. No. 4170 and compromise E.O. No. 44 covers disputed or delinquency cases where the person assessed was
payments on delinquent accounts and disputed assessments under E.O. No. 44.  himself the taxpayer rather than a mere agent.72   RMO No. 39-86 expressly allows a
The third paragraph of RMC No. 31-86 reads: withholding agent, who failed to withhold the required tax because of neglect,
ignorance of the law, or his belief that he was not required by law to withhold tax, to
[T]axpayers against whom assessments had been issued from January 1 to apply for a compromise settlement of his withholding tax liability under E.O. No. 44. 
August 21, 1986 may settle their tax liabilities by way of compromise under A withholding agent, in such a situation, may compromise the withholding tax
Section 246 of the Tax Code as amended by paying 30% of the basic assessment against him precisely because he is being held directly accountable for
assessment excluding surcharge, interest, penalties and other increments the tax.73
thereto.
RMO No. 39-86 distinguishes between the withholding agent in the foregoing
The above-quoted paragraph supports the position that only assessments that were situation from the withholding agent who withheld the tax but failed to remit the
disputed or that were final and executory by 31 December 1985 could be the subject amount to the Government.  A withholding agent in the latter situation is the one
of a compromise under E.O. No. 44.  Assessments issued between 01 January to 21 disqualified from applying for a compromise settlement because he is being made
August 1986 could still be compromised by payment of 30% of the basic tax accountable as an agent, who held funds in trust for the Government.74

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Both situations, however, involve withholding agents.  The right to compromise under provide general regulations for various and varying details of management. The
these provisions should have been claimed by PNB, the withholding agent for interpretation given to a rule or regulation by those charged with its execution is
PNOC.  The BIR held PNB personally accountable for its failure to withhold the tax entitled to the greatest weight by the court construing such rule or regulation, and
on the interest earnings and/or yields from PNOC's money placements with PNB.  such interpretation will be followed unless it appears to be clearly unreasonable or
The BIR sent a demand letter, dated 08 October 1986, addressed directly to PNB, arbitrary.75
for payment of the withholding tax assessed against it, but PNB failed to take any
action on the said demand letter.  Yet, all the offers to compromise the withholding RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be
tax assessment came from PNOC and PNOC did not claim that it made the offers to unreasonable or arbitrary.  It does not unduly expand the coverage of E.O. No. 44 by
compromise on behalf of PNB. merely providing that applications for compromise filed until 31 March 1987 are still
valid, even if payment of the compromised amount is made on a later date.
Moreover, the general requirement of E.O. No. 44 still applies to withholding agents
– that the withholding tax liability must either be a delinquent account or a disputed It cannot be expected that the compromise allowed under E.O. No. 44 can be
assessment as of 31 December 1985 to qualify for compromise settlement.  The automatically granted upon mere filing of the application by the taxpayer.  Irrefutably,
demand letter against PNB, which also served as its assessment notice, had been the applications would still have to be processed by the BIR to determine compliance
issued on 08 October 1986 or two months later than PNOC's.  PNB's withholding tax with the requirements of E.O. No. 44.  As it is uncontested that a taxpayer could still
liability could not be considered a delinquent account or a disputed assessment, as file an application for compromise on 31 March 1987, the very last day of effectivity
defined under RR No. 17-86, for the same reasons that PNOC's tax liability did not of E.O. No. 44, it would be unreasonable to expect the BIR to process and approve
constitute as such.  The tax liability of PNB, therefore, was also not eligible for the taxpayer's application within the same date considering the volume of
compromise settlement under E.O. No. 44. applications filed and pending approval, plus the other matters the BIR personnel
would also have to attend to.  Thus, RMO No. 39-86 merely assures the taxpayers
C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. that their applications would still be processed and could be approved on a later
44, their application for compromise was filed beyond the deadline. date.  Payment, of course, shall be made by the taxpayer only after his application
had been approved and the compromised amount had been determined.
Despite already ruling that the tax liabilities of PNOC and PNB could not be
compromised under E.O. No. 44, this Court still deems it necessary to discuss the Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be
finding of the CTA that the compromise agreement had been filed beyond the addressed is whether PNOC had been able to submit an application for compromise
effectivity of E.O. No. 44, since the CTA made a declaration in relation thereto that on or before 31 March 1987 in compliance thereof.  Although the compromise
paragraph 2 of RMO No. 39-86 was null and void for unduly extending the effectivity agreement was executed only on 22 June 1987, PNOC is claiming that it had already
of E.O. No. 44. written a letter to the BIR, as early as 25 September 1986, offering to compromise its
tax liability, and that the said letter should be considered as PNOC's application for
Paragraph 2 of RMO No. 39-86 provides that: compromise settlement.

2. Period for availment. – Filing of application for compromise settlement A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that
under the said law shall be effective only until March 31, 1987.  Applications the terms of its proposed compromise did not conform to those authorized by E.O.
filed on or before this date shall be valid even if the payment or payments of No. 44.   PNOC did not offer to pay outright 30% of the basic tax assessed against it
the compromise amount shall be made after the said date, subject, however, as required by E.O. No. 44; and instead, made the following offer:
to the provisions of Executive Order No. 44 and its implementing Revenue
Regulations No. 17-86. (2) That PNOC be permitted to set-off its foregoing mentioned tax liability
of P304,419,396.83 against the tax refund/credit claims of the National Power
It is well-settled in this jurisdiction that administrative authorities are vested with the Corporation (NPC) for specific taxes on fuel oil sold to NPC
power to make rules and regulations because it is impracticable for the lawmakers to
TAX 1 batch 1 Page 175 of 193
 totaling P335,259,450.21, which tax refunds/credits are actually receivable staggered payments may be allowed on a case-to-case basis, the mode of payment
accounts of our Company from NPC.76 remains unchanged, and must still be made either in cash or in manager's check.

PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.77 The BIR, PNOC's offer to set-off was obviously made to avoid actual cash-out by the
in its letters to PNOC, dated 8 October 198678 and 11 November 1986,79 consistently company. The offer defeated the purpose of E.O. No. 44 because it would not only
denied PNOC's offer because the claim for tax refund/credit of NAPOCOR was still delay collection, but more importantly, it would not guarantee collection.  First of all,
under process, so that the offer to set-off such claim against PNOC's tax liability was BIR's collection was contingent on whether the claim for tax refund/credit of
premature. NAPOCOR would be subsequently granted.  Second, collection could not be made
immediately and would have to wait until the resolution of the claim for tax
Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a refund/credit of NAPOCOR.  Third, there is no proof, other than the bare allegation of
tax liability against a claim for tax refund/credit.  Compromise under E.O. No. 44 may PNOC, that NAPOCOR's claim for tax refund/credit is an account receivable of
be availed of only in the following circumstances: PNOC.  A possible dispute between NAPOCOR and PNOC as to the proceeds of the
tax refund/credit would only delay collection by the BIR even further.
SEC. 3.  Who may avail. – Any person, natural or juridical, may settle thru a
compromise any delinquent account or disputed assessment which has been It was only in its letter, dated 09 June 1987, that PNOC actually offered to
due as of December 31, 1985, by paying an amount equal to thirty compromise its tax liability in accordance with the terms and circumstances
percent (30%) of the basic tax assessed. prescribed by E.O. No. 44 and its implementing rules and regulations, by stating that:

… Consequently, we reiterate our previous request for compromise under E.O.

No. 44, and convey our preparedness to settle the subject tax assessment
SEC. 6.  Mode of Payment. – Upon acceptance of the proposed liability by payment of the compromise amount of P91,003,129.89,
compromise, the amount offered as compromise in complete settlement of representing thirty percent (30%) of the basic tax assessment
the delinquent account shall be paid immediately in cash or manager's of P303,343,766.29, in accordance with E.O. No. 44 and its implementing
certified check. BIR Revenue Memorandum Order No. 39-86.80

Deferred or staggered payments of compromise amounts over P50,000 may PNOC claimed in the same letter that it had previously requested for a compromise
be considered on a case to case basis in accordance with the extant under the terms of E.O. No. 44, but this Court could not find evidence of such
regulations of the Bureau upon approval of the Commissioner of Internal previous request.  There are stark and substantial differences in the terms of
Revenue, his Deputy or Assistant as delineated in their respective PNOC's offer to compromise in its earlier letters, dated 25 September 1986 and 14
jurisdictions. October 1986 (set-off of the entire amount of its tax liability against the claim for tax
refund/credit of NAPOCOR), to those in its letter, dated 09 June 1987 (payment of
If the Compromise amount is not paid as required herein, the compromise the compromise amount representing 30% of the basic tax assessed against it),
agreement is automatically nullified and the delinquent account reverted to making it difficult for this Court to accept that the letter of 09 June 1987 merely
the original amount plus the statutory increments, which shall be collected reiterated PNOC's offer to compromise in its earlier letters.
thru the summary and/or judicial processes provided by law.
This Court likewise cannot give credence to PNOC's allegation that beginning 25
E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax September 1986, the date of its first letter to the BIR, there were continuing
liability by paying the compromise amount equivalent to 30% of the basic tax.  It also negotiations between PNOC and BIR that culminated in the compromise agreement
benefits the Government by making collection of delinquent accounts and disputed on 22 June 1987.  Aside from the exchange of letters recounted in the preceding
assessments simpler, easier, and faster.  Payment of the compromise amount must paragraphs, both PNOC and PNB failed to present any other proof of the supposed
be made immediately, in cash or in manager's check.  Although deferred or negotiations.
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After the BIR denied the second offer of PNOC to set-off its tax liability against the The manner by which BIR Commissioner Tan exercised his discretionary power to
claim for tax refund/credit of NAPOCOR in a letter, dated 11 November 1986, there enter into a compromise was brought under the scrutiny of the CTA amidst
is no other evidence of subsequent communication between PNOC and the BIR.  It allegations of "grave abuse of discretion and/or whimsical exercise of
was only after almost seven months, or on 09 June 1987, that PNOC again wrote a jurisdiction."82 The discretionary power of the BIR Commissioner to enter into
letter to the BIR, this time offering to pay the compromise amount of 30% of the basic compromises cannot be superior over the power of judicial review by the courts.
tax assessed against.  This letter was already filed beyond 31 March 1987, after the
lapse of the effectivity of E.O. No. 44 and the deadline for filing applications for The discretionary authority to compromise granted to the BIR Commissioner is never
compromise under the said statute. meant to be absolute, uncontrolled and unrestrained.  No such unlimited power may
be validly granted to any officer of the government, except perhaps in cases of
Evidence of meetings between PNOC and the BIR, or any other form of national emergency.83 In this case, the BIR Commissioner's authority to compromise,
communication, wherein the parties presented their offer and counter-offer to the whether under E.O. No. 44 or Section 246 of the NIRC of 1977, as amended, can
other, would have been very valuable in explaining and supporting BIR only be exercised under certain circumstances specifically identified in said statutes. 
Commissioner Tan's decision to accept PNOC's third offer to compromise after The BIR Commissioner would have to exercise his discretion within the parameters
denying the previous two.  The absence of such evidence herein negates PNOC's set by the law, and in case he abuses his discretion, the CTA may correct such
claim of actual negotiations with the BIR. abuse if the matter is appealed to them.84

Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely
as delinquent accounts or disputed assessments as of 31 December 1985, the exercised his authority to enter into a compromise specially granted by E.O. No. 44. 
application for compromise filed by PNOC on 09 June 1987, and accepted by then Since this Court has already made a determination that the compromise agreement
BIR Commissioner Tan on 22 June 1987, was still filed way beyond 31 March 1987, did not qualify under E.O. No. 44, BIR Commissioner Tan's decision to agree to the
the expiration date of the effectivity of E.O. No. 44 and the deadline for filing of compromise should have been reviewed in the light of the general authority granted
applications for compromise under RMO No. 39-86. to the BIR Commissioner to compromise taxes under Section 246 of the NIRC of
1977, as amended.  Then again, petitioners PNOC and PNB failed to allege, much
D. The BIR Commissioner's discretionary authority to enter into a less present evidence, that BIR Commissioner Tan acted in accordance with Section
compromise agreement is not absolute and the CTA may inquire into 246 of the NIRC of 1977, as amended, when he entered into the compromise
allegations of abuse thereof. agreement with PNOC.

The foregoing discussion supports the CTA's conclusion that the compromise E. The CTA may set aside a compromise agreement that is contrary to law
agreement between PNOC and the BIR was indeed without legal basis.  Despite this and public policy.
lack of legal support for the execution of the said compromise agreement, PNB
argues that the CTA still had no jurisdiction to review and set aside the compromise PNB also asserts that the CTA had no jurisdiction to set aside a compromise
agreement.  It contends that the authority to compromise is purely discretionary on agreement entered into in good faith.  It relies on the decision of this Court in
the BIR Commissioner and the courts cannot interfere with his exercise thereof. Republic v. Sandiganbayan85 that a compromise agreement cannot be set aside
merely because it is too one-sided.  A compromise agreement should be respected
It is generally true that purely administrative and discretionary functions may not be by the courts as the res judicata between the parties thereto.
interfered with by the courts; but when the exercise of such functions by the
administrative officer is tainted by a failure to abide by the command of the law, then This Court, though, finds that there are substantial differences in the factual
it is incumbent on the courts to set matters right, with this Court having the last say background of Republic v. Sandiganbayan and the present case.
on the matter.81
The compromise agreement executed between the Presidential Commission on
Good Government (PCGG) and Roberto S. Benedicto in Republic v.
TAX 1 batch 1 Page 177 of 193
Sandiganbayan was judicially approved by the Sandiganbayan.  The Sandiganbayan The compromise agreement between the BIR and PNOC was contrary to law having
had ample opportunity to examine the validity of the compromise agreement since been entered into by BIR Commissioner Tan in excess or in abuse of the authority
two years elapsed from the time the agreement was executed up to the time it was granted to him by legislation.  E.O. No. 44 and the NIRC of 1977, as amended, had
judicially approved.  This Court even stated in the said case that, "We are not dealing identified the situations wherein the BIR Commissioner may compromise tax
with the usual compromise agreement perfunctorily submitted to a court and liabilities, and none of these situations existed in this case.
approved as a matter of course. The PCGG-Benedicto agreement was thoroughly
and, at times, disputatiously discussed before the respondent court. There could be The compromise, moreover, was contrary to public policy.  The primary duty of the
no deception or misrepresentation foisted on either the PCGG or the BIR is to collect taxes, since taxes are the lifeblood of the Government and their
Sandiganbayan."86 prompt and certain availability are imperious needs.91 In the present case, however,
BIR Commissioner Tan, by entering into the compromise agreement that was bereft
In addition, the new PCGG Chairman originally prayed for the re-negotiation of the of any legal basis, would have caused the Government to lose almost P300 million in
compromise agreement so that it could be more just, fair, and equitable, an action tax revenues and would have deprived the Government of much needed monetary
considered by this Court as an implied admission that the agreement was not resources.
contrary to law, public policy or morals nor was there any circumstance which had
vitiated consent.87 Allegations of good faith and previous execution of the terms of the compromise
agreement on the part of PNOC would not be enough for this Court to disregard the
The above-mentioned circumstances strongly supported the validity of the demands of law and public policy.  Compromise may be the favored method to settle
compromise agreement in Republic v. Sandiganbayan, which was why this Court disputes, but when it involves taxes, it may be subject to closer scrutiny by the
refused to set it aside.  Unfortunately for the petitioners in the present case, the courts.  A compromise agreement involving taxes would affect not just the taxpayer
same cannot be said herein. and the BIR, but also the whole nation, the ultimate beneficiary of the tax revenues
collected.
The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the
compromise agreement, ruled that: F. The Government cannot be estopped from collecting taxes by the mistake,
negligence, or omission of its agents.
We are unable to accept petitioner's submissions.  Its formulation of the
issues on CIR and CTA's lack of jurisdiction to disturb a compromise The new BIR Commissioner, Commissioner Ong, had acted well within his powers
agreement presupposes a compromise agreement validly entered into by the when he set aside the compromise agreement, dated 22 June 1987, after finding
CIR and not, when as in this case, it was indubitably shown that the that the said compromise agreement was without legal basis.  When he took over
supposed compromise agreement is without legal support.  In case of from his predecessor, there was still a pending motion for reconsideration of the said
arbitrary or capricious exercise by the Commissioner or if the proceedings compromise agreement, filed by private respondent Savellano on 24 March 1988. 
were fatally defective, the compromise can be attacked and reversed through To resolve the said motion, he reviewed the compromise agreement and, thereafter,
the judicial process (Meralco Securities Corporation v. Savellano, 117 SCRA came upon the conclusion that it did not comply with E.O. No. 44 and its
805, 812 [1982]; Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443, aff'd 120 implementing rules and regulations.
U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18 of
decision) ….88 It had been declared by this Court in Hilado v. Collector of Internal Revenue, et
al.,92 that an administrative officer, such as the BIR Commissioner, may revoke,
Although the general rule is that compromises are to be favored, and that repeal or abrogate the acts or previous rulings of his predecessor in office.  The
compromises entered into in good faith cannot be set aside,89 this rule is not without construction of a statute by those administering it is not binding on their successors
qualification.  A court may still reject a compromise or settlement when it is if, thereafter, the latter becomes satisfied that a different construction should be
repugnant to law, morals, good customs, public order, or public policy.90 given.

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It is evident in this case that the new BIR Commissioner, Commissioner Ong, A. The issue on whether the BIR complied with the notice requirements
construed E.O. No. 44 and its implementing rules and regulations differently from under RR No. 12-85 is raised for the first time on appeal and should not be
that of his predecessor, former Commissioner Tan, which led to Commissioner Ong's given due course.
revocation of the BIR approval of the compromise agreement, dated 22 June 1987. 
Such a revocation was only proper considering that the former BIR Commissioner's PNB, in another effort to block the collection of the deficiency withholding tax, this
decision to approve the said compromise agreement was based on the erroneous time raises doubts as to the validity of the deficiency withholding tax assessment
construction of the law (i.e., E.O. No. 44 and its implementing rules and regulations) issued against it on 16 January 1991.  It submits that the BIR failed to comply with
and should not give rise to any vested right on PNOC.93 the notice requirements set forth in RR No. 12-85.96

Furthermore, approval of the compromise agreement and acceptance of the Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a
compromise payment by his predecessor cannot estop BIR Commissioner Ong from new issue raised by PNB only before this Court.  Such a question has not been
setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis; ventilated before the lower courts.  For an appellate tribunal to consider a legal
and from demanding payment of the deficiency withholding tax from PNB.  As a question, it should have been raised in the court below.97 If raised earlier, the matter
general rule, the Government cannot be estopped from collecting taxes by the would have been seriously delved into by the CTA and the Court of Appeals.98
mistake, negligence, or omission of its agents94 because:
B. The assessment against PNB had become final and unappealable, and
. . . Upon taxation depends the Government ability to serve the people for therefore, enforceable.
whose benefit taxes are collected.  To safeguard such interest, neglect or
omission of government officials entrusted with the collection of taxes should The CTA and the Court of Appeals declared as final and unappealable, and thus,
not be allowed to bring harm or detriment to the people, in the same manner enforceable, the assessment against PNB, dated 16 January 1991, since PNB failed
as private persons may be made to suffer individually on account of his own to protest said assessment within the 30-day prescribed period.  This Court, though,
negligence, the presumption being that they take good care of their personal finds that the significant BIR assessment, as far as this case is concerned, should be
affairs. This should not hold true to government officials with respect to the one issued by the BIR against PNB on 08 October 1986.
matters not of their own personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of the principle The BIR issued on 08 October 1986 an assessment against PNB for its withholding
of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA tax liability on the interest earnings and/or yields from PNOC's money placements
177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks, Inc. with the bank.  It had 30 days from receipt to protest the BIR's assessment.99 PNB,
vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. however, did not take any action as to the said assessment so that upon the lapse of
Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA the period to protest, the withholding tax assessment against it, dated 8 October
571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. 1986, became final and unappealable, and could no longer be disputed.100 The courts
Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus may therefore order the enforcement of this assessment.
Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of It is the enforcement of this BIR assessment against PNB, dated 08 October 1986,
Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. that is in issue in the instant case.  If the compromise agreement is valid, it would
vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).95 effectively bar the BIR from enforcing the assessment and collecting the assessed
tax; on the other hand, if the compromise agreement is void, then the courts can
III order the BIR to enforce the assessment and collect the assessed tax.

Finality of the Tax Assessment As has been previously discussed by this Court, the BIR demand letter, dated 16
January 1991, is not a new assessment against PNB.  It only demanded from PNB
the payment of the balance of the withholding tax assessed against it on 08 October
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1986.  The same demand letter also has no substantial effect or impact on the that there is another action pending between the parties for the same cause,
resolution of the present case.  It is already unnecessary and superfluous, having or that the action is barred by prior judgment or by the statute of limitations,
been issued by the BIR when CTA Case No. 4249 was already pending before the the court shall dismiss the claim.
CTA.  At best, the demand letter, dated 16 January 1991, constitute a useful
reference for the courts in computing the balance of PNB's tax liability, after applying The general rule enunciated in the above-quoted provision governs the present case,
as partial payment thereon the amount previously received by the BIR from PNOC that is, the defense of prescription, not pleaded in a motion to dismiss or in the
pursuant to the compromise agreement. answer, is deemed waived.  The exception in same provision cannot be applied
herein because the pleadings and the evidence on record do not sufficiently show
IV that the action is barred by prescription.

Prescription It has been consistently held in earlier tax cases that the defense of prescription of
the period for the assessment and collection of tax liabilities shall be deemed waived
A. The defense of prescription was never raised by petitioners PNOC and when such defense was not properly pleaded and the facts alleged and evidences
PNB, and should be considered waived. submitted by the parties were not sufficient to support a finding by this Court on the
matter.102 In Querol v. Collector of Internal Revenue,103 this Court pronounced that
The dissenting opinion takes the position that the right of the BIR to assess and prescription, being a matter of defense, imposes the burden on the taxpayer to prove
collect income tax on the interest earnings and/or yields from PNOC's money that the full period of the limitation has expired; and this requires him to positively
placements with PNB, particularly for taxable year 1985, had already prescribed, establish the date when the period started running and when the same was fully
based on Section 268 of the NIRC of 1977, as amended. accomplished.

Section 268 of the NIRC of 1977, as amended, provides a three-year period of In making its conclusion that the assessment and collection in this case had
limitation for the assessment and collection of internal revenue taxes, which begins prescribed, the dissenting opinion took liberties to assume the following facts even in
to run after the last day prescribed for filing of the return.101 the absence of allegations and evidences to the effect that: (1) PNB filed returns for
its withholding tax obligations for taxable year 1985; (2) PNB reported in the said
The dissenting opinion points out that more than four years have elapsed from 25 returns the interest earnings of PNOC's money placements with the bank; and (3)
January 1986 (the last day prescribed by law for PNB to file its withholding tax return that the returns were filed on or before the prescribed date, which was 25 January
for the fourth quarter of 1985) to 16 January 1991 (the date when the alleged final 1986.
assessment of PNB's tax liability was issued).
It is not safe to adopt the first and second assumptions in this case considering that
The issue of prescription, however, was brought up only in the dissenting opinion Section 269 of the NIRC of 1977, as amended, provides for a different period of
and was never raised by PNOC and PNB in the proceedings before the BIR nor in limitation for assessment and collection of taxes in case of false or fraudulent return
any of their pleadings submitted to the CTA and the Court of Appeals. or for failure to file a return.  In such cases, the BIR is given 10 years after discovery
of the falsity, fraud, or omission within which to make an assessment.104
Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and
objections not pleaded, and reads: It is also not safe to accept the third assumption since there can be a possibility that
PNB filed the withholding tax return later than the prescribed date, in which case,
SECTION 1.  Defenses and objections not pleaded.  – Defenses and following the dictates of Section 268 of the NIRC of 1977, as amended, the three-
objections not pleaded either in a motion to dismiss or in the answer are year prescriptive period shall be counted from the date the return was actually
deemed waived.  However, when it appears from the pleadings or the filed.105
evidence on record that the court has no jurisdiction over the subject matter,

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PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would (c) Any internal revenue tax which has been assessed within the period of
have been the best evidence to prove actual filing, the date of filing and the contents limitation above-prescribed may be collected by distraint or levy or by a
thereof.  These facts are relevant in determining which prescriptive period should proceeding in court within three years following the assessment of the tax.
apply, and when such prescriptive period should begin to run and when it had
lapsed.  Yet, the pleadings did not refer to any return, and no return was made part Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in
of the records of the present case. conjunction with one another.  Section 268 requires that assessment be made within
three years from the last day prescribed by law for the filing of the return.  Section
This Court could not make a proper ruling on the matter of prescription on the mere 269(c), on the other hand, provides that when an assessment is issued within the
basis of assumptions; such an issue should have been properly raised, argued, and prescribed period provided in Section 268, the BIR has three years, counted from the
supported by evidences submitted by the parties themselves before the BIR and the date of the assessment, to collect the tax assessed either by distraint, levy or court
courts below. action.  Therefore, when an assessment is timely issued in accordance with Section
268, the BIR is given another three-year period, under Section 269(c), within which
B. Granting that this Court can take cognizance of the defense of to collect the tax assessed, reckoned from the date of the assessment.
prescription, this Court finds that the assessment of the withholding tax
liability against PNOC and collection of the tax assessed were done within In the case of PNB, an assessment was issued against it by the BIR on 08 October
the prescriptive period. 1986, so that the BIR had until 07 October 1989 to enforce it and to collect the tax
assessed.  The filing, however, by private respondent Savellano of his Amended
Assuming, for the sake of argument, that this Court can give due course to the Petition for Review before the CTA on 02 July 1988 already constituted a judicial
defense of prescription, it finds that the assessment against PNB for its withholding action for collection of the tax assessed which stops the running of the three-year
tax liability for taxable year 1985 and the collection of the tax assessed therein were prescriptive period for collection thereof.
accomplished within the prescribed periods for assessment and collection under the
NIRC of 1977, as amended. A judicial action for the collection of a tax may be initiated by the filing of a complaint
with the proper regular trial court; or where the assessment is appealed to the CTA,
If this Court adopts the assumption made by the dissenting opinion that PNB filed its by filing an answer to the taxpayer's petition for review wherein payment of the tax is
withholding tax return for the last quarter of 1985 on 25 January 1986, then the BIR prayed for.106
had until 24 January 1989 to assess PNB.  The original assessment against PNB
was issued as early as 08 October 1986, well-within the three-year prescriptive The present case is unique, however, because the Petition for Review was filed by
period for making the assessment as prescribed by the following provisions of the private respondent Savellano, the informer, against the BIR, PNOC, and PNB.  The
NIRC of 1977, as amended: BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the
withholding agent, initially found themselves on the same side.  The prayer in the
SEC. 268.  Period of limitation upon assessment and collection. – Except as Amended Petition for Review of private respondent Savellano reads:
provided in the succeeding section, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the WHEREFORE, in view of the foregoing, petitioner respectfully prays that the
return, and no proceeding in court without assessment for the collection of compromise agreement of June 22, 1987 be reviewed and declared null and
such taxes shall be begun after the expiration of such period… void, and that this Court directs:

SEC. 269.  Exceptions as to period of limitation of assessment and collection a) respondent Commissioner to enforce and collect and respondents
of taxes. – PNB and/or PNOC to pay in a joint and several capacity, the total tax
liability of P387,987,785.73, plus interests from 31 October 1986; and
…

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 b) respondent Commissioner to pay unto petitioner, as informer's the decision of this Court in which the issues of the present case are resolved with
reward, 15% of the tax liability collected under clause (a) hereof. finality.

Other equitable reliefs under the premises are likewise prayed Whether the filing of the Amended Petition for Review by private respondent
for.107 (Underscoring ours.) Savellano entirely stops or merely suspends the running of the prescriptive period for
collection of the tax, it had been premature for the BIR Commissioner to issue a writ
Private respondent Savellano, in his Amended Petition for Review in CTA Case No. of garnishment against PNB on 12 August 1991 and for the Central Bank of the
4249, prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect Philippines to debit the account of PNB on 02 September 1992 pursuant to the said
the tax, and (2) PNB and/or PNOC to pay the tax – making CTA Case No. 4249 a writ, because the case was by then, pending review by the Court of Appeals. 
collection case.  That the Amended Petition for Review was filed by the informer and However, since this Court already finds that the compromise agreement is without
not the taxpayer; and that the prayer for the enforcement of the tax assessment and force and effect and hereby orders the enforcement of the assessment against PNB,
payment of the tax was also made by the informer, not the BIR, should not affect the then, any issue or controversy arising from the premature garnishment of PNB's
nature of the case as a judicial action for collection.  In case the CTA grants the account and collection of the tax by the BIR has become moot and academic at this
Petition and the prayer therein, as what has happened in the present case, the point.
ultimate result would be the collection of the tax assessed.  Consequently, upon the
filing of the Amended Petition for Review by private respondent Savellano, judicial V
action for collection of the tax had been initiated and the running of the prescriptive
period for collection of the said tax was terminated. Additional Informer's Reward

Supposing that CTA Case No. 4249 is not a collection case which stops the running Private respondent Savellano is entitled to additional informer's reward since the BIR
of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very had already collected the full amount of the tax assessment against PNB.
least, suspends the running of the said prescriptive period.  Under Section 271 of the
NIRC of 1977, as amended, the running of the prescriptive period to collect PNOC insists that private respondent Savellano is not entitled to additional informer's
deficiency taxes shall be suspended for the period during which the BIR reward because there was no voluntary payment of the withholding tax liability. 
Commissioner is prohibited from beginning a distraint or levy or instituting a PNOC, however, fails to state any legal basis for its argument.
proceeding in court, and for 60 days thereafter.108 Just as in the cases of Republic v.
Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of Appeals,110 this Court Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer
declares herein that the pendency of the present case before the CTA, the Court of equivalent to 15% of the revenues, surcharges, or fees recovered, plus, any fine or
Appeals and this Court, legally prevents the BIR Commissioner from instituting an penalty imposed and collected.111 The provision was clear and uncomplicated – an
action for collection of the same tax liabilities assessed against PNOC and PNB in informer was entitled to a reward of 15% of the total amount actually recovered or
the CTA or the regular trial courts.  To rule otherwise would be to violate the judicial collected by the BIR based on his information.  The provision did not make any
policy of avoiding multiplicity of suits and the rule on lis pendens. distinction as to the manner the tax liability was collected – whether it was through
voluntary payment by the taxpayer or through garnishment of the taxpayer's
Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, property.  Applicable herein is another well-known maxim in statutory construction
the informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would – Ubi lex non distinguit nec nos distinguere debemos – when the law does not
not prevent the suspension of the running of the prescriptive period for collection of distinguish, we should not distinguish.112
the tax.  What is controlling herein is the fact that the BIR Commissioner cannot file a
judicial action in any other court for the collection of the tax because such a case Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a
would necessarily involve the same parties and involve the same issues already debit advice against the demand deposit account of PNB with the Central Bank for
being litigated before the CTA in CTA Case No. 4249.  The three-year prescriptive the amount of P294,958,450.73, and credited the same amount to the demand
period for collection of the tax shall commence to run only after the promulgation of deposit account of the Treasurer of the Republic of the Philippines.  The Treasurer of
TAX 1 batch 1 Page 182 of 193
the Republic, in turn, already issued a journal voucher transferring P294,958,450.73
to the account of the BIR.

Since the BIR had already collected P294,958,450.73 from PNB through the
execution of the writ of garnishment over PNB's deposit with the Central Bank, then
private respondent Savellano should be awarded 15% thereof as reward since the
said collection could still be traced to the information he had given.

WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No.
109976 and G.R. No. 112800, respectively, are hereby DENIED.  This Court
AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R. SP No. 29583
and CA-G.R. SP No. 29526, which affirmed the decision of the CTA in CTA Case
No. 4249, with modifications, to wit:

(1)    The compromise agreement between PNOC and the BIR, dated 22
June 1987, is declared void for being contrary to law and public policy, and is
without force and effect;

(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation; G.R. No. 156946               July 15, 2009
(3)The withholding tax assessment against PNB, dated 08 October 1986, had SECRETARY OF FINANCE, Petitioner,
become final and unappealable.  The BIR Commissioner is ordered to vs.
enforce the said assessment and collect the amount of P294,958,450.73, the ORO MAURA SHIPPING LINES, Respondent.
balance of tax assessed after crediting the previous payment made by PNOC
pursuant to the compromise agreement, dated 22 June 1987; and
DECISION
(4)    Private respondent Savellano shall be paid the remainder of his
BRION, J.:
informer's reward, equivalent to 15% of the deficiency withholding tax ordered
collected herein, or P 44,243,767.61.
We resolve the petition1 filed by the Secretary of Finance (petitioner), assailing the
Decision dated August 26, 2002,2 and Resolution dated January 20, 20033 of the
SO ORDERED.
Court of Appeals (CA) in CA-G.R. SP No. 64644. The CA affirmed the
decision4 dated March 29, 2001 of the Court of Tax Appeals (CTA) holding that the
assessment made by the Customs Collector of the Port of Manila on respondent Oro
Maura Shipping Lines’ (respondent) vessel M/V "HARUNA" had become final and
conclusive upon all parties, and could no longer be subject to re-assessment.

FACTUAL ANTECEDENTS

On November 24, 1992, the Maritime Industry Authority (MARINA) authorized the
importation of one (1) unit vessel M/V "HARUNA"; ex: Shin Shu Maru No. 8, under a
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Bareboat Charter, for a period of five (5) years from its actual delivery to the 1994, after finding that the proposed acquisition cost of the vessel reasonable, taking
charterer. The original parties to the bareboat charter agreement were Haruna into consideration the vessel’s depreciation due to wear and tear.
Maritime S.A., represented by Mr. Yoji Morinaga of Panama, and Mr. Guerrero G.
Dajao, proprietor and manager of Glory Shipping Lines, the charterer. On December 2, 1994, Haruna Maritime S.A. and Glory Shipping Lines sold the M/V
"HARUNA" to the respondent without informing or notifying the Collector of the Port
On December 29, 1992, the Department of Finance (DOF), in its 1st Indorsement, of Mactan.
allowed the temporary registration of the M/V "HARUNA" and its tax and duty-free
release to Glory Shipping Lines, subject to the conditions imposed by MARINA. The On December 13, 1994, Kariton and Company (Kariton), representing the
Bureau of Customs (BOC) also required Glory Shipping Lines to post a bond in the respondent, inquired with the DOF if it could pay the duties and taxes due on the
amount equal to 150% of the duties, taxes and other charges due on the importation, vessel, with the information that the vessel was acquired by Glory Shipping Lines
conditioned on the re-exportation of the vessel upon termination of the charter through a bareboat charter and was previously authorized by the DOF to be released
period, but in no case to extend beyond the year 1999. under a re-export bond. The DOF referred Kariton’s letter to the Commissioner of
Customs for appropriate action, per a 1st Indorsement dated December 13, 1994. In
On March 16, 1993, Glory Shipping Lines posted Ordinary Re-Export Bond No. C(9) turn, the Commissioner of Customs, in a 2nd Indorsement dated December 14,
121818 for ₱1,952,000.00, conditioned on the re-export of the vessel within a period 1994, referred the DOF’s 1st Indorsement to the Collector of Customs of the Port of
of one (1) year from March 22, 1993, or, in case of default, to pay customs duty, tax Manila.
and other charges on the importation of the vessel in the amount of ₱1,296,710.00.
On the basis of these indorsements and the MARINA appraisal, Kariton filed Import
On March 22, 1993, the M/V "HARUNA" arrived at the Port of Mactan. Its Import Entry No. 179260 at the Port of Manila on behalf of the respondent. The Collector of
Entry No. 120-93 indicated the vessel’s dutiable value to be ₱6,171,092.00 and its the Port of Manila accepted the declared value of the vessel at ₱1,100,000.00 and
estimated customs duty to be ₱1,296,710.00. assessed duties and taxes amounting to ₱149,989.00, which the respondent duly
paid on January 4, 1995, as evidenced by Bureau of Customs Official Receipt No.
On March 22, 1994, Glory Shipping Lines’ re-export bond expired. Almost two (2) 50245666.
months after, or on May 10, 1994, Glory Shipping Lines sent a Letter of Guarantee to
the Collector guaranteeing to renew the Re-Export Bond on vessel M/V "HARUNA" On November 5, 1997, after discovering that the vessel M/V "HARUNA" had been
on or before May 20, 1994; otherwise, it would pay the duties and taxes on said sold to the respondent, the Collector of the Port of Mactan sent the respondent a
vessel. Glory Shipping Lines never complied with its Letter of Guarantee; neither did demand letter for the unpaid customs duties and charges of Glory Shipping Lines.
it pay the duties and taxes and other charges due on the vessel despite repeated When the respondent failed to pay, the Collector of the Port of Mactan instituted
demands made by the Collector of the Port of Mactan. seizure proceedings against the vessel M/V "HARUNA" for violation of Section 2530,
par. 1, subpar. (1) to (5) of the Tariff and Customs Code of the Philippines (TCCP).
Since the re-export bond was not renewed, the Collector of the Port of Mactan
assessed it customs duties and other charges amounting to ₱1,952,000.00; In his September 1998 Decision,5 the Collector of the Port of Mactan ordered the
thereafter, it sent Glory Shipping Lines several demand letters dated April 22, 1996, forfeiture of the vessel in favor of the Government, after finding that both Glory
June 21, 1996, and March 10, 1997, respectively. Glory Shipping Lines failed to pay Shipping Lines and the respondent acted fraudulently in the transaction.
the assessed duties despite receipt of these demand letters.
The Cebu District Collector, acting on the respondent’s appeal, reversed the decision
Unknown to the Collector of the Port of Mactan, Glory Shipping Lines had already of the Collector of the Port of Mactan in his December 1, 1998 decision, concluding
offered to sell the vessel M/V "HARUNA" to the respondent in October 1994. In fact, that while there appeared to be fraud in the sale of the vessel M/V "HARUNA" by
the respondent already applied for an Authority to Import the vessel with MARINA on Haruna Maritime S.A. and Glory Shipping Lines to the respondent, there was no
October 21, 1994, pegging the proposed acquisition cost of the vessel at proof that the respondent was a party to the fraud.6 Moreover, the Cebu District
₱1,100,000.00. MARINA granted this request through a letter dated December 5, Collector gave weight to MARINA’s appraisal of the dutiable value of the vessel. The
TAX 1 batch 1 Page 184 of 193
decision also held that in light of this appraisal that the Collector of Custom of the I
Port of Manila used as basis for his assessment, the customs duty the Collector of
the Port of Manila imposed was unquestionably proper. WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ASSESSMENT MADE BY THE MANILA CUSTOMS COLLECTOR ON THE
On December 14, 1998, the Commissioner of Customs, in a 3rd SUBJECT VESSEL HAD BECOME FINAL AND CONCLUSIVE UPON ALL
Indorsement,7 affirmed the decision of the Cebu District Collector and recommended PARTIES.
his approval to the petitioner.
II
In a 4th Indorsement dated January 8, 1999,8 the petitioner affirmed the
Commissioner’s recommendation, but ordered a re-assessment of the vessel based WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT
on the entered value, without allowance for depreciation. The respondent filed a RESPONDENT WAS AN "INNOCENT PURCHASER."
motion for reconsideration, which the petitioner denied.
III
On May 15, 2000, the respondent filed a Petition for Review with the CTA,9 assailing
the petitioner’s January 8, 1999 decision. In a decision dated March 29, 2001, the WHETHER THE COURT OF APPEALS ERRED IN NOT HOLDING THAT A LIEN IN
CTA granted the respondent’s petition and set aside the petitioner’s 4th Indorsement, FAVOR OF THE GOVERNMENT AND AGAINST THE VESSEL EXISTS.
thus affirming the previous decision of the Commissioner of Customs.10
The petitioner mainly argues that the CA committed a reversible error when it held
Dissatisfied with this outcome, the petitioner sought its review through a petition filed that the assessment of the Customs Collector of the Port of Manila had become final
with the CA; he claimed that the CTA erred when it held that the petitioner no longer and conclusive on all parties pursuant to Sections 1407 and 1603 of the TCCP.
had authority to order the re-assessment of the vessel. 11 According to the petitioner, these provisions cannot limit the authority of the
Secretary of Finance or the Commissioner of Customs to assess or collect deficiency
The CA affirmed the findings of the CTA in its decision dated August 26, 2002.12 The duties; in the exercise of their supervisory powers, the Commissioner and the
appellate court concluded that the assessment made by the Collector of the Port of Secretary may at any time direct the re-assessment of dutiable articles and order the
Manila had already become final and conclusive on all parties, pursuant to Sections collection of deficiency duties. Even assuming that Sections 1407 and 1603 of the
1407 and 1603 of the TCCP; the respondent paid the assessed duties on January 4, TCCP apply to the present case, the petitioner posits that the one-year
1995, while the Collector of the Port of Mactan demanded payment of additional limitation14 set forth in these provisions presupposes that the return and all entries,
duties and taxes only on November 5, 1997, or more than one year from the time the as passed upon and approved by the Collector, reflect the accurate description and
respondent paid. The CA also upheld the findings of the Cebu District Collector, of value of the imported article. Where the article was misdeclared or undervalued, the
the Commissioner of Customs, and of the CTA that the fraud in this case could not statute of limitations does not begin to run until a deficiency assessment has been
be imputed to the respondent since it was not shown that the respondent knew about issued and settled in full. Lastly, the petitioner claims that the respondent, being a
Glory Shipping Lines’ infractions. direct and actual party to the importation, should have ensured that the imported
article was properly declared and assessed the correct duties.
The CA subsequently denied petitioner’s Motion for Reconsideration in its resolution
of January 20, 2003.13 Hence, this petition. The respondent, on the other hand, claims that the appraisal of the Collector can
only be altered or modified within a year from payment of duties, per Sections 1407
THE PETITION and 1603 of the TCCP; it is only when there is fraud or protest or when the import
entry was merely tentative that settlement of duties will not attain finality. The
The petitioner submits three issues for our resolution: petitioner’s allegation that there was misdeclaration or undervaluation of the vessel is
not supported by the evidence and is contrary to the findings of the District Collector
of the Port of Cebu, which the petitioner himself affirmed in his 4th Indorsement
TAX 1 batch 1 Page 185 of 193
dated January 8, 1999. Moreover, the records show that the value of the vessel was Our examination of the facts tells us that there are four significant phases that should
properly declared by the respondent at ₱1,100,000.00, pursuant to the appraisal of be considered in appreciating the present case.
the MARINA.
The first phase is the original tax and duty-free entry of the MV Haruna when Glory
The core legal issue for our resolution is whether the Secretary of Finance can order Shipping Lines filed Import Entry No. 120-93 with the Collector of the Port of Mactan
a re-assessment of the vessel M/V "HARUNA." on March 22, 1993. The vessel then had a declared dutiable value of ₱6,171,092.00
and the estimated customs duty was ₱1,296,710.00. It was allowed conditional entry
THE COURT’S RULING on the basis of a one-year re-export bond that lapsed and was not renewed. Despite
a letter of guarantee subsequently issued by Glory Shipping Lines and repeated
We find the petition meritorious and rule that the petitioner can order the re- demand letters, no customs duties and charges were paid. The vessel remained in
assessment of the vessel M/V "HARUNA." the Philippines.

Procedural Issue The second significant phase occurred when Glory Shipping Lines offered to sell the
vessel to the respondent in October 1994. At that point, the respondent applied for
The Collector of the Port of Mactan found that the respondent defrauded the BOC of an Authority to Import the vessel, based on the proposed acquisition cost of
the proper customs duty, but the District Collector of Cebu held otherwise on appeal ₱1,100,000.00. MARINA granted the request based on the proposed acquisition
and absolved the respondent from any participation in the fraud committed by Glory cost, taking depreciation into account.
Shipping Lines. These factual findings and conclusion were affirmed by the
Commissioner of Customs, by the CTA and, ultimately, by the CA. Although in From the first to the second phase, bad faith already intervened as Glory Shipping
agreement with the conclusion, the petitioner, however, ordered a reassessment of Lines, instead of paying in accordance with its commitment, simply turned around,
the dutiable value of the vessel based on the original entered value, without disregarded the demand letters of the Collector of the Port of Mactan, and offered
allowance for depreciation. the vessel for sale to the respondent.

Factual findings of the lower courts, when affirmed by the CA, are generally The respondent, for its part, already knew of the status of the vessel (as it in fact
conclusive on the Court.15 For this reason, the Rules of Court provide that only subsequently manifested before the DOF); in fact, what it asked for was an authority
questions of law may be raised in a petition for review on certiorari. We delve into to import, although the vessel was already in the Philippines. The respondent
factual issues and act on the lower courts’ factual findings only in exceptional likewise was the party which secured an appraisal from MARINA knowing fully well
circumstances, such as when these findings contain palpable errors or are attended of the vessel’s value based on its previous history. It also joined Glory Shipping Lines
by arbitrariness.16 in the latter’s attempt to evade the payment of the customs duties and charges
demanded by the Collector of the Port of Mactan by pushing through with the
After a review of the records of the present case, we find that the CTA and the CA purchase of the vessel without any notification to the Collector of the Port of Mactan -
overlooked and misinterpreted factual circumstances that, had they been brought to the Port that first administratively enforced the rules on the vessel’s importation
light and properly considered, would have changed the outcome of this case. In resulting in its tax-free entry and conditional release.
particular, a closer scrutiny of the surrounding circumstances of the case and the
respondent’s actions reveal the existence of fraud that deprived the State of the The third phase came when the respondent’s representative asked the DOF if it
customs duties properly due to it. could pay the duties and taxes due on the vessel, knowing fully well the vessel’s
history of entry into the country. The respondent’s declared value in the request was
A Critical Look at the Facts ₱1.1 Million based on the lower appraisal that it secured from MARINA. The DOF
referred the matter to the Commissioner of Customs who in turn made his own
referral to the Collector of Customs of the Port of Manila. It was the Collector of the
Port of Manila who accepted the declared value of ₱1.1 Million and assessed duties
TAX 1 batch 1 Page 186 of 193
and taxes amounting to ₱149,989.00. The respondent thus paid the customs duties less by ten percent (10%) than should be legally collected, or when the imported
as approved by the Collector of the Port of Manila. As in the second phase, no notice articles shall be so described and entered that the duties based on the importer’s
was given in this third phase to the Port of Mactan as the Port that allowed the entry description on the face of the entry would be less by ten percent (10%) than should
of the vessel into the country and which had existing demand letters for the customs be legally collected based on the tariff classification, or when the dutiable weight,
duties and charges due on the vessel. measurement or quantity of imported articles is found upon examination to exceed
by ten percent (10%) or more than the entered weight, measurement or quantity, a
The fourth phase started on November 5, 1997 when the Collector of the Port of surcharge shall be collected from the importer in an amount of not less than the
Mactan acted after learning of the sale of the vessel to the respondent. The Collector difference between the full duty and the estimated duty based upon the declaration
eventually instituted seizure proceedings that led to the petition currently with us. of the importer, nor more than twice of such difference: Provided, That an
undervaluation, misdeclaration in weight, measurement or quantity of more than
Evidence of Fraud thirty percent (30%) between the value, weight, measurement, or quantity declared in
the entry, and the actual value, weight, quantity, or measurement shall constitute a
The tie-up between Glory Shipping Lines and the respondent in the four phases prima facie evidence of fraud penalized under Section 2530 of this Code: Provided,
identified above can better be appreciated if the surrounding facts are considered. further, That any misdeclared or underdeclared imported articles/items found upon
examination shall ipso facto be forfeited in favor of the Government to be disposed of
An undisputed given in the narration of the four phases is the valuation of pursuant to the provision of this Code.
₱6,171,092.00 that Glory Shipping Lines gave when the vessel first entered the
country under Import Permit No. 120-93 on March 22, 1993. When the respondent When the undervaluation, misdescription, misclassification or misdeclaration in the
made its request with the MARINA for authorization to import the same vessel after a import entry is intentional, the importer shall be subject to the penal provision under
span of only 19 months, the respondent proposed an acquisition cost of only Section 3602 of this Code. [Emphasis supplied.]
₱1,100,000.00. Consistent with this proposal, the respondent, through Kariton, gave
the vessel the same declared value in its own Import Entry No. 179260 filed with the The 80% drop in valuation existing in this case renders the consideration and
Collector of the Port of Manila. Thus, in a little over a year and a half, the declared application of Section 2503 unavoidable.
value of the vessel decreased by ₱5,000,000.00, or an astonishing 80% of its
original price. We find this drop in value within a short period of 19 months to be too Significantly, the respondent never explained the considerable disparity between the
fantastic to be accepted without question, even allowing for depreciation. Equally dutiable value declared by Glory Shipping Lines and the dutiable value it declared –
fantastic is the change in the customs duties, taxes and other charges due which fell difference of ₱5,000,000.00 – so as to overturn or contradict this prima facie finding
from ₱1,296,710.00 in March 1993 to ₱149,989.00 in January 1995, all because of of fraud. We note that the exercise of due diligence alone would have alerted it to
the sale, the new application by the vendee, and the change in the Port where the Glory Shipping Lines’ acquisition cost and the vessel’s declared value at its first
assessment and collection were made. entry. The respondent, being in the shipping business, should have known the
standard prices of vessels and that the value it proposed to MARINA, as described in
The drop alone from the undisputed original entry valuation of ₱6,171,092.00 to the the second phase above, is extraordinarily low compared to the vessel’s originally
respondent’s new valuation of ₱1,100,000.00 (or a decrease of 80% from the original declared valuation. All these strengthen, rather than weaken, the prima facie
valuation) is already a prima facie evidence of fraud that the rulings below did not evidence of fraud that the law dictates when an unconscionable disparity of
properly appreciate simply because they disregarded the records of the original entry valuations exists.
of the vessel through the Port of Mactan. Section 2503 of the TCCP provides in this
regard that: Depreciation not factor in determining dutiable value

Section 2503. Undervaluation, Misclassification and Misdeclaration of Entry. – When Neither can the respondent hide behind the excuse that the vessel’s dutiable value at
the dutiable value of the imported articles shall be so declared and entered that the ₱1,100,000.00 was approved by MARINA via the Authority to Import, taking into
duties, based on the declaration of the importer on the face of the entry, would be consideration the vessel’s depreciation brought about by its ordinary wear and tear.
TAX 1 batch 1 Page 187 of 193
In the first place, we observe that nowhere in the TCCP does it state that the (a) not more than twenty-five (25) per cent thereof for expenses and profits;
depreciated value of an imported item can be used as the basis to determine an and
imported item’s dutiable value. Section 201 of P.D. No. 1464 (the Tariff and Customs
Code of 1978)17 in this regard provides: (b) duties and taxes paid thereon. (as amended by E.O. 156) [Emphasis
supplied.]
Sec. 201. — Basis of Dutiable Value. — The dutiable value of an imported article
subject to an ad valorem rate of duty shall be based on the cost (fair market value) of Even assuming that the depreciated value of the vessel can be considered in
same, like or similar articles, as bought and sold or offered for sale freely in the usual determining the vessel’s dutiable value, still, we find that the decrease of 80% from
wholesale quantities in the ordinary course of trade in the principal markets of the the original price after the passage of only 19 months cannot be believed and thus
exporting country on the date of exportation to the Philippines (excluding internal should not be accepted.
excise taxes to be remitted or rebated) or where there is none on such date, then on
the cost (fair market value) nearest to the date of exportation, including the value of Assuming further that MARINA merely committed a mistake in approving the vessel’s
all container, covering and/or packings of any kind and all other expenses, costs and proposed acquisition cost at ₱1,100,000.00, and that the Collector of the Port of
charges incident to placing the article in a condition ready for shipment to the Manila similarly erred, we reiterate the legal principle that estoppel generally finds no
Philippines, and freight as well as insurance premium covering the transportation of application against the State when it acts to rectify mistakes, errors,18 irregularities,
such articles to the port of entry in the Philippines. or illegal acts,19 of its officials and agents, irrespective of rank. This ensures efficient
conduct of the affairs of the State without any hindrance on the part of the
Where the fair market value or price of the article cannot be ascertained thereat or government from implementing laws and regulations, despite prior mistakes or even
where there exists a reasonable doubt as to the fairness of such value or price, then illegal acts of its agents shackling government operations and allowing others, some
the fair market value or price in the principal market in the country of manufacture or by malice, to profit from official error or misbehavior. The rule holds true even if the
origin, if it is not the country of exportation, or in a third country with the same stage rectification prejudices parties who had meanwhile received benefits.20
of economic development as the country of exportation shall be used.
This principle is particularly true when it comes to the collection of taxes. As we
When the dutiable value of the article cannot be ascertained in accordance with the stated in Intra-Strata Assurance Corporation v. Republic of the Philippines:21
preceding paragraphs or where there exists a reasonable doubt as to the cost (fair
market value) of the imported article declared in the entry, the correct dutiable value It has long been a settled rule that the government is not bound by the errors
of the article shall be ascertained by the Commissioner Of Customs from the reports committed by its agents. Estoppel does not also lie against the government or any of
of the Revenue or Commercial Attache (Foreign Trade Promotion Attache), pursuant its agencies arising from unauthorized or illegal acts of public officers.22 This is
to Republic Act Numbered Fifty-four Hundred and Sixty-six or other Philippine particularly true in the collection of legitimate taxes due where the collection has to
diplomatic officers or Customs Attaches and from such other information that may be be made whether or not there is error, complicity, or plain neglect on the part of the
available to the Bureau of Customs. Such values shall be published by the collecting agents.23 In CIR v. CTA, we pointedly said:
Commissioner of Customs from time to time.
It is axiomatic that the government cannot and must not be estopped particularly in
When the dutiable value cannot be ascertained as provided in the preceding matters involving taxes. Taxes are the lifeblood of the nation through which the
paragraphs, or where there exists a reasonable doubt as to the dutiable value of the government agencies continue to operate and with which the State effects its
imported article declared in the entry, it shall be domestic wholesale selling price of functions for the welfare of its constituents. Thus, it should be collected without
such or similar article in Manila or other principal markets in the Philippines or on the unnecessary hindrance or delay. [Emphasis supplied.]
date the duty become payable on the article under appraisement, on the usual
wholesale quantities and in the ordinary course of trade, minus: The Respondent’s Complicity

TAX 1 batch 1 Page 188 of 193

That the respondent fully participated in moves to defraud the BOC, as shown by the the jurisdiction of the BOC.24 From the perspective of process, the importation that
recital of the four phases above, is further supported by another factual circumstance originally started with Glory Shipping Lines was therefore never completed and
– the respondent’s acknowledgment to the DOF that the vessel M/V "HARUNA" terminated, so that the respondent’s present importation is merely a continuation of
conditionally entered the country under a re-export bond filed with the BOC. This is that original process.lawphil.net
plain from the 1st Indorsement of the DOF dated December 13, 1994, which states:
Saddled with knowledge of the underlying facts that preceded its purchase, the
1st Indorsement conclusion that the respondent fully cooperated with Glory Shipping Lines in avoiding
December 13, 1994 the original charges and duties due is unavoidable; the respondent provided the
medium (1) to disregard the original duties due on the vessel’s first entry; and (2) to
Respectfully forwarded to the Commissioner of Customs, Manila, for appropriate avoid the Port of Mactan where demands for payment of overdue custom duties
action, the herein letter of even date of Kariton & Company, requesting in behalf of already existed. In the process, it of course acted for its own interest by securing for
their client, ORO MAURA SHIPPING LINE to pay the corresponding duties and itself lower dutiable values and lesser duties due. The fact that the respondent did all
taxes due on the vessel MV "HARUNA" (ex. Shinsu Maru No. 8) which was acquired these confirms that it participated in the moves to defraud the BOC of the legitimate
by Glory Shipping Lines thru bareboat charter under P.D. No. 760, as amended and taxes due as originally assessed.
previously authorized by this Department to be released under a re-export bond
pursuant to Section 1 of P.D. No. 1711 amending P.D. No. 760 under our 1st Finality of the Port of Manila Assessment
Indorsement dated December 29, 1992, copy attached, subject to pertinent import
laws, rules and regulations. Our finding of fraud leads us to conclude that the assessment of the Collector of the
Port of Manila cannot become final and conclusive pursuant to Section 1603 of the
With the knowledge that the vessel was released under a re-export bond, the TCCP, which states:
respondent should have known that this original entry was subject to specific
conditions, among them, the obligation to guarantee the re-export of the vessel Section 1603. Finality of Liquidation. – When articles have been entered and passed
within a given period, or otherwise to pay the customs duties on the vessel. It should free of duty or final adjustments of duties made, with subsequent delivery, such entry
have known, too, of the conditions of the vessel’s release under the re-export bond and passage free of duty or settlements of duties will, after the expiration of one (1)
and of the state of Glory Shipping Lines’ status of compliance. year, from the date of the final payment of duties, in the absence of fraud or protest
or compliance audit pursuant to the provisions of this Code, be final and conclusive
There was an original but incomplete importation by Glory Shipping Lines that the upon all parties, unless the liquidation of the import entry was merely tentative.
respondent could not have simply disregarded proceeds from knowledge of the
vessel’s history and the application of the relevant law. In this respect, Section 1202 Nature of a tax lien
of the TCCP provides:
An important factual circumstance that the CTA and the CA appear to have
Importation begins when the carrying vessel or aircraft enters the jurisdiction of the completely overlooked is that the vessel first entered the Philippines through the Port
Philippines with intention to unlade therein. Importation is deemed terminated of Mactan and it was the Collector of the Port of Mactan who first acquired
upon payment of the duties, taxes and other charges due upon the articles, or jurisdiction over the vessel when he approved the vessel’s temporary release from
secured to be paid, at a port of entry and the legal permit for withdrawal shall the custody of the BOC, after Glory Shipping Lines filed Ordinary Re-Export Bond
have been granted, or in case said articles are free of duties, taxes and other No. C(9) 121818.
charges, until they have legally left the jurisdiction of the customs.
When this re-export bond expired on March 22, 1994, Glory Shipping Lines filed a
In order for an importation to be deemed terminated, the payment of the duties, letter dated May 10, 1994 guaranteeing the renewal of the re-export bond on or
taxes, fees and other charges of the item brought into the country must be in full. For before May 20, 1994, otherwise the duties, taxes and other charges on the vessel
as long as the importation has not been completed, the imported item remains under would be paid. Therefore, when May 20, 1994 came and went without the renewal of
TAX 1 batch 1 Page 189 of 193
the vessel’s re-export bond, the obligation to pay customs duties, taxes and other need29 and they must be collected without unnecessary hindrance.30 [Emphasis
charges on the importation in the amount of ₱1,296,710.00 arose and attached to supplied.]
the vessel. Undoubtedly, this lien was never paid by Glory Shipping Lines, thus it
continued to exist even after the vessel was sold to the respondent. Section 1204 of In keeping with this and other cited rulings, we find in favor of the petitioner and
the TCCP in this regard states: uphold his order for the re-assessment of the value of the vessel based on the
entered value, which in this case should follow the unpaid assessment made by the
Section 1204. Liability of Importer for Duties. – Unless relieved by laws or Collector of Customs of the Port of Mactan.
regulations, the liability for duties, taxes, fees and other charges attaching on
importation constitutes a personal debt due from the importer to the WHEREFORE, we REVERSE the decision of the Court of Appeals dated August 26,
government which can be discharged only by payment in full of all duties, taxes, 2002 in CA-G.R. SP No. 64644, and REINSTATE WITH MODIFICATION the ruling
fees and other charges legally accruing. It also constitutes a lien upon the articles under former Finance Secretary Edgardo Espiritu’s 4th Indorsement dated January
imported which may be enforced while such articles are in custody or subject to the 8, 1999. The re-assessment shall be based on the unpaid assessment by the
control of the government. Collector of Customs of the Port of Mactan against respondent Oro Maura Shipping
Lines dated November 5, 1997, made on the basis of M/V HARUNA’s entered value,
As defined by Black’s Law Dictionary, a lien is a claim or charge on property for without allowance for depreciation, but including other taxes and charges due.
payment of some debt, obligation or duty.25 In this particular instance, the obligation Seizure proceedings shall proceed in due course unless the unpaid customs duties,
is a tax lien that attaches to imported goods, regardless of ownership.26 other taxes and charges are duly paid. Costs against the petitioner.

Consequently, when the respondent bought the vessel from Glory Shipping Lines on SO ORDERED.
December 2, 1994, the obligation to pay the BOC ₱1,296,710.00 as customs duties
had already attached to the vessel and the non-renewal of the re-export bond made
this liability due and demandable. The subsequent transfer of ownership of the
vessel from Glory Shipping Lines to the respondent did not extinguish this liability.

Therefore, while it is true that the respondent had already paid the customs duties
assessed by the Collector of the Port of Manila, this payment did not have the effect
of extinguishing the lien given the tax lien that had attached to the vessel and the
fact that what had been paid was different from what was owed. From the point of
amount alone, the customs duties paid to the Collector at the Port of Manila only
amounted to ₱149,989.00, while the lien which had attached to the vessel based on
the unpaid assessment by the Collector of the Port of Mactan amounted to
₱1,296,710.00.

Finally, we deem it necessary to reiterate our pronouncement in Chevron Philippines

v. Commissioner of the Bureau of Customs,27 where we discussed the importance of
tariff and customs duties in the following manner:

Taxes are the lifeblood of the nation. Tariff and customs duties are taxes constituting
a significant portion of the public revenue which enables the government to carry out
the functions it has been ordained to perform for the welfare of its
constituents.28 Hence, their prompt and certain availability is an imperative
TAX 1 batch 1 Page 190 of 193
 The facts established in this case show that petitioner did not file income tax returns
for the calendar years 1945 and 1946. This fact having come to the knowledge of
revenue examiners, they accordingly made income tax returns for petitioner upon
which respondent on August 20, 1948, assessed against and demanded from
petitioner the sums of P134.14 and P7,563.28 representing alleged income taxes
and corresponding surcharges for the years 1945 and 1946. On September 1, 1948,
petitioner wrote the respondent, requesting that he be informed as to how the
assessments were arrived at. In reply thereto, respondent in a letter dated
G.R. No. L-12518            October 28, 1961 September 17, 1948 furnished the information sought and at the same time
demanded the payment of the aforesaid assessments. On October 4, 1948,
COLLECTOR OF INTERNAL REVENUE, petitioner, petitioner asked that he be given an opportunity to present his side of the matter.
vs. However, respondent on December 13, 1948, denied reconsideration of the
J.C. YUSECO and The COURT OF TAX APPEALS, respondents. assessment and reiterated his demand upon petitioner for payment thereof which
was followed with another demand on June 29, 1949. On July 28, 1949, petitioner
Office of the Solicitor General and Antonio H. Garces for petitioner. once more requested for a reinvestigation of the case but the same was denied by
Yuseco, Abdon, Yuseco and Narvasa for respondents. respondent in his letter dated February 7, 1951 wherein he repeated his demand for
payment. On April 3, 1951, petitioner renewed his request for reinvestigation and
PADILLA, J.: nothing was heard of the matter for almost three years thereafter.

The Collector of Internal Revenue seeks a review, under section 18, Republic Act On January 6, 1953, respondent issued a warrant of distraint and levy upon
No. 1125, and prays for the setting aside, of the judgment rendered by the Court of petitioner's properties which, however, was not executed. On January 16, 1953
Tax Appeals on 25 March 1957, in C.T.A. Case No. 217, the dispositive part of which petitioner sought the withdrawal and/or reconsideration of said warrant. Meanwhile,
is, as follows: on July 2, 1953, respondent issued a revised assessment notice which reduced the
original assessment for the 1946 income tax to P2,447.30, including surcharge. On
WHEREFORE, pursuant to section 51(d) of the National Internal Revenue July 18, 1953, petitioner asked that he be informed of the action upon his petition for
Code, judgment is hereby rendered declaring the warrant of distraint and levy reinvestigation. This request was reiterated in his letter of August 18, 1953 wherein
issued by respondent on January 20, 1955 to effect collection of "the amount he acknowledged receipt of the modified assessment for the 1946 income tax. On
of P2,447.30 as income tax for the year 1946 plus 5% surcharge and the 1% September 1, 1953, respondent wrote petitioner demanding from the latter payment
monthly interest from August 16, 1953" allegedly due from petitioner, is of the said sum of P2,447.30 as income tax for the year 1946 plus penalties incident
hereby declared null and void and of no legal force and effect and respondent to delinquency, and reiterating the demand for the unrevised income tax assessment
is hereby directed to return to petitioner the properties seized from the latter for 1945 in the sum of P134.14, but respondent did not take any further action
under said warrant. The respondent Collector of Internal Revenue is likewise thereafter to effect collection of the assessment.
enjoined from taking any further proceeding to effect by summary methods
the collection of the alleged income taxes assessed against petitioner J. C. On January 20, 1955, respondent again issued a warrant of distraint and levy on the
Yuseco in the sums of P134.14 and P2,447.30 for the years 1945 and 1946, properties of petitioner, this time only to effect collection of the said sum of P2,447.80
respectively. Without pronouncement as to costs. (Appendix N) as income tax for 1946. The distraint being still enforce, petitioner on December 12,
1955 filed his petition for prohibition with this Court.
and the resolution entered by the same Court on 17 June 1957 denying his motion
for reconsideration (Appendix P). The petitioner Collector of Internal Revenue assails the jurisdiction of the respondent
Court of Tax Appeals to take cognizance of the respondent taxpayer's petition that
The facts, which are not disputed, are, as summarized by the Court, as follows: seeks to enjoin him (the petitioner) from collecting his income taxes due for the years
TAX 1 batch 1 Page 191 of 193
1945 and 1946 and surcharges by summary distraint of and levy upon his personal No appeal taken to the Court of Tax Appeals from the decision of the
and real properties, under the provisions of sections 316 to 330 of the National Collector of Internal Revenue or the Collector of Customs shall suspend the
Internal Revenue Code. The petitioner's contention is that the respondent taxpayer payment, levy, distraint, and/or sale of any property of the taxpayer for the
cannot bring in the respondent Court an independent special civil action for satisfaction of his tax liability as provided by existing law; Provided, however,
prohibition without taking to said Court an appeal from the decision or ruling of the That when in the opinion of the Court the collection by the Bureau of Internal
Collector of Internal Revenue in the cases provided for in sections 7 and 11 of Revenue or the Commissioner of Customs may jeopardize the interest of the
Republic Act No. 1125. Government and/or the taxpayer the Court at any stage of the proceeding
may suspend the said collection and require the taxpayer either to deposit the
Sections 7, 9 and 11 of Republic No. 1125, creating the Court of Tax Appeals, amount claimed or to file a surety bond for not more than double the amount
provides: with the Court. (Emphasis supplied.)

SEC. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive The foregoing provisions of the law refer and limit only to appeals from decisions or
appellate jurisdiction to review by appeal, as herein provided — rulings of the Collector of Internal Revenue, Commissioner of Customs and
Provincial or City Boards of Assessment Appeals in the proper cases. Nowhere does
(1) Decisions of the Collector of Internal Revenue in cases involving disputed the law expressly vest in the Court of Tax Appeals original jurisdiction to issue writs
assessments, refunds of internal revenue taxes, fees or other charges, of prohibition and injunction independently of, and apart from, an appealed case. The
penalties imposed in relation thereto, or other matters arising under the writ of prohibition or injunction that it may issue under the provisions of section 11,
National Internal Revenue Code or other law or part of law administered by Republic Act No. 1125, to suspend the collection of taxes, is merely ancillary to and
the Bureau of Internal Revenue; in furtherance of its appellate jurisdiction in the cases mentioned in section 7 of the
Act. The power to issue the writ exists only in cases appealed to it. This is reflected
(2) Decisions of the Commissioner of Customs in cases involving liability for on the explanatory note of the bill (House No. 175), creating the Court of Tax
customs duties, fees or other money charges; seizure, detention or release of Appeals. We quote from the explanatory note:
property affected; fines; forfeitures or other penalties imposed in relation
thereto; or other matters arising under the Customs Law or other law or part ... It is proposed in the attached bill to establish not merely an administrative
of law administered by the Bureau of Customs; and body but a regular court vested with exclusive appellate jurisdiction over
cases arising under the National Internal Revenue Code, Customs Law and
(3) Decisions of provincial or city Boards of Assessment Appeals in cases the Assessment Law. (Emphasis supplied, p. 2202, Congressional Record,
involving the assessment and taxation of real property or other matters Third Congress, Vol. I, Part II.)
arising under the Assessment Law, including rules and regulations relative
thereto. Congressman Castañeda, one of the proponents of the bill, in his opening remarks
sponsoring its enactment into law, said that "House Bill No. 175 has for its purpose
SEC. 9. Fees. — The Court shall fix reasonable fees for the filing of an the creation of a regular court of tax appeals." (p. 2204, supra.) Answering a
appeal, for certified document, and for other authorized services rendered by question from Congressman Alonzo whether the Court of Tax Appeals would have
the Court or its personnel. only appellate jurisdiction and no concurrent or original jurisdiction, the proponent
said that "It has exclusive jurisdiction with reference to matters or cases arising from
SEC. 11. Who may appeal; effect of appeal. — Any person, association or the Internal Revenue Code, the Customs Law and the Assessment Law." (pp. 2209-
corporation adversely affected by a decision or ruling of the Collector of 2210, supra). Dwelling further on the subject, the two members of the House of
Internal Revenue, the Collector of Customs or any provincial or city Board of Representatives — continued their discussion, as follows:
Assessment Appeals may file an appeal in the Court of Tax Appeals within
thirty days after the receipt of such decision or ruling. Mr. Alonzo. So that under this proposal you will bring the case immediately to
this court that you are proposing to create, without first having it decided by
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 the Commissioner of Customs or the Collector of Internal Revenue, as the
case may be.

Mr. Castañeda. It will have to be appealed from the decision of the Collector
of Internal Revenue, the Collector of Customs or the Assessors, to the Court
of Tax Appeals, then to the Supreme Court. (pp. 2209-2210, supra.)

These statements made during the proceedings indicate that the intention of
Congress was to vest the Court of Tax Appeals with jurisdiction to issue writs of
prohibition and injunction only in aid of its appellate jurisdiction in cases appealed to
it and not to clothe it with original jurisdiction to issue them. Such intent is reflected
on the second paragraph of section 11, Republic Act No. 1125 quoted above. Taxes
being the chief source of revenue for the Government to keep it running must be paid
immediately and without delay. A taxpayer who feels aggrieved by the decision or
ruling handed down by a revenue officer and appeals from his decision or ruling to
the Court of Tax Appeals must pay the tax assessed, except that, if in the opinion of
the Court the collection would jeopardize the interest of the Government and/or the
taxpayer, it could suspend the collection and require the taxpayer either to deposit
the amount claimed or to file a surety bond for not more than double the amount of
the tax assessed.

The judgment under review is annulled and set aside, without pronouncement as to
costs.

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