G.R. No.
L-59431 July 25, 1984 'because it was better equipped to administer for the public welfare than is any private individual or
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity.
The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977,
which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable
net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any
other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e)
dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross
income. 2 Petitioner3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated
against by the imposition of higher rates of tax upon his income arising from the exercise of his
profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. 4 He
characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was
filed on May 28, 1982.8 The facts as alleged were admitted but not the allegations which to their mind
are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being
those stated [in their] Special and Affirmative Defenses." 9The answer then affirmed: "Batas Pambansa
Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly
quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the
petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so
clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to enter optionally, and only
group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities
that the government must undertake in its sovereign capacity if it is to meet the increasing social
challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance of vital state functions. It is the source of
the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government,
their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude
'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits .
Adversely affecting as it does properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were
otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter,
after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to]
the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize
that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke
of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it
is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated
that the challenged statutory provision — as petitioner here alleges — fails to abide by its command,
then this Court must so declare and adjudge it null. The injury thus is centered on the question of
whether the imposition of a higher tax rate on taxable net income derived from business or profession
than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering
that petitioner here would condemn such a provision as void or its face, he has not made out a case.
This is merely to adhere to the authoritative doctrine that were the due process and equal protection
clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a
need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that
it finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to
say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls
for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices 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 conditions not being different, both in the privileges conferred and the liabilities imposed.
Favoritism and undue preference cannot be allowed. For the principle is that equal protection and
security shall be given to every person under circumtances which if not Identical are analogous. If law
be looked upon in terms of burden or charges, those that fall within a class should be treated in the
same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That
same formulation applies as well to taxation measures. The equal protection clause is, of course,
inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and
the affairs of men being governed by that serene and impartial uniformity, which is of the very essence
of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter:
"The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do
not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties,
address to the attainment of specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that classification if rational in character is
allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L.
Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling
out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule
of taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force
and effect in every place where the subject may be found. " 26 He likewise added: "The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine
years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by
Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice
and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." 29 There
is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or
taxable income by eliminating all deductible items and at the same time reducing the applicable tax
rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make real differences. In the case of the gross
income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the
susceptibility of the income to the application of generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers
who are recipients of compensation income are set apart as a class. As there is practically no overhead
expense, these taxpayers are e not entitled to make deductions for income tax purposes because they
are in the same situation more or less. On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce
their income. It would not be just then to disregard the disparities by giving all of them zero deduction
and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is
ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as regards professional and
business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling
doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and businessman certainly
not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance
On the other hand, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.
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.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received 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 flied a letter of protest or request for reconsideration, which letter was stamp received
on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to
receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case
proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes,
who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was 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 served. 5Sixteen days later, on April 23, 1965, Algue filed a petition for
review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders
hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes
the said request deemed rejected." 10 But there is a special circumstance in the case at bar that
prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into 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 gave the BIR a copy of the protest that it was, if at all, considered by the
tax authorities. During the intervening period, the warrant was premature and could therefore not be
served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest 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.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the form of promotional fees. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to
be personal holding company income 12 but later conformed to 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 whom it was distributed It has been established that the Philippine Sugar
Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the
Vegetable Oil Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its
incorporation largely 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 P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of the
same family in control of Algue. It is argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough substantiation of such payments. In short,
the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that 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 family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were
to be closed, each payee made an accounting of all of the fees received by him or her, to make up the
total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, 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 proportion, considering that it was the payees who did practically everything, from 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 with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance for
salaries or other compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows: 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. And we also find that the claimed
SEC. 70. Compensation for personal services.--Among the ordinary and necessary deduction by the private respondent was permitted under the Internal Revenue Code and should
expenses paid or incurred in carrying on any trade or business may be included a therefore not have been disallowed by the petitioner.
reasonable allowance for salaries or other compensation for personal services actually
rendered. The test of deductibility in the case of compensation payments is whether ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
they are reasonable and are, in fact, payments purely for service. This test and costs.
deductibility in the case of compensation payments is whether they are reasonable and
are, in fact, payments purely for service. This test and its practical application may be G.R. No. L-22734 September 15, 1967
further stated and illustrated as follows:
COMMISSIONER OF INTERNAL REVENUE, petitioner,
Any amount paid in the form of compensation, but not in fact as the purchase price of vs.
services, is not deductible. (a) An ostensible salary paid by a corporation may be a MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the Office of the Solicitor General for petitioner.
salaries are in excess of those ordinarily paid for similar services, and the excessive Manuel B. Pineda for and in his own behalf as respondent.
payment correspond or bear a close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
BENGZON, J.P., J.:
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were
they its controlling stockholders. 23 On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The
the claimed deduction. In the present case, however, we find that the onus has been discharged estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948.
satisfactorily. The private respondent has proved that the payment of the fees was necessary and Manuel B. Pineda's share amounted to about P2,500.00.
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding
income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue
It is said that taxes are what we pay for civilization society. Without taxes, the government would be filed said returns for the estate on the basis of information and data obtained from the aforesaid estate
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance proceedings and issued an assessment for the following:
to surrender part of one's hard earned income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The government for its part, is expected to 1. Deficiency income tax
respond in the form of tangible and intangible benefits intended to improve the lives of the people and 1945 P135.83
enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of 1946 436.95
power. 1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all 1% monthly interest from
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If November 30, 1953 to
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all April 15, 1957 720.77
the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can Compromise for late filing 80.00
demonstrate, as it has here, that the law has not been observed.
 Compromise for late The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B.
payment 40.00 Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in the
total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the
Total amount due P2,707.44 estate.1awphîl.nèt
===========
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income
Additional residence tax for P14.50
2. tax due the estate only up to the extent of and in proportion to any share he received. He relies
1945 ===========
on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition of an
3. Real Estate dealer's tax for the estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims
fourth quarter of 1946 and the P207.50 against the estate in proportion to the amount or value of the property they have respectively received
whole year of 1947 =========== from the estate."

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to
the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion
pertaining to him as one of the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on October 19, 1953; and
the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further
appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable
for the payment corresponding to his share of the following taxes:
Deficiency income tax
P135.8
1945
3
1946 436.95
Real estate dealer's
fixed tax 4th quarter of
1946 and whole year
of 1947 P187.50
We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the
share he received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
property in his possession. The reason is that the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for unpaid income taxes 4a for which said estate is
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en participacion), association, or
insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner of Internal Revenue until paid with
interest, penalties, and costs that may accrue in addition thereto upon all property and rights to
property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e.,
the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment,
Pineda will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper share
of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance received.
This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case,
the Government filed an action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first liable.6 The reason
why in case suit is filed against all the heirs the tax due from the estate is levied proportionately against
them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This
second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail
itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve only
one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the
Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to
the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946,
and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.
G.R. No. L-22074 April 30, 1965
THE PHILIPPINE GUARANTY CO., INC., petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
BENGZON, J.P., J.:
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:
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income 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 of Internal Revenue assessed against
Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . . P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
Compromise for non-filing of withholding
100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts,
on various dates, with foreign insurance companies not doing business in the Philippines namely: TOTAL AMOUNT DUE & COLLECTIBLE . . . . P230,673.00
Imperio Compañia de Seguros, La Union y El Fenix Español, Overseas Assurance Corp., Ltd., ==========
Socieded Anonima de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance 1954
Society Ltd., 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 Gross premium per investigation . . . . . . . . . . P780.880.68
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 Withholding tax due thereon at 24% . . . . . . . . P184,411.00
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. 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00

Compromise for non-filing of withholding

The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of 100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
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 TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00
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
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its
protest was denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is
hereby ordered to pay to the Commissioner of Internal Revenue the respective sums of
P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes for
the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs against
petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the
foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income from sources
within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor
did they have office here.
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 Philippines. The liability of the foreign reinsurers commenced
simultaneously with the 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 reinsurers. Entries made in
such register bound the foreign resinsurers, localizing in 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 Section 259 of the Tax Code for the privilege of doing insurance business in the
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 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 the reinsurance contracts,
except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the
Philippines and later signed by the foreign reinsurers abroad. Although the contract between Philippine
Guaranty Co., 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 of the Philippines,
thereby manifesting a clear intention of the parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to
the income.1 The reinsurance premiums were income created from the undertaking of the foreign
reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original
insurances. Such undertaking, as explained above, took place in the Philippines. These insurance
premiums, therefore, came from sources within the Philippines and, hence, are subject to corporate
income tax.
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 to engage in business in the Philippines in subjecting its
income to tax. It suffices that the activity creating the income is performed or done in the Philippines.
What is controlling, therefore, is not the place of business but the place ofactivity that created an
income.
Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is
not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein should
be treated as income from sources within the Philippines but it does not require that other kinds of
income should not be considered likewise.1äwphï1.ñët
The power to tax is an attribute of sovereignty. It is a power emanating from 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 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 facilities and protection which a government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the government and the recipient foreign
reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of
Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question
relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner may
free if from the payment of surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the mistakes or errors of its agents. 3
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code,
suffice it to state that this question has already been answered in the affirmative in Alexander Howden
& Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any
amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code States:
 Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations
subject to taxation under this Title not engaged in trade or business within the Philippines and
not having any office or place of business therein, there shall be deducted and withheld at the G.R. No. L- 41383 August 15, 1988
source in the same manner and upon the same items as is provided in Section fifty-three a tax
equal to twenty-four per centum thereof, and such tax shall be returned and paid in the same
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
manner and subject to the same conditions as provided in that section.
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
The applicable portion of Section 53 provides: CARBONELL, in his capacity as National Treasurer, defendants-appellants.

(b) Nonresident aliens. — All persons, corporations and general copartnerships Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
(compañias colectivas), in what ever capacity acting, including lessees or mortgagors of real or
personal property, trustees acting in any trust capacity, executors, administrators, receivers,
conservators, fiduciaries, employers, and all officers and employees of the Government of the
Philippines having the control, receipt, custody, disposal, or payment of interest, dividends,
rents, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or GUTIERREZ, JR., J.:
other fixed or determinable annual or periodical gains, profits, and income of any nonresident
alien individual, not engaged in trade or business within the Philippines and not having any What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
office or place of business therein, shall (except in the case provided for in subsection [a] of this
section) deduct and withhold from such annual or periodical gains, profits, and income a tax This question has been brought before this Court in the past. The parties are, in effect, asking for a re-
equal to twelve per centum thereof: Provided That no deductions or withholding shall be examination of the latest decision on this issue.
required 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 office or place of business This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
therein, and (2) more than eighty-five per centum of the gross income of such corporation for case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of
the three-year period ending with the close of its taxable year preceding the declaration of such registration fees paid under protest.
dividends (or for such part of such period as the corporation has been in existence)was derived
from sources within the Philippines as determined under the provisions of section thirty-
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
seven:Provided, further, That the Collector of Internal Revenue may authorize such tax to be
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic
deducted and withheld from the interest upon any securities the owners of which are not known
Code.
to the withholding agent.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines
The above-quoted provisions allow no deduction from the income therein enumerated in determining
and engaged in the air transportation business under a legislative franchise, Act No. 42739, as
the amount to be withheld. According, in computing the withholding tax due on the reinsurance
amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of
premium in question, no deduction shall be recognized.
taxes. The pertinent provision of the franchise provides as follows:
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby
Section 13. In consideration of the franchise and rights hereby granted, the grantee
ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or
shall pay to the National Government during the life of this franchise a tax of two per
a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
cent of the gross revenue or gross earning derived by the grantee from its operations
amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there
under this franchise. Such tax shall be due and payable quarterly and shall be in lieu of
shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month
all taxes of any kind, nature or description, levied, established or collected by any
from the date of delinquency to the date of payment, provided that the maximum amount that may be
municipal, provincial or national automobiles, Provided, that if, after the audit of the
collected as interest shall not exceed the amount corresponding to a period of three (3) years. With
accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is
costs againsts petitioner.
shown to be 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 property in
conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since
1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all
tax exempt entities, among them PAL to pay motor vehicle registration fees.
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 appellant thus paid, under protest, the
amount of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner
Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212
[1951]) where it was held that motor vehicle registration fees are in reality taxes from the payment of
which PAL is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine
Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees
are regulatory exceptional. and not revenue measures and, therefore, do not come within the
exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against Land
Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court
of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as
National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In
support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus
Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as
an incident of the exercise of the police power of the state. They contended that while Act 4271
exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings, it does
not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration fees. The
resolution of the motion to dismiss was deferred by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's 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 appealed to the Court of Appeals which certified the case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and
Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by Section 8 of
the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of
"registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid., Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the payment
not of a tax but of a registration fee under the police power. Hence the incipient, of the
section relied upon by defendant-appellee under the Back Pay Law, It is not held liable
for a tax but for a registration fee. It therefore cannot make use of a backpay certificate
to meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of
additional tax on privately-owned passenger automobiles, motorcycles and scooters
was amended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A
special science fund was thereby created and its title expressly sets forth that a tax on
privately-owned passenger automobiles, motorcycles and scooters was imposed. The
rates thereof were provided for in its Section 3 which clearly specifies the" Philippine
tax."(Cooley to be paid as distinguished from the registration fee under the Motor
Vehicle Act. There cannot be any clearer expression therefore of the legislative will,
even on the assumption that the earlier legislation could by subdivision the point be
susceptible of the interpretation that a tax rather than a fee was levied. What is thus
most apparent is that where the legislative body relies on its authority to tax it expressly
so states, and where it is enacting a regulatory measure, it is equally exploded (at p.
22,1969
The charges prescribed by the Revised Motor Vehicle Law for the registration of motor
vehicles are in section 8 of that law called "fees". But the appellation is no impediment
to their being considered taxes if taxes they really are. For not the name but the object
of the charge determines whether it is a tax or a fee. Geveia speaking, taxes are for
revenue, whereas fees are exceptional. for purposes of regulation and inspection and
are for that reason limited in amount to what is necessary to cover the cost of the
services rendered in that connection. Hence, a charge fixed by statute for the service to
be person,-When by an officer, where the charge has no relation to the value of the
services performed and where the amount collected eventually finds its way into the
treasury of the branch of the government whose officer or officers collected the
chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portion—about 5 per centum—of the total
collections from motor vehicle registration fees. And as proof that the money collected
is not intended for the expenditures of that office, the law itself provides that all such
money shall accrue to the funds for the construction and maintenance of public roads,
streets and bridges. It is thus obvious that the fees are not collected for regulatory
purposes, that is to say, as an incident to the enforcement of regulations governing the
operation of motor vehicles on public highways, for their express object is to provide
revenue with which the Government is to discharge one of its principal functions—the
construction and maintenance of public highways for everybody's use. They are
veritable taxes, not merely fees.
 As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act shall
be imposed," thus implying that the charges therein imposed—though called fees—are
of the category of taxes. The provision is contained in section 70, of subsection (b), of
the law, as amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of chauffeur,
by any municipal corporation, the provisions of any city charter to the
contrary notwithstanding: Provided, however, That any provincial
board, city or municipal council or board, or other competent authority
may exact and collect such reasonable and equitable toll fees for the
use of such bridges and ferries, within their respective jurisdiction, as
may be authorized and approved by the Secretary of Public Works and
Communications, and also for the use of such public roads, as may be
authorized by the President of the Philippines upon the
recommendation of the Secretary of Public Works and
Communications, but in none of these cases, shall any toll fee." be
charged or collected until and unless the approved schedule of tolls
shall have been posted levied, in a conspicuous place at such toll
station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act
3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation
Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43,
74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.—Twenty per centum of the money collected
under the provisions of this Act shall accrue to the road and bridge funds of the
different provinces and chartered cities in proportion to the centum shall during the next
previous year and the remaining eighty per centum shall be deposited in the Philippine
Treasury to create a special fund for the construction and maintenance of national and
provincial roads and bridges. as well as the streets and bridges in the chartered cities
to be alloted by the Secretary of Public Works and Communications for projects
recommended by the Director of Public Works in the different provinces and chartered
cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of
this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total collection during one year,
shall be set aside for the purpose. (As amended by RA 64-67, approved August 6,
1971).
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 raise funds for the construction and
maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, thePhilippine Rabbit case mentions a presumption arising
from the use of the term "fees," which appears to have been favored by the legislature to distinguish
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:
Sec. 13. Payment of taxes upon registration.—No original registration of motor vehicles
subject to payment of taxes, customs s duties or other charges shall be accepted
unless proof of payment of the taxes due thereon has been presented to the
Commission.
referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of regulation,
As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of
taxpayers
It is possible for an exaction to be both tax arose. regulation. License fees are changes.
looked to as a source of revenue as well as a means of regulation (Sonzinky v. U.S.,
300 U.S. 506) This is true, for example, of automobile license fees. Isabela such case,
the fees may properly be regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if 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. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593;
Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions
are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811,
4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on tobacco
and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing
Cooley on Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees.
The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in
the Calalang case. The same provision appears as Section 591-593). in the Land Transportation code.
It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the 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 imposition is a tax, Section 591-593). speaks of
"taxes." or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, 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 already imposed on the registration,
operation, or ownership of a motor vehicle under 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. 11). These are not to be
understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are not
mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle registration fee and chauffers'
license fee. Such fees are to go into the expenditures of the Land Transportation Commission as
provided for in the last proviso of see. 61, aforequoted.
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 the years, however, as vehicular
traffic exploded in number and motor vehicles became absolute necessities without which modem life
as we know it would stand still, Congress found the registration of vehicles a very convenient way of
raising much needed revenues. Without changing the earlier deputy. of registration payments as "fees,"
their nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to
the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses of
the agency administering the program.
May the respondent administrative agency be required to refund the amounts stated in the complaint of
PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated
June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:
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, petitioner's franchise was amended by Republic Act No.
41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%) of all
gross receipts was provided as "in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected by any authority whatsoever, municipal,
provincial, or national from which taxes the grantee is hereby expressly exempted."
The issue raised to this Court now is the validity of the respondent court's decision
which ruled that the exemption under Republic Act No. 41-42). was repealed by
Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:
"(d) The provisions of existing special or general laws to the contrary
notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this
section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "
An examination of Section 24 of the Tax Code as amended shows 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 of Congress to repeal the earlier exemption it granted.
Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
Constitution as amended in 1973 expressly provide that no franchise shall be granted
to any individual, firm, or corporation except under the condition that it shall be subject
to amendment, alteration, or repeal by the legislature when the public interest so
requires. There is no question as to the public interest involved. The country needs
increased revenues. The repealing clause is clear and unambiguous. There is a listing
of entities entitled to tax exemption. The petitioner is 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.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:
In consideration of the franchise and rights hereby granted, the grantee shall pay to the
Philippine Government during the lifetime of this franchise whichever of subsections (a)
and (b) hereunder will result in a lower taxes.)
(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 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 Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the
petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.
SO ORDERED.
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.
DAVIDE, JR., J.:
This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of
the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price
Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims
for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales
to the National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS)
and Marcopper Mining Corporation (MAR-COPPER), preventing it from exercising the right to offset its
remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still
pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty (30) days
from receipt of a copy thereof. The certiorari referred to is the special civil action for certiorari under
Rule 65 of the Rules of Court. 4
Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings
and rulings of the administrator of the fund itself and in disallowing a claim which is still pending
resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5 in
declaring that petitioner cannot avail of the right to offset any amount that it may be required under the
law to remit to the OPSF against any amount that it may receive by way of reimbursement therefrom
are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering further the
importance of the issues raised, the error in the designation of the remedy pursued will, in this instance,
be excused.
The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No.
1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported petroleum
products. The Oil Price Stabilization Fund may be sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs
duty imposed on petroleum products subject to tax under this Decree
arising from exchange rate adjustment, as may be determined by the
Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to
augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment by persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
 d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate adjustment
and/or increase in world market prices of crude oil;
2) To reimburse the oil companies for possible cost under-recovery
incurred as a result of the reduction of domestic prices of petroleum
products. The magnitude of the underrecovery, if any, shall be
determined by the Ministry of Finance. "Cost underrecovery" shall
include the following:
i. Reduction in oil company take as directed by the
Board of Energy without the corresponding reduction
in the landed cost of oil inventories in the possession
of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of
foregoing government mandated price reductions;
iii. Other factors as may be determined by the Ministry
of Finance to result in cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.
The material operative facts of this case, as gathered from the pleadings of the parties, are not
disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as
Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the years
1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of
P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and informing it that,
pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the
OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00,
broken down as follows:
1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of
the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement
from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding
claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement
certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to
March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of
government transactions of national government agencies and government-owned or controlled
corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the
reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to forward
payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the
reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the
payment of the collections and the recovery of claims, since the outright payment of the sum of P1.287
billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very
serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate
monitoring of payments and reimbursements will be administered by
the ERB/Finance Dept./OEA, as agencies designated by law to
administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion
as payment to OPSF, similarly OEA will deliver to Caltex the same
amount in cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be conducted
expeditiously.
(4) The review of current claims (1989) will be conducted expeditiously
to preclude further accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting
the above-stated proposal but prohibiting petitioner from further offsetting remittances and
reimbursements for the current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella, President,
Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex
(Philippines) Inc., for reconsideration of this Commission's adverse action embodied in
its letters dated February 2, 1989 and March 9, 1989, the former directing immediate
remittance to the Oil Price Stabilization Fund of collections made by the firms pursuant
to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter reiterating the same
directive but further advising the firms to desist from offsetting collections against their
claims with the notice that "this Commission will hold in abeyance the audit of all . . .
claims for reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy Regulatory
Board, the aforenamed oil companies were allowed to offset the amounts due to the Oil
Price Stabilization Fund against their outstanding claims from the said Fund for the
calendar years 1987 and 1988, pending with the then Ministry of Energy, the
government entity charged with administering the OPSF. This Commission, however,
expressing serious doubts as to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of remittances, advised these oil
companies that such offsetting was bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in support thereof clearly manifest their intent
to make arrangements for the remittance to the Office of Energy Affairs of the amount
of collections equivalent to what has been previously offset, provided that this
Commission authorizes the Office of Energy Affairs to prepare the corresponding
checks representing reimbursement from the OPSF. It is alleged that the
implementation of such an arrangement, whereby the remittance of collections due to
the OPSF and the reimbursement of claims from the Fund shall be made within a
period of not more than one week from each other, will benefit the Fund and not unduly
jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this Commission
perceives no further objectionable feature in the proposed arrangement, provided that
15% of whatever amount is due from the Fund is retained by the Office of Energy
Affairs, the same to be answerable for suspensions or disallowances, errors or
discrepancies which may be noted in the course of audit and surcharges for late
remittances without prejudice to similar future retentions to answer for any deficiency in
such surcharges, and provided further that no offsetting of remittances and
reimbursements for the current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director
Wenceslao R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based
on our initial verification of documents submitted to us by your Office in support of
Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its
outstanding claims against the Oil Price Stabilization Fund (OPSF) as of May 31, 1989,
we are pleased to inform your Office that Caltex (Philippines), Inc. shall be required to
remit to OPSF an amount of P1,505,668,906, representing remittances to the OPSF
which were offset against its claims reimbursements (net of unsubmitted claims). In
addition, the Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to
cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in
audit, the details of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled P387,683,535,
which included P130,420,235 representing those claims disallowed by OEA, details of
which is (sic) shown in Schedule 1 as summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300
Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535
The reasons for the disallowances are discussed hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that
recovery of financing charges by oil companies is not among the items for which the
OPSF may be utilized. Therefore, it is our view that recovery of financing charges has
no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.
b. Product Sales –– Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No.
87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil
companies should pay OPSF impost on export sales of petroleum products. Effective
 February 7, 1987 sales to international vessels/airlines should not be included as part
of its domestic sales. Changing the effectivity date of the resolution from February 7,
1987 to October 20, 1987 as covered by subsequent ERB Resolution No. 88-12 dated
November 18, 1988 has allowed Caltex to include in their domestic sales volumes to
international vessels/airlines and claim the corresponding reimbursements from OPSF
during the period. It is our opinion that the effectivity of the said resolution should be
February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem
We reviewed the system of handling Borrow and Loan (BLA) transactions including the
related BLA agreement, as they affect the claims for reimbursements of ad
valorem taxes. We observed that oil companies immediately settle ad valorem taxes for
BLA transaction (sic). Loan balances therefore are not tax paid inventories of Caltex
subject to reimbursements but those of the borrower. Hence, we recommend reduction
of the claim for July, August, and November, 1987 amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges whether
direct or indirect due and payable by the copper mining companies in distress to the
national and local governments." It is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as effected by OEA has no legal basis.
Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount
as herein authorized shall be subject to availability of funds of OPSF as of May 31,
1989 and applicable auditing rules and regulations. With regard to the disallowances, it
is further informed that the aggrieved party has 30 days within which to appeal the
decision of the Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision
based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,
ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF
FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE
ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF
EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED
UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS
AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for
Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner
Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for recovery
of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while allowing the
recovery of product sales or those arising from export sales. 15 Decision No. 1171 reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the
.authority to recover financing charges from the OPSF on the basis of Department of
Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies to
"recover cost of financing working capital associated with crude oil shipments,"
and provided a schedule of reimbursement in terms of peso per barrel. It appears that
on November 6, 1989, the DOF issued a memorandum to the President of the
Philippines explaining the nature of these financing charges and justifying their
reimbursement as follows:
As part of your program to promote economic recovery, . . . oil companies
(were authorized) to refinance their imports of crude oil and petroleum products
from the normal trade credit of 30 days up to 360 days from date of loading . . .
Conformably . . ., the oil companies deferred their foreign exchange
remittances for purchases by refinancing their import bills from the normal 30-
day payment term up to the desired 360 days. This refinancing of importations
carried additional costs (financing charges) which then became, due to
government mandate, an inherent part of the cost of the purchases of our
country's oil requirement.
We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel (Exhibit
1) used to support alleged increase (sic) were not validated in our independent inquiry.
As manifested in Exhibit 2, using the same formula which the DOF used in arriving at
the reimbursement rate but using comparable percentages instead of pesos, the
ineluctable conclusion is that the oil companies are actually gaining rather than losing
from the extension of credit because such extension enables them to invest the
collections in marketable securities which have much higher rates than those they incur
 due to the extension. The Data we used were obtained from CPI (CALTEX)
Management and can easily be verified from our records.
With respect to product sales or those arising from sales to international vessels or
airlines, . . ., it is believed that export sales (product sales) are entitled to claim refund
from the OPSF.
As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such surtax
on inventory losses because these are paid to BIR and not OPSF, in view of which CPI
(CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that you are
entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17,
1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF
imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that the CPI
(CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost
because LOI 1416 dated July 17, 1984, which exempts distressed mining companies
from "all taxes, duties, import fees and other charges" was issued when OPSF was not
yet in existence and could not have contemplated OPSF imposts at the time of its
formulation. Moreover, it is evident that OPSF was not created to aid distressed mining
companies but rather to help the domestic oil industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes
to the COA the commission of the following errors: 16
I (1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY
FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM
SALES TO NPC.
III
RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS
REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING
ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS
REIMBURSEMENT VIS-A-VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE
STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within
ten (10) days from notice. 18
On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the
Office of the Solicitor General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file
their respective Memoranda within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed
on 6 September 1990 be considered as the Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:
second purpose, to wit:
OF
2) To reimburse the oil companies for possible cost underrecovery incurred as a result
of the reduction of domestic prices of petroleum products. The magnitude of the
underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession
of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
FOR
 iii. Other factors as may be determined by the Ministry of Finance to result in s per
cost underrecovery. Barrel

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Less than 180 days None
Finance may include financing charges for "in essence, financing charges constitute unrecovered cost 180 days to 239 days 1.90
of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989 241 (sic) days to 299 4.02
Memorandum to the President of the Department of Finance; they "directly translate to cost 300 days to 369 (sic) days 6.16
underrecovery in cases where the money market placement rates decline and at the same time the tax 360 days or more 8.28
on interest income increases. The relationship is such that the presence of underrecovery or
overrecovery is directly dependent on the amount and extent of financing charges." The above rates shall be subject to review every sixty
days. 22
(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the
basis of Department of Finance Circular No. Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office
1-87, dated 18 February 1987, which provides: of Energy Affairs as follows:

To allow oil companies to recover the costs of financing working capital associated with HON. VICENTE T. PATERNO
crude oil shipments, the following guidelines on the utilization of the Oil Price Deputy Executive Secretary
Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk For Energy Affairs
premium and recovery of financing charges will be implemented: Office of the President
Makati, Metro Manila
1. The OPSF foreign exchange premium shall be reduced to a flat rate
of one (1) percent for the first (6) months and 1/32 of one percent per Dear Sir:
month thereafter up to a maximum period of one year, to be applied on
crude oil' shipments from January 1, 1987. Shipments with outstanding
This refers to the letters of the Oil Industry dated December 4, 1986 and February 5,
financing as of January 1, 1987 shall be charged on the basis of the
1987 and subsequent discussions held by the Price Review committee on February 6,
fee applicable to the remaining period of financing.
1987.

2. In addition, for shipments loaded after January 1987, oil companies

On the basis of the representations made, the Department of Finance recognizes the
shall be allowed to recover financing charges directly from the OPSF
necessity to reduce the foreign exchange risk premium accruing to the Oil Price
per barrel of crude oil based on the following schedule:
Stabilization Fund (OPSF). Such a reduction would allow the industry to recover partly
associated financing charges on crude oil imports. Accordingly, the OPSF foreign
exchange risk fee shall be reduced to a flat charge of 1% for the first six (6) months
plus 1/32% of 1% per month thereafter up to a maximum period of one year, effective
January 1, 1987. In addition, since the prevailing company take would still leave
unrecovered financing charges, reimbursement may be secured from the OPSF in
Finan accordance with the provisions of the attached Department of Finance circular. 23
cing
Perio Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines
d for the computation of the foreign exchange risk fee and the recovery of financing charges from the
Reim OPSF, to wit:
burse
ment B. FINANCE CHARGES
Rate
Peso
1. Oil companies shall be allowed to recover financing charges directly .
from the OPSF for both crude and product shipments loaded after )
January 1, 1987 based on the following rates:
Less than 180 days None
F 180 days to 239 days 1.90
i 240 days to 229 (sic) days 4.02
n 300 days to 359 days 6.16
a 360 days to more 8.28
n
c 2. The above rates shall be subject to review every sixty days. 24
i
n
Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further
g guidelines on the recoverability of financing charges, to wit:

P
e Following are the supplemental rules to Department of Finance Circular No. 1-87 dated
r February 18, 1987 which allowed the recovery of financing charges directly from the Oil
i Price Stabilization Fund. (OPSF):
o
d 1. The Claim for reimbursement shall be on a per shipment basis.

R 2. The claim shall be filed with the Office of Energy Affairs together with the claim on
e peso cost differential for a particular shipment and duly certified supporting documents
i provided for under Ministry of Finance No. 11-85.
m
b 3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be
u issued by the Office of Energy Affairs. The said certificate may be used to offset
r against amounts payable to the OPSF. The oil companies may also redeem said
s certificates in cash if not utilized, subject to availability of funds. 25
e
m
The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. 26
e
n
t The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light
of the determination of executive agencies. The determination by the Department of Finance and the
R OEA that financing
27
charges are recoverable from the OPSF is entitled to great weight and
a consideration. The function of the COA, particularly in the matter of allowing or disallowing certain
t expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the
e disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties. 28
(
P (3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that
B petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not
b supported by expert analysis.
l
In impeaching the validity of petitioner's assertions, the respondents argue that:
 1. The Constitution gives the COA discretionary power to disapprove irregular or
unnecessary government expenditures and as the monetary claims of petitioner are not
allowed by law, the COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges
from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the second
purpose of the OPSF pursuant to E.O. No. 137 can only include "factors which are of
the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the
Department of Finance violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations implementing P.D. No. 1956 do not
likewise allow reimbursement of financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of
petitioner –– that such does not extend to the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or use of government funds and properties, but only to
the promulgation of accounting and auditing rules for, among others, such disallowance –– to be
untenable in the light of the provisions of the 1987 Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to,
the Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-
audit basis: (a) constitutional bodies, commissions and offices that have been granted
fiscal autonomy under this Constitution; (b) autonomous state colleges and universities;
(c) other government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or indirectly, from
or through the government, which are required by law or the granting institution to
submit to such audit as a condition of subsidy or equity. However, where the internal
control system of the audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary and appropriate
to correct the deficiencies. It shall keep the general accounts, of the Government and,
for such period as may be provided by law, preserve the vouchers and other supporting
papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of
government funds and properties.
These present powers, consistent with the declared independence of the Commission, 30 are broader
and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission was
empowered to:
Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities including government-owned or controlled
corporations, keep the general accounts of the Government and, for such period as
may be provided by law, preserve the vouchers pertaining thereto; and promulgate
accounting and auditing rules and regulations including those for the prevention of
irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and
property. 31
Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the
General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section 2 of
Article XI thereofprovided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to
the revenues and receipts from whatever source, including trust funds derived from
bond issues; and audit, in accordance with law and administrative regulations, all
expenditures of funds or property pertaining to or held in trust by the Government or the
provinces or municipalities thereof. He shall keep the general accounts of the
Government and the preserve the vouchers pertaining thereto. It shall be the duty of
the Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular, unnecessary,
excessive, or extravagant. He shall also perform such other functions as may be
prescribed by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or
uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and
regulations to prevent the same. His was merely to bring that matter to the attention of the proper
administrative officer.
The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were decided in the
light of the 1935 Constitution.
There can be no doubt, however, that the audit power of the Auditor General under the 1935
Constitution and the Commission on Audit under the 1973 Constitution authorized them to
disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains
that same power and authority, further strengthened by the definition of the COA's general jurisdiction in
Section 26 of the Government Auditing Code of the Philippines 34and Administrative Code of
1987. 35 Pursuant to its power to promulgate accounting and auditing rules and regulations for the
prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the
COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the
enforcement of the rules and regulations, it goes without saying that failure to comply with them is a
ground for disapproving the payment of the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the 1935
Constitution the Auditor General could not correct "irregular, unnecessary, excessive or
extravagant" expenditures of public funds but could only "bring [the matter] to the
attention of the proper administrative officer," under the 1987 Constitution, as also
under the 1973 Constitution, the Commission on Audit can "promulgate accounting and
auditing rules and regulations including those for the prevention and disallowance of
irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or
uses of government funds and properties." Hence, since the Commission on Audit
must ultimately be responsible for the enforcement of these rules and regulations, the
failure to comply with these regulations can be a ground for disapproving the payment
of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role
and invested it with broader and more extensive powers, they did not intend merely to make the COA a
toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the
Government.
The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-
87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued
pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other
factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are
not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other factors."
Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost
underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of the oil
companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
These "other factors" can include only those which are of the same class or nature as the two
specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are in
the nature of government mandated price reductions. Hence, any other factor which seeks to be a part
of the enumeration, or which could qualify as a cost underrecovery, must be of the same class or nature
as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and
unrestricted authority to determine or define "other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to be construed in
their widest extent, but are held to be as applying only to persons or things of the same kind or class as
those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they do not
have a common characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii) cannot
be limited by the enumeration in these subparagraphs. What should be considered for purposes of
determining the "other factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section
which explicitly allows cost underrecovery only if such were incurred as a result of the reduction of
domestic prices of petroleum products.
Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the
sense that such were incurred as a result of the inability to fully offset financing expenses from yields in
money market placements, they do not, however, fall under the foregoing provision of P.D. No. 1956,
as amended, because the same did not result from the reduction of the domestic price of petroleum
products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by Congress,
this Court can do nothing. The duty of this Court is not to legislate, but to apply or interpret the law. Be
that as it may, this Court wishes to emphasize that as the facts in this case have shown, it was at the
behest of the Government that petitioner refinanced its oil import payments from the normal 30-day
trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing to the
extended period for payment, the financial institution which refinanced said payments charged a higher
interest, thereby resulting in higher financing expenses for the petitioner. It would appear then that
equity considerations dictate that petitioner should somehow be allowed to recover its financing losses,
if any, which may have been sustained because it accommodated the request of the Government.
Although under Section 29 of the National Internal Revenue Code such losses may be deducted from
gross income, the effect of that loss would be merely to reduce its taxable income, but not to actually
wipe out such losses. The Government then may consider some positive measures to help petitioner
and others similarly situated to obtain substantial relief. An amendment, as aforestated, may then be in
order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the
Department of Finance to determine or define "other factors" is to uphold an undue delegation of
legislative power, it clearly appearing that the subject provision does not provide any standard for the
exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained
only upon the ground that some standard for its exercise is provided and that the legislature, in making
the delegation, has prescribed the manner of the exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by
reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove
COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently
show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It cannot
have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The
respondents themselves admit in their Comment that underrecovery arising from sales to NPC are
reimbursable because NPC was granted full exemption from the payment of taxes; to prove this,
respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal Incentives
Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and duty
exemption privileges of the National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products . . . are restored effective March 10, 1987." In a
Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was
confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the
NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby
Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil companies for (a) cost
increases of imported crude oil and finished petroleum products resulting from
foreign exchange rate adjustments and/or increases in world market prices of
crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the
National Power Corporation (NPC); and (c) other cost underrecoveries incurred
as may be finally decided by the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power
Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies
on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of
all taxes, duties, fees and other charges, whether direct or indirect, due and payable by the copper
mining companies in distress to the national government. Pursuant to this LOI, then Minister of Energy,
Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that
Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among those declared to
be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989
letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416 which
implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis;" 42 in
its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement
for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not
yet in existence and could not have contemplated OPSF imposts at the time of its formulation." 43 It is
further stated that: "Moreover, it is evident that OPSF was not created to aid distressed mining
companies but rather to help the domestic oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to
exempt said distressed mining companies from the payment of OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating
the OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was
issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the
government's effort to prevent the collapse of the copper industry. P.D No. 1956, as amended,
was issued for the purpose of minimizing frequent price changes brought about by exchange
rate adjustments and/or changes in world market prices of crude oil and imported petroleum
product's; and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges,
whether direct or indirect, due and payable by the copper mining companies in distress to the
Notional and Local Governments . . ." On the other hand, OPSF dues are not payable by (sic)
distressed copper companies but by oil companies. It is to be noted that the copper mining
companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in
the prices of oil products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining
companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF
dues.
We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent
that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code,
which reads:
Laws shall take effect after fifteen days following the completion of their publication in
the Official Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Tañada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette
all unpublished presidential issuances which are of general application, and unless so
published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on
29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication
unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative powers whenever the same are validly delegated by the
legislature or, at present, directly conferred by the Constitution. Administrative rules and
regulations must also be published if their purpose is to enforce or implement existing laws
pursuant also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their
approval, or as soon thereafter as possible, be published in full in the Official Gazette, to
become effective only after fifteen days from their publication, or on another date specified by
the legislature, in accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after
its issuance or at any time after the decision in the abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June
1987. As amended, the said provision now reads:
Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the Philippines,
unless it is otherwiseprovided.
We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to
Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still
fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of
the taxing authority.48 The burden of proof rests upon the party claiming exemption to prove that it is in
fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly
mentioned in the exempting law or at least be within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS
and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may
suspend the payment of taxes by copper mining companies, it does not give petitioner the same
privilege with respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the
Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was
premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49 Respondents,
on the other hand, contend that said amount was already disallowed by the OEA for failure to
substantiate it. 50 In fact, when OEA submitted the claims of petitioner for pre-audit, the
abovementioned amount was already excluded.
An examination of the records of this case shows that petitioner failed to prove or substantiate its
contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF.
Additionally, We find no reason to doubt the submission of respondents that said amount has already
been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be
upheld.
V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from
petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends that
it should be allowed to offset its claims from the OPSF against its contributions to the fund as this has
been allowed in the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on
compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides for
"Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner also mentions
communications from the Board of Energy and the Department of Finance that supposedly authorize
compensation.
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be no
offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not
arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents also
allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is
misplaced because "while this provision empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government and apply the government
indebtedness to the satisfaction of the obligation of the person to the government, like authority or right
to make compensation is not given to the private person." 54 The reason for this, as stated
in Commissioner of Internal Revenue vs.Algue, Inc., 55 is that money due the government, either in the
form of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of
giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the
respondents' duty to collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result
of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead established a
special fund . . .," 56and that the OPSF contributions do not go to the general fund of the state and are
not used for public purpose, i.e., not for the support of the government, the administration of law, or the
payment of public expenses. This alleged lack of a public purpose behind OPSF exactions
distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF;
the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall be used to pay
any oil company which has an outstanding obligation to the Government
without said obligation being offset first, subject to the requirements of
compensation or offset under the Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a measure
merely to raise revenue to support the existence of the government; taxes may be levied with a
regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the state. 57 There can be no
doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare.
Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause
economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization
then of oil prices is of prime concern which the state, via its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is
taxation. No amount of semantical juggleries could dim this fact.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. 58Taxes cannot be the subject of compensation because the government and taxpayer are
not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off. 59
We may even further state that technically, in respect to the taxes for the OPSF, the oil companies
merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed
unto the end-users –– the consuming public. In that capacity, the petitioner, as one of such companies,
has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF.
This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims
for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the
petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof
that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in order that
compensation may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid precedent. Such a practice has
no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against
their OPSF contributions. Instead, it prohibits the government from paying any amount from the
Petroleum Price Standby Fund to oil companies which have outstanding obligations with the
government, without said obligation being offset first subject to the rules on compensation in the Civil
Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged
decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for
reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby
allowed.
With costs against petitioner.
SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino,
Medialdea, Regalado, Romero and Nocon, JJ., concur.
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres
and Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the
threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-
McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore,
the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar
industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for
the eventuality of the loss of its preferential position in the United States market and the imposition of
the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of
sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or
persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act 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 all of the following purposes or to attain any or all of the following objectives, as
may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the United States market, and ultimately to insure
its continued existence notwithstanding the loss of that market and the consequent necessity of
meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field — so that all might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment of
the next regular session of the National Assembly, make the necessary disbursements from the
fund herein created (1) for the establishment and operation of sugar experiment station or
stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal
sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate
higher yielding varieties of sugar cane more adaptable to different district conditions in the
Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or crops are suitable for rotation
and for the utilization of excess cane lands, and (g) on other problems the solution of which
would help rehabilitate and stabilize the industry, and (2) for the improvement of living and
working conditions in sugar mills and sugar plantations, authorizing him to organize the
necessary agency or agencies to take charge of the expenditure and allocation of said funds to
carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount or amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally
levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case
directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth
Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6
(heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means
for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence it was competent for the legislature to find that the
general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of
its police power, the lawmaking body could provide that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the added strain of the increase in taxes that it
had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla.
1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —
The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no 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 may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made
the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L.
Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245,
citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none."
As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of by-
products and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION,
CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
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 constitutionality of Presidential Decree
No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and
supervise the 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.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among
others, videotapes, discs, cassettes or any technical improvement or variation thereof, have
greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp
decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been subjected
to tax, thereby depriving the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the
viability of the movie industry, particularly the more than 1,200 movie houses and theaters
throughout the country, and occasioned industry-wide displacement and unemployment due to
the shutdown of numerous moviehouses and theaters;
 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000 families
and 500,000 workers depend for their livelihood, but also provide an additional source of
revenue for the Government, and at the same time rationalize the heretofore uncontrolled
distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the youth, and
impairs the mandate of the Constitution for the State to support the rearing of the youth for civic
efficiency and the development of moral character and promote their physical, intellectual, and
social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb
these blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people
and betraying the national economic recovery program, bold emergency measures must be
adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title 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 wishes to accomplish. The requirement is satisfied if all the parts of
the statute are related, and are germane to the subject matter expressed in the title, or as long as they
are not inconsistent with or foreign to the general subject and title. 2 An act having a single general
subject, indicated in the title, may contain any number of provisions, no matter how diverse they may
be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of carrying out the general
object." 3 The rule also is that the constitutional requirement as to the title of a bill 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
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision
of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase
price or rental rate, as the case may be, for every sale, lease or disposition of a videogram
containing a 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 other fifty percent (50%)
shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan
Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment
of, the general object of the DECREE, which is the regulation of 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. As a tool for regulation 6 it is simply one of the regulatory and
control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to
include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled
distribution of videograms is evident from Preambles 2 and 5, supra. 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 comprehensive enough to include the purposes expressed in its
Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in
the title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease
to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The
power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of
the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive taxation. 10
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 around P600 million per annum have not been
subjected to tax, thereby depriving 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 the
30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax
burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram
operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that "inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the
implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by
the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the
judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or
whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act
adequately on any matter for any reason that in his judgment requires immediate action, he may, in
order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall
form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency measures
to be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering
that the issue of the validity of the exercise of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the question raised at the proper time.
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 to the BOARD to "solicit the direct
assistance of other agencies and units of the government and deputize, for a fixed and limited period,
the heads or personnel of such agencies and units to perform enforcement functions for the Board" is
not a delegation of the power to legislate but merely a conferment of authority or discretion as to its
execution, enforcement, and implementation. "The true distinction is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or
discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be
done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decree, the
authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized
agencies concerned being "subject to the direction and control of the BOARD." That the grant of such
authority might be the source of graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate
remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and 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 DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days
after the effectivity of this Decree within which to register with and secure a permit from the
BOARD to engage in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person engaged in the videogram
business without the required proof of registration by the BOARD, shall be prima facie evidence
of violation of the Decree, whether the possession of such videogram be for private showing
and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post
facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be sufficient
to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59,
citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the
"legislature may enact that when certain facts have been proved that they shall be prima facie
evidence of the existence of the guilt of the accused and shift the burden of proof provided
there be a rational connection between the facts proved and the ultimate facts presumed so
that the inference of the one from proof of the others is not unreasonable and arbitrary because
of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational 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 facie presumption of violation of the DECREE attaches only after a forty-
five-day period counted from its effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated 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 the DECREE is to protect the moribund movie industry,
there is no question that public welfare is at bottom of its enactment, considering "the unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the
availability of unclassified and unreviewed video tapes containing pornographic films and films with
brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance,
not to mention the fact that the activities of video establishments are virtually untaxed since mere
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 respective authority of each department and confined its
jurisdiction to such a sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as there ought to be, the last
offender should be courts of justice, to which rightly litigants submit their controversy precisely
to maintain unimpaired the supremacy of 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
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 us in pronouncing Presidential Decree
No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
JOHN H. OSMEÑA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as
Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy
Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court, 2 upon the following posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the
Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended, "said
creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4
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 power . . to the Energy Regulatory
Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, 6 because it contravenes § 8, paragraph 2 (2) of
P. D. 1956, as amended; and
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.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world market prices of
crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also
authorized the investment of the fund in government securities, with the earnings from such placements
accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to 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.
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 deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, 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) months, but this notwithstanding, the respondents — Oscar Orbos, in his capacity as Executive
Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy
Regulatory Board — "are poised to accept, process and pay claims not authorized under P.D. 1956." 9
The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If 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.
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 generated therefrom shall 'be treated as a special fund' to be used only
for the purpose indicated, and not channeled to another government objective." 10 Petitioner further
points out that since "a 'special fund' consists of monies collected through the taxing power of a
State, such amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created." 11
He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI of
the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, 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
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general fund
for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a
special purpose. He 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.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power
of the State. The Solicitor General observes that 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 perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding inValmonte v. Energy Regulatory Board, et al. 14 —
§ The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established "for
the purpose of minimizing the frequent price changes brought about by exchange rate
adjustment and/or changes in world market prices of crude oil and imported petroleum
products." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27
February 1987, this Trust Account may be funded from any of the following sources:
a) Any increase in the tax collection from ad valorem tax or customs
duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be determined
by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by the
Minister of Finance in consultation with the Board of Energy:
c) Any additional amount to be imposed on petroleum products to
augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons or
companies engaged in the business of importing, manufacturing and/or
marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in Rotterdam,
vary from day to day is of judicial notice. Freight rates for hauling crude oil and
petroleum products from sources of supply to the Philippines may also vary from time
to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other convertible
foreign currencies also changes from day to day. These fluctuations in world market
prices and in tanker rates and foreign exchange rates would in a completely free
market translate into corresponding adjustments in domestic prices of oil and petroleum
 products with sympathetic frequency. But domestic prices which vary from day to day
or even only from week to week would result in a 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 price
adjustments may have upon the economy. Thus, the OPSF serves as a pocket, as it
were, into which a portion of the purchase price of oil and petroleum products paid by
consumers as well as some tax revenues are inputted and from which amounts are
drawn from time to time to reimburse oil companies, when appropriate situations arise,
for increases in, as well as underrecovery of, costs of crude importation. The OPSF is
thus a buffer mechanism through which the domestic consumer prices of oil and
petroleum products are stabilized, instead of fluctuating every so often, and oil
companies are allowed to recover those portions of their costs which they would not
otherwise recover given the level of domestic prices existing at any given time.To the
extent that some tax revenues are also put into it, the OPSF is in effect a device
through which the domestic prices of petroleum products are subsidized in part. It
appears to the Court that the establishment and maintenance of the OPSF is well
within that pervasive and non-waivable power and responsibility of the government to
secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State. The
stabilization, and subsidy of domestic prices of petroleum products and fuel oil —
clearly critical in importance considering, among other things, the continuing high level
of dependence of the country on imported crude oil — are appropriately regarded as
public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of
the sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is 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 a pure exercise of the taxing power. It is levied with
a regulatory purpose, to provide a means for the stabilization of the sugar industry. The
levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose — that of "financing the growth and development
of the sugar industry and all its components, stabilization of the domestic market
including the foreign market." The fact that the State has taken possession of moneys
pursuant to law is sufficient to constitute them state funds, even though they are held
for a special purpose (Lawrence v. American Surety Co. 263 Mich. 586, 249 ALR 535,
cited in 42 Am Jur Sec. 2, p. 718). Having been levied for a special purpose, the
revenues collected are to be treated as a special fund, to be, in the language of the
statute, "administered in trust" for the purpose intended. Once the purpose has been
fulfilled or abandoned, the balance if any, is to be transferred to the general funds of
the Government. That is the essence of the trust intended (SEE 1987 Constitution,
Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
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 OPSF is a special fund is plain from the
special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in
what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny
and 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 precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides a
sufficient standard by which the authority must be exercised. In addition to the general policy of the law
to protect the local consumer 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
Fund.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying
out the objectives of the law which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the price of
oil and petroleum products, and the frequently shifting need to either augment or exhaust the Fund, do
not conveniently permit the setting of fixed or rigid parameters in the law as proposed by the petitioner.
To do so would 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, suffices to guide the delegate
in the exercise of the delegated power, taking account of the circumstances under which it is to be
exercised.
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 delegate and (2) it must fix a standard —
limits of which
are sufficiently determinate or determinable — to which the delegate must conform. 20
 . . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself determines
matters of principle and lays down fundamental policy. Otherwise, the charge of
complete abdication may be hard to repel. A standard thus defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be effected. It is
the criterion by which the legislative purpose may be carried out. Thereafter, the
executive or administrative office designated may in pursuance of the above guidelines
promulgate supplemental rules and regulations. The standard may either be express or
implied. If the former, the non-delegation objection is easily met. The standard though
does not have to be spelled out specifically. It could be implied from the policy and
purpose of the act considered as a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law intended
was to permit the additional imposts for as long as there exists a need to protect the general public and
the petroleum industry from the adverse consequences of pump rate fluctuations. "Where the standards
set up for the guidance of an administrative officer and the action taken are in fact recorded in the
orders of such officer, so that Congress, the courts and the public are assured that the orders in the
judgment of such officer conform to the legislative standard, there is no failure in the performance of the
legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may be
justified.
In relation to the third question — respecting the illegality of the reimbursements to oil companies, paid
out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2 (2) of
P.D. 1956, amended 23— the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e.,
inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.) because not
authorized by law. Petitioner contends that "these claims are not embraced in the enumeration in § 8 of
P.D. 1956 . . since none of them was incurred 'as a result of the reduction of domestic prices of
petroleum products,'" 24 and since these items are reimbursements for which the OPSF should not have
responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is
argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used in § 8 of P.D.
1956) . . can only include such 'other factors' which necessarily result in the reduction of domestic
prices of petroleum products." 26
The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of
the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon
the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What
should be 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 inCaltex 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 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, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the so-
called overpayment refunds. To be sure, the absence of any argument for or against the validity of the
refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels below
even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of
financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
FRANCISCO I. CHAVEZ, petitioner, 186 SCRA 331
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity as
Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY OWNERS
ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression
(Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which
We quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON THE
1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21 OF
THE REAL PROPERTY TAX CODE, AS AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978 revision of
property values;
WHEREAS, the latest general revision of real property assessments completed in 1984
has rendered the 1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus
depriving the local government units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial
resources to meet the rising cost of rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do
hereby order:
SECTION 1. Real property values as of December 31, 1984 as determined by the local
assessors during the latest general revision of assessments shall take effect beginning
January 1, 1987 for purposes of real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and regulations
to implement this Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of
Executive Order No. 73 until June 30, 1987.
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 application of the general revision of
assessments to January 1, 1987 thereby 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
property brought about by the revision of real property values and assessments 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 harsh economic conditions prevail; and that the increase in the
market values of real property as reflected in the schedule of values was brought about only by inflation
and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national
association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive Order
No. 73, but additionally alleges the following: that 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
of Assessments does not meet the requirements of due process as regards publication, notice of
hearing, opportunity to be heard and insofar as it authorizes "replacement cost" of buildings
(improvements) which is not provided in Presidential 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 even more oppressive and unconstitutional as it imposes successive increase of 150% over
the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73 insofar
as the revision of the assessments and the effectivity thereof are concerned. It should be emphasized
that Executive Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by the local
assessors during the latest general revision of assessments shall take effect beginning
January 1, 1987 for purposes of real property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of Presidential Decree
No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. — Beginning with the assessor shall make
a calendar year 1978, the provincial or city general revision of real property
assessments in the province or city to take effect January 1, 1979, and once every five
years thereafter: Provided; however, That if property values in a province or city, or in
any municipality, have greatly changed since the last general revision, the provincial or
city assesor may, with the approval of the Secretary of Finance or upon bis direction,
undertake a general revision of assessments in the province or city, or in any
municipality before the fifth year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73 has
no legal basis as the general revision of assessments is a continuing process mandated by Section 21
of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection against said decree. It was ROAP
which questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes the
procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with
the action of the provincial or city assessor in the 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 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 purpose,
together with copies of the tax declarations and such affidavit or documents submitted
in support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of
Assessment Appeals shall decide the appeal within one hundred and twenty days from
the date of receipt of such appeal. The decision rendered must be based on substantial
evidence presented at the hearing or at least contained in the record and disclosed to
the parties or such relevant evidence as a reasonable mind might accept as adequate
to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to summon
witnesses, administer oaths, conduct ocular inspection, take depositions, and issue
subpoena and subpoenaduces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the truth without-necessarily adhering
to technical rules applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial or City
Assessor with a copy each of the decision of the Board. In case the provincial or city
assessor concurs in the 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
administrator of the property or the assessor who is not satisfied with the decision of
the Board of Assessment Appeals, may, within thirty days after receipt of the decision
of the local Board, appeal to the Central Board of Assessment Appeals by filing his
appeal under oath with the Secretary of the proper provincial or city Board of
Assessment Appeals using the prescribed form stating therein the grounds and the
reasons for the appeal, and attaching thereto any evidence pertinent to the case. A
copy of the appeal should be also furnished the Central Board of Assessment Appeals,
through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board of
Assessment Appeals concerned shall forward the same and all papers related thereto,
to the Central Board of Assessment Appeals through the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment
Appeals shall have jurisdiction over appealed assessment cases decided by the Local
Board of Assessment Appeals. The said Board shall decide cases brought on appeal
within twelve (12) months from the date of receipt, which decision shall become final
and executory after the lapse of fifteen (15) days from the date of receipt of a copy of
the decision by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals,
or upon express authority, the Hearing Commissioner, shall have the power to summon
witnesses, administer oaths, take depositions, and issue subpoenas and subpoenas
duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules of
procedure relative to the conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any owner
who doubts the assessment of his property, may appeal to the Local Board of Assessment Appeals. In
case the, owner or administrator of the 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, appeal
to the Central Board of Assessment Appeals. The decision of the Central Board of Assessment Appeals
shall become final and executory after the lapse of fifteen days from the date of receipt of the decision.
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 the constitutional guarantee
of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693,
July 31, 1967, 20 SCRA 849) andSison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA
654).
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 does not impose new taxes nor increase
taxes.
Indeed, the government recognized the financial burden to the taxpayers that will 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 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. 5. The increase in real property taxes resulting from the revised real property
assessments as provided for under Section 21 of Presidential Decree No. 464, as
amended by Presidential Decree No. 1621, shall be collected beginning January 1,
1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the
Ministry of Local Government to establish the new systems of tax collection and
assessment provided herein and in order to alleviate the condition of the people,
including real property owners, as a result of temporary economic
difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of implementation 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 "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1, 1985, thus
depriving the local government units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment their financial
resources to meet the rising cost of rendering effective services to the
people; (emphasis supplied)
xxx xxx xxx
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).
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 1978 revision of property values.
Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in
disregard of the increases in the value of real properties that have occurred since then, is not in
consonance with a 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 expenditures and
their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
RENATO V. DIAZ and G.R. No. 193007
AURORA MA. F. TIMBOL,
Petitioners,
- versus –
THE SECRETARY OF FINANCE
and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondents. July 19, 2011
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief[1] 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
IIIs assumption of office in 2010, the BIR revived the idea and would impose the challenged tax on toll
fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll
fees within the meaning of sale of services that are subject to VAT; that a toll fee is a users tax, not a
sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.
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 respondents Cesar V.
Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of
Internal Revenue, to comment on the petition within 10 days from notice. [2] Later, the Court issued
another resolution treating the petition as one for prohibition.[3]
On August 23, 2010 the Office of the Solicitor General filed the governments 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 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
operations has been the subject as early as 2003 of several BIR rulings and circulars.[5]
The government also argues that petitioners have no right to invoke the non-impairment of
contracts clause since they clearly have no personal interest in existing toll operating agreements
(TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot
limit the States sovereign taxing power which is generally read into contracts.
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 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. Further, the imposition of VAT on toll fees would have very minimal effect on motorists
using the tollways.
In their reply[6] to the governments comment, petitioners point out that tollway operators cannot
be regarded as franchise grantees under the NIRC since they do not hold legislative
franchises. Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any
excess collection in an escrow account. But 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 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in
their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first
become liable to VAT a transitional input tax credit of 2% on beginning inventory. For this reason, the
VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition;
and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway
operators and tollway operations in the terms franchise grantees and sale of services under Section
108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not
a tax on services; b) will impair the tollway operators right to a reasonable return of investment under
their TOAs; and c) is not administratively feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition
rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their
action. The government has sought reconsideration of the Courts resolution,[7] however, arguing that
petitioners allegations clearly made out a case for declaratory relief, an action over which the Court has
no original jurisdiction. The government adds, moreover, that the petition does not meet the
requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial,
or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol
has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the
form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has
far-reaching implications and raises questions that need to be resolved for the public good. [8] The Court
has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive
officials that amount to usurpation of legislative authority. [9]
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would
impact, not only on the more than half a million motorists who use the tollways everyday, but more so
on the governments effort to raise revenue for funding various projects and for reducing budgetary
deficits.
To dismiss the petition and resolve the issues later, after the challenged VAT has 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 attempt to refund to the motorists what they paid
an administrative nightmare with no solution.Consequently, it is not only the right, but the duty of the
Court to take cognizance of and resolve the issues that the petition raises.
 Although the petition does not strictly comply with the requirements of Rule 65, the Court has
ample power to waive such technical requirements when the legal questions to be resolved are of great
importance to the public. The same may be said of the requirement of locus standi which is a mere
procedural requisite.[10]
B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied,
assessed, and collected, according to Section 108, on the gross receipts derived from the sale or
exchange of services as well as from the use or lease of properties. The third paragraph of Section 108
defines sale or exchange of services as follows:
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; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services;
lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors, operators
or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods or cargoes; common
carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and bonding
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 supplied)
It is plain from the above that the law imposes VAT on all kinds of services rendered in
the Philippines for a fee, including those specified in the list. The enumeration of affected services is not
exclusive.[11] By qualifying services with the 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
broad is the VATs reach rather than establish concrete limits to its application. Thus, every activity that
can be imagined as a form of service rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal basis for the services that tollway operators render. Essentially,
tollway operators construct, maintain, and operate expressways, also called tollways, at the operators
expense. Tollways serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-
moving. In consideration for constructing tollways at their expense, the 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.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the
tollway facilities over which the operator enjoys private proprietary rights [12]that its contract and the law
recognize. In this sense, the tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension
houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common carriers
by land relative to their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines to another place in thePhilippines.
It does not help petitioners cause that Section 108 subjects to VAT all kinds of services
rendered for a fee regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. This means that services to be subject to VAT need not fall under the
traditional concept of services, the personal or professional kinds that require the use of human
knowledge and skills.
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 franchise grantees who are subject to
VAT, except those under Section 119 of this Code.
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income
radio and/or television broadcasting companies with gross annual incomes of less than P10 million and
gas and water utilities) that Section 119[13] spares from the payment of VAT. The word franchise broadly
covers government grants of a special right to do an act or series of acts of public concern.[14]
Petitioners of course contend that tollway operators cannot be considered franchise grantees
under Section 108 since they do not hold legislative franchises. But 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 surmise any, for making a distinction between franchises granted by
Congress and franchises granted by some other government agency. The latter, properly constituted,
may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as 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 issues in the form of a special law, but also to those granted by administrative
agencies to which the power to grant franchises has been delegated by Congress.[16]
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 grant of authority from the state. Indeed, Congress
granted special franchise for the operation of tollways to the Philippine National Construction Company,
the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress,
tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers
under P.D. 1112.[17] The franchise in this case is evidenced by a Toll Operation Certificate. [18]
Petitioners contend that the public nature of the services rendered by tollway operators
excludes such services from the term sale of services under Section 108 of the Code.But, again,
nothing in Section 108 supports this contention. The reverse is true. In specifically including by way of
example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered
businesses, Section 108 opens other companies rendering public service for a fee to the 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]
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the
course of congressional deliberations of the would-be law. As the Court said inSouth African Airways v.
Commissioner of Internal Revenue,[20] statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not
controlling in the interpretation of law. The congressional will is ultimately determined by the language
of the law that the lawmakers voted on. Consequently, the meaning and intention of the law must first
be sought in the words of the statute itself, read and considered in their natural, ordinary, commonly
accepted and most obvious significations, according to good and approved usage and without resorting
to forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is
tantamount to taxing a tax.[21] Actually, petitioners base this argument on the following discussion
in Manila International Airport Authority (MIAA) v. Court of Appeals:[22]
No one can dispute that properties of public dominion mentioned in
Article 420 of the Civil Code, like roads, canals, rivers, torrents, ports and
bridges constructed by the State, are owned by the State. The term ports
includes seaports and airports. The MIAA Airport Lands and Buildings constitute
a port constructed by the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway does not change the
character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay
the government, or only those among the public who actually use the road
through the toll fees they pay upon using the road. The tollway system is even a
more efficient and equitable manner of taxing the public for the maintenance of
public roads.
The charging of fees to the public does not determine the character of the
property whether it is for public dominion or not. Article 420 of the Civil Code
defines property 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 the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use
the road, the speed restrictions and other conditions for the use of the road do
not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing
fees MIAA charges to airlines, constitute the bulk of the income that maintains
the operations of MIAA.The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed users
tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular
public facility. A users tax is more equitable a principle of taxation mandated in
the 1987 Constitution.[23] (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to a users tax must
also pertain to tollway fees. But the main issue in the MIAA case was whether or
not Paraaque City could sell airport lands and buildings under MIAA 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 City could not proceed with the auction sale. MIAA forms part of the
national government although not integrated in the department framework. [24] Thus, its airport lands and
buildings are properties of public dominion beyond the commerce of man under Article 420(1) [25] of the
Civil Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to
establish a rule that tollway fees are users tax, but to make the point that airport lands and buildings are
properties of public dominion and that the collection of terminal fees for their use does not make them
private properties. Tollway fees are not taxes.Indeed, they are not assessed and collected by the BIR
and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users tax, collectible
from motorists, for the construction and maintenance of certain roadways.The tax in such a case goes
directly to the government for the replenishment of resources it spends for the roadways. This is not the
case here. What the government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their own expense under the
build, operate, and transfer scheme that the government has adopted for expressways.[26] Except for a
fraction given to the government, the toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A
tax is imposed under the taxing power of the government principally for the purpose of raising revenues
to fund public expenditures.[27] Toll 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 of
the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged
for the use of public facilities, therefore, they are not government exactions that can be properly treated
as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of ownership. [28]
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the 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 shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the sellers liability but
merely the burden of the VAT.[29]
Thus, the seller remains directly and legally liable for payment of the VAT, but the 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 tax[30] and simply becomes part of the cost that the buyer must pay in order to
purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the
tollway operator. Under Section 105 of the Code, [31] VAT is imposed on any person who, in the course
of trade or business, sells or renders services for a fee. In other words, the seller of services, who in
this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT
to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed
as a users tax. VAT is assessed against the tollway operators gross receipts and not necessarily on the
toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the
latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one
has to pay in order to use the tollways.[32]
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract 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 may result from the VAT imposition. She has no interest
at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely
belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely 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 Adverse Grantor Action will be activated if VAT is thus
imposed. The Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the
State from exercising its sovereign taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT
make the VAT on tollway operations impractical and incapable of implementation. They cite the fact
that, in order to claim input VAT, the name, 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 by rounding off the toll rate and putting any excess collection in an escrow account 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 them, the VAT on tollway operations is not
administratively feasible.[33]
Administrative feasibility is one of the canons of a sound tax system. It simply means 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, however, will not render a tax imposition
invalid except to the extent that specific constitutional or statutory limitations are impaired. [34] Thus,
even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.
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 implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing
provides some clue as to how the BIR intends to go about it,[35] the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on
tollway operations will be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIRs discretion on
the matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which
directs toll companies to record an accumulated input VAT of zero balance in their books as of August
16, 2010, the date when the VAT imposition was 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 inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of
negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to charge
VAT-inclusive toll fees which by now can no longer be 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 the 2% transitional input VAT belongs to the tollway operators who have not questioned
the circulars validity. They are thus the ones who have a right to challenge the circular in a direct and
proper action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand
the VAT laws 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.
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of Congress. The Courts 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.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or
the Expanded Value-Added Tax law was passed. It is only now, however, that the executive has
earnestly pursued the VAT imposition against tollway 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
imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of
Internal Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the
petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the
Courts temporary restraining order dated August 13, 2010.
SO ORDERED.
LAND TRANSPORTATION OFFICE [LTO], represented by Assistant Secretary Manuel F. Bruan,
LTO Regional Office, Region X represented by its Regional Director, Timoteo A. Garcia; and LTO
Butuan represented by Rosita G. Sadiaga, its Registrar, petitioners, vs. CITY OF BUTUAN,
represented in this case by Democrito D. Plaza II, City Mayor, respondents.
DECISION
VITUG, J.:
The 1987 Constitution enunciates the policy that the territorial and political subdivisions shall enjoy local
autonomy.[1] In obedience to that, mandate of the fundamental law, Republic Act ("R.A.") No.7160,
otherwise known as the Local Government Code,[2] expresses that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy in order to enable them to
attain their fullest development as self-reliant communities and make them more effective partners in
the attainment of national goals, and that it is a basic aim of the State to provide for a more responsive
and accountable local government structure instituted through a system of decentralization whereby
local government units shall be given more powers, authority, responsibilities and resources.
While the Constitution seeks to strengthen local units and ensure their viability, clearly, however, it has
never been the intention of that organic law to create an imperium in imperio and install
an intra sovereign political subdivision independent of a single sovereign state.
The Court is asked in this instance to resolve the issue of whether under the present set up the power
of the Land Registration Office ("LTO") to register, tricycles in particular, as well as to issue
licenses for the driving thereof, has likewise devolved to local government units.
The Regional Trial Court (Branch 2) of Butuan City held: [3] that the authority to register tricycles, the
grant of the corresponding franchise, the issuance of tricycle drivers' license, and the collection of fees
therefor had all been vested in the Local Government Units ("LGUs"). Accordingly, it decreed the
issuance of a permanent writ of injunction against LTO, prohibiting and enjoining LTO, as well as its
employees and other persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses
to drivers of tricycles. The Court of Appeals, on appeal to it, sustained the trial court.
The adverse rulings of both the court a quo and the appellate court prompted the LTO to file the instant
petition for review on certiorari to annul and set aside the decision,[4] dated 17 November 1997, of the
Court of Appeals affirming the permanent injunctive writ order of the Regional Trial Court (Branch 2) of
Butuan City.
Respondent City of Butuan asserts that one of the salient provisions introduced by the Local
Government Code is in the area of local taxation which allows LGUs to collect registration fees or
charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the
driving of tricycles.
The 1987 Constitution provides:
"Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments."[5]
Section 129 and Section 133 of the Local Government Code read:
"SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall
exercise its power to create its own sources of revenue and to levy taxes, fees, and
charges subject to the provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
government units."
"SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
"xxx.......xxx.......xxx.
 "(I) Taxes, fees or charges for the registration of motor vehicles and for the issuance of
all kinds of licenses or permits for the driving thereof, except tricycles."
Relying on the foregoing provisions of the law, the Sangguniang Panglungsod ("SP") of Butuan, on 16
August 1992, passed SP Ordinance No.916-92 entitled "An Ordinance Regulating the Operation of
Tricycles-for-Hire, providing mechanism for the issuance of Franchise, Registration and Permit, and
Imposing Penalties for Violations thereof and for other Purposes." The ordinance provided for, among
other things, the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the
registration of the vehicle, and fees for the issuance of a permit for the driving thereof.
Petitioner LTO explains that one of the functions of the national government that, indeed, has been
transferred to local government units is the franchising authority over tricycles-for-hire of the Land
Transportation Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the authority of
LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles.
In order to settle the variant positions of the parties, the City of Butuan, represented by its City Mayor
Democrito D. Plaza, filed on 28 June 1994 with the trial court a petition for
"prohibition, mandamus, injunction with a prayer for preliminary restraining order ex-parte" seeking the
declaration of the validity of SP Ordinance No.962-93 and the prohibition of the registration of tricycles-
for-hire and the issuance of licenses for the driving thereof by the LTO.
LTO opposed the prayer in the petition.
On 20 March 1995, the trial court rendered a resolution; the dispositive portion read:
"In view of the foregoing, let a permanent injunctive writ be issued against the
respondent Land Transportation Office and the other respondents, prohibiting and
enjoining them, their employees, officers, attorney's or other persons acting in their
behalf from forcing or compelling Tricycles to be registered with, and drivers to secure
their licenses from respondent LTO or secure franchise from LTFRB and from
collecting fees thereon. It should be understood that the registration, franchise of
tricycles and driver's license/permit granted or issued by the City of Butuan are valid
only within the territorial limits of Butuan City.
"No pronouncement as to costs."[6]
Petitioners timely moved for a reconsideration of the above resolution but it was to no avail. Petitioners
then appealed to the Court of Appeals. In its now assailed decision, the appellate court, on 17
November 1997, sustained the trial court. It ruled:
"WHEREFORE, the petition is hereby DISMISSED and the questioned permanent
injunctive writ issued by the court a quo dated March 20, 1995 AFFIRMED." [7]
Coming up to this Court, petitioners raise this sole assignment of error, to wit:
"The Court of Appeals [has] erred in sustaining the validity of the writ of injunction
issued by the trial court which enjoined LTO from (1) registering tricycles-for-hire and
(2) issuing licenses for the driving thereof since the Local Government Code devolved
only the franchising authority of the LTFRB. Functions of the LTO were not devolved to
the LGU's."[8]
The petition is impressed with merit.
The Department of Transportation and Communications [9] ("DOTC"), through the LTO and the LTFRB,
has since been tasked with implementing laws pertaining to land transportation. The LTO is a line
agency under the DOTC whose powers and functions, pursuant to Article III, Section 4 (d) (1), [10] of R.A.
No.4136, otherwise known as Land Transportation and Traffic Code, as amended, deal primarily with
the registration of all motor vehicles and the licensing of drivers thereof. The LTFRB, upon the other
hand, is the governing body tasked by E.O. No. 202, dated 19 June 1987, to regulate the operation of
public utility or "for hire" vehicles and to grant franchises or certificates of public convenience
("CPC").[11] Finely put, registration and licensing functions are vested in the LTO
while franchising and regulatory responsibilities had been vested in the LTFRB.
Under the Local Government Code, certain functions of the DOTC were transferred to the LGUs, thusly:
"SEC. 458. Powers, Duties, Functions and Compensation. -
"xxx.......xxx.......xxx
"(3) Subject to the provisions of Book II of this Code, enact ordinances granting
franchises and authorizing the issuance of permits or licenses, upon such conditions
and for such purposes intended to promote the general welfare of the inhabitants of the
city and pursuant to this legislative authority shall:
"xxx.......xxx.......xxx.
"(VI) Subject to the guidelines prescribed by the Department of Transportation and
Communications, regulate the operation of tricycles and grant franchises for the
operation thereof within the territorial jurisdiction of the city." (Emphasis supplied)
LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant
franchises for the operation thereof. "To regulate" means to fix, establish, or control; to adjust by rule,
method, or established mode; to direct by rule or restriction; or to subject to governing principles or
laws.[12] A franchise is defined to be a special privilege to do certain things conferred by government on
an individual or corporation, and which does not belong to citizens generally of common right. [13] On the
other hand, "to register" means to record formally and exactly, to enroll, or to enter precisely in a list or
the like,[14] and a "driver's license" is the certificate or license issued by the government which
authorizes a person to operate a motor vehicle. [15] The devolution of the functions of the DOTC,
performed by the LTFRB, to the LGUs, as so aptly observed by the Solicitor General, is aimed at
curbing the alarming increase of accidents in national highways involving tricycles. It has been the
perception that local governments are in good position to achieve the end desired by the law-making
body because of their proximity to the situation that can enable them to address that serious concern
better than the national government.
It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the Local Government
Code, the power of LGUs to regulate the operation of tricycles and to grant franchises for the operation
thereof is still subject to the guidelines prescribed by the DOTC. In compliance therewith, the
Department of Transportation and Communications ("DOTC") issued "Guidelines to Implement the
Devolution of LTFRBs Franchising Authority over Tricycles-For-Hire to Local Government units
pursuant to the Local Government Code." Pertinent provisions of the guidelines state:
"In lieu of the Land Transportation Franchising and Regulatory Board (LTFRB) in the
DOTC, the Sangguniang Bayan/Sangguniang Panglungsod (SB/SP) shall perform the
following:
"(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the
appropriate terms and conditions therefor;
"xxx.......xxx.......xxx.
"Operating Conditions:
"1. For safety reasons, no tricycles should operate on national highways utilized by 4
wheel vehicles greater than 4 tons and where normal speed exceed 40 KPH. However,
the SB/SP may provide exceptions if there is no alternative routs.
"2. Zones must be within the boundaries of the municipality/city. However, existing
zones within more than one municipality/city shall be maintained, provided that
operators serving said zone shall secure MTOP's from each of the municipalities/cities
having jurisdiction over the areas covered by the zone.
"3. A common color for tricycles-for-hire operating in the same zone may be imposed.
Each unit shall be assigned and bear an identification number, aside from its LTO
license plate number.
"4. An operator wishing to stop service completely, or to suspend service for more than
one month, should report in writing such termination or suspension to the SB/SP which
originally granted the MTOP prior thereto. Transfer to another zone may be permitted
upon application.
"5. The MTOP shall be valid for three (3) years, renewable for the same period.
Transfer to another zone, change of ownership of unit or transfer of MTOP shall be
construed as an amendment to an MTOP and shall require appropriate approval of the
SB/SP.
"6. Operators shall employ only drivers duly licensed by LTO for tricycles-for-hire.
"7. No tricycle-for-hire shall be allowed to carry more passengers and/or goods than it
is designed for.
"8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., service is
rendered upon demand and without a fixed route within a zone." [16]
Such as can be gleaned from the explicit language of the statute, as well as the corresponding
guidelines issued by DOTC, the newly delegated powers pertain to the franchising and regulatory
powers theretofore exercised by the LTFRB and not to the functions of the LTO relative to the
registration of motor vehicles and issuance of licenses for the driving thereof. Clearly unaffected
by the Local Government Code are the powers of LTO under R.A. No.4136 requiring the registration of
all kinds of motor vehicles "used or operated on or upon any public highway" in the country. Thus -
"SEC. 5. All motor vehicles and other vehicles must be registered. - (a) No motor
vehicle shall be used or operated on or upon any public highway of the Philippines
unless the same is properly registered for the current year in accordance with the
provisions of this Act (Article 1, Chapter II, R.A. No. 4136).
The Commissioner of Land Transportation and his deputies are empowered at anytime to examine and
inspect such motor vehicles to determine whether said vehicles are registered, or are unsightly, unsafe,
improperly marked or equipped, or otherwise unfit to be operated on because of possible excessive
damage to highways, bridges and other infrastructures.[17] The LTO is additionally charged with being
the central repository and custodian of all records of all motor vehicles. [18]
The Court shares the apprehension of the Solicitor General if the above functions were to likewise
devolve to local government units; he states:
"If the tricycle registration function of respondent LTO is decentralized, the incidence of
theft of tricycles will most certainly go up, and stolen tricycles registered in one local
government could be registered in another with ease. The determination of ownership
thereof will also become very difficult.
"Fake driver's licenses will likewise proliferate. This likely scenario unfolds where a
tricycle driver, not qualified by petitioner LTO's testing, could secure a license from one
municipality, and when the same is confiscated, could just go another municipality to
secure another license.
"Devolution will entail the hiring of additional personnel charged with inspecting
tricycles for road worthiness, testing drivers, and documentation. Revenues raised from
tricycle registration may not be enough to meet salaries of additional personnel and
incidental costs for tools and equipment."[19]
The reliance made by respondents on the broad taxing power of local government units, specifically
under Section 133 of the Local Government Code, is tangential. Police power and taxation, along with
eminent domain, are inherent powers of sovereignty which the State might share with local government
units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a
public purpose and legislative in nature but the similarities just about end there. The basic aim of police
power is public good and welfare. Taxation, in its case, focuses on the power of government to raise
revenue in order to support its existence and carry out its legitimate objectives. Although correlative to
each other in many respects, the grant of one does not necessarily carry with it the grant of the other.
The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1)
indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not
been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of
the Local Government Code in the same manner that the specific devolution of LTFRB's power on
franchising of tricycles has been provided. Repeal by implication is not favored.[20] The power over
tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to LGUs is the power to
regulate their operation and to grant franchises for the operation thereof. The exclusionary clause
contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to
have had the effect of withdrawing the express power of LTO to cause the registration of all motor
vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially
regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to
achieve road safety by insuring the road worthiness of these motor vehicles and the competence of
drivers prescribed by R. A. 4136. Not insignificant is the rule that a statute must not be construed in
isolation but must be taken in harmony with the extant body of laws.[21]
The Court cannot end this decision without expressing its own serious concern over the
seeming laxity in the grant of franchises for the operation of tricycles-for-hire and in allowing
the indiscriminate use by such vehicles on public highways and principal
thoroughfares. Senator Aquilino C. Pimentel, Jr., the principal author, and sponsor of the bill that
eventually has become to be known as the Local Government Code, has aptly remarked:
"Tricycles are a popular means of transportation, specially in the countryside.
They are, unfortunately, being allowed to drive along highways and principal
thoroughfares where they pose hazards to their passengers arising from
potential collisions with buses, cars and jeepneys.
"The operation of tricycles within a municipality may be regulated by
the Sangguniang Bayan. In this connection, the Sangguniang concerned would
do well to consider prohibiting the operation of tricycles along or across
highways invite collisions with faster and bigger vehicles and impede the flow of
traffic."[22]
The need for ensuring public safety and convenience to commuters and pedestrians alike is paramount.
It might be well, indeed, for public officials concerned to pay heed to a number of provisions in our laws
that can warrant in appropriate cases an incurrence of criminal and civil liabilities. Thus -
The Revised Penal Code -
"Art. 208. Prosecution of offenses; negligence and tolerance. - The penalty of prision
correccional in its minimum period and suspension shall be imposed upon any public
officer, or officer of the law, who, in dereliction of the duties of his office, shall
maliciously refrain from instituting prosecution for the punishment of violators of the
law, or shall tolerate the commission of offenses."
The Civil Code -
"Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file an
action for damages and other relief against the latter, without prejudice to any
disciplinary administrative action that may be taken."
"Art. 34. When a member of a city or municipal police force refuses or fails to render
aid or protection to any person in case of danger to life or property, such peace officer
shall be primarily liable for damages, and the city or municipality shall be subsidiarily
responsible therefor. The civil action herein recognized shall be independent of any
criminal, proceedings, and a preponderance of evidence shall suffice to support such
action."
"Art. 2189. Provinces, cities and municipalities shall be liable for damages for the death
of, or injuries suffered by, any person by reason of the defective condition of roads,
streets, bridges, public buildings, and other public works under their control or
supervision."
The Local Government Code -
"Sec. 24. Liability for Damages. - Local government units and their officials are not
exempt from liability for death or injury to persons or damage to property."
WHEREFORE, the assailed decision which enjoins the Land Transportation Office from requiring the
due registration of tricycles and a license for the driving thereof is REVERSED and SET ASIDE.
No pronouncements on costs.
Let copies of this decision be likewise furnished the Department of Interior and Local Governments, the
Department of Public Works and Highways and the Department of Transportation and Communication.
SO ORDERED.
G.R. No. L-25043 April 26, 1968
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as
judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.
Leido, Andrada, Perez and Associates for petitioners.
Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by
hereditary succession the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and
Jose Roxas, formed a partnership called Roxas y Compania.
AGRICULTURAL LANDS
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 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 arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price
but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the
proceeds of the yearly amortizations paid by the farmers.
RESIDENTIAL HOUSE
During their bachelor days the Roxas brothers lived in the residential house at Wright 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 house. In fairness to his brothers, Jose paid to
Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.
ASSESSMENTS
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 P10.00 compromise penalty for late
payment, and P150.00 tax for dealers of 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. 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 income therefrom in the amount of P3,000.00 or more
is considered a real estate dealer and is liable to pay the corresponding fixed tax.
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 profits from the purchase and sale of
securities.
In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas
Brothers for the years 1953 and 1955, as follows:
1953 1955
Antonio Roxas P7,010.00 P5,813.00
Eduardo Roxas 7,281.00 5,828.00
Jose Roxas 6,323.00 5,588.00
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 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 the Roxas brothers. For the reason that Roxas y Cia.
subdivided its Nasugbu farm 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
derived therefrom was taxed.
The following deductions were disallowed:

In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and ROXAS Y CIA.:
P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of
capital asset held for more than one year pursuant to Section 34 of the Tax Code. 1953
Tickets for Banquet in honor of P
 S. Osmeña 40.00 Herald's fund for Manila's
neediest families
Gifts of San Miguel beer 28.00
JOSE ROXAS:
Contributions to —
1955
Philippine Air Force Chapel Contributions to Philippines
100.00
Herald's fund for Manila's
Manila Police Trust Fund 150.00 neediest families 120.00

Philippines Herald's fund for Manila's The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted
neediest families 100.00 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 assessment except the demand for the payment of
1955 the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the
Contributions to Contribution to Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads:
Our Lady of Fatima Chapel, FEU 50.00

ANTONIO ROXAS: WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners
Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the
1953 respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and
Contributions to — P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
Pasay City Firemen Christmas Fund 25.00 modified with respect to the partnership Roxas y Cia. in the sense that it should pay only
P150.00, as real estate dealer's tax. With costs against petitioners.
Pasay City Police Dept. X'mas fund
50.00
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of
1955 Internal Revenue did not appeal.
Contributions to —

Baguio City Police Christmas fund The issues:

25.00

Pasay City Firemen Christmas fund
Pasay City Police Christmas fund
EDUARDO ROXAS:
1953
Contributions to —
Hijas de Jesus' Retiro de Manresa
Philippines Herald's fund for Manila's
neediest families
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100%
25.00 taxable?
50.00 (2) Are the deductions for business expenses and contributions deductible?
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate
dealer because it engaged in the business of selling real estate. The business activity alluded to was
450.00 the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on
installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained
in its articles of partnership, quoted below:
100.00

1955
Contributions to Philippines 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 gerentes no deben conservarse;
The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue
cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite
of the fact that there were hundreds of vendees. Although they paid for their respective holdings in
installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real
estate dealer during the ten-year amortization period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them
for generations was not only in consonance with, but more in obedience to the request and pursuant to
the policy of our Government to allocate lands to the landless. It was the bounden duty of the
Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas,
and to subsequently subdivide them among the farmers at very reasonable terms and prices. However,
the Government could not comply with its duty for lack of funds. 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 would have been the case had the Government done it itself. For this
magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a 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 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 the Government to
persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the
urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant
to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived
from the sale thereof is capital gain, taxable only to the extent of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in
honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The
deduction were claimed as representation expenses. Representation expenses are deductible from
gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the
Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary,
and incurred in connection with his business. In the case at bar, the evidence does not show such link
between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must
therefore be sustained.
The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen,
and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for
Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City 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 members of said entities. Under Section 39(h), a contribution to
a government entity 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 Police trust fund is
an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to
be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were 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 however that the contributions were not made to the Philippines
Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for 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 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.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima
chapel at the Far Eastern University on the ground that the said university gives dividends to its
stockholders. Located within the premises of the 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 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 university injures to the benefit of its
stockholders. The disallowance should be sustained.
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because
although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose
Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers owners
of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the
persons paying the rentals. The law, which states: 1äwphï1.ñët
. . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding himself out
as a full or part-time dealer in real estate 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 supplied) .
is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is
sustained.1äwphï1.ñët
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose
Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and Amount understated P 7,196.57
P49.00, respectively, computed as follows: *
Less 1/3 share in contributions
amounting to P21,126.06 disallowed
ANTONIO ROXAS
from partnership but allowed to partners 7,042.02 155.55
Net income per return P315,476.59

Add: 1/3 share, profits in Roxas y Cia. P 153,249.15 Net income per review P304,322.47

Less amount declared 146,135.46 Less: Exemptions 4,800.00

Amount understated P 7,113.69 Net taxable income P299,592.47

Contributions disallowed 115.00 Tax Due P147,250.00

Tax paid 147,159.00

P 7,228.69

Less 1/3 share of contributions Deficiency P91.00

amounting to P21,126.06 disallowed ===========
from partnership but allowed to partners 7,042.02 186.67
JOSE ROXAS

Net income per return P222,681.76

Net income per review P315,663.26
Add: 1/3 share, profits in Roxas y Cia. P153,429.15
Less: Exemptions 4,200.00
Less amount reported 146,135.46
Net taxable income P311,463.26
Amount understated 7,113.69
Tax due 154,169.00
Less 1/3 share of contributions
Tax paid 154,060.00
disallowed from partnership but allowed
as deductions to partners 7,042.02 71.67
Deficiency P 109.00
==========
Net income per review P222,753.43
EDUARDO ROXAS
Less: Exemption 1,800.00
P
Net income per return
304,166.92
Net income subject to tax P220,953.43
Add: 1/3 share, profits in Roxas y Cia P 153,249.15
Tax due P102,763.00
Less profits declared 146,052.58
Tax paid 102,714.00
 Deficiency P 49.00
===========

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 Antonio Roxas, Eduardo Roxas and Jose
Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual
deficiency income tax all corresponding for the year 1955. No costs. So ordered.

Cases, as of June 9, 2017

Tax I