G.R. No.
L-29059 December 15, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal
by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to
refund to the Cebu Portland Cement Company the amount of P 359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it after October 1957. 1
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the
private respondent, the latter moved for a writ of execution to enforce the said judgment . 2
The motion was opposed by the petitioner on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28%
surcharge. 3
On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the alleged sales tax
liability of the private respondent was still being questioned and therefore could not be set-off against
the refund. 4
In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the
refund should be charged against the tax deficiency of the private respondent on the sales of cement
under Section 186 of the Tax Code. His position is that cement is a manufactured and not a mineral
product and therefore not exempt from sales taxes. He adds that enforcement of the said tax deficiency
was properly effected through his power of distraint of personal property under Sections 316 and
318 5 of the said Code and, moreover, the collection of any national internal revenue tax may not be
enjoined under Section 305, 6 subject only to the exception prescribed in Rep. Act No. 1125. 7 This is
not applicable to the instant case. The petitioner also denies that the sales tax assessments have
already prescribed because the prescriptive period should be counted from the filing of the sales tax
returns, which had not yet been done by the private respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement is
not a manufactured product but a mineral product. 8 As such, it was exempted from sales taxes under
Section 188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance
with Cebu Portland Cement Co. v. Collector of Internal Revenue, 9 decided in 1968. Here Justice
Eugenio Angeles declared that "before the effectivity of Rep. Act No. 1299, amending Section 246 of
the National Internal Revenue Code, cement was taxable as a manufactured product under Section
186, in connection with Section 194(4) of the said Code," thereby implying that it was not considered a
manufactured product afterwards. Also, the alleged sales tax deficiency could not as yet be enforced
against it because the tax assessment was not yet final, the same being still under protest and still to
be definitely resolved on the merits. Besides, the assessment had already prescribed, not having been
made within the reglementary five-year period from the filing of the tax returns. 10
Our ruling is that the sales tax was properly imposed upon the private respondent for the reason that
cement has always been considered a manufactured product and not a mineral product. This matter
was extensively discussed and categorically resolved in Commissioner of Internal Revenue v. Republic
Cement Corporation, 11 decided on August 10, 1983, where Justice Efren L. Plana, after an exhaustive
review of the pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement was never
considered as a mineral product within the meaning of Section 246 of the Tax
Code, notwithstanding that at least 80% of its components are minerals, for the
simple reason that cement is the product of a manufacturing process and is no
longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected
to simple treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their present
posture is the case of Cebu Portland Cement Co. v. Collector of Internal Revenue,
L-20563, Oct. 29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles. For
some portions of that decision give the impression that Republic Act No. 1299,
which amended Section 246, reclassified cement as a mineral product that was not
subject to sales tax. ...
xxx xxx xxx
After a careful study of the foregoing, we conclude that reliance on the decision
penned by Justice Angeles is misplaced. The said decision is no authority for the
proposition that after the enactment of Republic Act No. 1299 in 1955 (defining
mineral product as things with at least 80% mineral content), cement became a
'mineral product," as distinguished from a "manufactured product," and therefore
ceased to be subject to sales tax. It was not necessary for the Court to so rule. It
was enough for the Court to say in effect that even assuming Republic Act No.
1299 had reclassified cement was a mineral product, the reclassification could not
be given retrospective application (so as to justify the refund of sales taxes paid
before Republic Act 1299 was adopted) because laws operate prospectively only,
unless the legislative intent to the contrary is manifest, which was not so in the
case of Republic Act 1266. [The situation would have been different if the Court
instead had ruled in favor of refund, in which case it would have been absolutely
necessary (1) to make an unconditional ruling that Republic Act 1299 re-classified
cement as a mineral product (not subject to sales tax), and (2) to declare the law
retroactive, as a basis for granting refund of sales tax paid before Republic Act
1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-
20563) insofar as its pronouncements or any implication therefrom conflict with the
instant decision.
The above views were reiterated in the resolution 12 denying reconsideration of the said decision, thus:
The nature of cement as a "manufactured product" (rather than a "mineral
product") is well-settled. The issue has repeatedly presented itself as a threshold
question for determining the basis for computing the ad valorem mining tax to be
paid by cement Companies. No pronouncement was made in these cases that as a
"manufactured product" cement is subject to sales tax because this was not at
issue.
The decision sought to be reconsidered here referred to the legislative history of
Republic Act No. 1299 which introduced a definition of the terms "mineral" and
"mineral products" in Sec. 246 of the Tax Code. Given the legislative intent, the
holding in the CEPOC case (G.R. No. L-20563) that cement was subject to sales
tax prior to the effectivity f Republic Act No. 1299 cannot be construed to mean
that, after the law took effect, cement ceased to be so subject to the tax. To erase
 any and all misconceptions that may have been spawned by reliance on the case appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, October million is still due from the private respondent.
29, 1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court has
expressly overruled it insofar as it may conflict with the decision of August 10,
To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
1983, now subject of these motions for reconsideration.
which he will later have the right to distrain for payment of its sales tax liability is in our view an Idle
ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
On the question of prescription, the private respondent claims that the five-year reglementary period for
the assessment of its tax liability started from the time it filed its gross sales returns on June 30, 1962.
WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is
Hence, the assessment for sales taxes made on January 16, 1968 and March 4, 1968, were already
SET ASIDE, without any pronouncement as to costs.
out of time. We disagree. This contention must fail for what CEPOC filed was not the sales returns
required in Section 183(n) but the ad valorem tax returns required under Section 245 of the Tax Code.
As Justice Irene R. Cortes emphasized in the aforestated resolution: SO ORDERED.

In order to avail itself of the benefits of the five-year prescription period under Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur.
Section 331 of the Tax Code, the taxpayer should have filed the required return for
the tax involved, that is, a sales tax return. (Butuan Sawmill, Inc. v. CTA, et al.,
G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus CEPOC should have filed
sales tax returns of its gross sales for the subject periods. Both parties admit that
returns were made for the ad valorem mining tax. CEPOC argues that said returns
contain the information necessary for the assessment of the sales tax. The
Commissioner does not consider such returns as compliance with the requirement
for the filing of tax returns so as to start the running of the five-year prescriptive
period.

We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA,
supra, that the filing of an income tax return cannot be considered as substantial
compliance with the requirement of filing sales tax returns, in the same way that an
income tax return cannot be considered as a return for compensating tax for the
purpose of computing the period of prescription under Sec. 331. (Citing Bisaya
Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100
and L-11812, May 29, 1959). There being no sales tax returns filed by CEPOC, the
statute of stations in Sec. 331 did not begin to run against the government. The
assessment made by the Commissioner in 1968 on CEPOC's cement sales during
the period from July 1, 1959 to December 31, 1960 is not barred by the five-year
prescriptive period. Absent a return or when the return is false or fraudulent, the
applicable period is ten (10) days from the discovery of the fraud, falsity or
omission. The question in this case is: When was CEPOC's omission to file tha
return deemed discovered by the government, so as to start the running of said
period? 13

The argument that the assessment cannot as yet be enforced because it is still being contested loses
sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of
taxes could be postponed by simply questioning their validity, the machinery of the state would grind to
a halt and all government functions would be paralyzed. That is the reason why, save for the exception
already noted, the Tax Code provides:

Sec. 291. Injunction not available to restrain collection of tax. — No court shall
have authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this Code.

It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
G.R. Nos. 89898-99 October 1, 1990
MUNICIPALITY OF MAKATI, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge RTC
of Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and SHERIFF
SILVINO R. PASTRANA, respondents.
Defante & Elegado for petitioner.
Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.
RESOLUTION
CORTÉS, J.:
The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner
Municipality of Makati against private respondent Admiral Finance Creditors Consortium, Inc., Home
Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and improvements
thereon located at Mayapis St., San Antonio Village, Makati and registered in the name of Arceli P. Jo
under TCT No. S-5499.
It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case No.
13699. Attached to petitioner's complaint was a certification that a bank account (Account No. S/A 265-
537154-3) had been opened with the PNB Buendia Branch under petitioner's name containing the sum
of P417,510.00, made pursuant to the provisions of Pres. Decree No. 42. After due hearing where the
parties presented their respective appraisal reports regarding the value of the property, respondent
RTC judge rendered a decision on June 4, 1987, fixing the appraised value of the property at
P5,291,666.00, and ordering petitioner to pay this amount minus the advanced payment of
P338,160.00 which was earlier released to private respondent.
After this decision became final and executory, private respondent moved for the issuance of a writ of
execution. This motion was granted by respondent RTC judge. After issuance of the writ of execution, a
Notice of Garnishment dated January 14, 1988 was served by respondent sheriff Silvino R. Pastrana
upon the manager of the PNB Buendia Branch. However, respondent sheriff was informed that a "hold
code" was placed on the account of petitioner. As a result of this, private respondent filed a motion
dated January 27, 1988 praying that an order be issued directing the bank to deliver to respondent
sheriff the amount equivalent to the unpaid balance due under the RTC decision dated June 4, 1987.
Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the
expropriation amount should be done in installments which the respondent RTC judge failed to state in
his decision. Private respondent filed its opposition to the motion.
Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation" informing
the court that private respondent was no longer the true and lawful owner of the subject property
because a new title over the property had been registered in the name of Philippine Savings Bank, Inc.
(PSB) Respondent RTC judge issued an order requiring PSB to make available the documents
pertaining to its transactions over the subject property, and the PNB Buendia Branch to reveal the
amount in petitioner's account which was garnished by respondent sheriff. In compliance with this
order, PSB filed a manifestation informing the court that it had consolidated its ownership over the
property as mortgagee/purchaser at an extrajudicial foreclosure sale held on April 20, 1987. After
several conferences, PSB and private respondent entered into a compromise agreement whereby they
agreed to divide between themselves the compensation due from the expropriation proceedings.
Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1) approved the
compromise agreement; (2) ordered PNB Buendia Branch to immediately release to PSB the sum of
P4,953,506.45 which corresponds to the balance of the appraised value of the subject property under
the RTC decision dated June 4, 1987, from the garnished account of petitioner; and, (3) ordered PSB
and private respondent to execute the necessary deed of conveyance over the subject property in favor
of petitioner. Petitioner's motion to lift the garnishment was denied.
Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On the
other hand, for failure of the manager of the PNB Buendia Branch to comply with the order dated
September 8, 1988, private respondent filed two succeeding motions to require the bank manager to
show cause why he should not be held in contempt of court. During the hearings conducted for the
above motions, the general manager of the PNB Buendia Branch, a Mr. Antonio Bautista, informed the
court that he was still waiting for proper authorization from the PNB head office enabling him to make a
disbursement for the amount so ordered. For its part, petitioner contended that its funds at the PNB
Buendia Branch could neither be garnished nor levied upon execution, for to do so would result in the
disbursement of public funds without the proper appropriation required under the law, citing the case
of Republic of the Philippines v. Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899].
Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for
reconsideration on the ground that the doctrine enunciated in Republic v. Palacio did not apply to the
case because petitioner's PNB Account No. S/A 265-537154-3 was an account specifically opened for
the expropriation proceedings of the subject property pursuant to Pres. Decree No. 42. Respondent
RTC judge likewise declared Mr. Antonio Bautista guilty of contempt of court for his inexcusable refusal
to obey the order dated September 8, 1988, and thus ordered his arrest and detention until his
compliance with the said order.
Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions for certiorari with
the Court of Appeals, which were eventually consolidated. In a decision promulgated on June 28, 1989,
the Court of Appeals dismissed both petitions for lack of merit, sustained the jurisdiction of respondent
RTC judge over the funds contained in petitioner's PNB Account No. 265-537154-3, and affirmed his
authority to levy on such funds.
Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the
present petition for review with prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining respondent
RTC judge, respondent sheriff, and their representatives, from enforcing and/or carrying out the RTC
order dated December 21, 1988 and the writ of garnishment issued pursuant thereto. Private
respondent then filed its comment to the petition, while petitioner filed its reply.
Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals, but also
alleges for the first time that it has actually two accounts with the PNB Buendia Branch, to wit:
xxx xxx xxx
(1) Account No. S/A 265-537154-3 — exclusively for the expropriation of the
subject property, with an outstanding balance of P99,743.94.
 (2) Account No. S/A 263-530850-7 — for statutory obligations and other purposes petitioner's blatant refusal to settle its legal obligation arising from expropriation proceedings it had in
of the municipal government, with a balance of P170,098,421.72, as of July 12, fact initiated. It cannot be over-emphasized that, within the context of the State's inherent power of
1989. eminent domain,

xxx xxx xxx
[Petition, pp. 6-7; Rollo, pp. 11-12.]
Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts, it
may fairly be asked whether the second account was opened only for the purpose of undermining the
legal basis of the assailed orders of respondent RTC judge and the decision of the Court of Appeals,
and strengthening its reliance on the doctrine that public funds are exempted from garnishment or
execution as enunciated in Republic v. Palacio [supra.] At any rate, the Court will give petitioner the
benefit of the doubt, and proceed to resolve the principal issues presented based on the factual
circumstances thus alleged by petitioner.
Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation
proceedings it had initiated over the subject property, petitioner poses no objection to the garnishment
or the levy under execution of the funds deposited therein amounting to P99,743.94. However, it is
petitioner's main contention that inasmuch as the assailed orders of respondent RTC judge involved the
net amount of P4,965,506.45, the funds garnished by respondent sheriff in excess of P99,743.94,
which are public funds earmarked for the municipal government's other statutory obligations, are
exempted from execution without the proper appropriation required under the law.
. . . [j]ust compensation means not only the correct determination of the amount to
be paid to the owner of the land but also the payment of the land within a
reasonable time from its taking. Without prompt payment, compensation cannot be
considered "just" for the property owner is made to suffer the consequence of
being immediately deprived of his land while being made to wait for a decade or
more before actually receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R. No. 77765, August 15, 1988,
164 SCRA 393, 400. See also Provincial Government of Sorsogon v. Vda. de
Villaroya, G.R. No. 64037, August 27, 1987, 153 SCRA 291].
The State's power of eminent domain should be exercised within the bounds of fair play and justice. In
the case at bar, considering that valuable property has been taken, the compensation to be paid fixed
and the municipality is in full possession and utilizing the property for public purpose, for three (3)
years, the Court finds that the municipality has had more than reasonable time to pay full
compensation.
WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay
Philippine Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is hereby
required to submit to this Court a report of its compliance with the foregoing order within a non-
extendible period of SIXTY (60) DAYS from the date of receipt of this resolution.

There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-530850-
The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case No.
7 are public funds of the municipal government. In this jurisdiction, well-settled is the rule that public
13699, is SET ASIDE and the temporary restraining order issued by the Court on November 20, 1989 is
funds are not subject to levy and execution, unless otherwise provided for by statute [Republic v.
MADE PERMANENT.
Palacio, supra.; The Commissioner of Public Highways v. San Diego, G.R. No. L-30098, February 18,
1970, 31 SCRA 616]. More particularly, the properties of a municipality, whether real or personal, which
are necessary for public use cannot be attached and sold at execution sale to satisfy a money SO ORDERED.
judgment against the municipality. Municipal revenues derived from taxes, licenses and market fees,
and which are intended primarily and exclusively for the purpose of financing the governmental
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
activities and functions of the municipality, are exempt from execution [See Viuda De Tan Toco v. The
Municipal Council of Iloilo, 49 Phil. 52 (1926): The Municipality of Paoay, Ilocos Norte v. Manaois, 86
Phil. 629 (1950); Municipality of San Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984,
130 SCRA 56]. The foregoing rule finds application in the case at bar. Absent a showing that the
municipal council of Makati has passed an ordinance appropriating from its public funds an amount
corresponding to the balance due under the RTC decision dated June 4, 1987, less the sum of
P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under execution may be validly
effected on the public funds of petitioner deposited in Account No. S/A 263-530850-7.

Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse. Where
a municipality fails or refuses, without justifiable reason, to effect payment of a final money judgment
rendered against it, the claimant may avail of the remedy of mandamus in order to compel the
enactment and approval of the necessary appropriation ordinance, and the corresponding
disbursement of municipal funds therefor [See Viuda De Tan Toco v. The Municipal Council of
Iloilo, supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales, 108 Phil. 247 (1960)].

In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by petitioner. No
appeal was taken therefrom. For three years now, petitioner has enjoyed possession and use of the
subject property notwithstanding its inexcusable failure to comply with its legal obligation to pay just
compensation. Petitioner has benefited from its possession of the property since the same has been
the site of Makati West High School since the school year 1986-1987. This Court will not condone
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.5 Sixteen 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 the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
allowed as deductions — demonstrate, as it has here, that the law has not been observed.

(a) Expenses: 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
deduction by the private respondent was permitted under the Internal Revenue Code and should
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
therefore not have been disallowed by the petitioner.
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SO ORDERED.
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ., concur.
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and 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 further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price
of services, is not deductible. (a) An ostensible salary paid by a corporation may be
a 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 salaries are in excess of those ordinarily paid for similar services,
and the excessive 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.)

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

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of
the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
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
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and
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
power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all
G.R. No. 122480. April 12, 2000]
BPI-FAMILY SAVINGS BANK, Inc., petitioner, vs. COURT OF APPEALS, COURT OF TAX
APPEALS and the COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
PANGANIBAN, J.:
If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply
the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is
entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No
one, not even the State, should enrich oneself at the expense of another.
The Case
Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of Appeals [1] (CA)
in CA-GR SP No. 34240, which affirmed the December 24, 1993 Decision[2] of the Court of Tax Appeals
(CTA). The CA disposed as follows:
"WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED
for lack of merit."[3]
On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:
"WHEREFORE, in [view of] all the foregoing, Petitioners claim for refund is hereby
DENIED and this Petition for Review is DISMISSED for lack of merit." [4]
Also assailed is the November 8, 1995 CA Resolution[5] denying reconsideration.
As earlier noted, the CA affirmed the CTA. Hence, this Petition.[7]
The Facts
The facts of this case were summarized by the CA in this wise:
In affirming the CTA, the Court of Appeals ruled as follows:
"This case involves a claim for tax refund in the amount of P112,491.00
representing petitioners tax withheld for the year 1989.
In its Corporate Annual Income Tax Return for the year 1989, the following items
are reflected:
Income.............................P1,017,931,831.00
Deductions........................P1,026,218,791.00
Net Income (Loss).................(P8,286,960.00)
Taxable Income (Loss).............P8,286,960.00
Less:
1988 Tax Credit...............P185,001.00
1989 Tax Credit...............P112,491.00
TOTAL AMOUNT......................P297,492.00
REFUNDABLE
"It appears from the foregoing 1989 Income Tax Return that petitioner had a total
refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax
refund in the present case. However, petitioner declared in the same 1989 Income
Tax Return that the said total refundable amount of P297,492.00 will be applied
as tax credit to the succeeding taxable year.
"On October 11, 1990, petitioner filed a written claim for refund in the amount of
P112,491.00 with the respondent Commissioner of Internal Revenue alleging that it
did not apply the 1989 refundable amount of P297,492.00 (including P112,491.00)
to its 1990 Annual Income Tax Return or other tax liabilities due to the alleged
business losses it incurred for the same year.
"Without waiting for respondent Commissioner of Internal Revenue to act on the
claim for refund, petitioner filed a petition for review with respondent Court of Tax
Appeals, seeking the refund of the amount of P112,491.00.
"The respondent Court of Tax Appeals dismissed petitioners petition on the ground
that petitioner failed to present as evidence its Corporate Annual Income Tax
Return for 1990 to establish the fact that petitioner had not yet credited the amount
of P297,492.00 (inclusive of the amount P112,491.00 which is the subject of the
present controversy) to its 1990 income tax liability.
"Petitioner filed a motion for reconsideration, however, the same was denied by
respondent court in its Resolution dated May 6, 1994."[6]
Ruling of the Court of Appeals
"It is incumbent upon the petitioner to show proof that it has not credited to its 1990
Annual income Tax Return, the amount of P297,492.00 (including P112,491.00), so
as to refute its previous declaration in the 1989 Income Tax Return that the said
amount will be applied as a tax credit in the succeeding year of 1990. Having failed
to submit such requirement, there is no basis to grant the claim for refund. x x x
"Tax refunds are in the nature of tax exemptions. As such, they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption. In other words, the burden of proof rests
 upon the taxpayer to establish by sufficient and competent evidence its entitlement
to the claim for refund."[8]
Issue
In their Memorandum, respondents identify the issue in this wise:
"The sole issue to be resolved is whether or not petitioner is entitled to the refund
of P112,491.00, representing excess creditable withholding tax paid for the taxable
year 1989."[9]
The Courts Ruling
The Petition is meritorious.
Main Issue: Petitioner Entitled to Refund
It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a
refund amounting to P112,491. Pursuant to Section 69[10] of the 1986 Tax Code which states that a
corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount for
the succeeding taxable year, petitioner indicated in its 1989 Income Tax Return that it would apply the
said amount as a tax credit for the succeeding taxable year, 1990. Subsequently, petitioner informed
the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund, instead of applying
it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its claim with the Court
of Tax Appeals.
The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989
Income Tax Return that it would apply the excess withholding tax as a tax credit for the following year,
the Tax Court held that petitioner was presumed to have done so. The CTA and the CA ruled that
petitioner failed to overcome this presumption because it did not present its 1990 Return, which would
have shown that the amount in dispute was not applied as a tax credit. Hence, the CA concluded that
petitioner was not entitled to a tax refund.
We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are binding
on this Court. This rule, however, does not apply where, inter alia, the judgment is premised on a
misapprehension of facts, or when the appellate court failed to notice certain relevant facts which if
considered would justify a different conclusion.[11] This case is one such exception.
In the first place, petitioner presented evidence to prove its claim that it did not apply the amount as a
tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioners
accounting department, testified to this fact. It likewise presented its claim for refund and a certification
issued by Mr. Gil Lopez, petitioners vice-president, stating that the amount of P112,491 "has not been
and/or will not be automatically credited/offset against any succeeding quarters income tax liabilities for
the rest of the calendar year ending December 31, 1990." Also presented were the quarterly returns for
the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to controvert petitioners claim. In fact, it presented
no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR could have easily
disproved petitioners claim. To repeat, it did not do so.
More important, a copy of the Final Adjustment Return for 1990 was attached to petitioners Motion for
Reconsideration filed before the CTA.[12] A final adjustment return shows whether a corporation incurred
a loss or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner
incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the amount in dispute as a
tax credit.
Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to
petitioners Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion for
Reconsideration, however, the CTA ignored the said Return. In the same vein, the CA did not pass
upon that significant document.
True, strict procedural rules generally frown upon the submission of the Return after the trial. The law
creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be
governed strictly by the technical rules of evidence."[13] The paramount consideration remains the
ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should
not bar courts from considering undisputed facts to arrive at a just determination of a controversy.
In the present case, the Return attached to the Motion for Reconsideration clearly showed that
petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could
not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other
documentary evidence presented during the trial, the appellate court committed a reversible error.
It should be stressed that the rationale of the rules of procedure is to secure a just determination of
every action. They are tools designed to facilitate the attainment of justice. [14] But there can be no just
determination of the present action if we ignore, on grounds of strict technicality, the Return submitted
before the CTA and even before this Court.[15] To repeat, the undisputed fact is that petitioner suffered a
net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied.
Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully
belongs to the petitioner.
Public respondents maintain that what was attached to petitioners Motion for Reconsideration was not
the final adjustment Return, but petitioners first two quarterly returns for 1990.[16] This allegation is
wrong. An examination of the records shows that the 1990 Final Adjustment Return was attached to the
Motion for Reconsideration. On the other hand, the two quarterly returns for 1990 mentioned by
respondent were in fact attached to the Petition for Review filed before the CTA. Indeed, to rebut
respondents specific contention, petitioner submitted before us its Surrejoinder, to which was attached
the Motion for Reconsideration and Exhibit "A" thereof, the Final Adjustment Return for 1990. [17]
CTA Case No. 4897
Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision rendered by
the Tax Court in CTA Case No. 4897, involving its claim for refund for the year 1990. In that case, the
Tax Court held that "petitioner suffered a net loss for the taxable year 1990 x x x."[18] Respondent,
however, urges this Court not to take judicial notice of the said case. [19]
As a rule, "courts are not authorized to take judicial notice of the contents of the records of other cases,
even when such cases have been tried or are pending in the same court, and notwithstanding the fact
that both cases may have been heard or are actually pending before the same judge."[20]

Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought to
be known to judges because of their judicial functions. In this case, the Court notes that a copy of the
Decision in CTA Case No. 4897 was attached to the Petition for Review filed before this Court.
Significantly, respondents do not claim at all that the said Decision was fraudulent or nonexistent.
Indeed, they do not even dispute the contents of the said Decision, claiming merely that the Court
cannot take judicial notice thereof.

To our mind, respondents reasoning underscores the weakness of their case. For if they had really
believed that petitioner is not entitled to a tax refund, they could have easily proved that it did not suffer
any loss in 1990. Indeed, it is noteworthy that respondents opted not to assail the fact appearing therein
-- that petitioner suffered a net loss in 1990 in the same way that it refused to controvert the same
fact established by petitioners other documentary exhibits.

In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioners case. It is merely
one more bit of information showing the stark truth: petitioner did not use its 1989 refund to pay its
taxes for 1990.

Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the claimant. Under the facts of this case, we hold that petitioner has
established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it may
have even been negligent. These circumstances, however, should not compel the Court to disregard
this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied
the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms,
however exalted, should not be misused by the government to keep money not belonging to it and
thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to
observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in
refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor,
dignity and uprightness.

WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the Court
of Appeals REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to refund
to petitioner the amount of P112,491 as excess creditable taxes paid in 1989. No costs.

SO ORDERED.
G.R. No. L-68252 May 26, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and
COURT OF TAX APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax
credit for amounts representing pre-payment of income and common carrier's taxes under the National
Internal Revenue Code, section 24 (b) (2), as amended.1
Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship
Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980,
NASUTRA2 chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines.3 On
December 23, 1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency,4 paid the
required income and common carrier's taxes in the respective sums of FIFTY-NINE THOUSAND FIVE
HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75) and FORTY-
SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS
(P107,142.75) based on the expected gross receipts of the vessel.5 Upon arriving, however, at
Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and
private respondent's agent mutually agreed to have the vessel sail for Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was
realized from the charter agreement, private respondent instituted a claim for tax credit or refund of the
sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-
FIVE CENTAVOS (P107,142.75) before petitioner Commissioner of Internal Revenue on March 23,
1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed a
petition for review6 before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes
are presumed to have been collected in accordance with law; that in an action for refund, the burden of
proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer's
failure to sustain said burden is fatal to the action for refund; and that claims for refund are construed
strictly against tax claimants.7
After trial, respondent tax court decided in favor of the private respondent. It held:
It has been shown in this case that 1) the petitioner has complied with the
mentioned statutory requirement by having filed a written claim for refund within the
two-year period from date of payment; 2) the respondent has not issued any
deficiency assessment nor disputed the correctness of the tax returns and the
corresponding amounts of prepaid income and percentage taxes; and 3) the
chartered vessel sailed out of the Philippine port with absolutely no cargo laden on
board as cleared and certified by the Customs authorities; nonetheless 4)
respondent's apparent bit of reluctance in validating the legal merit of the claim, by
and large, is tacked upon the "examiner who is investigating petitioner's claim for
refund which is the subject matter of this case has not yet submitted his report.
Whether or not respondent will present his evidence will depend on the said report
of the examiner." (Respondent's Manifestation and Motion dated September 7,
1982). Be that as it may the case was submitted for decision by respondent on the
basis of the pleadings and records and by petitioner on the evidence presented by
counsel sans the respective memorandum.
An examination of the records satisfies us that the case presents no dispute as to
relatively simple material facts. The circumstances obtaining amply justify
petitioner's righteous indignation to a more expeditious action. Respondent has
offered no reason nor made effort to submit any controverting documents to bash
that patina of legitimacy over the claim. But as might well be, towards the end of
some two and a half years of seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue would furnish the satisfaction of
ultimate solution by manifesting that "it is now his turn to present evidence,
however, the Appellate Division of the BIR has already recommended the approval
of petitioner's claim for refund subject matter of this petition. The examiner who
examined this case has also recommended the refund of petitioner's claim. Without
prejudice to withdrawing this case after the final approval of petitioner's claim, the
Court ordered the resetting to September 7, 1983." (Minutes of June 9, 1983
Session of the Court) We need not fashion any further issue into an apparently
settled legal situation as far be it from a comedy of errors it would be too much of a
stretch to hold and deny the refund of the amount of prepaid income and common
carrier's taxes for which petitioner could no longer be made accountable.
On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this petition
for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its claim of refund;
(2) it failed to prove that it did not realize any receipt from its charter agreement; and (3) it suppressed
evidence when it did not present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue
Code which at that time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable as
provided in subsection (a) of this section upon the total net income derived in the
preceding taxable year from all sources within the Philippines: Provided, however,
That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on
their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing
business in the Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail, provided the cargo or mail originates from the
Philippines. The gross revenue realized from the said cargo or mail include the
gross freight charge up to final destination. Gross revenue from chartered flights
originating from the Philippines shall likewise form part of "Gross Philippine
Billings" regardless of the place or payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable for
taxes depending on the amount of income it derives from sources within the Philippines. Thus, before
such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from
the Philippines.
We agree with petitioner that a claim for refund is in the nature of a claim for exemption 8 and should be
construed in strictissimi juris against the taxpayer.9 Likewise, there can be no disagreement with
petitioner's stance that private respondent has the burden of proof to establish the factual basis of its
claim for tax refund.
The pivotal issue involves a question of fact — whether or not the private respondent was able to prove
that it derived no receipts from its charter agreement, and hence is entitled to a refund of the taxes it
pre-paid to the government.
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.
IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15,
1983, is AFFIRMED in toto. No costs.
SO ORDERED.

The respondent court held that sufficient evidence has been adduced by the private respondent proving Narvasa, C.J., Regalado and Mendoza, JJ., concur.
that it derived no receipt from its charter agreement with NASUTRA. This finding of fact rests on a
rational basis, and hence must be sustained. Exhibits "E", "F," and "G" positively show that the tramper
vessel M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load and returned
to Japan without any cargo laden on board. Exhibit "E" is the Clearance Vessel to a Foreign Port issued
by the District Collector of Customs, Port of Iloilo while Exhibit "F" is the Certification by the Officer-in-
Charge, Export Division of the Bureau of Customs Iloilo. The correctness of the contents of these
documents regularly issued by officials of the Bureau of Customs cannot be doubted as indeed, they
have not been contested by the petitioner. The records also reveal that in the course of the proceedings
in the court a quo, petitioner hedged and hawed when its turn came to present evidence. At one point,
its counsel manifested that the BIR examiner and the appellate division of the BIR have both
recommended the approval of private respondent's claim for refund. The same counsel even
represented that the government would withdraw its opposition to the petition after final approval of
private respondents' claim. The case dragged on but petitioner never withdrew its opposition to the
petition even if it did not present evidence at all. The insincerity of petitioner's stance drew the sharp
rebuke of respondent court in its Decision and for good reason. Taxpayers owe honesty to government
just as government owes fairness to taxpayers.

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

We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of
ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE
CENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in
1980 and despite the clear showing that it was erroneously paid, the government succeeded in
delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation, the
money that will be finally refunded to the private respondent is just worth a damaged nickel. This is not,
however, the kind of success the government, especially the BIR, needs to increase its collection of
taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should
refund without any unreasonable delay what it has erroneously collected. Our ruling in Roxas v. Court
of Tax Appeals 12 is apropos to recall:
G.R. No. L-54908 January 22, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
G.R. No. 80041 January 22, 1990
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
Gadioma Law Offices for respondents.
REGALADO, J.:
These cases, involving the same issue being contested by the same parties and having originated from
the same factual antecedents generating the claims for tax credit of private respondents, the same
were consolidated by resolution of this Court dated May 31, 1989 and are jointly decided herein.
The records reflect that on April 17, 1970, Atlas Consolidated Mining and Development Corporation
(hereinafter, Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal Corporation
(Mitsubishi, for brevity), a Japanese corporation licensed to engage in business in the Philippines, for
purposes of the projected expansion of the productive capacity of the former's mines in Toledo, Cebu.
Under said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of $20,000,000.00,
United States currency, for the installation of a new concentrator for copper production. Atlas, in turn
undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a period of
fifteen (15) years. It was contemplated that $9,000,000.00 of said loan was to be used for the purchase
of the concentrator machinery from Japan. 1
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank for short)
obviously for purposes of its obligation under said contract. Its loan application was approved on May
26, 1970 in the sum of ¥4,320,000,000.00, at about the same time as the approval of its loan for
¥2,880,000,000.00 from a consortium of Japanese banks. The total amount of both loans is equivalent
to $20,000,000.00 in United States currency at the then prevailing exchange rate. The records in the
Bureau of Internal Revenue show that the approval of the loan by Eximbank to Mitsubishi was subject
to the condition that Mitsubishi would use the amount as a loan to Atlas and as a consideration for
importing copper concentrates from Atlas, and that Mitsubishi had to pay back the total amount of loan
by September 30, 1981. 2
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to
the latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in
the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the
National Internal Revenue Code, as amended by Presidential Decree No. 131, and duly remitted to the
Government. 3
On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of
P1,971,595.01 be applied against their existing and future tax liabilities. Parenthetically, it was later
noted by respondent Court of Tax Appeals in its decision that on August 27, 1976, Mitsubishi executed
a waiver and disclaimer of its interest in the claim for tax credit in favor of Atlas. 4
The petitioner not having acted on the claim for tax credit, on April 23, 1976 private respondents filed a
petition for review with respondent court, docketed therein as CTA Case No. 2801. 5 The petition was
grounded on the claim that Mitsubishi was a mere agent of Eximbank, which is a financing institution
owned, controlled and financed by the Japanese Government. Such governmental status of Eximbank,
if it may be so called, is the basis for private repondents' claim for exemption from paying the tax on the
interest payments on the loan as earlier stated. It was further claimed that the interest payments on the
loan from the consortium of Japanese banks were likewise exempt because said loan supposedly came
from or were financed by Eximbank. The provision of the National Internal Revenue Code relied upon is
Section 29 (b) (7) (A), 6 which excludes from gross income:
(A) Income received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by (1)
foreign governments, (2) financing institutions owned, controlled, or enjoying refinancing from
them, and (3) international or regional financing institutions established by governments.
Petitioner filed an answer on July 9, 1976. The case was set for hearing on April 6, 1977 but was later
reset upon manifestation of petitioner that the claim for tax credit of the alleged erroneous payment was
still being reviewed by the Appellate Division of the Bureau of Internal Revenue. The records show that
on November 16, 1976, the said division recommended to petitioner the approval of private
respondent's claim. However, before action could be taken thereon, respondent court scheduled the
case for hearing on September 30, 1977, during which trial private respondents presented their
evidence while petitioner submitted his case on the basis of the records of the Bureau of Internal
Revenue and the pleadings. 7
On April 18, 1980, respondent court promulgated its decision ordering petitioner to grant a tax credit in
favor of Atlas in the amount of P1,971,595.01. Interestingly, the tax court held that petitioner admitted
the material averments of private respondents when he supposedly prayed "for judgment on the
pleadings without off-spring proof as to the truth of his allegations." 8 Furthermore, the court declared
that all papers and documents pertaining to the loan of ¥4,320,000,000.00 obtained by Mitsubishi from
Eximbank show that this was the same amount given to Atlas. It also observed that the money for the
loans from the consortium of private Japanese banks in the sum of ¥2,880,000,000.00 "originated" from
Eximbank. From these, respondent court concluded that the ultimate creditor of Atlas was Eximbank
with Mitsubishi acting as a mere "arranger or conduit through which the loans flowed from the creditor
Export-Import Bank of Japan to the debtor Atlas Consolidated Mining & Development Corporation." 9
A motion for reconsideration having been denied on August 20, 1980, petitioner interposed an appeal to
this Court, docketed herein as G.R. No. 54908.
While CTA Case No. 2801 was still pending before the tax court, the corresponding 15% tax on the
amount of P439,167.95 on the P2,927,789.06 interest payments for the years 1977 and 1978 was
withheld and remitted to the Government. Atlas again filed a claim for tax credit with the petitioner,
repeating the same basis for exemption.
On June 25, 1979, Mitsubishi and Atlas filed a petition for review with the Court of Tax Appeals
docketed as CTA Case No. 3015. Petitioner filed his answer thereto on August 14, 1979, and, in a letter
to private respondents dated November 12, 1979, denied said claim for tax credit for lack of factual or
legal basis. 10
On January 15, 1981, relying on its prior ruling in CTA Case No. 2801, respondent court rendered
judgment ordering the petitioner to credit Atlas the aforesaid amount of tax paid. A motion for
reconsideration, filed on March 10, 1981, was denied by respondent court in a resolution dated
September 7, 1987. A notice of appeal was filed on September 22, 1987 by petitioner with respondent
court and a petition for review was filed with this Court on December 19, 1987. Said later case is now
before us as G.R. No. 80041 and is consolidated with G.R. No. 54908.
The principal issue in both petitions is whether or not the interest income from the loans extended to
Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 b) (7) (A) of the tax
code and, therefore, exempt from withholding tax. Apropos thereto, the focal question is whether or not
Mitsubishi is a mere conduit of Eximbank which will then be considered as the creditor whose
investments in the Philippines on loans are exempt from taxes under the code.
Prefatorily, it must be noted that respondent court erred in holding in CTA Case No. 2801 that petitioner
should be deemed to have admitted the allegations of the private respondents when it submitted the
case on the basis of the pleadings and records of the bureau. There is nothing to indicate such
admission on the part of petitioner nor can we accept respondent court's pronouncement that petitioner
did not offer to prove the truth of its allegations. The records of the Bureau of Internal Revenue relevant
to the case were duly submitted and admitted as petitioner's supporting evidence. Additionally, a
hearing was conducted, with presentation of evidence, and the findings of respondent court were based
not only on the pleadings but on the evidence adduced by the parties. There could, therefore, not have
been a judgment on the pleadings, with the theorized admissions imputed to petitioner, as mistakenly
held by respondent court.
Time and again, we have ruled that findings of fact of the Court of Tax Appeals are entitled to the
highest respect and can only be disturbed on appeal if they are not supported by substantial evidence
or if there is a showing of gross error or abuse on the part of the tax court. 11 Thus, ordinarily, we could
give due consideration to the holding of respondent court that Mitsubishi is a mere agent of Eximbank.
Compelling circumstances obtaining and proven in these cases, however, warrant a departure from
said general rule since we are convinced that there is a misapprehension of facts on the part of the tax
court to the extent that its conclusions are speculative in nature.
The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the
contract of loan and Atlas as the seller of the copper concentrates. From the categorical language used
in the document, one prestation was in consideration of the other. The specific terms and the reciprocal
nature of their obligations make it implausible, if not vacuous to give credit to the cavalier assertion that
Mitsubishi was a mere agent in said transaction.
Surely, Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi
stated in its loan application with the former was that the amount being procured would be used as a
loan to and in consideration for importing copper concentrates from Atlas. 12 Such an innocuous
statement of purpose could not have been intended for, nor could it legally constitute, a contract of
agency. If that had been the purpose as respondent court believes, said corporations would have
specifically so stated, especially considering their experience and expertise in financial transactions, not
to speak of the amount involved and its purchasing value in 1970.
A thorough analysis of the factual and legal ambience of these cases impels us to give weight to the
following arguments of petitioner:
The nature of the above contract shows that the same is not just a simple contract of loan. It
is not a mere creditor-debtor relationship. It is more of a reciprocal obligation between ATLAS
and MITSUBISHI where the latter shall provide the funds in the installation of a new
concentrator at the former's Toledo mines in Cebu, while ATLAS in consideration of which,
shall sell to MITSUBISHI, for a term of 15 years, the entire copper concentrate that will be
produced by the installed concentrator.
Suffice it to say, the selling of the copper concentrate to MITSUBISHI within the specified
term was the consideration of the granting of the amount of $20 million to ATLAS.
MITSUBISHI, in order to fulfill its part of the contract, had to obtain funds. Hence, it had to
secure a loan or loans from other sources. And from what sources, it is immaterial as far as
ATLAS in concerned. In this case, MITSUBISHI obtained the $20 million from the
EXIMBANK, of Japan and the consortium of Japanese banks financed through the
EXIMBANK, of Japan.
When MITSUBISHI therefore secured such loans, it was in its own independent capacity as a
private entity and not as a conduit of the consortium of Japanese banks or the EXIMBANK of
Japan. While the loans were secured by MITSUBISHI primarily "as a loan to and in
consideration for importing copper concentrates from ATLAS," the fact remains that it was a
loan by EXIMBANK of Japan to MITSUBISHI and not to ATLAS.
Thus, the transaction between MITSUBISHI and EXIMBANK of Japan was a distinct and
separate contract from that entered into by MITSUBISHI and ATLAS. Surely, in the latter
contract, it is not EXIMBANK, that was intended to be benefited. It is MITSUBISHI which
stood to profit. Besides, the Loan and Sales Contract cannot be any clearer. The only
signatories to the same were MITSUBISHI and ATLAS. Nowhere in the contract can it be
inferred that MITSUBISHI acted for and in behalf of EXIMBANK, of Japan nor of any entity,
private or public, for that matter.
Corollary to this, it may well be stated that in this jurisdiction, well-settled is the rule that when
a contract of loan is completed, the money ceases to be the property of the former owner and
becomes the sole property of the obligor (Tolentino and Manio vs. Gonzales Sy, 50 Phil. 558).
In the case at bar, when MITSUBISHI obtained the loan of $20 million from EXIMBANK, of
Japan, said amount ceased to be the property of the bank and became the property of
MITSUBISHI.
The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole creditor of
ATLAS, the former being the owner of the $20 million upon completion of its loan contract
with EXIMBANK of Japan.
The interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different
from the interest income paid by MITSUBISHI to EXIMBANK, of Japan. What was the subject
of the 15% withholding tax is not the interest income paid by MITSUBISHI to EXIMBANK, but
the interest income earned by MITSUBISHI from the loan to ATLAS. . . . 13
To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is complete in itself,
does not appear to be suppletory or collateral to another contract and is, therefore, not to be distorted
by other considerations aliunde. The application for the loan was approved on May 20, 1970, or more
than a month after the contract between Mitsubishi and Atlas was entered into on April 17, 1970. It is
true that under the contract of loan with Eximbank, Mitsubishi agreed to use the amount as a loan to
and in consideration for importing copper concentrates from Atlas, but all that this proves is the
justification for the loan as represented by Mitsubishi, a standard banking practice for evaluating the
prospects of due repayment. There is nothing wrong with such stipulation as the parties in a contract
are free to agree on such lawful terms and conditions as they see fit. Limiting the disbursement of the
amount borrowed to a certain person or to a certain purpose is not unusual, especially in the case of
Eximbank which, aside from protecting its financial exposure, must see to it that the same are in line
with the provisions and objectives of its charter.

Respondents postulate that Mitsubishi had to be a conduit because Eximbank's charter prevents it from
making loans except to Japanese individuals and corporations. We are not impressed. Not only is there
a failure to establish such submission by adequate evidence but it posits the unfair and unexplained
imputation that, for reasons subject only of surmise, said financing institution would deliberately
circumvent its own charter to accommodate an alien borrower through a manipulated subterfuge, but
with it as a principal and the real obligee.

The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to Eximbank, assuming
the truth thereof, is too tenuous and conjectural to support the proposition that Mitsubishi is a mere
conduit. Furthermore, the remittance of the interest payments may also be logically viewed as an
arrangement in paying Mitsubishi's obligation to Eximbank. Whatever arrangement was agreed upon by
Eximbank and Mitsubishi as to the manner or procedure for the payment of the latter's obligation is their
own concern. It should also be noted that Eximbank's loan to Mitsubishi imposes interest at the rate of
75% per annum, while Mitsubishis contract with Atlas merely states that the "interest on the amount of
the loan shall be the actual cost beginning from and including other dates of releases against loan." 14

It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws granting
exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the
taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the
party claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus
petitioners have failed to discharge. Significantly, private respondents are not even among the entities
which, under Section 29 (b) (7) (A) of the tax code, are entitled to exemption and which should
indispensably be the party in interest in this case.

Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed "broad,
pragmatic analysis" alone without substantial supportive evidence, lest governmental operations suffer
due to diminution of much needed funds. Nor can we close this discussion without taking cognizance of
petitioner's warning, of pervasive relevance at this time, that while international comity is invoked in this
case on the nebulous representation that the funds involved in the loans are those of a foreign
government, scrupulous care must be taken to avoid opening the floodgates to the violation of our tax
laws. Otherwise, the mere expedient of having a Philippine corporation enter into a contract for loans or
other domestic securities with private foreign entities, which in turn will negotiate independently with
their governments, could be availed of to take advantage of the tax exemption law under discussion.

WHEREFORE, the decisions of the Court of Tax Appeals in CTA Cases Nos. 2801 and 3015, dated
April 18, 1980 and January 15, 1981, respectively, are hereby REVERSED and SET ASIDE.

SO ORDERED.
GR No. 112024 January 28, 1999
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS, respondents.
[1]
This petition for review assails the Resolution of the Court of Appeals dated September 22,
1993, affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the claims of
the petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The
Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are
hereby AFFIRMED in toto.
SO ORDERED.[4]
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in the amount
of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986
claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all
likelihood automatically credited the same to the succeeding year. The petition for review is dismissed
for lack of merit.
SO ORDERED.[5]
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters
of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by
applying PBComs tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax
Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1, 615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax
Returns for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby
showing no income tax liability. For the succeeding year, ending December 31, 1986, the petitioner
likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69
in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others,
for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters
of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their
lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The
petition was docketed as CTA Case No. 4309 entitled: Philippine Bank of Communications vs.
Commissioner of Internal Revenue.
The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit
for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
Net Income (Loss) (P25,317,228.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax
Payments Made 5,016,954.00 ---
Tax Withheld at Source 282,795.50 234,077.69
Excess Tax Payments P5,299,749.50*============ P234,077.69==============
==
*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five centavo difference
was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the
request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it
was filed beyond the two-year reglementary period provided for by law. The petitioners claim for refund
in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically
credited by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs decision but the
same was denied due course for lack of merit.[6]
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the
Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTAs
resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the formal assurances of BIR in
RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for
the refund/tax credit of its 1985-86 excess quarterly income tax payments -- can be
prejudiced by the subsequent BIR rejection, applied retroactively, of its assurances in
RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly
income tax payments is not two years but ten (10).[7]
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied
PBComs claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere
speculation, without proof, that there were taxes due in 1987 and that PBCom availed
of tax-crediting that year.[8]
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the
plea for tax refund or tax credits on the ground of prescription, despite petitioners reliance on RMC No.
7-85, changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription
relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The
circular states that overpaid income taxes are not covered by the two-year prescriptive period under the
tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with
the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular
reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
 SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME
TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT
RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which
provide:
It has been observed, however, that because of the excess tax payments, corporations file claims for
recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date
of payment, in accordance with Sections 292 and 295 of the National Internal Revenue Code. It is
obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the
refund or tax credit.
It should be noted, however, that this is not a case of erroneously or illegally paid tax under the
provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the overpaid
income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax
returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has
promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in
processing said returns. Under these procedures, the returns are merely pre-audited which consist
mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax
credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals
in order to preserve the right to claim refund or tax credit within the two-year period. As already
stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax
paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment
considering that it is an obligation created by law (Article 1144 of the Civil Code).[9] (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court
of Tax Appeals[10] petitioner claims that rulings or circulars promulgated by the Commissioner of Internal
Revenue have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court
held that the government is precluded from adopting a position inconsistent with one previously taken
where injustice would result therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for
this rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayers except in the following cases:
a) where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the
two-year prescriptive period for filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is
generally done on April 15 following the close of the calendar year. As precedents, respondent
Commissioner cited cases which adhered to this principle, to wit: ACCRA Investments Corp. vs. Court
of Appeals, et al.,[11] and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al..[12] Respondent
Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the
taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to
seek relief from the court.Further, respondent Commissioner stresses that when the petitioner filed the
case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such
failure is fatal to petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that,
contrary to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not
warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. [13] Due
process of law under the Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to
carry on its operations and it is of utmost importance that the modes adopted to enforce the collection
of taxes levied should be summary and interfered with as little as possible.[14]
From the same perspective, claims for refund or tax credit should be exercised within the time
fixed by law because the BIR being an administrative body enforced to collect taxes, its functions
should not be unduly delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of
1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax
erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment;
Provided however, That the Commissioner may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment was made, such payment appears clearly
to have been erroneously paid. (Italics supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of
Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The
two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return
and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,[15] this Court
explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that the refund
is ascertained, which can only be determined after a final adjustment return is accomplished. In the
present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. x x x As
we have earlier said in the TMX Sales case, Sections 68,[16] 69,[17] and 70[18] on Quarterly Corporate
Income Tax Payment and Section 321 should be considered in conjunction with it.[19]
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive
period of two years to ten years on claims of excess quarterly income tax payments, such circular
created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not
simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in
the sense of more specific and less general interpretations of tax laws) which are issued from time to
time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon
a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the
courts.Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be
erroneous.[20] Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply and implement.[21]
In the case of People vs. Lim,[22] it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is
contrary to the provisions and spirit of Act. No. 4003 as amended, because whereas the prohibition
prescribed in said Fisheries Act was for any single period of time not exceeding five years duration,
FAO No. 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the
reason that the regulation or rule issued to implement a law cannot go beyond the terms and
provisions of the latter. x x x In this connection, the attention of the technical men in the offices of
Department Heads who draft rules and regulation is called to the importance and necessity of closely
following the terms and provisions of the law which they intended to implement, this to avoid any
possible misunderstanding or confusion as in the present case.[23]
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors
of its officials or agents.[24] As pointed out by the respondent courts, the nullification of RMC No. 7-85
issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not
in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence,
his interpretation could not be given weight for to do so would, in effect, amend the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is
estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of
payment because this is an obligation created by law, was issued by the Acting Commissioner of
Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a
refund or tax credit and the corresponding petition for review within the two-year prescription period,
and that the lengthening of the period of limitation on refund from two to ten years would be adverse to
public policy and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial
interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was
not the Commissioner of Internal Revenue who denied petitioners claim of refund or tax credit. Rather,
it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC
No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is
out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC),
hence, cannot be given weight for to do so would in effect amend the statute.[25]
Article 8 of the Civil Code [26] recognizes judicial decisions, applying or interpreting statutes as part
of the legal system of the country. But administrative decisions do not enjoy that level of recognition.A
memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against
judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by
the administrative officials and such wrong interpretation could not place the Government in estoppel to
correct or overrule the same.[27] Moreover, the non-retroactivity of rulings by the Commissioner of
Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by
respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as
repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be
construed in strictissimi juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming
CTAs decision denying its claim for refund of P 234,077.69 (tax overpaid in 1986), based on mere
speculation, without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any excess of the total
quarterly payments over the actual income tax computed in the adjustment or final corporate income
tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated
quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box
provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax
credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are
in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax Appeals, after
examining the adjusted final corporate annual income tax return for taxable year 1986, found out that
petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the
1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in
concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding
year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are
alternative.[30]
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC,
as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must
respect.Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to
controvert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no
showing of gross error or abuse on their part to disturb our reliance thereon.[31]
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed
from is AFFIRMED, with COSTS against the petitioner.
SO ORDERED.
G.R. No. L-59431 July 25, 1984
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 Petitioner 3 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-visthose 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. 8The 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." 9 The 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
'because it was better equipped to administer for the public welfare than is any private individual or
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.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente
and Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and
Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in
his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
schedule of building unit values, as approved by the Secretary of Finance, the cases should
be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1âwphi1 They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties. Respondent
City Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values
of the real property situated in the same vicinity where the subject properties of petitioners are located.
To better appreciate the locational and physical features of the land, the Board of Hearing
Commissioners conducted an ocular inspection with the presence of two representatives of the City
Assessor prior to the healing of the case. Neither the owners nor their authorized representatives were
present during the said ocular inspection despite proper notices served them. It was found that certain
parcels of land were below street level and were affected by the tides (Rollo, pp. 24-25).

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
PARAS, J.:
portion of which reads:

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
affirmed.
1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A,
B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by the City Assessor of Manila. For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266,
the appealed Decision is modified by allowing a 20% reduction in their respective market
values and applying therein the assessment level of 30% to arrive at the corresponding
The facts of the case are as follows:
assessed value.

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in
July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
one year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which
another's dwelling is located, where such rentals do not exceed three hundred pesos (P300.00) a
The Reyeses assigned the following error:
month but allowing an increase in rent by not more than 10% thereafter. The said Act also suspended
paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity thereby disallowing the
ejectment of lessees upon the expiration of the usual legal period of lease. On October 12, 1972, THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
monthly rentals below P300.00 and by indefinitely suspending the aforementioned provision of the Civil PROPERTIES.
Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City Assessor of
The petition is impressed with merit.
Manila re-classified and reassessed the value of the subject properties based on the schedule of
market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed an
increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement The crux of the controversy is in the method used in tax assessment of the properties in question.
with the Board of Tax Assessment Appeals. They averred that the reassessments made were Petitioners maintain that the "Income Approach" method would have been more realistic for in
"excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
imposed upon them greatly exceeded the annual income derived from their properties. They argued affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
that the income approach should have been used in determining the land values instead of the assessed values at levels so high and successive that the resulting annual real estate taxes would
comparable sales approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under P.D.
Assessment Appeals, however, considered the assessments valid, holding thus: 20. Hence, petitioners protested against the levels of the values assigned to their properties as revised
and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable, confiscatory
and unconstitutional (Rollo, p. 10-A).
WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments
appear to be in accordance with the base schedule of market values and of the base
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the
income approach is used in determining land values in some vicinities, it maintains that when income is
affected by some sort of price control, the same is rejected in the consideration and study of land
values as in the case of properties affected by the Rent Control Law for they do not project the true
market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the "Comparable
Sales Approach" on the ground that the value estimate of the properties predicated upon prices paid in
actual, market transactions would be a uniform and a more credible standards to use especially in case
of mass appraisal of properties (Ibid.). Otherwise stated, public respondents would have this Court
completely ignore the effects of the restrictions of P.D. No. 20 on the market value of properties within
its coverage. In any event, it is unquestionable that both the "Comparable Sales Approach" and the
"Income Approach" are generally acceptable methods of appraisal for taxation purposes (The Law on
Transfer and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the
propriety of one as against the other would of course depend on several factors. Hence, as early as
1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it
has been stressed that the assessors, in finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second
Edition). Thus, the need to examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive
when its rate goes up depending on the resources of the person affected (Ibid.).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes is
that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated
with the market value of properties not so covered. The former has naturally a much lesser market
value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents, namely:
(1) that the sale must represent a bonafide arm's length transaction between a willing seller and a
willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can justify or
support their view as it is of judicial notice that for properties covered by P.D. 20 especially during the
time in question, there were hardly any willing buyers. As a general rule, there were no takers so that
there can be no reasonable basis for the conclusion that these properties were comparable with other
residential properties not burdened by P.D. 20. Neither can the given circumstances be nonchalantly
dismissed by public respondents as imposed under distressed conditions clearly implying that the same
were merely temporary in character. At this point in time, the falsity of such premises cannot be more
convincingly demonstrated by the fact that the law has existed for around twenty (20) years with no end
to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which is
the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue Inc.,
et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened by the
government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social
justice should not now be penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their properties.

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
By the public respondents' own computation the assessment by income approach would amount to only
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
P10.00 per sq. meter at the time in question.
Adversely effecting as it does property rights, both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were
otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
involves the power to destroy." The web or unreality spun from Marshall's famous dictum was brushed respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of
away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to destroy while Manila and the City Assessor of Manila are ordered to make a new assessment by the income
this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
SO ORDERED.
In the same vein, 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
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a 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
(Ibid., p. 662).
G.R. No. 78780 July 23, 1987
DAVID G. NITAFAN, WENCESLAO M. POLO, and MAXIMO A. SAVELLANO, JR., petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and THE FINANCIAL OFFICER, SUPREME COURT OF
THE PHILIPPINES, respondents.
RESOLUTION
MELENCIO-HERRERA, J.:
Petitioners, the duly appointed and qualified Judges presiding over Branches 52, 19 and 53,
respectively, of the Regional Trial Court, National Capital Judicial Region, all with stations in Manila,
seek to prohibit and/or perpetually enjoin respondents, the Commissioner of Internal Revenue and the
Financial Officer of the Supreme Court, from making any deduction of withholding taxes from their
salaries.
In a nutshell, they submit that "any tax withheld from their emoluments or compensation as judicial
officers constitutes a decrease or diminution of their salaries, contrary to the provision of Section 10,
Article VIII of the 1987 Constitution mandating that "(d)uring their continuance in office, their salary shall
not be decreased," even as it is anathema to the Ideal of an independent judiciary envisioned in and by
said Constitution."
It may be pointed out that, early on, the Court had dealt with the matter administratively in response to
representations that the Court direct its Finance Officer to discontinue the withholding of taxes from
salaries of members of the Bench. Thus, on June 4, 1987, the Court en banc had reaffirmed the Chief
Justice's directive as follows:
RE: Question of exemption from income taxation. — The Court REAFFIRMED the Chief
Justice's previous and standing directive to the Fiscal Management and Budget Office of this
Court to continue with the deduction of the withholding taxes from the salaries of the Justices
of the Supreme Court as well as from the salaries of all other members of the judiciary.
That should have resolved the question. However, with the filing of this petition, the Court has deemed
it best to settle the legal issue raised through this judicial pronouncement. As will be shown hereinafter,
the clear intent of the Constitutional Commission was to delete the proposed express grant of
exemption from payment of income tax to members of the Judiciary, so as to "give substance to
equality among the three branches of Government" in the words of Commissioner Rigos. In the course
of the deliberations, it was further expressly made clear, specially with regard to Commissioner Joaquin
F. Bernas' accepted amendment to the amendment of Commissioner Rigos, that the salaries of
members of the Judiciary would be subject to the general income tax applied to all taxpayers.
This intent was somehow and inadvertently not clearly set forth in the final text of the Constitution as
approved and ratified in February, 1987 (infra, pp. 7-8). Although the intent may have been obscured by
the failure to include in the General Provisions a proscription against exemption of any public officer or
employee, including constitutional officers, from payment of income tax, the Court since then has
authorized the continuation of the deduction of the withholding tax from the salaries of the members of
the Supreme Court, as well as from the salaries of all other members of the Judiciary. The Court hereby
makes of record that it had then discarded the ruling in Perfecto vs. Meer and Endencia vs. David,
infra, that declared the salaries of members of the Judiciary exempt from payment of the income tax
and considered such payment as a diminution of their salaries during their continuance in office. The
Court hereby reiterates that the salaries of Justices and Judges are properly subject to a general
income tax law applicable to all income earners and that the payment of such income tax by Justices
and Judges does not fall within the constitutional protection against decrease of their salaries during
their continuance in office.
A comparison of the Constitutional provisions involved is called for. The 1935 Constitution provided:
... (The members of the Supreme Court and all judges of inferior courts) shall receive such
compensation as may be fixed by law, which shall not be diminished during their continuance
in office ... 1 (Emphasis supplied).
Under the 1973 Constitution, the same provision read:
The salary of the Chief Justice and of the Associate Justices of the Supreme court, and of
judges of inferior courts shall be fixed by law, which shall not be decreased during their
continuance in office. ... 2 (Emphasis ours).
And in respect of income tax exemption, another provision in the same 1973 Constitution specifically
stipulated:
No salary or any form of emolument of any public officer or employee, including constitutional
officers, shall be exempt from payment of income tax. 3
The provision in the 1987 Constitution, which petitioners rely on, reads:
The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of
judges of lower courts shall be fixed by law. During their continuance in office, their salary
shall not be decreased. 4(Emphasis supplied).
The 1987 Constitution does not contain a provision similar to Section 6, Article XV of the 1973
Constitution, for which reason, petitioners claim that the intent of the framers is to revert to the original
concept of "non-diminution "of salaries of judicial officers.
The deliberations of the 1986 Constitutional Commission relevant to Section 10, Article VIII, negate
such contention.
The draft proposal of Section 10, Article VIII, of the 1987 Constitution read:
Section 13. The salary of the Chief Justice and the Associate Justices of the Supreme Court
and of judges of the lower courts shall be fixed by law. During their continuance in office,
their salary shall not be diminished nor subjected to income tax. Until the National Assembly
shall provide otherwise, the Chief Justice shall receive an annual salary of _____________
and each Associate Justice ______________ pesos. 5(Emphasis ours)
During the debates on the draft Article (Committee Report No. 18), two Commissioners presented their
objections to the provision on tax exemption, thus:
MS. AQUINO. Finally, on the matter of exemption from tax of the salary of justices, does this
not violate the principle of the uniformity of taxation and the principle of equal protection of
the law? After all, tax is levied not on the salary but on the combined income, such that when
 the judge receives a salary and it is comingled with the other income, we tax the income, not are still subject to income tax. So, they are not the only citizens whose income is reduced by
the salary. Why do we have to give special privileges to the salary of justices? accepting service in government.

MR. CONCEPCION. It is the independence of the judiciary. We prohibit the increase or Commissioner Rigos accepted the proposed amendment to the amendment. Commissioner Rustico F.
decrease of their salary during their term. This is an indirect way of decreasing their salary de los Reyes, Jr. then moved for a suspension of the session. Upon resumption, Commissioner Bernas
and affecting the independence of the judges. announced:

MS. AQUINO. I appreciate that to be in the nature of a clause to respect tenure, but the During the suspension, we came to an understanding with the original proponent,
special privilege on taxation might, in effect, be a violation of the principle of uniformity in Commissioner Rigos, that his amendment on page 6,. line 4 would read: "During their
taxation and the equal protection clause. 6 continuance in office, their salary shall not be DECREASED."But this is on the understanding
that there will be a provision in the Constitution similar to Section 6 of Article XV, the General
Provisions of the 1973 Constitution, which says:
xxx xxx xxx

No salary or any form of emolument of any public officer or employee, including

MR. OPLE. x x x
constitutional officers, shall be exempt from payment of income tax.

Of course, we share deeply the concern expressed by the sponsor, Commissioner Roberto
So, we put a period (.) after "DECREASED" on the understanding that the salary of justices is
Concepcion, for whom we have the highest respect, to surround the Supreme Court and the
subject to tax.
judicial system as a whole with the whole armor of defense against the executive and
legislative invasion of their independence. But in so doing, some of the citizens outside,
especially the humble government employees, might say that in trying to erect a bastion of When queried about the specific Article in the General Provisions on non-exemption from tax of salaries
justice, we might end up with the fortress of privileges, an island of extra territoriality under of public officers, Commissioner Bernas replied:
the Republic of the Philippines, because a good number of powers and rights accorded to the
Judiciary here may not be enjoyed in the remotest degree by other employees of the
FR BERNAS. Yes, I do not know if such an article will be found in the General Provisions. But
government.
at any rate, when we put a period (.) after "DECREASED," it is on the understanding that the
doctrine in Perfecto vs. Meer and Dencia vs. David will not apply anymore.
An example is the exception from income tax, which is a kind of economic immunity, which is,
of course, denied to the entire executive department and the legislative. 7
The amendment to the original draft, as discussed and understood, was finally approved without
objection.
And during the period of amendments on the draft Article, on July 14, 1986, Commissioner Cirilo A.
Rigos proposed that the term "diminished" be changed to "decreased" and that the words "nor
THE PRESIDING OFFICER (Mr. Bengzon). The understanding, therefore, is that there will be
subjected to income tax" be deleted so as to "give substance to equality among the three branches in
a provision under the Article on General Provisions. Could Commissioner Rosario Braid
the government.
kindly take note that the salaries of officials of the government including constitutional officers
shall not be exempt from income tax? The amendment proposed herein and accepted by the
Commissioner Florenz D. Regalado, on behalf of the Committee on the Judiciary, defended the original Committee now reads as follows: "During their continuance in office, their salary shall not be
draft and referred to the ruling of this Court in Perfecto vs. Meer 8 that "the independence of the judges DECREASED"; and the phrase "nor subjected to income tax" is deleted.9
is of far greater importance than any revenue that could come from taxing their salaries." Commissioner
Rigos then moved that the matter be put to a vote. Commissioner Joaquin G. Bernas stood up "in
The debates, interpellations and opinions expressed regarding the constitutional provision in question
support of an amendment to the amendment with the request for a modification of the amendment," as
until it was finally approved by the Commission disclosed that the true intent of the framers of the 1987
follows:
Constitution, in adopting it, was to make the salaries of members of the Judiciary taxable. The
ascertainment of that intent is but in keeping with the fundamental principle of constitutional
FR. BERNAS. Yes. I am going to propose an amendment to the amendment saying that it is construction that the intent of the framers of the organic law and of the people adopting it should be
not enough to drop the phrase "shall not be subjected to income tax," because if that is all given effect.10 The primary task in constitutional construction is to ascertain and thereafter assure the
that the Gentleman will do, then he will just fall back on the decision in Perfecto vs. Meer and realization of the purpose of the framers and of the people in the adoption of the Constitution.11it may
in Dencia vs. David [should be Endencia and Jugo vs. David, etc., 93 Phil. 696[ which also be safely assumed that the people in ratifying the Constitution were guided mainly by the
excludes them from income tax, but rather I would propose that the statement will read: explanation offered by the framers.12 1avvphi1
"During their continuance in office, their salary shall not be diminished BUT MAY BE
SUBJECT TO GENERAL INCOME TAX."IN support of this position, I would say that the
Besides, construing Section 10, Articles VIII, of the 1987 Constitution, which, for clarity, is again
argument seems to be that the justice and judges should not be subjected to income tax
reproduced hereunder:
because they already gave up the income from their practice. That is true also of Cabinet
members and all other employees. And I know right now, for instance, there are many people
who have accepted employment in the government involving a reduction of income and yet
 The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of
judges of lower courts shall be fixed by law. During their continuance in office, their salary
shall not be decreased. (Emphasis supplied).

it is plain that the Constitution authorizes Congress to pass a law fixing another rate of compensation of
Justices and Judges but such rate must be higher than that which they are receiving at the time of
enactment, or if lower, it would be applicable only to those appointed after its approval. It would be a
strained construction to read into the provision an exemption from taxation in the light of the discussion
in the Constitutional Commission.

With the foregoing interpretation, and as stated heretofore, the ruling that "the imposition of income tax
upon the salary of judges is a dimunition thereof, and so violates the Constitution" in Perfecto vs.
Meer,13 as affirmed in Endencia vs. David 14 must be declared discarded. The framers of the
fundamental law, as the alter ego of the people, have expressed in clear and unmistakable terms the
meaning and import of Section 10, Article VIII, of the 1987 Constitution that they have adopted

Stated otherwise, we accord due respect to the intent of the people, through the discussions and
deliberations of their representatives, in the spirit that all citizens should bear their aliquot part of the
cost of maintaining the government and should share the burden of general income taxation equitably.

WHEREFORE, the instant petition for Prohibition is hereby dismissed.

Teehankee, C.J., Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento and Cortes, JJ., concur.
Yap, J., is on leave.
G.R. No. 115455 August 25, 1994 PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL REVENUE, respondents.
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 115873 August 25, 1994

G.R. No. 115525 August 25, 1994 COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
JUAN T. DAVID, petitioner,
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE
vs.
OCAMPO, in his capacity as Secretary of Finance, respondents.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of
Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents. G.R. No. 115931 August 25, 1994

G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU
OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and ASSOCIATION OF
PHILIPPINE BOOK-SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as
the Commissioner of Internal Revenue and HON. GUILLERMO PARAYNO, JR., in his capacity as
the Commissioner of Customs, respondents.

G.R. No. 115544 August 25, 1994

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; PUBLISHING CORPORATION;
PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as
on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in
money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or
exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system
and enhance its administration by amending the National Internal Revenue Code.
These are various suits for certiorari and prohibition, challenging the constitutionality of Republic Act
No. 7716 on various grounds summarized in the resolution of July 6, 1994 of this Court, as follows:
I. Procedural Issues:

G.R. No. 115781 August 25, 1994 A. Does Republic Act No. 7716 violate Art. VI, § 24 of the Constitution?

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. B. Does it violate Art. VI, § 26(2) of the Constitution?
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO,
C. What is the extent of the power of the Bicameral Conference Committee?
JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD,
INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC.,
PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO TAÑADA, petitioners, II. Substantive Issues:
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
A. Does the law violate the following provisions in the Bill of Rights (Art. III)?
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

1. §1
G.R. No. 115852 August 25, 1994
 2. § 4
3. § 5
4. § 10
B. Does the law violate the following other provisions of the Constitution?
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated above. As will presently be explained not all of
these questions are judicially cognizable, because not all provisions of the Constitution are self
executing and, therefore, judicially enforceable. The other departments of the government are equally
charged with the enforcement of the Constitution, especially the provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Value-Added
Tax Law, Congress violated the Constitution because, although H. No. 11197 had originated in the
House of Representatives, it was not passed by the Senate but was simply consolidated with the
Senate version (S. No. 1630) in the Conference Committee to produce the bill which the President
signed into law. The following provisions of the Constitution are cited in support of the proposition that
because Republic Act No. 7716 was passed in this manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, § 24: All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in
the House of Representatives, but the Senate may propose or concur with
amendments.
Id., § 26(2): No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its final form
have been distributed to its Members three days before its passage, except when
the President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall
be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993, several bills 1 were
introduced in the House of Representatives seeking to amend certain provisions of the National Internal
Revenue Code relative to the value-added tax or VAT. These bills were referred to the House Ways and
Means Committee which recommended for approval a substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN
ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF
TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND 238 OF TITLE IX,
AND REPEALING SECTIONS 113 AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading starting November 6, 1993 and, on
November 17, 1993, it was approved by the House of Representatives after third and final reading.
It was sent to the Senate on November 23, 1993 and later referred by that body to its Committee on
Ways and Means.
On February 7, 1994, the Senate Committee submitted its report recommending approval of S. No.
1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM TO WIDEN
ITS TAX BASE AND ENHANCE ITS ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF
TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND
REPEALING SECTIONS 113, 114 and 116 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of Senate Bill No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished debates on
the bill and approved it on second reading on March 24, 1994. On the same day, it approved the bill on
third reading by the affirmative votes of 13 of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference committee which,
after meeting four times (April 13, 19, 21 and 25, 1994), recommended that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in accordance with the attached copy of the bill as
reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION AND FOR THESE
PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES," was thereafter
approved by the House of Representatives on April 27, 1994 and by the Senate on May 2, 1994. The
enrolled bill was then presented to the President of the Philippines who, on May 5, 1994, signed it. It
became Republic Act No. 7716. On May 12, 1994, Republic Act No. 7716 was published in two
newspapers of general circulation and, on May 28, 1994, it took effect, although its implementation was
suspended until June 30, 1994 to allow time for the registration of business entities. It would have been
enforced on July 1, 1994 but its enforcement was stopped because the Court, by the vote of 11 to 4 of
its members, granted a temporary restraining order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate exclusively" in the House of
Representatives as required by Art. VI, §24 of the Constitution, because it is in fact the result of the
consolidation of two distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners point out
that although Art. VI, SS 24 was adopted from the American Federal Constitution, 2 it is notable in two
respects: the verb "shall originate" is qualified in the Philippine Constitution by the word "exclusively"
and the phrase "as on other bills" in the American version is omitted. This means, according to them,
that to be considered as having originated in the House, Republic Act No. 7716 must retain the essence
of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the law — but the revenue bill — which is
required by the Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. The possibility of a third version by the
conference committee will be discussed later. At this point, what is important to note is that, as a result
of the Senate action, a distinct bill may be produced. To insist that a revenue statute — and not only the
bill which initiated the legislative process culminating in the enactment of the law — must substantially
be the same as the House bill would be to deny the Senate's power not only to "concur with
amendments" but also to "propose amendments." It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the House superior to the Senate.
The contention that the constitutional design is to limit the Senate's power in respect of revenue bills in
order to compensate for the grant to the Senate of the treaty-ratifying power 3 and thereby equalize its
powers and those of the House overlooks the fact that the powers being compared are different. We
are dealing here with the legislative power which under the Constitution is vested not in any particular
chamber but in the Congress of the Philippines, consisting of "a Senate and a House of
Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of legislative power. It
is the exercise of a check on the executive power. There is, therefore, no justification for comparing the
legislative powers of the House and of the Senate on the basis of the possession of such nonlegislative
power by the Senate. The possession of a similar power by the U.S. Senate 5 has never been thought
of as giving it more legislative powers than the House of Representatives.
In the United States, the validity of a provision (§ 37) imposing an ad valorem tax based on the weight
of vessels, which the U.S. Senate had inserted in the Tariff Act of 1909, was upheld against the claim
that the provision was a revenue bill which originated in the Senate in contravention of Art. I, § 7 of the
U.S. Constitution. 6 Nor is the power to amend limited to adding a provision or two in a revenue bill
emanating from the House. The U.S. Senate has gone so far as changing the whole of bills following
the enacting clause and substituting its own versions. In 1883, for example, it struck out everything after
the enacting clause of a tariff bill and wrote in its place its own measure, and the House subsequently
accepted the amendment. The U.S. Senate likewise added 847 amendments to what later became the
Payne-Aldrich Tariff Act of 1909; it dictated the schedules of the Tariff Act of 1921; it rewrote an
extensive tax revision bill in the same year and recast most of the tariff bill of 1922. 7 Given, then, the
power of the Senate to propose amendments, the Senate can propose its own version even with
respect to bills which are required by the Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H. No. 11197 but of another
Senate bill (S. No. 1129) earlier filed and that what the Senate did was merely to "take [H. No. 11197]
into consideration" in enacting S. No. 1630. There is really no difference between the Senate preserving
H. No. 11197 up to the enacting clause and then writing its own version following the enacting clause
(which, it would seem, petitioners admit is an amendment by substitution), and, on the other hand,
separately presenting a bill of its own on the same subject matter. In either case the result are two bills
on the same subject.
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the
House of Representatives on the theory that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill in anticipation of its receipt
of the bill from the House, so long as action by the Senate as a body is withheld pending receipt of the
House bill. The Court cannot, therefore, understand the alarm expressed over the fact that on March 1,
1993, eight months before the House passed H. No. 11197, S. No. 1129 had been filed in the Senate.
After all it does not appear that the Senate ever considered it. It was only after the Senate had received
H. No. 11197 on November 23, 1993 that the process of legislation in respect of it began with the
referral to the Senate Committee on Ways and Means of H. No. 11197 and the submission by the
Committee on February 7, 1994 of S. No. 1630. For that matter, if the question were simply the priority
in the time of filing of bills, the fact is that it was in the House that a bill (H. No. 253) to amend the VAT
law was first filed on July 22, 1992. Several other bills had been filed in the House before S. No. 1129
was filed in the Senate, and H. No. 11197 was only a substitute of those earlier bills.
Second. Enough has been said to show that it was within the power of the Senate to propose S. No.
1630. We now pass to the next argument of petitioners that S. No. 1630 did not pass three readings on
separate days as required by the Constitution 8 because the second and third readings were done on
the same day, March 24, 1994. But this was because on February 24, 1994 9 and again on March 22,
1994, 10 the President had certified S. No. 1630 as urgent. The presidential certification dispensed with
the requirement not only of printing but also that of reading the bill on separate days. The phrase
"except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, § 26(2)
qualifies the two stated conditions before a bill can become a law: (i) the bill has passed three readings
on separate days and (ii) it has been printed in its final form and distributed three days before it is finally
approved.
In other words, the "unless" clause must be read in relation to the "except" clause, because the two are
really coordinate clauses of the same sentence. To construe the "except" clause as simply dispensing
with the second requirement in the "unless" clause (i.e., printing and distribution three days before final
approval) would not only violate the rules of grammar. It would also negate the very premise of the
"except" clause: the necessity of securing the immediate enactment of a bill which is certified in order to
meet a public calamity or emergency. For if it is only the printing that is dispensed with by presidential
certification, the time saved would be so negligible as to be of any use in insuring immediate
enactment. It may well be doubted whether doing away with the necessity of printing and distributing
copies of the bill three days before the third reading would insure speedy enactment of a law in the face
of an emergency requiring the calling of a special election for President and Vice-President. Under the
Constitution such a law is required to be made within seven days of the convening of Congress in
emergency session. 11
That upon the certification of a bill by the President the requirement of three readings on separate days
and of printing and distribution can be dispensed with is supported by the weight of legislative practice.
For example, the bill defining the certiorari jurisdiction of this Court which, in consolidation with the
Senate version, became Republic Act No. 5440, was passed on second and third readings in the
House of Representatives on the same day (May 14, 1968) after the bill had been certified by the
President as urgent. 12
There is, therefore, no merit in the contention that presidential certification dispenses only with the
requirement for the printing of the bill and its distribution three days before its passage but not with the
requirement of three readings on separate days, also.
It is nonetheless urged that the certification of the bill in this case was invalid because there was no
emergency, the condition stated in the certification of a "growing budget deficit" not being an unusual
condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the reality of the factual basis of the
certification. To the contrary, by passing S. No. 1630 on second and third readings on March 24, 1994,
the Senate accepted the President's certification. Should such certification be now reviewed by this
Court, especially when no evidence has been shown that, because S. No. 1630 was taken up on
second and third readings on the same day, the members of the Senate were deprived of the time
needed for the study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas corpus or declaration of
martial law under Art. VII, § 18, or the existence of a national emergency justifying the delegation of
extraordinary powers to the President under Art. VI, § 23(2), is subject to judicial review because basic
rights of individuals may be at hazard. But the factual basis of presidential certification of bills, which
involves doing away with procedural requirements designed to insure that bills are duly considered by
members of Congress, certainly should elicit a different standard of review.
Petitioners also invite attention to the fact that the President certified S. No. 1630 and not H. No. 11197.
That is because S. No. 1630 was what the Senate was considering. When the matter was before the
House, the President likewise certified H. No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became Republic Act No. 7716 is the bill which the
Conference Committee prepared by consolidating H. No. 11197 and S. No. 1630. It is claimed that the
Conference Committee report included provisions not found in either the House bill or the Senate bill
and that these provisions were "surreptitiously" inserted by the Conference Committee. Much is made
of the fact that in the last two days of its session on April 21 and 25, 1994 the Committee met behind
closed doors. We are not told, however, whether the provisions were not the result of the give and take
that often mark the proceedings of conference committees.
Nor is there anything unusual or extraordinary about the fact that the Conference Committee met in
executive sessions. Often the only way to reach agreement on conflicting provisions is to meet behind
closed doors, with only the conferees present. Otherwise, no compromise is likely to be made. The
Court is not about to take the suggestion of a cabal or sinister motive attributed to the conferees on the
basis solely of their "secret meetings" on April 21 and 25, 1994, nor read anything into the incomplete
remarks of the members, marked in the transcript of stenographic notes by ellipses. The incomplete
sentences are probably due to the stenographer's own limitations or to the incoherence that sometimes
characterize conversations. William Safire noted some such lapses in recorded talks even by recent
past Presidents of the United States.
In any event, in the United States conference committees had been customarily held in executive
sessions with only the conferees and their staffs in attendance. 13 Only in November 1975 was a new
rule adopted requiring open sessions. Even then a majority of either chamber's conferees may vote in
public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:
Under congressional rules of procedure, conference committees are not expected
to make any material change in the measure at issue, either by deleting provisions
to which both houses have already agreed or by inserting new provisions. But this
is a difficult provision to enforce. Note the problem when one house amends a
proposal originating in either house by striking out everything following the enacting
clause and substituting provisions which make it an entirely new bill. The versions
are now altogether different, permitting a conference committee to draft essentially
a new bill. . . . 15
The result is a third version, which is considered an "amendment in the nature of a substitute," the only
requirement for which being that the third version be germane to the subject of the House and Senate
bills. 16
Indeed, this Court recently held that it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House bill or in the Senate bill. 17 If the
committee can propose an amendment consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of both houses of Congress to become valid
as an act of the legislative department. The charge that in this case the Conference Committee acted
as a third legislative chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and the House of
Representatives a conference committee can only act on the differing provisions of a Senate bill and a
House bill, and that contrary to these Rules the Conference Committee inserted provisions not found in
the bills submitted to it. The following provisions are cited in support of this contention:
Rules of the Senate
Rule XII:
§ 26. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the differences shall
be settled by a conference committee of both Houses which shall meet within ten
days after their composition.
The President shall designate the members of the conference committee in
accordance with subparagraph (c), Section 3 of Rule III.
Each Conference Committee Report shall contain a detailed and sufficiently
explicit statement of the changes in or amendments to the subject measure, and
shall be signed by the conferees.
The consideration of such report shall not be in order unless the report has been
filed with the Secretary of the Senate and copies thereof have been distributed to
the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ 85. Conference Committee Reports. — In the event that the House does not
agree with the Senate on the amendments to any bill or joint resolution, the
differences may be settled by conference committees of both Chambers.
The consideration of conference committee reports shall always be in order, except
when the journal is being read, while the roll is being called or the House is dividing
on any question. Each of the pages of such reports shall be signed by the
conferees. Each report shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless copies thereof are
distributed to the Members: Provided, That in the last fifteen days of each session
 period it shall be deemed sufficient that three copies of the report, signed as above the Conference Committee usurped the legislative power of Congress is, in our view, without warrant in
provided, are deposited in the office of the Secretary General. fact and in law.

(Emphasis added) Fourth. Whatever doubts there may be as to the formal validity of Republic Act No. 7716 must be
resolved in its favor. Our cases 20 manifest firm adherence to the rule that an enrolled copy of a bill is
conclusive not only of its provisions but also of its due enactment. Not even claims that a proposed
To be sure, nothing in the Rules limits a conference committee to a consideration of conflicting
constitutional amendment was invalid because the requisite votes for its approval had not been
provisions. But Rule XLIV, § 112 of the Rules of the Senate is cited to the effect that "If there is no Rule
obtained 21 or that certain provisions of a statute had been "smuggled" in the printing of the bill 22 have
applicable to a specific case the precedents of the Legislative Department of the Philippines shall be
moved or persuaded us to look behind the proceedings of a coequal branch of the government. There
resorted to, and as a supplement of these, the Rules contained in Jefferson's Manual." The following is
is no reason now to depart from this rule.
then quoted from the Jefferson's Manual:

No claim is here made that the "enrolled bill" rule is absolute. In fact in one case 23 we "went behind" an
The managers of a conference must confine themselves to the differences
enrolled bill and consulted the Journal to determine whether certain provisions of a statute had been
committed to them. . . and may not include subjects not within disagreements, even
approved by the Senate in view of the fact that the President of the Senate himself, who had signed the
though germane to a question in issue.
enrolled bill, admitted a mistake and withdrew his signature, so that in effect there was no longer an
enrolled bill to consider.
Note that, according to Rule XLIX, § 112, in case there is no specific rule applicable, resort must be to
the legislative practice. The Jefferson's Manual is resorted to only as supplement. It is common place in
But where allegations that the constitutional procedures for the passage of bills have not been
Congress that conference committee reports include new matters which, though germane, have not
observed have no more basis than another allegation that the Conference Committee "surreptitiously"
been committed to the committee. This practice was admitted by Senator Raul S. Roco, petitioner in
inserted provisions into a bill which it had prepared, we should decline the invitation to go behind the
G.R. No. 115543, during the oral argument in these cases. Whatever, then, may be provided in the
enrolled copy of the bill. To disregard the "enrolled bill" rule in such cases would be to disregard the
Jefferson's Manual must be considered to have been modified by the legislative practice. If a change is
respect due the other two departments of our government.
desired in the practice it must be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house. Thus, Art. VI, § 16(3) of the
Constitution provides that "Each House may determine the rules of its proceedings. . . ." Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made by the Philippine
Airlines, Inc., petitioner in G.R. No. 11582, namely, that it violates Art. VI, § 26(1) which provides that
"Every bill passed by Congress shall embrace only one subject which shall be expressed in the title
This observation applies to the other contention that the Rules of the two chambers were likewise
thereof." It is contended that neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of
disregarded in the preparation of the Conference Committee Report because the Report did not contain
PAL transactions from the payment of the VAT and that this was made only in the Conference
a "detailed and sufficiently explicit statement of changes in, or amendments to, the subject measure."
Committee bill which became Republic Act No. 7716 without reflecting this fact in its title.
The Report used brackets and capital letters to indicate the changes. This is a standard practice in bill-
drafting. We cannot say that in using these marks and symbols the Committee violated the Rules of the
Senate and the House. Moreover, this Court is not the proper forum for the enforcement of these The title of Republic Act No. 7716 is:
internal Rules. To the contrary, as we have already ruled, "parliamentary rules are merely procedural
and with their observance the courts have no concern." 19 Our concern is with the procedural
AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT) SYSTEM,
requirements of the Constitution for the enactment of laws. As far as these requirements are
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
concerned, we are satisfied that they have been faithfully observed in these cases.
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,
Nor is there any reason for requiring that the Committee's Report in these cases must have undergone AND FOR OTHER PURPOSES.
three readings in each of the two houses. If that be the case, there would be no end to negotiation
since each house may seek modifications of the compromise bill. The nature of the bill, therefore,
Among the provisions of the NIRC amended is § 103, which originally read:
requires that it be acted upon by each house on a "take it or leave it" basis, with the only alternative that
if it is not approved by both houses, another conference committee must be appointed. But then again
the result would still be a compromise measure that may not be wholly satisfying to both houses. § 103. Exempt transactions. — The following shall be exempt from the value-added
tax:
Art. VI, § 26(2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report. For if the purpose of requiring three ....
readings is to give members of Congress time to study bills, it cannot be gainsaid that H. No. 11197
was passed in the House after three readings; that in the Senate it was considered on first reading and
(q) Transactions which are exempt under special laws or international agreements
then referred to a committee of that body; that although the Senate committee did not report out the
to which the Philippines is a signatory. Among the transactions exempted from the
House bill, it submitted a version (S. No. 1630) which it had prepared by "taking into consideration" the
VAT were those of PAL because it was exempted under its franchise (P.D. No.
House bill; that for its part the Conference Committee consolidated the two bills and prepared a
1590) from the payment of all "other taxes . . . now or in the near future," in
compromise version; that the Conference Committee Report was thereafter approved by the House
consideration of the payment by it either of the corporate income tax or a franchise
and the Senate, presumably after appropriate study by their members. We cannot say that, as a matter
tax of 2%.
of fact, the members of Congress were not fully informed of the provisions of the bill. The allegation that
As a result of its amendment by Republic Act No. 7716, § 103 of the NIRC now provides: certain goods and articles imported into the Philippines, did not amend the franchise of plaintiff, which
exempted it from all taxes except those mentioned in its franchise. It was held that a special law cannot
be amended by a general law.
§ 103. Exempt transactions. — The following shall be exempt from the value-added
tax:
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590)
by specifically excepting from the grant of exemptions from the VAT PAL's exemption under P.D. No.
....
1590. This is within the power of Congress to do under Art. XII, § 11 of the Constitution, which provides
that the grant of a franchise for the operation of a public utility is subject to amendment, alteration or
(q) Transactions which are exempt under special laws, except those granted under repeal by Congress when the common good so requires.
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
II. SUBSTANTIVE ISSUES
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is
concerned.
A. Claims of Press Freedom, Freedom of
Thought and Religious Freedom
The question is whether this amendment of § 103 of the NIRC is fairly embraced in the title of Republic
Act No. 7716, although no mention is made therein of P.D. No. 1590 as among those which the statute
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of
amends. We think it is, since the title states that the purpose of the statute is to expand the VAT system,
newspaper publishers established for the improvement of journalism in the Philippines. On the other
and one way of doing this is to widen its base by withdrawing some of the exemptions granted before.
hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit organization
To insist that P.D. No. 1590 be mentioned in the title of the law, in addition to § 103 of the NIRC, in
engaged in the printing and distribution of bibles and other religious articles. Both petitioners claim
which it is specifically referred to, would be to insist that the title of a bill should be a complete index of
violations of their rights under § § 4 and 5 of the Bill of Rights as a result of the enactment of the VAT
its content.
Law.

The constitutional requirement that every bill passed by Congress shall embrace only one subject which
The PPI questions the law insofar as it has withdrawn the exemption previously granted to the press
shall be expressed in its title is intended to prevent surprise upon the members of Congress and to
under § 103 (f) of the NIRC. Although the exemption was subsequently restored by administrative
inform the people of pending legislation so that, if they wish to, they can be heard regarding it. If, in the
regulation with respect to the circulation income of newspapers, the PPI presses its claim because of
case at bar, petitioner did not know before that its exemption had been withdrawn, it is not because of
the possibility that the exemption may still be removed by mere revocation of the regulation of the
any defect in the title but perhaps for the same reason other statutes, although published, pass
Secretary of Finance. On the other hand, the PBS goes so far as to question the Secretary's power to
unnoticed until some event somehow calls attention to their existence. Indeed, the title of Republic Act
grant exemption for two reasons: (1) The Secretary of Finance has no power to grant tax exemption
No. 7716 is not any more general than the title of PAL's own franchise under P.D. No. 1590, and yet no
because this is vested in Congress and requires for its exercise the vote of a majority of all its
mention is made of its tax exemption. The title of P.D. No. 1590 is:
members 26 and (2) the Secretary's duty is to execute the law.

AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO

§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions previously
ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT SERVICES IN THE
granted exemption were:
PHILIPPINES AND BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.

(f) Printing, publication, importation or sale of books and any newspaper,

The trend in our cases is to construe the constitutional requirement in such a manner that courts do not
magazine, review, or bulletin which appears at regular intervals with fixed prices for
unduly interfere with the enactment of necessary legislation and to consider it sufficient if the title
subscription and sale and which is devoted principally to the publication of
expresses the general subject of the statute and all its provisions are germane to the general subject
advertisements.
thus expressed. 24

It is further contended that amendment of petitioner's franchise may only be made by special law, in
view of § 24 of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision hereof may only be
modified, amended, or repealed expressly by a special law or decree that shall
specifically modify, amend, or repeal this franchise or any section or provision
thereof.
This provision is evidently intended to prevent the amendment of the franchise by mere implication
resulting from the enactment of a later inconsistent statute, in consideration of the fact that a franchise
is a contract which can be altered only by consent of the parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for the payment of tax on
Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print media became subject
to the VAT with respect to all aspects of their operations. Later, however, based on a memorandum of
the Secretary of Justice, respondent Secretary of Finance issued Revenue Regulations No. 11-94,
dated June 27, 1994, exempting the "circulation income of print media pursuant to § 4 Article III of the
1987 Philippine Constitution guaranteeing against abridgment of freedom of the press, among others."
The exemption of "circulation income" has left income from advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the exemption granted is beyond the authority of the
Secretary of Finance to give, in view of PPI's contention that even with the exemption of the circulation
revenue of print media there is still an unconstitutional abridgment of press freedom because of the
imposition of the VAT on the gross receipts of newspapers from advertisements and on their acquisition
of paper, ink and services for publication. Even on the assumption that no exemption has effectively
been granted to print media transactions, we find no violation of press freedom in these cases.
To be sure, we are not dealing here with a statute that on its face operates in the area of press
freedom. The PPI's claim is simply that, as applied to newspapers, the law abridges press freedom.
Even with due recognition of its high estate and its importance in a democratic society, however, the
press is not immune from general regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the application of general
laws. He has no special privilege to invade the rights and liberties of others. He
must answer for libel. He may be punished for contempt of court. . . . Like others,
he must pay equitable and nondiscriminatory taxes on his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption previously granted to print media transactions
involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has singled out
the press for discriminatory treatment and that within the class of mass media the law discriminates
against print media by giving broadcast media favored treatment. We have carefully examined this
argument, but we are unable to find a differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now required to pay a value-added tax on its
transactions, it is not because it is being singled out, much less targeted, for special treatment but only
because of the removal of the exemption previously granted to it by law. The withdrawal of exemption is
all that is involved in these cases. Other transactions, likewise previously granted exemption, have
been delisted as part of the scheme to expand the base and the scope of the VAT system. The law
would perhaps be open to the charge of discriminatory treatment if the only privilege withdrawn had
been that granted to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those cited by the PPI in support of its claim that
Republic Act No. 7716 subjects the press to discriminatory taxation. In the cases cited, the
discriminatory purpose was clear either from the background of the law or from its operation. For
example, in Grosjean v. American Press Co., 28 the law imposed a license tax equivalent to 2% of the
gross receipts derived from advertisements only on newspapers which had a circulation of more than
20,000 copies per week. Because the tax was not based on the volume of advertisement alone but was
measured by the extent of its circulation as well, the law applied only to the thirteen large newspapers
in Louisiana, leaving untaxed four papers with circulation of only slightly less than 20,000 copies a week
and 120 weekly newspapers which were in serious competition with the thirteen newspapers in
question. It was well known that the thirteen newspapers had been critical of Senator Huey Long, and
the Long-dominated legislature of Louisiana respondent by taxing what Long described as the "lying
newspapers" by imposing on them "a tax on lying." The effect of the tax was to curtail both their
revenue and their circulation. As the U.S. Supreme Court noted, the tax was "a deliberate and
calculated device in the guise of a tax to limit the circulation of information to which the public is entitled
in virtue of the constitutional guaranties." 29 The case is a classic illustration of the warning that the
power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also found to have been singled out because
everything was exempt from the "use tax" on ink and paper, except the press. Minnesota imposed a tax
on the sales of goods in that state. To protect the sales tax, it enacted a complementary tax on the
privilege of "using, storing or consuming in that state tangible personal property" by eliminating the
residents' incentive to get goods from outside states where the sales tax might be lower. The Minnesota
Star Tribune was exempted from both taxes from 1967 to 1971. In 1971, however, the state legislature
amended the tax scheme by imposing the "use tax" on the cost of paper and ink used for publication.
The law was held to have singled out the press because (1) there was no reason for imposing the "use
tax" since the press was exempt from the sales tax and (2) the "use tax" was laid on an "intermediate
transaction rather than the ultimate retail sale." Minnesota had a heavy burden of justifying the
differential treatment and it failed to do so. In addition, the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again amending the law so as to exempt the first $100,000 of
paper and ink used, further narrowed the coverage of the tax so that "only a handful of publishers pay
any tax at all and even fewer pay any significant amount of tax." 31 The discriminatory purpose was thus
very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law which taxed
general interest magazines but not newspapers and religious, professional, trade and sports journals
was discriminatory because while the tax did not single out the press as a whole, it targeted a small
group within the press. What is more, by differentiating on the basis of contents (i.e., between general
interest and special interests such as religion or sports) the law became "entirely incompatible with the
First Amendment's guarantee of freedom of the press."
These cases come down to this: that unless justified, the differential treatment of the press creates risks
of suppression of expression. In contrast, in the cases at bar, the statute applies to a wide range of
goods and services. The argument that, by imposing the VAT only on print media whose gross sales
exceeds P480,000 but not more than P750,000, the law discriminates 33 is without merit since it has not
been shown that as a result the class subject to tax has been unreasonably narrowed. The fact is that
this limitation does not apply to the press along but to all sales. Nor is impermissible motive shown by
the fact that print media and broadcast media are treated differently. The press is taxed on its
transactions involving printing and publication, which are different from the transactions of broadcast
media. There is thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that "owners of newspapers are
immune from any forms of ordinary taxation." The license tax in the Grosjean case was declared invalid
because it was "one single in kind, with a long history of hostile misuse against the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States and the Federal Government can subject
newspapers to generally applicable economic regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that the removal of the
exemption of printing, publication or importation of books and religious articles, as well as their printing
and publication, likewise violates freedom of thought and of conscience. For as the U.S. Supreme Court
unanimously held in Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free Exercise of
Religion Clause does not prohibit imposing a generally applicable sales and use tax on the sale of
religious materials by a religious organization.
This brings us to the question whether the registration provision of the law, 37 although of general
applicability, nonetheless is invalid when applied to the press because it lays a prior restraint on its
essential freedom. The case of American Bible Society v. City of Manila 38 is cited by both the PBS and
the PPI in support of their contention that the law imposes censorship. There, this Court held that an
ordinance of the City of Manila, which imposed a license fee on those engaged in the business of
general merchandise, could not be applied to the appellant's sale of bibles and other religious literature.
This Court relied on Murdock v. Pennsylvania, 39 in which it was held that, as a license fee is fixed in
amount and unrelated to the receipts of the taxpayer, the license fee, when applied to a religious sect,
was actually being imposed as a condition for the exercise of the sect's right under the Constitution. For
that reason, it was held, the license fee "restrains in advance those constitutional liberties of press and
religion and inevitably tends to suppress their exercise." 40
But, in this case, the fee in § 107, although a fixed amount (P1,000), is not imposed for the exercise of
a privilege but only for the purpose of defraying part of the cost of registration. The registration
requirement is a central feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input tax, even as he collects an
output tax on sales made or services rendered. The registration fee is thus a mere administrative fee,
one not imposed on the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that it offends the
free speech, press and freedom of religion guarantees of the Constitution to be without merit. For the
same reasons, we find the claim of the Philippine Educational Publishers Association (PEPA) in G.R.
No. 115931 that the increase in the price of books and other educational materials as a result of the
VAT would violate the constitutional mandate to the government to give priority to education, science
and technology (Art. II, § 17) to be untenable.
B. Claims of Regressivity, Denial of Due
Process, Equal Protection, and
Impairment
of Contracts
There is basis for passing upon claims that on its face the statute violates the guarantees of freedom of
speech, press and religion. The possible "chilling effect" which it may have on the essential freedom of
the mind and conscience and the need to assure that the channels of communication are open and
operating importunately demand the exercise of this Court's power of review.
There is, however, no justification for passing upon the claims that the law also violates the rule that
taxation must be progressive and that it denies petitioners' right to due process and that equal
protection of the laws. The reason for this different treatment has been cogently stated by an eminent
authority on constitutional law thus: "[W]hen freedom of the mind is imperiled by law, it is freedom that
commands a momentum of respect; when property is imperiled it is the lawmakers' judgment that
commands respect. This dual standard may not precisely reverse the presumption of constitutionality in
civil liberties cases, but obviously it does set up a hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial intervention less evident
and underscores the essential nature of petitioners' attack on the law on the grounds of regressivity,
denial of due process and equal protection and impairment of contracts as a mere academic discussion
of the merits of the law. For the fact is that there have even been no notices of assessments issued to
petitioners and no determinations at the administrative levels of their claims so as to illuminate the
actual operation of the law and enable us to reach sound judgment regarding so fundamental questions
as those raised in these suits.
Thus, the broad argument against the VAT is that it is regressive and that it violates the requirement
that "The rule of taxation shall be uniform and equitable [and] Congress shall evolve a progressive
system of taxation." 42 Petitioners in G.R. No. 115781 quote from a paper, entitled "VAT Policy Issues:
Structure, Regressivity, Inflation and Exports" by Alan A. Tait of the International Monetary Fund, that
"VAT payment by low-income households will be a higher proportion of their incomes (and
expenditures) than payments by higher-income households. That is, the VAT will be regressive."
Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption goods of those
who are in the higher-income bracket, which before were taxed at a rate higher than 10%, has been
reduced, while basic commodities, which before were taxed at rates ranging from 3% to 5%, are now
taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax burden to as many goods and services as possible
particularly to those which are within the reach of higher-income groups, even as the law exempts basic
goods and services. It is thus equitable. The goods and properties subject to the VAT are those used or
consumed by higher-income groups. These include real properties held primarily for sale to customers
or held for lease in the ordinary course of business, the right or privilege to use industrial, commercial or
scientific equipment, hotels, restaurants and similar places, tourist buses, and the like. On the other
hand, small business establishments, with annual gross sales of less than P500,000, are exempted.
This, according to respondents, removes from the coverage of the law some 30,000 business
establishments. On the other hand, an occasional paper 43 of the Center for Research and
Communication cities a NEDA study that the VAT has minimal impact on inflation and income
distribution and that while additional expenditure for the lowest income class is only P301 or 1.49% a
year, that for a family earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any discussion
whether the VAT is regressive in the sense that it will hit the "poor" and middle-income group in society
harder than it will the "rich," as the Cooperative Union of the Philippines (CUP) claims in G.R. No.
115873, is largely an academic exercise. On the other hand, the CUP's contention that Congress'
withdrawal of exemption of producers cooperatives, marketing cooperatives, and service cooperatives,
while maintaining that granted to electric cooperatives, not only goes against the constitutional policy to
promote cooperatives as instruments of social justice (Art. XII, § 15) but also denies such cooperatives
the equal protection of the law is actually a policy argument. The legislature is not required to adhere to
a policy of "all or none" in choosing the subject of taxation. 44
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner in
G.R. 115754, that the VAT will reduce the mark up of its members by as much as 85% to 90% any more
concrete. It is a mere allegation. On the other hand, the claim of the Philippine Press Institute, petitioner
in G.R. No. 115544, that the VAT will drive some of its members out of circulation because their profits
from advertisements will not be enough to pay for their tax liability, while purporting to be based on the
financial statements of the newspapers in question, still falls short of the establishment of facts by
evidence so necessary for adjudicating the question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just
like the directive to it to give priority to the enactment of laws for the enhancement of human dignity and
the reduction of social, economic and political inequalities (Art. XIII, § 1), or for the promotion of the
right to "quality education" (Art. XIV, § 1). These provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions now raised against
the VAT. There similar arguments made against the original VAT Law (Executive Order No. 273) were
held to be hypothetical, with no more basis than newspaper articles which this Court found to be
"hearsay and [without] evidentiary value." As Republic Act No. 7716 merely expands the base of the
VAT system and its coverage as provided in the original VAT Law, further debate on the desirability and
wisdom of the law should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of CREBA that the imposition
of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the
effectivity of the law would violate the constitutional provision that "No law impairing the obligation of
contracts shall be passed." It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations as between parties, but the reservation of
essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order.
The policy of protecting contracts against impairment presupposes the maintenance of a government
which retains adequate authority to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power
of taxation save only where a tax exemption has been granted for a valid consideration. 47 Such is not
the case of PAL in G.R. No. 115852, and we do not understand it to make this claim. Rather, its
position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but
only by a specific, law.
The substantive issues raised in some of the cases are presented in abstract, hypothetical form _______________________________
because of the lack of a concrete record. We accept that this Court does not only adjudicate private
cases; that public actions by "non-Hohfeldian" 48 or ideological plaintiffs are now cognizable provided
In the preceeding pages we have endeavored to discuss, within limits, the validity of Republic Act No.
they meet the standing requirement of the Constitution; that under Art. VIII, § 1, ¶ 2 the Court has a
7716 in its formal and substantive aspects as this has been raised in the various cases before us. To
"special function" of vindicating constitutional rights. Nonetheless the feeling cannot be escaped that we
sum up, we hold:
do not have before us in these cases a fully developed factual record that alone can impart to our
adjudication the impact of actuality 49 to insure that decision-making is informed and well grounded.
Needless to say, we do not have power to render advisory opinions or even jurisdiction over petitions (1) That the procedural requirements of the Constitution have been complied with by Congress in the
for declaratory judgment. In effect we are being asked to do what the Conference Committee is enactment of the statute;
precisely accused of having done in these cases — to sit as a third legislative chamber to review
legislation.
(2) That judicial inquiry whether the formal requirements for the enactment of statutes — beyond those
prescribed by the Constitution — have been observed is precluded by the principle of separation of
We are told, however, that the power of judicial review is not so much power as it is duty imposed on powers;
this Court by the Constitution and that we would be remiss in the performance of that duty if we decline
to look behind the barriers set by the principle of separation of powers. Art. VIII, § 1, ¶ 2 is cited in
(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free
support of this view:
exercise of religion, nor deny to any of the parties the right to an education; and

Judicial power includes the duty of the courts of justice to settle actual
(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive,
controversies involving rights which are legally demandable and enforceable, and
oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are
to determine whether or not there has been a grave abuse of discretion amounting
prematurely raised and do not justify the grant of prospective relief by writ of prohibition.
to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.
WHEREFORE, the petitions in these cases are DISMISSED.
To view the judicial power of review as a duty is nothing new. Chief Justice Marshall said so in 1803, to
justify the assertion of this power in Marbury v. Madison:

It is emphatically the province and duty of the judicial department to say what the
law is. Those who apply the rule to particular cases must of necessity expound and
interpret that rule. If two laws conflict with each other, the courts must decide on the
operation of each. 50

Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:

And when the judiciary mediates to allocate constitutional boundaries, it does not
assert any superiority over the other departments; it does not in reality nullify or
invalidate an act of the legislature, but only asserts the solemn and sacred
obligation assigned to it by the Constitution to determine conflicting claims of
authority under the Constitution and to establish for the parties in an actual
controversy the rights which that instrument secures and guarantees to them. 51

This conception of the judicial power has been affirmed in several

cases 52 of this Court following Angara.

It does not add anything, therefore, to invoke this "duty" to justify this Court's intervention in what is
essentially a case that at best is not ripe for adjudication. That duty must still be performed in the
context of a concrete case or controversy, as Art. VIII, § 5(2) clearly defines our jurisdiction in terms of
"cases," and nothing but "cases." That the other departments of the government may have committed a
grave abuse of discretion is not an independent ground for exercising our power. Disregard of the
essential limits imposed by the case and controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as judges, what we are called upon to render is
judgment according to law, not according to what may appear to be the opinion of the day.
G.R. No. 168056 September 1, 2005 CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO, Petitioners,
vs. x-------------------------x
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF
THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF
G.R. No. 168463
INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,

x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF
FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Respondent.
RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C.
AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL,
MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA
III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in
his capacity as Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as
Executive Secretary,Respondent.
x-------------------------x

x-------------------------x G.R. No. 168730

G.R. No. 168461 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,

vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES,
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO
in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC
ANTONIO; PETRON DEALERS’ ASSOCIATION represented by its President, RUTH E. BARBIBI;
Commissioner of the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity
ASSOCIATION OF CALTEX DEALERS’ OF THE PHILIPPINES represented by its President,
as the OIC Commissioner of the Bureau of Customs, Respondent.
MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB
NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the name and style
of "SHELL GATE – N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of DECISION
"ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing business under the name and style of
"NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the name and
AUSTRIA-MARTINEZ, J.:
style of "RED FIELD SHELL SERVICE STATION"; DONICA CORPORATION represented by its
President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and style of "R&R
PETRON STATION"; PETER M. UNGSON doing business under the name and style of "CLASSIC The expenses of government, having for their object the interest of all, should be borne by everyone,
STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under the name and and the more man enjoys the advantages of society, the more he ought to hold himself honored in
style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under contributing to those expenses.
the name and style of "STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing business under
the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the
-Anne Robert Jacques Turgot (1727-1781)
name and style of "LEONA’S GASOLINE STATION and SERVICE CENTER"; CARMELITA
BALDONADO doing business under the name and style of "FIRST CHOICE SERVICE CENTER";
MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE CENTER"; French statesman and economist
RHEAMAR A. RAMOS doing business under the name and style of "RJRAM PTT GAS STATION"; MA.
ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT SERVICE CENTER";
MOTORISTS’ HEART CORPORATION represented by its Vice-President for Operations, JOSELITO F. Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased
FLORDELIZA; MOTORISTS’ HARVARD CORPORATION represented by its Vice-President for emoluments for health workers, and wider coverage for full value-added tax benefits … these are the
Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION represented by its reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the
Vice-President for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL Court even with its extensive constitutional power of review, cannot probe. The petitioners in these
CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; cases, however, question not only the wisdom of the law, but also perceived constitutional infirmities in
ROMEO MANUEL doing business under the name and style of "ROMMAN GASOLINE STATION"; its passage.
ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE STATION",
Petitioners,
vs.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on
Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.)
Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of Representatives approved the bill on second
and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib
F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill
No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The
President also certified it as urgent on February 8, 2005. The House of Representatives approved the
bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7,
2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill
Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos.
1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.
Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate on
second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for
a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House
Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference,"
recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to
the President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5
o’clock in the afternoon. But before that, there was a lot of complaints aired on television and on radio.
Some people in a gas station were complaining that the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by 10%. Other times people riding in domestic air carrier
were complaining that the prices that they’ll have to pay would have to go up by 10%. While all that was
being aired, per your presentation and per our own understanding of the law, that’s not true. It’s not true
that the e-vat law necessarily increased prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the
Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum
dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover
the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that different
industries, different products, different services are hit differently. So it’s not correct to say that all prices
must go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a
mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best 7%,
correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were
being increased arbitrarily by 10%. And that’s one reason among many others this Court had to issue
TRO because of the confusion in the implementation. That’s why we added as an issue in this case,
even if it’s tangentially taken up by the pleadings of the parties, the confusion in the implementation of
the E-vat. Our people were subjected to the mercy of that confusion of an across the board increase of
10%, which you yourself now admit and I think even the Government will admit is incorrect. In some
cases, it should be 3% only, in some cases it should be 6% depending on these mitigating measures
and the location and situation of each product, of each service, of each company, isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of
all these and we wish the government will take time to clarify all these by means of a more detailed
implementing rules, in case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of
properties. These questioned provisions contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006,
after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions
has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to
12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also
contend that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied
violates the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an
unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous because it
does not state if the rate would be returned to the original 10% if the conditions are no longer satisfied;
(2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to
year; and (3) the increase in the VAT rate, which is supposed to be an incentive to the President to raise
the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal
adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill
laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable
goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT components,
exceeds One Million Pesos (₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to
be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on
gross payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of
goods and properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive,
and confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property
without due process of law under Article III, Section 1 of the Constitution. According to petitioners, the
contested sections impose limitations on the amount of input tax that may be claimed. Petitioners also
argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or
limited without due process of law. Petitioners further contend that like any other property or property
right, the input tax credit may be transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of
the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1)
the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several
transactions with the government, is not based on real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section
28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio
that will suffer the consequences thereof for it wipes out whatever meager margins the petitioners
make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation Whether R.A. No. 9337 violates the following provisions of the Constitution:
of Article VI, Section 28(2) of the Constitution;
a. Article VI, Section 24, and
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No. 3705; and
b. Article VI, Section 26(2)

3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
SUBSTANTIVE ISSUES
125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI,
Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives 1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
G.R. No. 168730
a. Article VI, Section 28(1), and
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July
20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable input b. Article VI, Section 28(2)
tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be solely allocated for public purposes and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
expenditures. Petitioner Garcia further claims that allowing these establishments to pass on the tax to
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of
the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
the Constitution:

RESPONDENTS’ COMMENT
a. Article VI, Section 28(1), and

The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
b. Article III, Section 1
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners
failed to cast doubt on its validity.
RULING OF THE COURT
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
(VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue of undue delegation of The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of
legislative power to the President, respondents contend that the law is complete and leaves no goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods or services
discretion to the President but to increase the rate to 12% once any of the two conditions provided may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The
therein arise. burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.

Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation
on the creditable input tax, the 60-month amortization on the purchase or importation of capital goods
exceeding ₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation,
among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the
balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else.11 Examples are individual and corporate
income taxes, transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction
method" and was payable only by the original sellers. The single-stage system was subsequently
modified, and a mixture of the "cost deduction method" and "tax credit method" was used to determine
the value-added tax payable.13 Under the "tax credit method," an entity can credit against or subtract
from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT
system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax
credit method."15

PROCEDURAL ISSUE
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the
Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the
output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in
addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be
utterly impracticable to transact the business of the nation, either at all, or at least with decency,
deliberation, and order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each
House may determine the rules of its proceedings." Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the
amendment to any bill or joint resolution, the differences may be settled by the conference committees
of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and
support the House Bill. If the differences with the Senate are so substantial that they materially impair
the House Bill, the panel shall report such fact to the House for the latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to
the voting thereon. The House shall vote on the Conference Committee Report in the same manner
and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference committee of
both Houses which shall meet within ten (10) days after their composition. The President shall
designate the members of the Senate Panel in the conference committee with the approval of the
Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the
changes in, or amendments to the subject measure, and shall be signed by a majority of the members
of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version
thereof with the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by
any constitutional provision, where the two houses of Congress find themselves in disagreement over
changes or amendments introduced by the other house in a legislative bill. Given that one of the most
basic powers of the legislative branch is to formulate and implement its own rules of proceedings and to
discipline its members, may the Court then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing legislation? Note that in the present petitions,
the issue is not whether provisions of the rules of both houses creating the bicameral conference
committee are unconstitutional, but whether the bicameral conference committee has strictly
complied with the rules of both houses, thereby remaining within the jurisdiction conferred
upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus,
declining therein petitioners’ plea for the Court to go behind the enrolled copy of the bill. Assailed in said
case was Congress’s creation of two sets of bicameral conference committees, the lack of records of
said committees’ proceedings, the alleged violation of said committees of the rules of both houses, and
the disappearance or deletion of one of the provisions in the compromise bill submitted by the
bicameral conference committee. It was argued that such irregularities in the passage of the law
nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate that there were indeed disagreements. As pointed out in the petitions, said
President and the certification of the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Court’s consistent adherence to the disagreements were as follows:
rule. The Court finds no reason to deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the internal rules of Congress, e.g.,
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these internal rules of Congress, whether House or Senate. With regard to "Stand-By Authority" in favor of President
Parliamentary rules are merely procedural and with their observance the courts have no Provides for 12% VAT on Provides for 12% VAT in general Provides for a single rate of 10%
concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be every sale of goods or on sales of goods or properties VAT on sale of goods or
resolved in its favor.The Court reiterates its ruling in Arroyo vs. De Venecia, viz.: properties (amending Sec. and reduced rates for sale of properties (amending Sec. 106 of
106 of NIRC); 12% VAT on certain locally manufactured NIRC), 10% VAT on sale of
importation of goods goods and petroleum products services including sale of
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the (amending Sec. 107 of and raw materials to be used in electricity by generation
power to inquire into allegations that, in enacting a law, a House of Congress failed to comply NIRC); and 12% VAT on sale the manufacture thereof companies, transmission and
with its own rules, in the absence of showing that there was a violation of a constitutional of services and use or lease (amending Sec. 106 of NIRC); distribution companies, and use
provision or the rights of private individuals. In Osmeña v. Pendatun, it was held: "At any rate, of properties (amending Sec. 12% VAT on importation of goods or lease of properties (amending
courts have declared that ‘the rules adopted by deliberative bodies are subject to revocation, 108 of NIRC) and reduced rates for certain Sec. 108 of NIRC)
modification or waiver at the pleasure of the body adopting them.’ And it has been said that imported products including
"Parliamentary rules are merely procedural, and with their observance, the courts have no petroleum products (amending
concern. They may be waived or disregarded by the legislative body." Consequently, "mere Sec. 107 of NIRC); and 12% VAT
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative on sale of services and use or
body) when the requisite number of members have agreed to a particular measure."21 (Emphasis lease of properties and a reduced
supplied) rate for certain services including
power generation (amending Sec.
The foregoing declaration is exactly in point with the present cases, where petitioners allege 108 of NIRC)
irregularities committed by the conference committee in introducing changes or deleting provisions in With regard to the "no pass-on" provision
the House and Senate bills. Akin to the Fariñas case,22 the present petitions also raise an issue No similar provision Provides that the VAT imposed on Provides that the VAT imposed
regarding the actions taken by the conference committee on matters regarding Congress’ compliance power generation and on the sale on sales of electricity by
with its own internal rules. As stated earlier, one of the most basic and inherent power of the legislature of petroleum products shall be generation companies and
is the power to formulate rules for its proceedings and the discipline of its members. Congress is the absorbed by generation services of transmission
best judge of how it should conduct its own business expeditiously and in the most orderly manner. It is companies or sellers, companies and distribution
also the sole respectively, and shall not be companies, as well as those of
passed on to consumers franchise grantees of electric
concern of Congress to instill discipline among the members of its conference committee if it believes utilities shall not apply to
that said members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court residential
cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to
deny a review of the internal proceedings of a co-equal branch of government. end-users. VAT shall be
absorbed by generation,
transmission, and distribution
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of companies.
Finance,23 the Court already made the pronouncement that "[i]f a change is desired in the practice With regard to 70% limit on input tax credit
[of the Bicameral Conference Committee] it must be sought in Congress since this question is
Provides that the input tax No similar provision Provides that the input tax credit
not covered by any constitutional provision but is only an internal rule of each house." 24 To date,
credit for capital goods on for capital goods on which a VAT
Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore, that
which a VAT has been paid has been paid shall be equally
Congress finds the practices of the bicameral conference committee to be very useful for purposes of
shall be equally distributed distributed over 5 years or the
prompt and efficient legislative action.
over 5 years or the depreciable life of such capital
depreciable life of such goods; the input tax credit for
Nevertheless, just to put minds at ease that no blatant irregularities tainted the capital goods; the input tax goods and services other than
credit for goods and services capital goods shall not exceed
proceedings of the bicameral conference committees, the Court deems it other than capital goods shall 90% of the output VAT.
necessary to dwell on the issue. The Court observes that there was a necessity for not exceed 5% of the total
amount of such goods and
a conference committee because a comparison of the provisions of House Bill services; and for persons
Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals engaged in retail trading of
goods, the allowable input
tax credit shall not exceed
11% of the total amount of
goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxesexcess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax
No similar provision
No similar provision
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the
Provided for amendmentsinclusive ofNIRC
to several input VAT carried over from the previous quarter that may be credited in every quarter shall
not exceed
provisions regarding corporate income,seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax
percentage, franchise andattributable
excise taxesto zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, . . .

The disagreements between the provisions in the House bills and the Senate bill were with regard to (1)
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
percentage and excise taxes, the conference committee decided to include such amendments and
transmission and distribution companies should not be passed on to consumers, as proposed in the
basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the
Senate bill, or both the VAT imposed on electricity generation, transmission and distribution companies
tax to be imposed.
and the VAT imposed on sale of petroleum products should not be passed on to consumers, as
proposed in the House bill; (3) in what manner input tax credits should be limited; (4) and whether the
NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
amended. Bicameral Conference Committee is mandated to settle the differences between the disagreeing
provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee
There being differences and/or disagreements on the foregoing provisions of the House and Senate
may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither
bills, the Bicameral Conference Committee was mandated by the rules of both houses of Congress to
provisions in the House bill or the provisions in the Senate bill would
act on the same by settling said differences and/or disagreements. The Bicameral Conference
Committee acted on the disagreeing provisions by making the following changes:
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the
difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject
would be retained until certain conditions arise, i.e., the value-added tax collection as a percentage of any idea or intent that is wholly foreign to the subject embraced by the original provisions.
gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as
a percentage of GDP of the previous year exceeds 1½%, when the President, upon recommendation of
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the
the Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.
Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House
shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the
transmission and distribution companies should not be passed on to consumers or whether both the subject of what rate of VAT should be imposed on taxpayers.
VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed
on sale of petroleum products may be passed on to consumers, the Bicameral Conference Committee
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
chose to settle such disagreement by altogether deleting from its Report any no pass-on provision.
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel,
explained the reason for deleting the no pass-on provision in this wise:
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral
Conference Committee decided to adopt the position of the House by putting a limitation on the amount
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector
of input tax that may be credited against the output tax, although it crafted its own language as to the
should be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is
amount of the limitation on input tax credits and the manner of computing the same by providing thus:
an indirect tax. It is a pass on-tax. And let’s keep it plain and simple. Let’s not confuse the bill and put
a no pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I
(A) Creditable Input Tax. – . . . have yet to see a VAT with a no pass-though provision. So, the thinking of the Senate is basically
simple, let’s keep the VAT simple.26 (Emphasis supplied)
...
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed
the support of either House."27
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
such goods, excluding the VAT component thereof, exceeds one million Pesos (₱1,000,000.00): Committee came to a compromise on the percentage rate of the limitation or cap on such input tax
PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years, as credit, but again, the change introduced by the Bicameral Conference Committee was totally within the
used for depreciation purposes, then the input VAT shall be spread over such shorter period: . . . intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to "plug a glaring loophole in the tax policy and
administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y
introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed our
collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate
Bill No. 1950, since said provisions were among those referred to it, the conference committee had to
act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to
subjects of the provisions referred
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first
time in either house of Congress, not to the conference committee report. 32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its concurrence or amendment.
Verily, to construe said provision in a way as to proscribe any further changes to a bill after one house
has voted on it would lead to absurdity as this would mean that the other house of Congress would be
deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2)
of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have been acted
upon by both houses of Congress is prohibited.

to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the
earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the
Court recognized the long-standing legislative practice of giving said conference committee ample
latitude for compromising differences between the Senate and the House. Thus, in the Tolentino case, it
was held that:
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of
Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to
wit:

. . . it is within the power of a conference committee to include in its report an entirely new provision that Section 27 Rates of Income Tax on Domestic Corporation
is not found either in the House bill or in the Senate bill. If the committee can propose an amendment 28(A)(1) Tax on Resident Foreign Corporation
consisting of one or two provisions, there is no reason why it cannot propose several provisions, 28(B)(1) Inter-corporate Dividends
collectively considered as an "amendment in the nature of a substitute," so long as such amendment is
germane to the subject of the bills before the committee. After all, its report was not final but needed the 34(B)(1) Inter-corporate Dividends
approval of both houses of Congress to become valid as an act of the legislative department. The 116 Tax on Persons Exempt from VAT
charge that in this case the Conference Committee acted as a third legislative chamber is thus 117 Percentage Tax on domestic carriers and keepers of Garage
without any basis.31 (Emphasis supplied) 119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment 148 Excise Tax on manufactured oils and other fuels
Rule" 151 Excise Tax on mineral products
236 Registration requirements
Article VI, Sec. 26 (2) of the Constitution, states: 237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days before Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the
its passage, except when the President certifies to the necessity of its immediate enactment to meet a House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107,
public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106,
and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the Senate
Journal. amended but which amendments were not found in the House bills are not intended to be amended by
the House of Representatives. Hence, they argue that since the proposed amendments did not
originate from the House, such amendments are a violation of Article VI, Section 24 of the Constitution.
Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or
delete provisions in the House bill and the Senate bill after these had passed three readings is in effect
a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to The argument does not hold water.
convince the Court to deviate from its ruling in the Tolentino case that:
Article VI, Section 24 of the Constitution reads:
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone
three readings in each of the two houses. If that be the case, there would be no end to negotiation
since each house may seek modification of the compromise bill. . . . Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives but the Senate
may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated
the move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon
transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC
provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly
with the value- added tax, which is the only kind of tax being amended in the House bills, still within the
purview of the constitutional provision authorizing the Senate to propose or concur with amendments to
a revenue bill that originated from the House?
One of the challenges faced by the present administration is the urgent and daunting task of solving the
country’s serious financial problems. To do this, government expenditures must be strictly monitored
and controlled and revenues must be significantly increased. This may be easier said than done, but
our fiscal authorities are still optimistic the government will be operating on a balanced budget by the
year 2009. In fact, several measures that will result to significant expenditure savings have been
identified by the administration. It is supported with a credible package of revenue measures that
include measures to improve tax administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis supplied)

The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
thus:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that
. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to on top of our agenda must be the restoration of the health of our fiscal system.
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the Senate that the result may be a
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced
rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate
budget by the year 2009, we need to seize windows of opportunities which might seem poignant
action, a distinct bill may be produced. To insist that a revenue statute – and not only the bill which
in the beginning, but in the long run prove effective and beneficial to the overall status of our
initiated the legislative process culminating in the enactment of the law – must substantially be
economy. One such opportunity is a review of existing tax rates, evaluating the relevance given
the same as the House bill would be to deny the Senate’s power not only to "concur with
our present conditions.34 (Emphasis supplied)
amendments" but also to "propose amendments." It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the House superior to the Senate.
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government
…

to supplement our country’s serious financial problems, and improve tax administration and control of
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own
the leakages in revenues from income taxes and value-added taxes. As these house bills were
version even with respect to bills which are required by the Constitution to originate in the
transmitted to the Senate, the latter, approaching the measures from the point of national perspective,
House.
can introduce amendments within the purposes of those bills. It can provide for ways that would soften
the impact of the VAT measure on the consumer, i.e., by distributing the burden across all sectors
... instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
Recto on why the provisions on income tax on corporation were included is worth quoting:
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in additional
House of Representatives on the theory that, elected as they are from the districts, the members of revenues annually even while by mitigating prices of power, services and petroleum products.
the House can be expected to be more sensitive to the local needs and problems. On the other
hand, the senators, who are elected at large, are expected to approach the same problems from
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the VAT on
the national perspective. Both views are thereby made to bear on the enactment of such
twelve goods and services. The rest of the tab – ₱10.5 billion- will be picked by corporations.
laws.33 (Emphasis supplied)

What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why
Since there is no question that the revenue bill exclusively originated in the House of Representatives,
should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the
the Senate was acting within its
consumer?

constitutional power to introduce amendments to the House bill when it included provisions in Senate
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35
Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article
percent, but up to 2008 only. This will raise ₱10.5 billion a year. After that, the rate will slide back, not to
VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the
its old rate of 32 percent, but two notches lower, to 30 percent.
amendments that may be introduced by the Senate to the House revenue bill.

Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine
touched in the House bills are still in furtherance of the intent of the House in initiating the subject
will have an expiry date.
revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the
floor, which was later substituted by House Bill No. 3555, stated:
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel,
this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be
there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills which is
to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
Considering that certain goods and services which were subject to percentage tax and excise tax would
no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in
addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT.
Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel,
to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT
chain, we will however bring down the excise tax on socially sensitive products such as diesel, bunker,
fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was
taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that the
people can cushion the blow of higher prices they will have to pay as a result of VAT. 36
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of
the house bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate
acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a
certain condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor: provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-
added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from customs custody: Provided,
That where the customs duties are determined on the basis of the quantity or volume of the goods, the
value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%) after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services: provided, that the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a
virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and 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.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well
as on the sale or exchange of services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to
the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the President’s power of
control, which includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition
of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat,
contrary to the principle of no taxation without representation. They submit that the Secretary of
Finance is not mandated to give a favorable recommendation and he may not even give his
recommendation. Moreover, they allege that no guiding standards are provided in the law on what basis
and as to how he will make his recommendation. They claim, nonetheless, that any recommendation of
the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter
ego of the latter, such that, ultimately, it is the President who decides whether to impose the increased
tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated
sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means "what has been
delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another. 39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House
of Representatives." The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be
delegated, has been described as the authority to make a complete law – complete as to the time
when it shall take effect and as to whom it shall be applicable – and to determine the expediency
of its enactment.40 Thus, the rule is that in order that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must appear that the power involved is purely
legislative in nature – that is, one appertaining exclusively to the legislative department. It is the nature
of the power, and not the liability of its use or the manner of its exercise, which determines the validity
of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate;41 and (b) fixes a standard — the limits of which are sufficiently
determinate and determinable — to which the delegate must conform in the performance of his
functions.42 A sufficient standard is one which 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.43 Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and
exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and
extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility
inquire whether the statute was complete in all its terms and provisions when it left the hands of the and practicability. (Emphasis supplied).48
legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature.
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts
... or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms,
made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their
authority.49 While the power to tax cannot be delegated to executive agencies, details as to the
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law,
enforcement and administration of an exercise of such power may be left to them, including the power
which necessarily involves a discretion as to what it shall be, and conferring an authority or
to determine the existence of facts on which its operation depends.50
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.’
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of
...
correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform. Intelligent
It is contended, however, that a legislative act may be made to the effect as law after it leaves the legislation on the complicated problems of modern society is impossible in the absence of accurate
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by information on the part of the legislators, and any reasonable method of securing such information is
proclamation of the executive or the adoption by the people of a particular community. In Wayman vs. proper.51 The Constitution as a continuously operative charter of government does not require that
Southard, the Supreme Court of the United States ruled that the legislature may delegate a power not Congress find for itself
legislative which it may itself rightfully exercise. The power to ascertain facts is such a power which
may be delegated. There is nothing essentially legislative in ascertaining the existence of facts
every fact upon which it desires to base legislative action or that it make for itself detailed
or conditions as the basis of the taking into effect of a law. That is a mental process common to
determinations which it has declared to be prerequisite to application of legislative policy to particular
all branches of the government. Notwithstanding the apparent tendency, however, to relax the rule
facts and circumstances impossible for Congress itself properly to investigate. 52
prohibiting delegation of legislative authority on account of the complexity arising from social and
economic forces at work in this modern industrial age, the orthodox pronouncement of Judge Cooley in
his work on Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5
Constitution of the United States in the following language — speaking of declaration of legislative and 6 which reads as follows:
power to administrative agencies: The principle which permits the legislature to provide that the
administrative agent may determine when the circumstances are such as require the application
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
of a law is defended upon the ground that at the time this authority is granted, the rule of public
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions
policy, which is the essence of the legislative act, is determined by the legislature. In other
has been satisfied:
words, the legislature, as it is its duty to do, determines that, under given circumstances, certain
executive or administrative action is to be taken, and that, under other circumstances, different
or no action at all is to be taken. What is thus left to the administrative official is not the (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
legislative determination of what public policy demands, but simply the ascertainment of what exceeds two and four-fifth percent (2 4/5%); or
the facts of the case require to be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of legislative will must, of course, come from
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
Congress, but the ascertainment of the contingency upon which the Act shall take effect may be
percent (1 ½%).
left to such agencies as it may designate. The legislature, then, may provide that a law shall take
effect upon the happening of future specified contingencies leaving to some other person or
body the power to determine when the specified contingency has arisen. (Emphasis supplied).46 The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the law is
contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
In Edu vs. Ericta,47 the Court reiterated:
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12%
rate upon factual matters outside of the control of the executive.
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal
them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that
of the legislature. To determine whether or not there is an undue delegation of legislative power, the
the word shall is used in the common proviso. The use of the word shall connotes a mandatory order.
inquiry must be directed to the scope and definiteness of the measure enacted. The legislative does
Its use in a statute denotes an imperative obligation and is inconsistent with the idea of
not abdicate its functions when it describes what job must be done, who is to do it, and what is
discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says,
the scope of his authority. For a complex economy, that may be the only way in which the legislative
and courts have no choice but to see to it that the mandate is obeyed.54
process can go forward. A distinction has rightfully been made between delegation of power to
make the laws which necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or discretion as to its execution to Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence
be exercised under and in pursuance of the law, to which no valid objection can be made. The of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President.
Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does
not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are
present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the Secretary of Finance by mandating the
fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court
cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as
head of the Department of Finance he is the assistant and agent of the Chief Executive. The
multifarious executive and administrative functions of the Chief Executive are performed by and through
the executive departments, and the acts of the secretaries of such departments, such as the
Department of Finance, performed and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity,
and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the
language of Attorney-General Cushing, is "subject to the direction of the President."55
In the present case, in making his recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her
subordinate. In such instance, he is not subject to the power of control and direction of the President.
He is acting as the agent of the legislative department, to determine and declare the event upon which
its expressed will is to take effect.56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other pertinent information and verify if any of the
two conditions laid out by Congress is present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President, the
President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national
government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1½
%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate,
must submit such information to the President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue delegation of legislative power but only of
the discretion as to the execution of a law. This is constitutionally permissible.57 Congress does
not abdicate its functions or unduly delegate power when it describes what job must be done, who must
do it, and what is the scope of his authority; in our complex economy that is frequently the only way in
which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law. The
intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to
simply execute the legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence
or create the conditions to bring about either or both the conditions precedent does not deserve any
merit as this argument is highly speculative. The Court does not rule on allegations which are
manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities,
not appearances. When the Court acts on appearances instead of realities, justice and law will be
short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of
the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT
rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that
such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to
year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set
forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law
are clear. It does not provide for a return to the 10% rate nor does it empower the President to so revert
if, after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous
year or that the national government deficit as a percentage of GDP of the previous year does not
exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may
tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the
Court finds none, petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’
fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to
10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the
provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. 61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based
on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
another condition, i.e., the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less
than 2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is
not effective in the function of the tax collection. Therefore, there is no value to increase it to 12%
because such action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is towards the direction of a balanced budget
position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the
VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does not
render it unconstitutional so long as there is a public purpose for which the law was passed, which in
this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam
Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people
as little as possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
country’s gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where
90 percent of our revenue is used for debt service. So, for every peso of revenue that we currently
raise, 90 goes to debt service. That’s interest plus amortization of our debt. So clearly, this is not a
sustainable situation. That’s the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that
borrow money from that international financial markets. Our debt to GDP is approximately equal to our
GDP. Again, that shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are presently operating in is not as
benign as what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically global
growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world. And, therefore, our ability to borrow
at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to access
the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at
least based on the forecast of most financial institutions. So, we were assuming that raising 80 billion
would put us in a position where we can then convince them to improve our ability to borrow at lower
rates. But conditions have changed on us because the interest rates have gone up. In fact, just within
this room, we tried to access the market for a billion dollars because for this year alone, the Philippines
will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was
not as favorable and up to now we have not accessed and we might pull back because the conditions
are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we call
a debt spiral. The more debt you have, the more deficit you have because interest and debt service
eats and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, we
can get out of this debt spiral is really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the
Court to judge. In the Fariñas case, the Court refused to consider the various arguments raised therein
that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion
of the political branches of the government. It is not for this Court to look into the wisdom or propriety of
legislative determination. Indeed, whether an enactment is wise or unwise, whether it is based on
sound economic theory, whether it is the best means to achieve the desired results, whether, in short,
the legislative discretion within its prescribed limits should be exercised in a particular manner are
matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to bring
them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of
legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of
the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of
the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of
the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there is a need for proof of such persuasive
character as would lead to such a conclusion. Absent such a showing, the presumption of validity must
prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount
of input tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or business, from a VAT-registered
person, and Output Tax is the value-added tax due on the sale or lease of taxable goods or properties
or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be
claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against
the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is
less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that
"if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been
applied against the output taxes. Such unused input tax may be used in payment of his other internal
revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It
ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
through a tax credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys
goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which
has to be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions,
any excess over the output taxes shall instead be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can
credit his input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added
taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of
the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax
collection because the person/taxpayer has already previously paid the input tax to a seller, and the
seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the
tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit these input
taxes, as evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the
nature of a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process
clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have
no vested rights in statutory privileges. The state may change or take away rights, which were created
by the law of the state, although it may not take away property, which was vested by virtue of such
rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the
gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it
was then that the crediting of the input tax paid on purchase or importation of goods and services by
VAT-registered persons against the output tax was introduced.73 This was adopted by the Expanded
VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right to credit input
tax as against the output tax is clearly a privilege created by law, a privilege that also the law can
remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No.
9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds One million pesos
(₱1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less than
five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a
shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or license upon payment of the compensation,
rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on
purchase or importation of capital goods with acquisition cost of ₱1 Million pesos, exclusive of the VAT
component. Such spread out only poses a delay in the crediting of the input tax. Petitioners’ argument
is without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified
its move by saying that the provision was designed to raise an annual revenue of 22.6 billion.77 The
legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign
investors have other tax incentives provided by law, and citing the case of China, where despite a
17.5% non-creditable VAT, foreign investments were not deterred.78 Again, for whatever is the purpose
of the 60-month amortization, this involves executive economic policy and legislative wisdom in which
the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for
taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-
added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for
lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this Section, the payor or person in control of
the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end
of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified
VAT withholding system. The government in this case is constituted as a withholding agent with respect
to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld
-- 3% on gross payments for purchases of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross payments for services supplied by
public work contractors; or 10% on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on
lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld
by the withholding agent is constituted as full and final payment of the income tax due from the payee
on the said income. The liability for payment of the tax rests primarily on the payor as a withholding
agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax
shall be collected from the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain
income payments are intended to equal or at least approximate the tax due of the payee on said
income. … Taxes withheld on income payments covered by the expanded withholding tax (referred to in
Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to
a 5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the
net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed
input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat
differently taxable transactions with the government.80 This is supported by the fact that under the old
provision, the 5% tax withheld by the government remains creditable against the tax liability of the seller
or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of goods from sellers and
services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the
gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered
by contractors on every sale or installment payment which shall be creditable against the value-
added tax liability of the seller or contractor: Provided, however, That in the case of government
public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or
person in control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the
end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s
intention to treat transactions with the government differently. Since it has not been shown that the
class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
final withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments, the excess may form part of
the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to
tax a profit or value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not
engage in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of
sound and fury, signifying nothing."
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It
need not take an astute businessman to know that it is a matter of exception that a business will sell
goods or services without profit or value-added. It cannot be overstressed that a business is created
precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s
power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
tax, or invests in capital equipment, or has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the
subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods
of assessment, valuation and collection. Petitioners’ alleged distinctions are based on variables that
bear different consequences. While the implementation of the law may yield varying end results
depending on one’s profit margin and value-added, the Court cannot go beyond what the legislature
has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or
things without distinction. This might in fact sometimes result in unequal protection. What the clause
requires is equality among equals as determined according to a valid classification. By classification is
meant the grouping of persons or things similar to each other in certain particulars and different from all
others in these same particulars.85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R.
Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep.
Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to
90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary and
confiscatory. On this score, suffice it to say that these are still proposed legislations. Until Congress
amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods,
and sale of services and use or lease of properties. These same sections also provide for a 0% rate on
certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods
or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation
does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity
within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or
10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not
exceeding ₱1,500,000.00.88Also, basic marine and agricultural food products in their original state are
still not subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-
sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, so that the costs of basic food and other necessities, spared as they are
from the incidence of the VAT, are expected to be relatively lower and within the reach of the general
public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty
burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt
persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding
₱1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage
and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on
those previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced.
Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying
franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute
the burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%.95 Intercorporate dividends of non-resident foreign corporations
are still subject to 15% final withholding tax but the tax credit allowed on the corporation’s domicile was
increased to 20%.96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from
income taxes anymore.97 Even the sale by an artist of his works or services performed for the
production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise
rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case
of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of
certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to
other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-
aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear
on the plight of the masses. But it does not have the panacea for the malady that the law seeks to
remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its
yokes.

C. Progressivity of Taxation Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary
should stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct,
for instance, those involving political questions. . . .
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is
the smaller business with higher input tax-output tax ratio that will suffer the consequences.
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all
political or social ills; We should not forget that the Constitution has judiciously allocated the powers of
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted
government to three distinct and separate compartments; and that judicial interpretation has tended to
from Adam Smith’s Canons of Taxation, and it states:
the preservation of the independence of the three, and a zealous regard of the prerogatives of each,
knowing full well that one is not the guardian of the others and that, for official wrong-doing, each may
I. The subjects of every state ought to contribute towards the support of the government, as nearly as be brought to account, either by impeachment, trial or by the ballot box.100
possible, in proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state.
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
considered, there is no raison d'être for the unconstitutionality of R.A. No. 9337.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of 168207, 168461, 168463, and 168730, are hereby DISMISSED.
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless of income. In
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337,
the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies decision.
in the income earned by a person or profit margin marked by a business, such that the higher the
income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso,
SO ORDERED.
the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day,
it is really the lower income group or businesses with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court
stated in the Tolentino case, thus:

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The
constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred
[and] as much as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION
OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe,
but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1) of the 1973
Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.

G.R. Nos. L-21633-34 June 29, 1967
COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,
vs.
BOTELHO SHIPPING CORPORATION and GENERAL SHIPPING CO., INC., respondents.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete and F.
Malate, Jr. for petitioners.
Claudio Teehankee and Leocadio de Asis for respondents.
CONCEPCION, C.J.:
Appeal by the Government from a decision of the Court of Tax Appeals, reversing of the decisions of
the Commissioner of Internal Revenue and the Commissioner of Customs, in Cases No. 956 and 957
of said Court, holding Botelho Shipping Corporation and General Shipping Co., Inc. — hereinafter
referred to collectively as the Buyers — liable for the payment of the sum of P483,433.00 and
P494,824.00, respectively, as compensating taxes on the vessels "M/S Maria Rosello" and "M/S
General Lim."
On August 30, 1960, the Reparations Commission of the Philippines — hereinafter referred to as the
Commission — and Botelho Shipping Corporation — hereinafter referred to as Botelho — entered into
a "Contract of Conditional Purchase and Sale of Reparations Goods," whereby the former agreed to
sell to Botelho for P6,798,888.88 the vessel "M/S Maria Rosello," procured by the Commission from
Japan, pursuant to the provisions of the Philippine-Japanese Reparations Agreement of May 9, 1956.
On September 19, 1960, the Commission signed a similar contract with General Shipping Co., Inc. —
hereinafter referred to as General Shipping — for the sale thereto of "M/S General Lim" at the price of
P6,951,666.66. Both agreements, couched in identical terms, except as to price, stipulated that:
a) The Reparations Commission "retains title to and ownership of the above described vessel
until it is fully paid for." (Exh. "A", p. 2, both cases)
b) The stipulated purchase price of the M/S MARIA ROSELLO was to be paid by Botelho to
the Commission under a deferred payment plan in 10 equal yearly installments of
P717,333.49, bearing 3% interest per annum, beginning August 31, 1962 and August 31 of
every year thereafter until the year 1972, while the purchase price of the M/S GENERAL LIM
was to be paid by General Shipping to the Commission under a deferred payment plan in 10
equal yearly installments of P723,132.68, bearing 3% interest per annum beginning
September 30 of every year until the year 1972. (Exhs. 9, p. 4 and A-2, both cases) (See
Respondents' brief, p. 4.)
Delivered in Japan to its respective buyers, acting on behalf of the Commission, the vessels, upon their
departure from Tokyo, on the maiden trip thereof to the Philippines, were issued, by the Philippine Vice-
Consul in said city, provisional certificates of Philippine registry in the name of the Commission, so that
the vessels could proceed to the Philippines and secure therein the respective final registration
document.
Upon arrival at the port of Manila, the Buyer filed the corresponding applications for registration of the
vessels, but, the Bureau of Customs placed the same under custody and refused to give due course to
said applications, unless the aforementioned sums of P483,433 and P494,824 be paid as
compensating tax. As the Commissioner of Customs refused to reconsider the stand taken by his office,
the Buyers simultaneously filed with the Court of Tax Appeals their respective petitions for review,
against the Commissioner of Customs and the Commissioner of Internal Revenue — hereinafter
referred to collectively as Appellants — with urgent motion for suspension of the collection of said tax.
After a joint hearing on this motion, the same was, on October 31, 1960, granted by the Tax Court, upon
the sum of a P500,000.00 bond by each one of the Buyers.
On June 17, 1961, while these cases were pending trial in said Court, Republic Act No. 3079 amended
Republic Act No. 1789 — the Original Reparations Act, under which the aforementioned contracts with
the Buyers had been executed — by exempting buyers of reparations goods acquired from the
Commission, from liability for the compensating tax. Moreover, section 20 of Republic Act No. 3079,
provides:
x x x This Act shall take effect upon its approval, except that the amendment contained in
Section seven hereof relating to the requirements of procurement orders including the
requirement of down payment by private applicant end-users shall not apply to procurement
orders already duty issued and verified at the time of the passage of this amendatory Act,
and except further that the amendment contained in Section ten relating to the insurance of
the reparations goods by the end-users upon delivery shall apply also to goods covered by
contracts already entered into by the Commission and end-user prior to the approval of this
amendatory Act as well as goods already delivered to the end-user, and except further that
the amendments contained in Sections eleven and twelve hereof relating to the terms of
installment payments on capital goods disposed of to private parties, and the execution of a
performance bond before delivery of reparations goods, shall not apply to contracts for the
utilization of reparations goods already entered into by the Commission and the end-users
prior to the approval of this amendatory Act: Provided, That any end-user may apply for the
renovation of his utilization contract with the Commission in order to avail of any provision of
this amendatory Act which is more favorable to an applicant end-user than has heretofore
been granted in like manner and to the same extent as an end-user filing his application after
the approval of this amendatory Act, and the Commission may agree to such renovation on
condition that the end-user shall voluntarily assume all the new obligations provided for in this
amendatory Act.
Invoking the provisions of this section 20, the Buyers applied, therefore, for the renovation of their
utilizations contracts with the Commission, which granted the application, and, then, filed with the Tax
Court, their supplemental petitions for review. Subsequently, the parties submitted Stipulations of Fact
and, after a joint trial, at which they introduced additional evidence, said Court rendered the appealed
decision, reversing the decisions herein Appellants, and declared said Buyers exempt from the
compensating tax sought to be assessed against the vessels aforementioned. Hence, these appeals by
the Government G.R. No. L-21633 refers to the case as regards "M/S Maria Rosello," whereas "M/S
General Lim" is the subject-matter of G.R. No. L-21634.
It seems clear that, under Republic Act No. 1789 — pursuant to which the contracts of Conditional
Purchase and Sale in question had been executed — the vessels "M/S Maria Rosello" and "M/S
General Lim" were subject to compensating tax. Indeed, Section 14 of said Act provides that
"reparations goods obtained by private parties shall be exempt only from the payment of customs
duties, consular fees and the special import tax." Although this Section was amended by R.A. No. 3079,
to include the compensating tax" among the exemptions enumerated therein, such amendment took
place, not only after the contracts involved in these appeals had been perfected and partly
consummated, but, also, after the corresponding compensating tax had become due and payment
thereof demanded by Appellants herein. It is, moreover, obvious that said additional exemption should
not and cannot be given retroactive operation, in the absence of a manifest intent of Congress to do
this effect. The issue in the cases at bar hinges on whether or not such intent is clear.
Appellants maintain the negative, upon the ground that a tax exemption must be clear and explicit; that
there is no express provision for the retroactivity of the exemption, established by Republic Act No.
3079, from the compensating tax; that the favorable provisions, which are referred to in section 20
thereof, cannot include the exemption from compensating tax; and, that Congress could not have
intended any retroactive exemption, considering that the result thereof would be prejudicial to the
Government.
The inherent weakness of the last ground becomes manifest when we consider that, if true, there could
be no tax exemption of any kind whatsoever, even if Congress should wish to create one, because
every such exemption implies a waiver of the right to collect what otherwise would be due to the
Government, and, in this sense, is prejudicial thereto. In fact, however, tax exemptions may and do
exist, such as the one prescribed in section 14 of Republic Act No. 1789, as amended by Republic Act
No. 3079, which, by the way, is "clear and explicit," thus, meeting the first ground of appellant's
contention. It may not be amiss to add that no tax exemption — like any other legal exemption or
exception — is given without any reason therefor. In much the same way as other statutory commands,
its avowed purpose is some public benefit or interest, which the law-making body considers sufficient to
offset the monetary loss entitled in the grant of the exemption. Indeed, section 20 of Republic Act No.
3079 exacts a valuable consideration for the retroactivity of its favorable provisions, namely, the
voluntary assumption, by the end-user who bought reparations goods prior to June 17, 1961 of "all
the new obligations provided for in" said Act.
to abolish the discrimination, exemption or exception that would otherwise result, in favor of the end-
user who bought after June 17, 1961 and against one who bought prior thereto. Indeed, it is difficult to
find a substantial justification for the distinction between the one and the other. As correctly held by the
Tax Court in Philippine Ace Lines, Inc. v. Commissioner of Internal Revenue (C.T.A. Nos. 964 and 984,
January 25, 1963), and reiterated in the cases under consideration:
x x x In providing that the favorable provision of Republic Act No. 3079 shall be available to
applicants for renovation of their utilization contracts, on condition that said applicants shall
voluntarily assume all the new obligations provided in the new law, the law intends to place
persons who acquired reparations goods before the enactment of the amendatory Act on the
same footing as those who acquire reparations goods after its enactment. This is so because
of the provision that once an application for renovation of a utilization contract has been
approved, the favorable provisions of said Act shall be available to the applicant "in like
manner and to the same extent, as an end-user filing his application alter the approval of this
amendatory Act." To deny exemption from compensating tax to one whose utilization contract
has been renovated, while granting the exemption to one who files an application for
acquisition of reparations goods after the approval of the new law, would be contrary to the
express mandate of the new law, that they both be subject to the same privileges in like
manner and to the same extent. It would be manifest distortion of the literal meaning and
purpose of the new law.
Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed in toto, without any
pronouncement as to costs. It is so ordered.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Dizon, J., took no part.

The argument adduced in support of the third ground is that the view adopted by the Tax Court would
operate to grant exemption to particular persons, the Buyers herein. It should be noted, however, that
there is no constitutional injunction against granting tax exemptions to particular persons. In fact, it is
not unusual to grant legislative franchises to specific individuals or entities, conferring tax exemptions
thereto. What the fundamental law forbids is the denial of equal protection, such as through
unreasonable discrimination or classification.1äwphï1.ñët

Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax,
not particular persons, but persons belonging to a particular class. Indeed, appellants do not assail the
constitutionality of said section 14, insofar as it grants exemptions to end-users who, after the approval
of Republic Act No. 3079, on June 17, 1961, purchased reparations goods procured by the
Commission. From the viewpoint of Constitutional Law, especially the equal protection clause, there is
no difference between the grant of exemption to said end-users, and the extension of the grant to those
whose contracts of purchase and sale mere made before said date, under Republic Act No. 1789.

It is true that Republic Act No. 3079 does not explicitly declare that those who purchased reparations
goods prior to June 17, 1961, are exempt from the compensating tax. It does not say so, because they
do not really enjoy such exemption, unless they comply with the proviso in Section 20 of said Act, by
applying for the renovation of their respective utilization contracts, "in order to avail of any provision of
the Amendatory Act which is more favorable" to the applicant. In other words, it is manifest, from the
language of said section 20, that the same intended to give such buyers the opportunity to be treated
"in like manner and to the same extent as an end-user filing his application after this approval of this
Amendatory Act." Like the "most-favored-nation-clause" in international agreements, the
aforementioned section 20 thus seeks, not to discriminate or to create an exemption or exception, but
 The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's directive,
have filed their respective memoranda.

G.R. No. 109289

G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O.
CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his
capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the
constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation
Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public
respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory
legislation.
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a
misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for
the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-
Employed and Professionals Engaged In The Practice of Their Profession,
Amending Sections 21 and 29 of the National Internal Revenue Code, as
Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code,
as now amended, provide:
Sec. 21. Tax on citizens or residents. —
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged
in the Practice of Profession. — A tax is hereby imposed upon the taxable net
income as determined in Section 27 received during each taxable year from all
sources, other than income covered by paragraphs (b), (c), (d) and (e) of this
section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines who is self-
employed or practices his profession herein, determined in accordance with the
following schedule:

In G.R. No. 109289, it is asserted that the enactment of Republic Act

Not over P10,000 3%
No. 7496 violates the following provisions of the Constitution:

Over P10,000 P300 + 9%

Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only
but not over P30,000 of excess over P10,000
one subject which shall be expressed in the title thereof.

Over P30,000 P2,100 + 15%

Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The
but not over P120,00 of excess over P30,000
Congress shall evolve a progressive system of taxation.

Over P120,000 P15,600 + 20%

Article III, Section 1 — No person shall be deprived of . . . property without due
but not over P350,000 of excess over P120,000
process of law, nor shall any person be denied the equal protection of the laws.

Over P350,000 P61,600 + 30%

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public
of excess over P350,000
respondents have exceeded their rule-making authority in applying SNIT to general professional
partnerships.
 Sec. 29. Deductions from gross income. — In computing taxable income subject to
tax under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as
deductions the items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable income subject to tax under
Section 21 (f) in the case of individuals engaged in business or practice of
profession, only the following direct costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant
to the business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for
the rehabilitation of calamity stricken areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from
accredited financial institutions which must be proven to have been incurred in
connection with the conduct of a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are difficult to determine,
a maximum of forty per cent (40%) of their gross receipts shall be allowed as
deductions to answer for business or professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept petitioner's view that the
amendatory law should be considered as having now adopted a gross income, instead of as having still
retained the net income, taxation scheme. The allowance for deductible items, it is true, may have
significantly been reduced by the questioned law in comparison with that which has prevailed prior to
the amendment; limiting, however, allowable deductions from gross income is neither discordant with,
nor opposed to, the net income tax concept. The fact of the matter is still that various deductions, which
are by no means inconsequential, continue to be well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling
legislation intended to unite the members of the legislature who favor any one of unrelated subjects in
support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly
apprise the people, through such publications of its proceedings as are usually made, of the subjects of
legislation.1 The above objectives of the fundamental law appear to us to have been sufficiently met.
Anything else would be to require a virtual compendium of the law which could not have been the
intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation
"shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the tax on corporations and partnerships. The
contention clearly forgets, however, that such a system of income taxation has long been the prevailing
rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna
Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the
standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future
conditions, and (4) the classification applies equally well to all those belonging to the same class (Pepsi
Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach2 in the income taxation of
individual taxpayers and to maintain, by and large, the present global treatment3 on taxable
corporations. We certainly do not view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what
he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and
those who are not. With the legislature primarily lies the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve
into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a
tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts
will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override
constitutional proscriptions. This stage, however, has not been demonstrated to have been reached
within any appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for
being violative of due process must perforce fail. The due process clause may correctly be invoked only
when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax
power. No such transgression is so evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether or not public
respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93,
to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The general professional partnership
(GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus,
in determining the net profit of the partnership, only the direct costs mentioned in
said law are to be deducted from partnership income. Also, the expenses paid or
incurred by partners in their individual capacities in the practice of their profession
which are not reimbursed or paid by the partnership but are not considered as
direct cost, are not deductible from his gross income.
The real objection of petitioners is focused on the administrative interpretation of public respondents
that would apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent
deliberations in Congress during its enactment of Republic Act No. 7496, also quoted by the Honorable
Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's privilege
speech by way of commenting on the questioned implementing regulation of public respondents
following the effectivity of the law, thusly:
 MR. ALBANO, Now Mr. Speaker, I would like to get the correct
impression of this bill. Do we speak here of individuals who are
earning, I mean, who earn through business enterprises and
therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply
to corporations. It applies only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman
from Batangas say that this bill is intended to increase
collections as far as individuals are concerned and to make
collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate
version of the SNITS, it is categorically stated, thus:
This bill, Mr. President, is not applicable to business
corporations or to partnerships; it is only with respect to
individuals and professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that general professional
partnerships are subject to the payment of income tax or that there is a difference in the tax treatment
between individuals engaged in business or in the practice of their respective professions and partners
in general professional partnerships. The fact of the matter is that a general professional partnership,
unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and
so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not
on the professional partnership, which is tax exempt, but on the partners themselves in their individual
capacity computed on their distributive shares of partnership profits. Section 23 of the Tax Code, which
has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships. — (a)
Persons exercising a common profession in general partnership shall be liable for
income tax only in their individual capacity, and the share in the net profits of the
general professional partnership to which any taxable partner would be entitled
whether distributed or otherwise, shall be returned for taxation and the tax paid in
accordance with the provisions of this Title.
(b) In determining his distributive share in the net income of the partnership, each
partner —
(1) Shall take into account separately his distributive share of
the partnership's income, gain, loss, deduction, or credit to the
extent provided by the pertinent provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions,
unless he declares his distributive share of the gross income
undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a person who practices his
profession alone or individually and one who does it through partnership (whether registered or not)
with others in the exercise of a common profession. Indeed, outside of the gross compensation income
tax and the final tax on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the same manner and
under a common set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act
No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can
easily become myopic, however, when the law is understood, as it should be, as only forming part of,
and subject to, the whole income tax concept and precepts long obtaining under the National Internal
Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the
Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax,
adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders
citizens, regardless of residence, and resident aliens subject to income tax liability on their income from
all sources) and of the generally accepted and internationally recognized income taxable base (that can
subject non-resident aliens and foreign corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals,
(2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as
to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily,
partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as
"taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be
within the context of, and so legally contemplated as, corporations. Except for few variances, such as in
the application of the "constructive receipt rule" in the derivation of income, the income tax approach is
alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out
in the discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject to the payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even
considered as independent taxable entities for income tax purposes. A general professional partnership
is such an example.4 Here, the partners themselves, not the partnership (although it is still obligated to
file an income tax return [mainly for administration and data]), are liable for the payment of income tax
in their individual capacity computed on their respective and distributive shares of profits. In the
determination of the tax liability, a partner does so as an individual, and there is no choice on the
matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed
to be no more than a mere mechanism or a flow-through entity in the generation of income by, and the
ultimate distribution of such income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule
as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers
on their non-compensation income. There is no evident intention of the law, either before or after the
amendatory legislation, to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions individually and of those who do it
through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.
SO ORDERED.
G.R. No. 88291 May 31, 1991
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President;
HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of Finance; HON.
SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG,
in his capacity as Commissioner of Internal Revenue; NATIONAL POWER CORPORATION; the
FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum
Corporation; Philippine National Oil Corporation; and Petrophil Corporation, respondents.
Villamor & Villamor Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.
GANCAYCO, J.:
This petition seeks to nullify certain decisions, orders, rulings, and resolutions of respondents Executive
Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the
Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect
tax and duties.
The relevant facts are not in dispute.
On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to
undertake the development of hydraulic power and the production of power from other sources. 1
On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under—
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.
On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress
declared as a national policy the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and rural electrification which
should be pursued coordinately and supported by all instrumentalities and agencies of the government,
including its financial institutions.2 The corporate existence of NPC was extended to carry out this
policy, specifically to undertake the development of hydro electric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis.3 Being a non-profit corporation, Section 13 of the law provided in
detail the exemption of the NPC from all taxes, duties, fees, imposts and other charges by the
government and its instrumentalities.
On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of
Republic Act No. 6395 by specifying, among others, the exemption of NPC from such taxes, duties,
fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by NPC
in its operation. Presidential Decree No. 938 dated May 27, 1976 further amended the aforesaid
provision by integrating the tax exemption in general terms under one paragraph.
On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor
of government-owned or controlled corporations including their subsidiaries.4 However, said law
empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to
restore, partially or totally, the exemption withdrawn, or otherwise revise the scope and coverage of any
applicable tax and duty.
Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax and
duty exemption privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986, the FIRB
issued resolution No. 1-86 indefinitely restoring the NPC tax and duty exemption privileges effective
July 1, 1985.
However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential
Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and prescribe
the date of effectivity of such tax and/or duty exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption
privileges effective March 10, 1987. On October 5, 1987, the President, through respondent Executive
Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No. 17-87.
As alleged in the petition, the following are the background facts:
The following are the facts relevant to NPC's questioned claim for refunds of taxes and duties
originally paid by respondents Caltex, Petrophil and Shell for specific and ad valorem taxes to
the BIR; and for Customs duties and ad valorem taxes paid by PNOC, Shell and Caltex to the
Bureau of Customs on its crude oil importation.
Many of the factual statements are reproduced from the Senate Committee on Accountability
of Public Officers and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989
and approved by the Senate on April 21, 1989 (copy attached hereto as Annex "A") and are
identified in quotation marks:
1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No.
1931 was promulgated abolishing the tax exemptions of all government-owned or-controlled
corporations, the oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to the NPC. This non-payment of taxes therefore spanned a
period of eight (8) years. (par. 23, p. 7, Annex "A")
During this period, the Bureau of Internal Revenue was not collecting specific taxes on the tax exemption privileges of the National Power Corporation (NPC)." These rulings involve
purchases of NPC of petroleum products from the oil companies on the erroneous belief that FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")
the National Power Corporation (NPC) was exempt from indirect taxes as reflected in the
letter of Deputy Commissioner of Internal Revenue (DCIR) Romulo Villa to the NPC dated
8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata
October 29, 1980 granting blanket authority to the NPC to purchase petroleum products from
confirmed the ruling of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p.
the oil companies without payment of specific tax (copy of this letter is attached hereto as
12, Annex "A")
petitioner's Annex "B").

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil
2. The oil companies started to pay specific and ad valorem taxes on their sales of oil
Development Co., Ltd., a Korean contractor of NPC for its infrastructure projects, certified
products to NPC only after the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing
true copy of which is attached hereto as petitioner's Annex "E", BIR Acting Commissioner
all exemptions granted in favor of government-owned or-controlled corporations and
Ruben Ancheta ruled:
empowering the FIRB to recommend to the President or to the Minister of Finance the
restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total
amount of P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum In Reply please be informed that after a re-study of Section 13, R.A. 6395, as
products to NPC covering the period from October 31, 1984 to April 27, 1985." (par. 23, p. 7, amended by P.D. 938, this Office is of the opinion, and so holds, that the scope of
Annex "A") the tax exemption privilege enjoyed by NPC under said section covers only taxes
for which it is directly liable and not on taxes which are only shifted to it. (Phil.
Acetylene vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is
3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax
directly payable by the contractor, not by NPC, your request for exemption, based
portion. Beginning June 11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax
on the stipulation in the aforesaid contract that NPC shall assume payment of your
exemptions, Caltex's billings to NPC always included both duties and taxes. (Caturla, tsn,
contractor's tax liability, cannot be granted for lack of legal basis." (Annex "H")
Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")
(emphasis added)

4. For the sales of petroleum products delivered to NPC during the period from October, 1984
to April, 1985, NPC was billed a total of P522,016,77.34 (sic) including both duties and taxes,
the specific tax component being valued at P58,020,110.79. (par. 25, p. 8, Annex "A").
5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified
true copy of which is hereto attached as Annex "C", restored the tax exemption privileges of
NPC effective retroactively to June 11, 1984 up to June 30, 1985. The first paragraph of said
resolution reads as follows:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the
National Power Corporation under C.A. No. 120, as amended, are restored up to
June 30, 1985.
Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the BIR
for a "refund of Specific Taxes paid on petroleum products . . . in the total amount of
P58,020,110.79. (par. 26, pp. 8-9, Annex "A")
6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's
Annex "D"), Acting BIR Commissioner Ruben Ancheta declared:
FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase
petroleum products from the oil companies free of specific and ad valorem taxes,
during the period in question.
The "period in question" is June 1 1, 1 984 to June 30, 1 985.
Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for
which it is directly liable and does not cover taxes which are only shifted to it or for indirect
taxes. The BIR, through Ancheta, reversed its previous position of May 8, 1985 adopted by
Ancheta himself favoring NPC's indirect tax exemption privilege.
10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex
(Annex "F"), the BIR Commissioner declared that PAL's tax exemption is limited to taxes for
which PAL is directly liable, and that the payment of specific and ad valorem taxes on
petroleum products is a direct liability of the manufacturer or producer thereof". (par. 51, p.
15, Annex "A")
11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax
exemptions retroactively from July 1, 1985 to a indefinite period, certified true copy of which
is hereto attached as petitioner's Annex "H".
12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the
P58,020,110.79 (corresponding to Caltex) was approved and released by way of a Tax Credit
Memo (Annex "Q") dated July 7, 1986, certified true copy of which [is) attached hereto as
petitioner's Annex "F," which was assigned by NPC to Caltex. BIR Commissioner Tan
approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto
attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")
The Deed of Assignment stipulated among others that NPC is assigning the tax credit to
Caltex in partial settlement of its outstanding obligations to the latter while Caltex, in turn,
would apply the assigned tax credit against its specific tax payments for two (2) months. (per
memorandum dated July 28, 1986 of DCIR Villa, copy attached as petitioner Annex "G")

7. On June 6, 1985—The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata,
13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax
Chairman of the FIRB (Annex "E"), requesting "the FIRB to resolve conflicting rulings on the
credit assigned to Caltex, the NPC reiterated its request for the release of the balance of its
pending refunds of taxes paid by respondents Petrophil, Shell and Caltex covering the period
from June 11, 1984 to early part of 1986 amounting to P410.58 million. (The claim of the first
two (2) oil companies covers the period from June 11, 1984 to early part of 1986; while that of
Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18, 1986,
under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's Annex
"I"). The BIR ruled that NPC's tax free privilege to buy petroleum products covered only the
period from June 11, 1984 up to June 30, 1985. It further declared that, despite FIRB No. 1-
86, NPC had already lost its tax and duty exemptions because it only enjoys special privilege
for taxes for which it is directly liable. This ruling, in effect, denied the P410 Million tax refund
application of NPC (par. 28, p. 9, Annex "A")
14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not
resolved the motion. (Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant,
Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex "A")
15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR
Commissioner Tan, Jr. (certified true copy of which is hereto attached and made a part hereof
as petitioner's Annex "J"), reversed his previous position and states this time that all
deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery.
16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93,
entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding
the Powers of the Fiscal Incentives Review Board and Other Purposes."
17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax
exemption privilege and included in the exemption "those pertaining to its domestic
purchases of petroleum and petroleum products, and the restorations were made to retroact
effective March 10, 1987, a certified true copy of which is hereto attached and made a part
hereof as Annex "K".
18. On August 6, 1987, the Hon. Sedfrey A. Ordoñez, Secretary of Justice, issued Opinion
No. 77, series of 1987, opining that "the power conferred upon Fiscal Incentives Review
Board by Section 2a (b), (c) and (d) of Executive order No. 93 constitute undue delegation of
legislative power and, therefore, [are] unconstitutional," a copy of which is hereto attached
and made a part hereof as Petitioner's Annex "L."
19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to
the Chairman of the FIRB a certified true copy of which is hereto attached and made a part
hereof as petitioner's Annex "M," confirmed and approved FIRB Res. No. 17-87 dated June
24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93.
20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig,
who by letter dated May 2, 1988 asked him to rule "on whether or not, as the law now stands,
the National Power Corporation is still exempt from taxes, duties . . . on its local purchases
of . . . petroleum products . . ." declared that "NPC under the provisions of its Revised Charter
retains its exemption from duties and taxes imposed on the petroleum products purchased
locally and used for the generation of electricity," a certified true copy of which is attached
hereto as petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")
21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June 1
5, 1988 but without the usual official form of "By the Authority of the President," a certified
true copy of which is hereto attached and made a part hereof as Petitioner's Annex "O".
22. The actions of respondents Finance Secretary and the Executive Secretary are based on
the RESOLUTION No. 17-87 of FIRB restoring the tax and duty exemption of the respondent
NPC pertaining to its domestic purchases of petroleum products (petitioner's Annex K supra).
23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988
reported that the Office of the President and the Department of Finance had ordered the BIR
to refund the tax payments of the NPC amounting to Pl.58 Billion which includes the P410
Million Tax refund already rejected by BIR Commissioner Tan, Jr., in his BIR Ruling No. 152-
86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p. 1
0, Annex "A")
24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner
Tan requesting them to hold in abeyance the release of the Pl.58 billion and await the
outcome of the investigation in regard to Senate Resolution No. 227," copies attached as
Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").
Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of
the BIR dated August, 1988 requesting him to hold in abeyance the release of the tax refunds
to NPC until after the termination of the Blue Ribbon investigation.
25. In the Bureau of Customs, oil companies import crude oil and before removal thereof from
customs custody, the corresponding customs duties and ad valorem taxes are paid. Bunker
fuel oil is one of the petroleum products processed from the crude oil; and same is sold to
NPC. After the sale, NPC applies for tax credit covering the duties and ad valorem
exemption under its Charter. Such applications are processed by the Bureau of Customs and
the corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to
the oil firm that imported the crude oil. These certificates are eventually used by the
assignee-oil firms in payment of their other duty and tax liabilities with the Bureau of
Customs. (par. 70, p. 19, Annex "A")
A lesser amount totalling P740 million, covering the period from 1985 to the present, is being
sought by respondent NPC for refund from the Bureau of Customs for duties paid by the oil
companies on the importation of crude oil from which the processed products sold locally by
them to NPC was derived. However, based on figures submitted to the Blue Ribbon
Committee of the Philippine Senate which conducted an investigation on this matter as
mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a
much bigger figure was actually refunded to NPC representing duties and ad valorem taxes
paid to the Bureau of Customs by the oil companies on the importation of crude oil from 1979
to 1985.
26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227,
entitled:
Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To
conduct a Formal and Extensive Inquiry into the Reported Massive Tax
Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc.,
Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the
Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes,
Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the
Department of Finance, Their Refusal to Pay Since 1976 Customs Duties
Amounting to Billions of Pesos on Imported Crude Oil Purportedly for the Use of
the National Power Corporation, the Non-Payment of Surtax on Windfall Profits
 from Increases in the Price of Oil Products in August 1987 amounting Maybe to as 1. Upon filing of this petition, a temporary restraining order forthwith be issued against
Much as Pl.2 Billion Surtax Paid by Them in 1984 and For Other Purposes. respondent FIRB Executive Secretary Macaraig, and Secretary of Finance Jayme restraining
them and other persons acting for, under, and in their behalf from enforcing their resolution,
orders and ruling, to wit:
27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a
lengthy formal inquiry on the matter, calling all parties interested to the witness stand
including representatives from the different oil companies, and in due time submitted its A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");
Committee Report No. 474 . . . — The Blue Ribbon Committee recommended the following
courses of action.
B. Memorandum-Order of the Office of the President dated October 5, 1987
(petitioner's Annex "M");
1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power
Corporation (NPC) and its approval of Tax Credit memo covering said amount
C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
(Annex "P" hereto), dated July 7, 1986, and cancel its approval of the Deed of
Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and collect
from Caltex its tax liabilities which were erroneously treated as paid or settled with D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q");
the use of the tax credit certificate that NPC assigned to said firm.: and

1.1. NPC did not have any indirect tax exemption since May 27, 1976 E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").
when PD 938 was issued. Therefore, the grant of a tax refund to NPC in
the amount of P58 million was illegal, and therefore, null and void. Such
2. Said temporary restraining order should also include respondent Commissioners of
refund was a nullity right from the beginning. Hence, it never transferred
Customs Mison and Internal Revenue Ong restraining them from processing and releasing
any right in favor of NPC.
any pending claim or application by respondent NPC for tax and duty refunds.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil
3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary injunction
companies on the same ground that the NPC, since May 27, 1976 up to June 17,
against above-named respondents and all persons acting for and in their behalf.
1987 was never granted any indirect tax exemption. So, the P1.58 billion represent
taxes legally and properly paid by the oil firms.
4. A decision be rendered in favor of the petitioner and against the respondents:
3. Start collection actions of specific or excise and ad valorem taxes due on
petroleum products sold to NPC from May 27, 1976 (promulgation of PD 938) to A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May
June 17, 1987 (issuance of EO 195). 27, 1976 up to the present;

B. For the Bureau of Customs (BOC) to do the following: B. Nullifying the setting aside the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of 1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");
petroleum products by NPC and allegedly granted under the NPC charter covering the years
1978-1988 . . .
2. Memorandum-Order of the Office of the President dated October 5, 1987
(petitioner's Annex "M");
28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance
to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of
claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his 3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");
ruling, the dispositive portion of which reads:
4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");
IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless
restrained by proper authorities, that department and/or its line-tax bureaus may now proceed with the 5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"
processing of the claims of the National Power Corporation for duty and tax free exemption and/or tax
credits/ refunds, if there be any, in accordance with the ruling of that Department dated May 20,1988,
as confirmed by this Office on June 15, 1988 . . .5 6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax
refund for P58,020,110.79 (petitioner's Annex "F");

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary
injunction and/or restraining order, praying among others that: 7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30,
1987 (petitioner's Annex "G");
 8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with
the Bureau of Internal Revenue and
9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC
by way of tax credit certificates from 1979 up to the present.
C. Declaring as illegal and null and void the pending claims for tax and duty refunds by
respondent NPC with the Bureau of Customs and the Bureau of Internal Revenue;
D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal
Revenue from enforcing the abovequestioned resolution, orders and ruling of respondents
Executive Secretary, Secretary of Finance, and FIRB by processing and releasing
respondent NPC's tax and duty refunds;
E. Ordering the respondent Commissioner of Customs to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Customs covering the period
from 1985 to the present; to cancel and invalidate the illegal payment made by respondents
Caltex, Shell and PNOC by using the tax credit certificates assigned to them by NPC and to
recover from respondents Caltex, Shell and PNOC all the amounts appearing in said tax
credit certificates which were used to settle their duty and tax liabilities with the Bureau of
Customs.
F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the
pending claims for refund of respondent NPC with the Bureau of Internal Revenue covering
the period from June 11, 1984 to June 17, 1987.
PETITIONER prays for such other relief and remedy as may be just and equitable in the
premises.6
The issues raised in the petition are the following:
To determine whether respondent NPC is legally entitled to the questioned tax and duty
refunds, this Honorable Court must resolve the following issues:
Main issue—
Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with
the enactment of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued on
January 11, 1974.
Corollary issues—
1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's
tax exemption privilege effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-
86 dated January 7, 1986 restoring NPC's tax exemption privilege effective July 1, 1985
included the restoration of indirect tax exemption to NPC and
2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24,
1987 which restored NPC's tax exemption privilege effective March 10, 1987; and if said
Resolution was validly issued, the nature and extent of the tax exemption privilege restored to
NPC.7
In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required
respondents to comment thereon, within ten (10) days from notice. The respondents having submitted
their comment, on October 10, 1989 the Court required petitioner to file a consolidated reply to the
same. After said reply was filed by petitioner on November 15, 1989 the Court gave due course to the
petition, considering the comments of respondents as their answer to the petition, and requiring the
parties to file simultaneously their respective memoranda within twenty (20) days from notice. The
parties having submitted their respective memoranda, the petition was deemed submitted for
resolution.
First the preliminary issues.
Public respondents allege that petitioner does not have the standing to challenge the questioned orders
and resolution.
In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-
elected Senator of the Philippines." Public respondent argues that petitioner must show he has
sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general
interest common to all members of the public.8
The Court however agrees with the petitioner that as a taxpayer he may file the instant petition
following the ruling in Lozada when it involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said
assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and
Bureau of Customs.
Assuming petitioner has the personality to file the petition, public respondents also allege that the
proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125
instead of this petition. However Section 11 of said law provides—
Sec. 11. Who may appeal; effect of appeal—Any person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the
Collector of Customs (Commissioner of Customs) or any provincial or City Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after
receipt of such decision or ruling.
From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the
Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of
Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this
category.
Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal
Revenue to impose a tax assessment not found by him to be proper. It would be tantamount to a
usurpation of executive functions.9
Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the
Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with
arbitrariness and grave abuse as to go beyond statutory authority.10
Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an
unlawful exercise of jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely,
petitioner questions the lawfulness of the acts of public respondents in this case.
Now to the main issue.
It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an
indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in. Examples are the custom duties and ad valorem taxes paid by the oil companies to the
Bureau of Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to
the Bureau of Internal Revenue after converting the crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ."13 For example, the excise and ad valorem taxes that oil companies pay to the Bureau
of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer,
like the NPC, by adding them to the "cash" and/or "selling price."
The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential
Decree No. 938, the exemption of NPC from indirect taxation was revoked and repealed. While
petitioner concedes that NPC enjoyed broad exemption privileges from both direct and indirect taxes on
the petroleum products it used, under Section 13 of Republic Act No, 6395 and more so under
Presidential Decree No. 380, however, by the deletion of the phrases "directly or indirectly" and "on all
petroleum products used by the Corporation in the generation, transmission, utilization and sale of
electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No. 938.
Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No.
938 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax
exemption. He cites Philippine Aceytelene Co. Inc. vs. Commissioner of Internal Revenue.14 Petitioner
emphasizes the principle in taxation that the exception contained in the tax statutes must be strictly
construed against the one claiming the exemption, and that the rule that a tax statute granting
exemption must be strictly construed against the one claiming the exemption is similar to the rule that a
statute granting taxing power is to be construed strictly, with doubts resolved against its
existence.15 Petitioner cites rulings of the BIR that the phrase exemption from "all taxes, etc." from "all
forms of taxes" and "in lieu of all taxes" covers only taxes for which the taxpayer is directly liable. 16
On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential Decree
No. 1931, the relevant provision of which are to wit:
P.D. No. 1931 provides as follows:
Sec. 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes . . . heretofore granted in favor of government-
owned or controlled corporations are hereby withdrawn. (Emphasis supplied.)
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board . . . is hereby empowered to
restore, partially or totally, the exemptions withdrawn by Section 1 above . . . (Emphasis
supplied.)
The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:
Resolution. No. 10-85
BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:
1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120 as amended are restored up to June 30, 1985.
2. Provided, That to restoration does not apply to the following:
a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-
84;
b. commercially-funded importations; and
c. interest income derived from any investment source.
3. Provided further, That in case of importations funded by international financing agreements, the NPC
is hereby required to furnish the FIRB on a periodic basis the particulars of items received or to be
received through such arrangements, for purposes of tax and duty exemptions privileges. 17
Resolution No. 1-86
BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:
1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power
Corporation (NPC) under Commonwealth Act No. 120, as amended, are restored: Provided, That
importations of fuel oil (crude oil equivalent), and coal of the herein grantee shall be subject to the basic
and additional import duties; Provided, further, that the following shall remain fully taxable:
a. Commercially-funded importations; and
b. Interest income derived by said grantee from bank deposits and yield or any
other monetary benefits from deposit substitutes, trust funds and other similar
arrangements.
2. The NPC as a government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the property is not transferred to another
pursuant to the provisions of Sec. 10(a) of the Real Property Tax Code, as amended.18
Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86.
Indeed, they were issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby the
FIRB should make the recommendation subject to the approval of "the President of the Philippines
and/or the Minister of Finance." While said Resolutions do not appear to have been approved by the
President, they were nevertheless approved by the Minister of Finance who is also duly authorized to
approve the same. In fact it was the Minister of Finance who signed and promulgated said resolutions. 19
The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85 and
1-86 which were promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and Minister of
Finance Cesar E.A Virata, as Chairman of FIRB respectively, should be separately approved by said
Minister of Finance as required by P.D. 1931 is, a superfluity. An examination of the said resolutions
which are reproduced in full in the dissenting opinion show that the said officials signed said resolutions
in the dual capacity of Chairman of FIRB and Minister of Finance.
Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of
Albay,20wherein the Court observed that under P.D. No. 776 the power of the FIRB was only
recommendatory and requires the approval of the President to be valid. Thus, in said case the Court
held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved by the President were not
valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the Office of
the President on October 5, 1987.
However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which amended
P.D. No. 776, it is clearly provided for that such FIRB resolution, may be approved by the "President of
the Philippines and/or the Minister of Finance." To repeat, as FIRB Resolutions Nos. 10-85 and 1-86
were duly approved by the Minister of Finance, hence they are valid and effective. To this extent, this
decision modifies or supersedes the Court's earlier decision in Albay afore-referred to.
Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that is, only
its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes under the
principle that tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of
the taxing authority.
Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way of a
tax credit certificate21 which was assigned to respondent Caltex through a deed of assignment
approved by the BIR22 is patently illegal. He also contends that the pending claim of respondent NPC in
the amount of P410.58 million with respondent BIR for the sale and delivery to it of bunker fuel by
respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being illegal, should not be
released.
Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June
24, 1987. It was issued under authority of Executive Order No. 93 dated December 17, 1986 which
grants to the FIRB among others, the power to recommend the restoration of the tax and duty
exemptions/incentives withdrawn thereunder.
Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the
effect that the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive Order
No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional." Petitioner
observes that the FIRB did not merely recommend but categorically restored the tax and duty
exemption of the NPC so that the memorandum of the respondent Executive Secretary dated October
5, 1987 approving the same is a surplusage.
Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine
in Philippine Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it cannot
create new indirect tax exemption not otherwise granted in the NPC charter as amended by
Presidential Decree No. 938.
The petition is devoid of merit.
The NPC is a non-profit public corporation created for the general good and welfare 23 wholly owned by
the government of the Republic of the Philippines.24 From the very beginning of its corporate existence,
the NPC enjoyed preferential tax treatment25 to enable the Corporation to pay the indebtedness and
obligation and in furtherance and effective implementation of the policy enunciated in Section one of
"Republic Act No. 6395"26 which provides:
Sec. 1. Declaration of Policy—Congress hereby declares that (1) the comprehensive
development, utilization and conservation of Philippine water resources for all beneficial uses,
including power generation, and (2) the total electrification of the Philippines through the
development of power from all sources to meet the need of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government including its financial institutions.
From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is
obvious.
Under Republic Act No. 358, its exemption is provided as follows:
Sec. 2. To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities."
Under Republic Act No. 6395:
Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by Government and Governmental Instrumentalities.— The
Corporation shall be non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. (Emphasis supplied.)
Under Presidential Decree No. 380:
Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees,
Imposts and other Charges by the Government and Government Instrumentalities.— The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
 well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby
declared, exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other governmental agencies and
instrumentalities;
WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-
profit character of the NPC has not been fully utilized because of restrictive interpretations of
the taxing agencies of the government on said provisions. . . . (Emphasis supplied.)
It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No. 938
shall be construed strictly against NPC. On the contrary, the law mandates that it should be interpreted
liberally so as to enhance the tax exempt status of NPC.
Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes
granting tax exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of
exemptions in favor of a government political subdivision or instrumentality. 28

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
The basis for applying the rule of strict construction to statutory provisions granting tax
on import of foreign goods required for its operation and projects; and
exemptions or deductions, even more obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize differential treatment and foster impartiality,
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly fairness, and equality of treatment among tax payers.
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum produced used by the Corporation in the
The reason for the rule does not apply in the case of exemptions running to the benefit of the
generation, transmission, utilization, and sale of electric power. (Emphasis supplied.)
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its
Under Presidential Decree No. 938: operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax liability of such agencies.29
Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities.—The In the case of property owned by the state or a city or other public corporations, the express exemption
Corporation shall be non-profit and shall devote all its returns from its capital investment as should not be construed with the same degree of strictness that applies to exemptions contrary to the
well as excess revenues from its operation, for expansion. To enable the Corporation to pay policy of the state, since as to such property "exemption is the rule and taxation the exception." 30
the indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section One of this Act, the Corporation, including its subsidiaries hereby
The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A. No.
declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as
6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was deleted is not
costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court
well-taken.
or administrative proceedings. (Emphasis supplied.)

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover
presumed to be passed with deliberation and with knowledge of all existing ones on the subject, it is
"all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic Act No.
logical to conclude that in passing a statute it is not intended to interfere with or abrogate a former law
6395 enumerated the details covered by the exemption. Subsequently, P.D. No. 380, made even more
relating to the same subject matter, unless the repugnancy between the two is not only irreconcilable
specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all
but also clear and convincing as a result of the language used, or unless the latter Act fully embraces
petroleum products used in its operation. Presidential Decree No. 938 amended the tax exemption by
the subject matter of the earlier.31 The first effort of a court must always be to reconcile or adjust the
simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties,
provisions of one statute with those of another so as to give sensible effect to both provisions.32
fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds,
in any court or administrative proceedings."
The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an
isolated part or a particular provision alone.33 When construing a statute, the reason for its enactment
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax
should be kept in mind and the statute should be construed with reference to its intended scope and
exemptions it has been enjoying before. The rationale for this exemption is that being non-profit the
purpose34 and the evil sought to be remedied.35
NPC "shall devote all its returns from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of this Act, . . ." 27 The NPC is a government instrumentality with the enormous task of undertaking development of
hydroelectric generation of power and production of electricity from other sources, as well as the
transmission of electric power on a nationwide basis, to improve the quality of life of the people
The preamble of P.D. No. 938 states—
pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.
It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of
NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No.
380 if it is to attain its goals.
Further, the construction of P.D. No. 938 by the Office charged with its implementation should be given
controlling weight.36
Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of June
26, 1985 confirming said ruling, the letters of the BIR of August 18, 1986, and December 22, 1986, the
letter of the Secretary of Finance of February 19, 1987, the Memorandum of the Executive Secretary of
October 9, 1987, by authority of the President, confirming and approving FIRB Resolution No. 17-87,
the letter of the Secretary of Finance of May 20, 1988 to the Executive Secretary rendering his opinion
as requested by the latter, and the latter's reply of June 15, 1988, it was uniformly held that the grant of
tax exemption to NPC under C.A. No. 120, as amended, included exemption from payment of all taxes
relative to NPC's petroleum purchases including indirect taxes.37 Thus, then Secretary of Finance
Vicente Jayme in his letter of May 20, 1988 to the Executive Secretary Macaraig aptly stated the
justification for this tax exemption of NPC —
The issue turns on the effect to the exemption of NPC from taxes of the deletion of the
phrase 'taxes imposed indirectly on oil products and its exemption from 'all forms of taxes.' It
is suggested that the change in language evidenced an intention to exempt NPC only from
taxes directly imposed on or payable by it; since taxes on fuel-oil purchased by it; since taxes
on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC thereby
lost its exemption from those taxes. The principal authority relied on is the 1967 case
of Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.
First of all, tracing the changes made through the years in the Revised Charter, the
strengthening of NPC's preferential tax treatment was clearly the intention. To the extent that
the explanatory "whereas clauses" may disclose the intent of the law-maker, the changes
effected by P.D. 938 can only be read as being expansive rather than restrictive, including its
version of Section 13.
Our Tax Code does not recognize that there are taxes directly imposed and those imposed
indirectly. The textbook distinction between a direct and an indirect tax may be based on the
possibility of shifting the incidence of the tax. A direct tax is one which is demanded from the
very person intended to be the payor, although it may ultimately be shifted to another. An
example of a direct tax is the personal income tax. On the other hand, indirect taxes are
those which are demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another. An example of this type of tax is the sales tax
levied on sales of a commodity.
The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of
no moment. What is more relevant is that when an "indirect tax" is paid by those upon whom
the tax ultimately falls, it is paid not as a tax but as an additional part of the cost or of the
market price of the commodity.
This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case,
when he analyzed the nature of the percentage (sales) tax to determine whether it is a tax on
the producer or on the purchaser of the commodity. Under out Tax Code, the sales tax falls
upon the manufacturer or producer. The phrase "pass on" the tax was criticized as being
inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax.
Therefore, the tax is not "passed on" and does not for that reason become an "indirect tax"
on the purchaser. It is eminently possible that the law maker in enacting P.D. 938 in 1976
may have used lessons from the analysis of Chief Justice Castro in 1967 Philippine
Acetylene case.
When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the
so-called oil crunch had already drastically pushed up crude oil Prices from about $1.00 per
bbl in 1971 to about $10 and a peak (as it turned out) of about $34 per bbl in 1981. In 1974-
78, NPC was operating the Meralco thermal plants under a lease agreement. The power
generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by
reducing the burden on the swiftly rising world crude oil prices. This objective was achieved
by the use of NPC's "tax umbrella under its Revised Charter—the exemption from specific
taxes on locally purchased fuel oil. In this context, I can not interpret P.D. 938 to have
withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.
There is one other consideration which I consider pivotal. The taxes paid by oil companies on
oil products sold to NPC, whether paid to them by NPC or no never entered into the rates
charged by NPC to its customers not even during those periods of uncertainty engendered
by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No tax component on the fuel
have been charged or recovered by NPC through its rates.
There is an import duty on the crude oil imported by the local refineries. After the refining
process, specific and ad valorem taxes are levied on the finished products including fuel oil or
residue upon their withdrawal from the refinery. These taxes are paid by the oil companies as
the manufacturer thereof.
In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax
component. NPC pays the oil companies' invoices including the duty component but net of
the tax component. NPC then applies for drawback of customs duties paid and for a credit in
amount equivalent to the tax paid (by the oil companies) on the products purchased. The tax
credit is assigned to the oil companies—as payment, in effect, of the tax component shown in
the sales invoices. (NOTE: These procedures varied over time—There were instances when
NPC paid the tax component that was shifted to it and then applied for tax credit. There were
also side issues raised because of P.D. 1931 and E.O. 93 which withdrew all exemptions of
government corporations. In these latter instances, the resolutions of the Fiscal Incentives
Review Board (FIRB) come into play. These incidents will not be touched upon for purposes
of this discussion).
NPC rates of electricity are structured such that changes in its cost of fuel are automatically
(without need of fresh approvals) reflected in the subsequent months billing rates.
This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept
liability to the tax and duty component on the oil products, such amount will go into its fuel
cost and be passed on to its customers through corresponding increases in rates. Since
1974, when NPC operated the oil-fired generating stations leased from Meralco (which plants
it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's electric rates.
That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed
upon me by yet another circumstance. It is conceded that NPC at the very least, is exempt
from taxes to which it is directly liable. NPC therefore could very well have imported its fuel
oil or crude residue for burning at its thermal plants. There would have been no question in
such a case as to its exemption from all duties and taxes, even under the strictest
 interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976, However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC
there were already operating in the Philippines three oil refineries. The establishment of whereby Section 13 thereof was amended by emphasizing its non-profit character and expanding the
these refineries in the Philippines involved heavy investments, were economically desirable extent of its tax exemption.
and enabled the country to import crude oil and process / refine the same into the various
petroleum products at a savings to the industry and the public. The refining process
As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345
produced as its largest output, in volume, fuel oil or residue, whose conventional economic
spells out clearly the exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D. No.
use was for burning in electric or steam generating plants. Had there been no use locally for
380, the exemption of NPC from indirect taxes was emphasized when it was specified to include those
the residue, the oil refineries would have become largely unviable.
imposed "directly and indirectly."

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC
Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining the
to by-pass the local oil refineries and import its fossil fuel requirements directly in order to
same in general terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as hereinabove
avail itself of its exemption from "direct taxes." The oil refineries had to keep operating both
discussed, logically includes exemption from indirect taxes on petroleum products used in its operation.
for economic development and national security reasons. In fact, the restoration by the FIRB
of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries. This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on the
authority of which FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order No.
93 was promulgated, by which FIRB Resolution 17-87 was issued.
To answer your query therefore, it is the opinion of this Department that NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the
petroleum products purchased locally and used for the generation of electricity. Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental
circumstances. As a matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No, 380
and P.D. No. 838 appear to have been brought about by the earlier inconsistent rulings of the tax
The Department in issuing this ruling does so pursuant to its power and function to supervise
agencies due to the doctrine in Philippine Acetylene, so as to leave no doubt as to the exemption of the
and control the collection of government revenues by the application and implementation of
NPC from indirect taxes on petroleum products it uses in its operation. Effectively, said amendments
revenue laws. It is prepared to take the measures supplemental to this ruling necessary to
superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of NPC should be
carry the same into full effect.
limited to direct taxes only.

As presented rather extensively above, the NPC electric power rates did not carry the taxes
In the light of the foregoing discussion the first corollary issue must consequently be resolved in the
and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to
affirmative, that is, FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-86
the government, no part thereof was recovered from the sale of electricity produced. As a
dated January 7, 1986 which restored NPC's tax exemption privileges included the restoration of the
consequence, as of our most recent information, some P1.55 B in claims represent amounts
indirect tax exemption of the NPC on petroleum products it used.
for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order
to the Bureaus concerned for the resumption of the processing of these claims."38
On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which
restored NPC's tax exemption privilege effective March 10, 1987, the Court finds that the same is valid
In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance,
and effective.
the said opinion ruling of the latter was confirmed and its implementation was directed.39

It provides as follows:
The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the
Secretary of Finance as confirmed by the then Executive Secretary are well-taken. When the NPC was
exempted from all forms of taxes, duties, fees, imposts and other charges, under P.D. No. 938, it means BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption
exactly what it says, i.e., all forms of taxes including those that were imposed directly or indirectly on privileges of the National Power Corporation, including those pertaining to its domestic
petroleum products used in its operation. purchases of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March
Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the
10, 1987, subject to the following conditions:
NPC extends only to taxes for which it is directly liable and not to taxes merely shifted to it. However,
these rulings are predicated on Philippine Acytelene.
1. The restoration of the tax and duty exemption privileges does not apply to the following:
The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case. It
involved the sales tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958 when 1.1. Importation of fuel oil (crude equivalent) and coal;
NPC was enjoying tax exemption from all taxes under Commonwealth Act No. 120, as amended by
Republic Act No. 358 issued on June 4, 1949 hereinabove reproduced.
1.2. Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPC's own internal funds, domestic borrowings
In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so from any source whatsoever, borrowing from foreign-based private financial
plaintiff cannot claim exemptions simply because the NPC, the buyer, was exempt. institutions, etc.); and
 1.3. Interest income derived from any source.
2. The NPC shall submit to the FIRB a report of its expansion program, including details of
disposition of relieved tax and duty payments for such expansion on an annual basis or as
often as the FIRB may require it to do so. This report shall be in addition to the usual FIRB
reporting requirements on incentive availment.40
Executive Order No. 93 provides as follows—
Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted " to government and private entities are hereby withdrawn,
except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective international agreements to which the Government
of the Republic of the Philippines is a signatory;
c) those enjoyed-by enterprises registered with:
(i) the Board of Investments pursuant to Presidential Decree No. 1789,
as amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential
Decree No. 66, as amended;
(iii) the Philippine Veterans Investment Development Corporation
Industrial Authority pursuant to Presidential Decree No. 538, as
amended;
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter
of Instruction No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the recommendation of the Fiscal
Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/of duty exemption that may be
restored.
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;
e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation,
indicating the source of funding therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration the international
commitments of the Philippines and the necessary precautions such that the grant
of subsidies does not become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall
take into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged;
d) in general, the greater national interest to be served.
True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that
the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No. 93
constitute undue delegation of legislative power and is therefore unconstitutional. However, he was
overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated March 30,
1989. The Executive Secretary, by authority of the President, has the power to modify, alter or reverse
the construction of a statute given by a department secretary.41
A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The
standards of the delegated power are also clearly provided for.
The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this
Court held: "The standard may be either express or implied. If the former, the non-delegated 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."
In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang vs.
Williams,45, it was "public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of
promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a whole,
"national security" was considered sufficient standard47 and so was "protection of fish fry or fish eggs.48
The observation of petitioner that the approval of the President was not even required in said Executive
Order of the tax exemption privilege approved by the FIRB unlike in previous similar issuances, is not
well-taken. On the contrary, under Section l(f) of Executive Order No. 93, aforestated, such tax and duty
exemptions extended by the FIRB must be approved by the President. In this case, FIRB Resolution
No. 17-87 was approved by the respondent Executive Secretary, by authority of the President, on
October 15, 1987.49
Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated —
In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by
President Marcos in 1984 are invalid as they were presumably promulgated under the infamous
Amendment No. 6 and that as they cover tax exemption, under Section 17(4), Article VIII of the 1973
Constitution, the same cannot be passed "without the concurrence of the majority of all the members of
the Batasan Pambansa." And, even conceding that the reservation of legislative power in the President
was valid, it is opined that it was not validly exercised as there is no showing that such presidential
encroachment was justified under the conditions then existing. Consequently, it is concluded that
Executive Order No. 93, which was intended to implement said decrees, is also illegal. The authority of
the President to sub-delegate to the FIRB powers delegated to him is also questioned.

The latest in our jurisprudence indicates that delegation of legislative power has become the
In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter decree
rule and its non-delegation the exception. The reason is the increasing complexity of modern
withdrew tax exemptions of government-owned or controlled corporations including their subsidiaries
life and many technical fields of governmental functions as in matters pertaining to tax
but authorized the FIRB to restore the same. Nevertheless, in Albay, as above-discussed, this Court
exemptions. This is coupled by the growing inability of the legislature to cope directly with the
ruled that the tax exemptions under FIRB Resolution Nos. 10-85 and 1-86 cannot be enforced as said
many problems demanding its attention. The growth of society has ramified its activities and
resolutions were only recommendatory and were not duly approved by the President of the Philippines
created peculiar and sophisticated problems that the legislature cannot be expected
as required by P.D. No. 776.55 The Court also sustained in Albaythe validity of Executive Order No. 93,
reasonably to comprehend. Specialization even in legislation has become necessary. To
and of the tax exemptions restored under FIRB Resolution No. 17-87 which was issued pursuant
many of the problems attendant upon present day undertakings, the legislature may not have
thereto, as it was duly approved by the President as required by said executive order.
the competence, let alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.50
Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is
51 provided that:
Thus, in the case of Tablarin vs. Gutierrez, this Court enunciated the rationale in favor of delegation of
legislative functions—
All existing laws, decrees, executive orders, proclamation, letters of instructions, and other
executive issuances not inconsistent with this constitution shall remain operative until
One thing however, is apparent in the development of the principle of separation of powers
amended, repealed or revoked.
and that is that the maxim of delegatus non potest delegare or delegati potestas non potest
delegare, adopted this practice (Delegibus et Consuetudiniis Anglia edited by G.E. Woodline,
Yale University Press, 1922, Vol. 2, p. 167) but which is also recognized in principle in the Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent with
Roman Law d. 17.18.3) has been made to adapt itself to the complexities of modern the Constitution.1âwphi1
government, giving rise to the adoption, within certain limits, of the principle of subordinate
legislation, not only in the United States and England but in practically all modern
Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are
governments. (People vs. Rosenthal and Osmeña, 68 Phil. 318, 1939). Accordingly, with the
unconstitutional, the result would be the same, as then the latest applicable law would be P.D. No. 938
growing complexities of modern life, the multiplication of the subjects of governmental
which amended the NPC charter by granting exemption to NPC from all forms of taxes. As above
regulation, and the increased difficulty of administering the laws, there is a constantly
discussed, this exemption of NPC covers direct and indirect taxes on petroleum products used in its
growing tendency toward the delegation of greater power by the legislative, and toward the
operation. This is as it should be, if We are to hold as invalid and inoperative the withdrawal of such tax
approval of the practice by the Courts. (Emphasis supplied.)
exemptions under P.D. No. 1931 as well as under Executive Order No. 93 and the delegation of the
power to restore these exemptions to the FIRB.
The legislative authority could not or is not expected to state all the detailed situations wherein the tax
exemption privileges of persons or entities would be restored. The task may be assigned to an
The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this Court
administrative body like the FIRB.
ruled that the NPC is liable for real estate taxes as of June 11, 1984 (the date of promulgation of P.D.
No. 1931) when NPC had ceased to enjoy tax exemption privileges since FIRB Resolution Nos. 1085
Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such and 1-86 were not validly issued. The real estate tax liability of NPC from June 11, 1984 to December 1,
presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a liberal 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel import duties the firm had
interpretation in favor of constitutionality of legislation should be adopted.52 earlier paid to the government which the NPC now proposed to pass on to the consumers by another
33-centavo increase per kilowatt hour in power rates on top of the 17-centavo increase per kilowatt
hour that took effect just over a week ago.,56 Hence, another case has been filed in this Court to stop
E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB And
this proposed increase without a hearing.
as above discussed, the tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-
87 of June 1987 includes exemption from indirect taxes and duties on petroleum products used in its
operation. As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776
dated August 24, 1975 was already amended by P.D. No. 1931 ,57 wherein it is provided that such FIRB
resolutions may be approved not only by the President of the Philippines but also by the Minister of
Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld
Finance. Such resolutions were promulgated by the Minister of Finance in his own right and also in his
in Albay.53
capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of Finance or by the
President is unnecessary.
As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and
consequently, Albaymust be considered superseded to this extent by this decision. This is because P.D.
No. 938 which is the latest amendment to the NPC charter granting the NPC exemption from all forms
of taxes certainly covers real estate taxes which are direct taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity for
the country but more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite
correct.1a\^/phi1 There are various arrangements in the payment of crude oil purchased by NPC from
oil companies. Generally, the custom duties paid by the oil companies are added to the selling price
paid by NPC. As to the specific and ad valorem taxes, they are added a part of the seller's price, but
NPC pays the price net of tax, on condition that NPC would seek a tax refund to the oil companies. No
tax component on fuel had been charged or recovered by NPC from the consumers through its power
rates.58 Thus, this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The
billions of pesos involved in these exemptions will certainly inure to the ultimate good and benefit of the
consumers who are thereby spared the additional burden of increased power rates to cover these taxes
paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors
may claim the same privilege should be dispelled by the fact that (a) this decision particularly treats of
only the exemption of the NPC from all taxes, duties, fees, imposts and all other charges imposed by
the government on the petroleum products it used or uses for its operation; and (b) Section 13(d) of
R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the NPC from all taxes,
duties, fees, imposts and all other charges imposed by the government on all petroleum products used
in its operation only, which is the very exemption which this Court deems to be carried over by the
passage of P.D. No. 938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the
aforesaid exemption from taxes, etc. covers those "directly or indirectly" imposed by the "Republic of
the Philippines, its provincies, cities, municipalities and other government agencies and
instrumentalities" on said petroleum products. The exemption therefore from direct and indirect tax on
petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC of
other products or services.

The Court realizes the laudable objective of petitioner to improve the revenue of the government. The
amount of revenue received or expected to be received by this tax exemption is, however, not going to
any of the oil companies. There would be no loss to the government. The said amount shall accrue to
the benefit of the NPC, a government corporation, so as to enable it to sustain its tremendous task of
providing electricity for the country and at the least cost to the consumers. Denying this tax exemption
would mean hampering if not paralyzing the operations of the NPC. The resulting increased revenue in
the government will also mean increased power rates to be shouldered by the consumers if the NPC is
to survive and continue to provide our power requirements.59 The greater interest of the people must be
paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED
 As counterclaim, defendants asked the payment of P6.00, for twelve truckloads of full-length
bamboos, loaded on a vessel at the wharf for which no payment had been made, in spite of
repeated demands. The court a quo rendered the following judgment:

xxx xxx xxx

In the light of the foregoing, the Court is therefore of the opinion that Ordinance No. 11,
G.R. No. L-14264 April 30, 1963
Series of 1956, of defendant Municipality of Pagbilao, Quezon, is null and void for having
been enacted without lawful authority ....
RAYMUNDO B. TAN, JOSE ESGUERRA, ROMAN ABASTILLAS, ANTONIO QUEBRADO, ROMAN
AGNES, ELISEO AMANDY, NICOLAS SOTOMAYOR, INESTORIO TORRENUEVA and FELIPE
xxx xxx xxx
TIOSAN, plaintiffs-appellees,
vs.
THE MUNICIPALITY OF PAGBILAO, ELIAS PORNOBI as Municipal Mayor of Pagbilao and WHEREFORE, judgment is hereby rendered ordering defendant municipality of PagbiIao,
CEFERINO CAPARROS as Municipal Treasurer of Pagbilao, defendants-appellants. Quezon, to pay to plaintiff Raymundo B. Tan the amount of P774.25, with legal interest
thereon from the filing of the complaint, that is, from 4 February 1957, and dismissing
defendants' counterclaim against plaintiffs, with the parties bearing their own costs.
Defendant municipal corporation was the owner and operator of a wharf (Exhs. E & F). On May 31,
1956, the municipal council of defendant municipality enacted Ordinance No. 11, series of 1956,
imposing certain charges and/or fees on articles or merchandises landed upon, or loaded from the said The above judgment is now before Us on appeal by the defendants, urging a reversal thereof on seven
wharf and on the strip of shoreline adjacent thereto, measuring 300 meters. The plaintiffs, who were counts, which converge on the following legal issues:
fishermen, merchants and proprietors of Padre Burgos, Quezon, had to pass Pagbilao in order to bring
their goods consisting of fish, charcoal, copra, firewood and other merchandise to Lucena. The
1) whether the defendant municipality can validly enact the ordinance in question and collect
merchandise were transported in bancas or motor boats from Padre Burgos and unloaded on the
the charges contained therein; and
Pagbilao wharf or on the shoreline, from where they were brought to Lucena by trucks.

2) whether plaintiff Tan is entitled to a refund of the fees paid to the defendant municipality.
Pursuant to the Ordinance, defendant municipality required plaintiffs to pay the charges and fees, which
they did under protest. On January 7, 1957, alleging that the Ordinance was ultra vires, in that the fees
prescribed therein partake of the nature of import or export taxes, in the guise of wharfage or rental Appellants contend that aside from the general powers of the council to enact ordinances and make
fees, the plaintiffs, instituted an action, with the CFI of Quezon Province, praying: regulations (Sec. 2238 of the Administrative Code),certain provisions of said Code authorizes a
municipality to establish a wharf and collect wharfage fees, as compensation for its use, to wit —
(1) That the said Municipal ordinance be declared null and void and of no legal effect; and
SEC. 2242. Certain legislative powers of mandatory character.— It shall be the duty of the
municipal council, conformably with law:
(2) Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of P1,800.00
for fees collected and paid under protest.
xxx xxx xxx
Defendants answering the complaint, interposed the following special defenses:
(e) To regulate the construction, care, and use of streets, sidewalks, canals, wharves and
piers of the municipality, and prevent and remove obstacles and encroachment on the same.
1) that the fees collected at the wharf are intended for and actually being exclusively utilized
in the repair, improvement, and maintenance of the same;
SEC. 2318. Municipal ferries, wharves, markets, etc. — A municipal council shall have
authority to acquire or establish municipal ferries, wharves, markets, slaughterhouses,
2) that the municipality has made material and additional construction to date, and if the
pounds, and cemeteries. Public utilities thus owned by the municipality may be conducted by
revenues raised from these fees are sufficient, the wharf is intended to be lengthened along
the municipal authorities upon stipulated return to private parties.
the 300 meters distance by the river;

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
3) the presence, day and night, of a municipal employee or of a policeman at the wharf, has
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
resulted in the prevailing peace, order, and security of cargoes, vessels, and of the operators
prove their case not covered by this stipulation of facts. 1äwphï1.ñët
therein;

SEC. 2320. Establishment of certain public utilities by private parties under license.— Where
4) the municipality also maintains a 300 candle power kerosene lantern at the wharf.
provision is not made by a municipal council, pursuant to the provisions of the next two
preceding sections hereof, for maintaining or conducting ferries, wharves, markets, or
 slaughterhouses requisite for the needs of the municipality, the council shall have authority, in
its discretion, to let the privilege of establishing and maintaining such utilities to private parties
by license granted upon such terms as shall be fixed by the council ....
Aside from the above provisions, Executive Order No. 255, dated April 1, 1940, states:
(6) Collection of berthing fees at municipal ports.-Municipalities may collect berthing fees at municipal
ports, pursuant to the provisions of section two thousand three hundred eighteen (2318) of the Revised
Administrative Code, not to exceed those specified in paragraph (3) hereof, provided that such
collection shall be credited to a special fund and used only for the maintenance and improvement of the
port at which the collections are made.
Appellants further contended that the wharfage fees which section 3(t), of Commonwealth Act No. 472,
prohibits a municipality from collecting, are customs charges levied in connection with the exportation or
importation of goods abroad, through ports of entry, as contemplated in the Tariff and Customs Code,
but not the ordinary wharfage rentals which a municipality may collect for the use of its wharf, in relation
to local trade and local products.
On the other hand, the appellees maintain that the appellant municipality was devoid one right to pass
the ordinance in question, since the Revised Administrative Code also prohibits the imposition of tax on
any goods or merchandise carried into or out of the municipality. Section 2287 thereof, provides —
SEC. 2287. Fundamental principles governing municipal taxation. — ... It shall not be in the
power of the council to impose a tax in any form whatever upon goods and merchandise
carried into the municipality, or out of the same, and any attempt to impose an import or
export tax upon such goods in the guise of an unreasonable charge for wharfage, use of
bridges or otherwise shall be void.
Moreover, any power granted by the Administrative Code to municipalities had been impliedly
repealed or withdrawn by Commonwealth Act No. 472, the pertinent portions of which read —
SEC. 3. It shall be beyond the power of the municipal council and municipal district council to
impose the following taxes, charges and fees:
xxx xxx xxx
Customs duties, registration, wharfage, tonnage and other kinds of customs fees, charges
and duties.
In the light of the legal provisions applicable, We are of the opinion that the ordinance in question, is
ultra vires, and hence, null and void. The ordinance calls for a specific tax. It charges a specific sum,
ranging from one centavo and up, by the head or number, and requires no assessment beyond a listing
and classification of the objects to be charged..
A tax which imposes a specific sum by the head or number, or some standard weight or
measurement, and which requires no assessment beyond a listing and classification of the
objects to be taxed is specific tax. (We Wa Yu v. City of Lipa, G.R. No. L-9167, Sept. 27,
1956)
Aside from being a specific tax, its nature as wharfage fee is also clear from the import of the
ordinance, specifically paragraph 1, which recites -.
PANGKAT 1.— Ang lahat na mayari o tagapangasiwa ng mga sasakyan sa pantalang bayan, ay dapat
magbigay-alam sa kinauukulang katiwala ng pamahalaan, upang maisaayos ang pagdaung, pagbaba
at pagsakay ng mga kargamentos at iba pa.
The phraseology of the above paragraph points to the fact that the charges collected pursuant thereto,
correspond to the words "berthing, unloading and loading of cargoes or merchandise" which fall under
the category of wharfage fees. The change or the designation of the said fees as "rental of municipal
property" did not change their basic character as "wharfage fees". Being a specific tax, the municipality
has no right to impose the same, for taxation is an attribute of sovereignty which municipal corporation
do not enjoy (Santo Lumber Co., et al v. City of Cebu, et al., L-10196, Jan. 22, 1958; 54 O.G. 5327;
Saldana v. City of Iloilo, L-10470, June 26, 1958). It shall not be in the power of the council to impose a
tax in any form whatever upon goods and merchandise carried into the municipality or out of the same,
and any attempt to impose such tax in the guise of wharfage fee or charge is void (Sec. 2287, Rev.
Adm. Code). And being wharfage fee (Phil. Sugar Central v. Coll. of Customs, 51 Phil. 131), it is
likewise beyond the power of the municipal council and municipal district council to impose (Sec. 3,
Comm. Act No. 472, supra).
In the case at bar, aside from the fact that the right of the municipality to collect wharfage fees is
doubtful for, at most, its claim is based merely by inference, implications and deductions, which have no
place in the interpretation of the power to tax of a municipal corporation (Icard v. City Council of Baguio,
et al., 46 Off. Gaz., Suppl. No. 11, p. 320; Medina, et al. v. City of Baguio, 48 Off. Gaz., 11, p. 4729) no
less than two Secretaries of the Department of Justice, (Secretaries Jose Abad Santos & Bengzon)
expressed the opinion that, "in view of section 3, paragraph (t), Commonwealth Act No. 472, which
expressly forbids municipalities from imposing wharfage fees, a municipal ordinance levying wharfage
or berthing fees is illegal and void, ... (Opinion No. 373, series of 1940 and No. 165, series of 1951).
Opinions and rulings of officials of the government called upon to execute or implement administrative
laws command much respect and weight (Regalado v. Yulo, 61 Phil. 173; Grapilon v. Mun. Council of
Carigara, L-12347, May 30, 1961)
It should be noted that previous to the ordinance in question (No. 11), ordinance No. 9 was enacted by
the same municipal council, providing for "wharfage fees" for goods and merchandise only. But
because the Provincial Board ruled the to be null and void, because the prescribed fees were
unreasonable and were obviously export or import taxes in the guise of wharfage fees which are
contrary to the provisions of section 2287 of the Administrative Code, the municipal council of Pagbilao
enacted Ordinance No. 11, providing for the wharfage of boats and vessels and of goods and
merchandise; and while it fixed the fees or charges for loading and unloading goods and merchandise,
it did not state the berthing fees for boats and vessels carrying the goods, all of which go to show that
the council wanted only to impose specific tax on the goods and merchandise, which was the same
objective it had, when the annulled Ordinance No. 9 was promulgated.
The question as to whether or not the charges paid should be returned, must be answered in the
affirmative. Not only were the payments made under protest, but they were also collected under an
invalid ordinance. In a number of cases, We have ruled that monies collected under invalid acts or tax
laws are refundable, even if the payments were voluntary (East Asiatic Co., Ltd. v. City of Davao, L-
16253, Aug. 21, 1962).
It is insinuated that invalidating the ordinance would leave the municipality with no means to defray the
expenses for operation, repair and maintenance of the wharf in question. It would seem, however, that
the municipality will not be absolutely helpless and hopeless, for there is always some remedy
somewhere, and those indicated in sections 2318 and 2320 of the Adm. Code, (supra) may be availed
of.
IN VIEW OF ALL THE FOREGOING, we find that the decision appealed from is in conformity with the
law and jurisprudence on the matter. The same should be, as it is hereby affirmed, in all respects. No
costs.
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
GUTIERREZ, JR., J.:
What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking for a re-
examination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of
registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic
Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines
and engaged in the air transportation business under a legislative franchise, Act No. 42739, as
amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of
taxes. The pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two
per cent of the gross revenue or gross earning derived by the grantee from its
operations under this franchise. Such tax shall be due and payable quarterly and
shall be in lieu of all taxes of any kind, nature or description, levied, established or
collected by any municipal, provincial or national automobiles, Provided, that if,
after the audit of the accounts of the grantee by the Commissioner of Internal
Revenue, a deficiency tax is 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.
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
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:
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, the Philippine 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. Nos. L-28508-9 July 7, 1989
ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Padilla Law Office for petitioner.
CRUZ, J.:
On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioner's claims for refund
of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251
and 1558 respectively.
I or accrued during or within the taxable year and which are related to the taxpayer's trade, business or
In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its ordinary
and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum
concessions. This claim was disallowed by the respondent Commissioner of Internal Revenue on the
ground that the expenses should be capitalized and might be written off as a loss only when a "dry
hole" should result. ESSO then filed an amended return where it asked for the refund of P323,279.00
by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and
necessary expenses in the same return was the amount of P340,822.04, representing margin fees it
had paid to the Central Bank on its profit remittances to its New York head office.
On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction
for the margin fees paid.
In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the
amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the period from April 18,1961 to
April 18, 1964, for a total of P434,232.92. The deficiency arose from the disallowance of the margin
fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit remittances to its New York head
office.
ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of P221,033.00
representing its overpayment on its income tax for 1959 and paying under protest the additional amount
of P213,201.92. On August 13, 1964, it claimed the refund of P39,787.94 as overpayment on the
interest on its deficiency income tax. It argued that the 18% interest should have been imposed not on
the total deficiency of P367,944.00 but only on the amount of P146,961.00, the difference between the
total deficiency and its tax credit of P221,033.00.
This claim was denied by the CIR, who insisted on charging the 18% interest on the entire amount of
the deficiency tax. On May 4,1965, the CIR also denied the claims of ESSO for refund of the
overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the Central Bank
could not be considered taxes or allowed as deductible business expenses.
ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the margin
fees were deductible from gross income either as a tax or as an ordinary and necessary business
expense. It also claimed an overpayment of its tax by P434,232.92 in 1960, for the same reason.
Additionally, ESSO argued that even if the amount paid as margin fees were not legally deductible,
there was still an overpayment by P39,787.94 for 1960, representing excess interest.
After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and P434,234.92 for
1960 but sustained its claim for P39,787.94 as excess interest. This portion of the decision was
appealed by the CIR but was affirmed by this Court in Commissioner of Internal Revenue v.
ESSO, G.R. No. L-28502- 03, promulgated on April 18, 1989. ESSO for its part appealed the CTA
decision denying its claims for the refund of the margin fees P102,246.00 for 1959 and P434,234.92 for
1960. That is the issue now before us.
II
The first question we must settle is whether R.A. 2009, entitled An Act to Authorize the Central Bank of
the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is a police
measure or a revenue measure. If it is a revenue measure, the margin fees paid by the petitioner to the
Central Bank on its profit remittances to its New York head office should be deductible from ESSO's
gross income under Sec. 30(c) of the National Internal Revenue Code. This provides that all taxes paid
profession are deductible from gross income.
The petitioner maintains that margin fees are taxes and cites the background and legislative history of
the Margin Fee Law showing that R.A. 2609 was nothing less than a revival of the 17% excise tax on
foreign exchange imposed by R.A. 601. This was a revenue measure formally proposed by President
Carlos P. Garcia to Congress as part of, and in order to balance, the budget for 1959-1960. It was
enacted by Congress as such and, significantly, properly originated in the House of Representatives.
During its two and a half years of existence, the measure was one of the major sources of revenue
used to finance the ordinary operating expenditures of the government. It was, moreover, payable out
of the General Fund.
On the claimed legislative intent, the Court of Tax Appeals, quoting established principles, pointed out
that —
We are not unmindful of the rule that opinions expressed in debates, actual proceedings of the
legislature, steps taken in the enactment of a law, or the history of the passage of the law through the
legislature, may be resorted to as an aid in the interpretation of a statute which is ambiguous or of
doubtful meaning. The courts may take into consideration the facts leading up to, coincident with, and in
any way connected with, the passage of the act, in order that they may properly interpret the legislative
intent. But it is also well-settled jurisprudence that only in extremely doubtful matters of interpretation
does the legislative history of an act of Congress become important. As a matter of fact, there may be
no resort to the legislative history of the enactment of a statute, the language of which is plain and
unambiguous, since such legislative history may only be resorted to for the purpose of solving doubt,
not for the purpose of creating it. [50 Am. Jur. 328.]
Apart from the above consideration, there are at least two cases where we have held that a margin fee
is not a tax but an exaction designed to curb the excessive demands upon our international reserve.
In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose P.
Bengzon:
A margin levy on foreign exchange is a form of exchange control or restriction
designed to discourage imports and encourage exports, and ultimately, 'curtail any
excessive demand upon the international reserve' in order to stabilize the currency.
Originally adopted to cope with balance of payment pressures, exchange
restrictions have come to serve various purposes, such as limiting non-essential
imports, protecting domestic industry and when combined with the use of multiple
currency rates providing a source of revenue to the government, and are in many
developing countries regarded as a more or less inevitable concomitant of their
economic development programs. The different measures of exchange control or
restriction cover different phases of foreign exchange transactions, i.e., in
quantitative restriction, the control is on the amount of foreign exchange allowable.
In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal
In the case of the margin levy, the immediate impact is on the rate of foreign
Revenue, 4 the Court laid down the rules on the deductibility of business expenses, thus:
exchange; in fact, its main function is to control the exchange rate without changing
the par value of the peso as fixed in the Bretton Woods Agreement Act. For a
member nation is not supposed to alter its exchange rate (at par value) to correct a
merely temporary disequilibrium in its balance of payments. By its nature, the
margin levy is part of the rate of exchange as fixed by the government.
As to the contention that the margin levy is a tax on the purchase of foreign exchange and hence
should not form part of the exchange rate, suffice it to state that We have already held the contrary for
the reason that a tax is levied to provide revenue for government operations, while the proceeds of the
margin fee are applied to strengthen our country's international reserves.
Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, 3 the same
idea was expressed, though in connection with a different levy, through Justice J.B.L. Reyes:
Neither do we find merit in the argument that the 20% retention of exporter's
foreign exchange constitutes an export tax. A tax is a levy for the purpose of
providing revenue for government operations, while the proceeds of the 20%
retention, as we have seen, are applied to strengthen the Central Bank's
international reserve.
We conclude then that the margin fee was imposed by the State in the exercise of its police power and
not the power of taxation.
Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be considered
necessary and ordinary business expenses and therefore still deductible from its gross income. The
fees were paid for the remittance by ESSO as part of the profits to the head office in the Unites States.
Such remittance was an expenditure necessary and proper for the conduct of its corporate affairs.
The applicable provision is Section 30(a) of the National Internal Revenue Code reading as follows:
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; traveling expenses while away from home in the pursuit of a trade or
business; and rentals or other payments required to be made as a condition to the
continued use or possession, for the purpose of the trade or business, of property
to which the taxpayer has not taken or is not taking title or in which he has no
equity.
(2) Expenses allowable to non-resident alien individuals and foreign corporations.
— In the case of a non-resident alien individual or a foreign corporation, the
expenses deductible are the necessary expenses paid or incurred in carrying on
any business or trade conducted within the Philippines exclusively.
The principle is recognized that when a taxpayer claims a deduction, he must point
to some specific provision of the statute in which that deduction is authorized and
must be able to prove that he is entitled to the deduction which the law allows. As
previously adverted to, the law allowing expenses as deduction from gross income
for purposes of the income tax is Section 30(a) (1) of the National Internal Revenue
which allows a deduction of 'all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business.' An item of
expenditure, in order to be deductible under this section of the statute, must fall
squarely within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be
deductible as a business expense, three conditions are imposed, namely: (1) the
expense must be ordinary and necessary, (2) it must be paid or incurred within the
taxable year, and (3) it must be paid or incurred in carrying on a trade or business.
In addition, not only must the taxpayer meet the business test, he must
substantially prove by evidence or records the deductions claimed under the law,
otherwise, the same will be disallowed. The mere allegation of the taxpayer that an
item of expense is ordinary and necessary does not justify its deduction.
While it is true that there is a number of decisions in the United States delving on
the interpretation of the terms 'ordinary and necessary' as used in the federal tax
laws, no adequate or satisfactory definition of those terms is possible. Similarly, this
Court has never attempted to define with precision the terms 'ordinary and
necessary.' There are however, certain guiding principles worthy of serious
consideration in the proper adjudication of conflicting claims. Ordinarily, an
expense will be considered 'necessary' where the expenditure is appropriate and
helpful in the development of the taxpayer's business. It is 'ordinary' when it
connotes a payment which is normal in relation to the business of the taxpayer and
the surrounding circumstances. The term 'ordinary' does not require that the
payments be habitual or normal in the sense that the same taxpayer will have to
make them often; the payment may be unique or non-recurring to the particular
taxpayer affected.
 There is thus no hard and fast rule on the matter. The right to a deduction depends SO ORDERED.
in each case on the particular facts and the relation of the payment to the type of
business in which the taxpayer is engaged. The intention of the taxpayer often may
be the controlling fact in making the determination. Assuming that the expenditure
is ordinary and necessary in the operation of the taxpayer's business, the answer
to the question as to whether the expenditure is an allowable deduction as a
business expense must be determined from the nature of the expenditure itself,
which in turn depends on the extent and permanency of the work accomplished by
the expenditure.

In the light of the above explanation, we hold that the Court of Tax Appeals did not err when it held on
this issue as follows:

Considering the foregoing test of what constitutes an ordinary and necessary

deductible expense, it may be asked: Were the margin fees paid by petitioner on its
profit remittance to its Head Office in New York appropriate and helpful in the
taxpayer's business in the Philippines? Were the margin fees incurred for purposes
proper to the conduct of the affairs of petitioner's branch in the Philippines? Or
were the margin fees incurred for the purpose of realizing a profit or of minimizing a
loss in the Philippines? Obviously not. As stated in the Lopez case, the margin fees
are not expenses in connection with the production or earning of petitioner's
incomes in the Philippines. They were expenses incurred in the disposition of said
incomes; expenses for the remittance of funds after they have already been earned
by petitioner's branch in the Philippines for the disposal of its Head Office in New
York which is already another distinct and separate income taxpayer.

xxx

Since the margin fees in question were incurred for the remittance of funds to
petitioner's Head Office in New York, which is a separate and distinct income
taxpayer from the branch in the Philippines, for its disposal abroad, it can never be
said therefore that the margin fees were appropriate and helpful in the
development of petitioner's business in the Philippines exclusively or were incurred
for purposes proper to the conduct of the affairs of petitioner's branch in the
Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss
in the Philippines exclusively. If at all, the margin fees were incurred for purposes
proper to the conduct of the corporate affairs of Standard Vacuum Oil Company in
New York, but certainly not in the Philippines.

ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance
of its own trade or business. The petitioner merely presumed that all corporate expenses are necessary
and appropriate in the absence of a showing that they are illegal or ultra vires. This is error. The public
respondent is correct when it asserts that "the paramount rule is that claims for deductions are a matter
of legislative grace and do not turn on mere equitable considerations ... . The taxpayer in every instance
has the burden of justifying the allowance of any deduction claimed." 5

It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now
claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or
business.

WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims for refund of
P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, with costs against the petitioner.

[G.R. Nos. 95203-05 : December 18, 1990.]
192 SCRA 363
SENATOR ERNESTO MACEDA, Petitioner, vs. ENERGY REGULATORY BOARD (ERB);
MARCELO N. FERNANDO, ALEJANDRO B. AFURONG; REX V. TANTIONGCO; and OSCAR E.
ALA, in their collective official capacities as Chairman and Members of the Board (ERB),
respectively; CATALINO MACARAIG, in his quadruple official capacities as Executive Secretary,
Chairman of Philippine National Oil Company; Office of the Energy Affairs, and with MANUEL
ESTRELLA, in their respective official capacities as Chairman and President of the Petron
Corporation; PILIPINAS SHELL PETROLEUM CORPORATION; with CESAR BUENAVENTURA
and REY GAMBOA as chairman and President, respectively; CALTEX PHILIPPINES with
FRANCIS ABLAN, President and Chief Executive Officer; and the Presidents of Philippine
Petroleum Dealer's Association, Caltex Dealer's Co., Petron Dealer's Asso., Shell Dealer's Asso.
of the Phil., Liquefied Petroleum Gas Institute of the Phils., any and all concerned gasoline and
petrol dealers or stations; and such other persons, officials, and parties, acting for and on their
behalf; or in representation of and/or under their authority, Respondents.
[G.R. Nos. 95119-21 : December 18, 1990.]
192 SCRA 363
OLIVER O. LOZANO, Petitioner, vs. ENERGY REGULATORY BOARD (ERB), PILIPINAS SHELL
PETROLEUM CORPORATION, CALTEX (PHIL.), INC., and PETRON CORPORATION,
Respondents.
The petitioners pray for injunctive relief, to stop the Energy Regulatory Board (Board hereinafter) from
implementing its Order, dated September 21, 1990, mandating a provisional increase in the prices of
petroleum and petroleum products, as follows:
PRODUCTS IN PESOS PER LITER
OPSF
Premium Gasoline 1.7700
Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400
Diesel Oil 1.2400
Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum Corporation,
and Petron Corporation proferred separate applications with the Board for permission to increase the
wholesale posted prices of petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2
and meanwhile, for provisional authority to increase temporarily such wholesale posted prices pending
further proceedings.:-cralaw
On September 21, 1990, the Board, in a joint (on three applications) Order granted provisional relief as
follows:
WHEREFORE, considering the foregoing, and pursuant to Section 8 of Executive Order No. 172, this
Board hereby grants herein applicants' prayer for provisional relief and, accordingly, authorizes said
applicants a weighted average provisional increase of ONE PESO AND FORTY-TWO CENTAVOS
(P1.42) per liter in the wholesale posted prices of their various petroleum products enumerated below,
refined and/or marketed by them locally. 3
The petitioners submit that the above Order had been issued with grave abuse of discretion,
tantamount to lack of jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that the same was issued without proper notice
and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172; that the Board, in
decreeing an increase, had created a new source for the Oil Price Stabilization Fund (OPSF), or
otherwise that it had levied a tax, a power vested in the legislature, and/or that it had "re-collected", by
an act of taxation, ad valorem taxes on oil which Republic Act No. 6965 had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order was issued without notice
and hearing, and hence, without due process of law.
The intervenor, the Trade Union of the Philippines and Allied Services (TUPAS/FSM)-W.F.T.U., 6 argues
on the other hand, that the increase cannot be allowed since the respondents oil companies had not
exhausted their existing oil stock which they had bought at old prices and that they cannot be allowed
to charge new rates for stock purchased at such lower rates.
The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25, 1990, in which Senator
Maceda and his counsel, Atty. Alexander Padilla, argued. The Solicitor General, on behalf of the Board,
also presented his arguments, together with Board Commissioner Rex Tantiangco. Attys. Federico
Alikpala, Jr. and Joselia Poblador represented the oil firms (Petron and Caltex, respectively).
The parties were thereafter required to submit their memorandums after which, the Court considered
the cases submitted for resolution.
On November 20, 1990, the Court ordered these cases consolidated.
On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked the provisions
of Section 8 of Executive Order No. 172, which we quote:
"SECTION 8. Authority to Grant Provisional Relief . — The Board may, upon the filing of an application,
petition or complaint or at any stage thereafter and without prior hearing, on the basis of supporting
papers duly verified or authenticated, grant provisional relief on motion of a party in the case or on its
own initiative, without prejudice to a final decision after hearing, should the Board find that the
pleadings, together with such affidavits, documents and other evidence which may be submitted in
support of the motion, substantially support the provisional order: Provided, That the Board shall
immediately schedule and conduct a hearing thereon within thirty (30) days thereafter, upon publication
and notice to all affected parties.: nad
As the Order itself indicates, the authority for provisional increase falls within the above provision.
There is no merit in the Senator's contention that the "applicable" provision is Section 3, paragraph (e)
of the Executive Order, which we quote:
(e) Whenever the Board has determined that there is a shortage of any petroleum product, or when
public interest so requires, it may take such steps as it may consider necessary, including the
temporary adjustment of the levels of prices of petroleum products and the payment to the Oil Price
Stabilization Fund created under Presidential Decree No. 1956 by persons or entities engaged in the
petroleum industry of such amounts as may be determined by the Board, which will enable the importer
to recover its cost of importation.
What must be stressed is that while under Executive Order No. 172, a hearing is indispensable, it does
not preclude the Board from ordering, ex parte, a provisional increase, as it did here, subject to its final
disposition of whether or not: (1) to make it permanent; (2) to reduce or increase it further; or (3) to
deny the application. Section 37 paragraph (e) is akin to a temporary restraining order or a writ of
preliminary attachment issued by the courts, which are given ex parte, and which are subject to the
resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively of
the other, in that the Board may resort to one but not to both at the same time. Section 3(e) outlines the
jurisdiction of the Board and the grounds for which it may decree a price adjustment, subject to the
requirements of notice and hearing. Pending that, however, it may order, under Section 8, an authority
to increase provisionally, without need of a hearing, subject to the final outcome of the proceeding. The
Board, of course, is not prevented from conducting a hearing on the grant of provisional authority —
which is of course, the better procedure — however, it cannot be stigmatized later if it failed to conduct
one. As we held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7
In the light of Section 8 quoted above, public respondent Board need not even have conducted formal
hearings in these cases prior to issuance of its Order of 14 August 1987 granting a provisional increase
of prices. The Board, upon its own discretion and on the basis of documents and evidence submitted by
private respondents, could have issued an order granting provisional relief immediately upon filing by
private respondents of their respective applications. In this respect, the Court considers the evidence
presented by private respondents in support of their applications — i.e., evidence showing that
importation costs of petroleum products had gone up; that the peso had depreciated in value; and that
the Oil Price Stabilization Fund (OPSF) had by then been depleted — as substantial and hence
constitutive of at least prima facie basis for issuance by the Board of a provisional relief order granting
an increase in the prices of petroleum products. 8
We do not therefore find the challenged action of the Board to have been done in violation of the due
process clause. The petitioners may contest however, the applications at the hearings proper.
Senator Maceda's attack on the Order in question on premises that it constitutes an act of taxation or
that it negates the effects of Republic Act No. 6965, cannot prosper. Republic Act No. 6965 operated to
lower taxes on petroleum and petroleum products by imposing specific taxes rather than ad valorem
taxes thereon; it is, not, however, an insurance against an "oil hike", whenever warranted, or is it a price
control mechanism on petroleum and petroleum products. The statute had possibly forestalled a larger
hike, but it operated no more.: nad
The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is
not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended by Executive
Order No. 137, as follows:
SECTION 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 (OPSF) 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 rates as fixed by the Board of Energy.
Anent claims that oil companies cannot charge new prices for oil purchased at old rates, suffice it to say
that the increase in question was not prompted alone by the increase in world oil prices arising from
tension in the Persian Gulf. What the Court gathers from the pleadings as well as events of which it
takes judicial notice, is that: (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2)
the exchange rate has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to
reach $1 Billion; (4) our trade deficit is at $2.855 Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough taxes necessary to replenish the OPSF as
provided by Presidential Decree No. 1956, and hence, there was no available alternative but to hike
existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a funding
designed to guarantee oil firms' profits although as a subsidy, or a trust account, the Court has no doubt
that oil firms make money from it. As we held there, however, the OPSF was established precisely to
protect the consuming public from the erratic movement of oil prices and to preclude oil companies from
taking advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes domestic
prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market.
In all likelihood, therefore, an oil hike would have probably been imminent, with or without trouble in the
Gulf, although trouble would have probably aggravated it.: nad
The Court is not to be understood as having prejudged the justness of an oil price increase amid the
above premises. What the Court is saying is that it thinks that based thereon, the Government has
made out a prima facie case to justify the provisional increase in question. Let the Court therefore make
clear that these findings are not final; the burden, however, is on the petitioners' shoulders to
demonstrate the fact that the present economic picture does not warrant a permanent increase.
There is no doubt that the increase in oil prices in question (not to mention another one impending,
which the Court understands has been under consideration by policy-makers) spells hard(er) times for
the Filipino people. The Court can not, however, debate the wisdom of policy or the logic behind it
(unless it is otherwise arbitrary), not because the Court agrees with policy, but because the Court is not
the suitable forum for debate. It is a question best judged by the political leadership which after all,
determines policy, and ultimately, by the electorate, that stands to be better for it or worse off, either in
the short or long run.
At this point, the Court shares the indignation of the people over the conspiracy of events and regrets
its own powerlessness, if by this Decision it has been powerless. The constitutional scheme of things
has simply left it with no choice.
In fine, we find no grave abuse of discretion committed by the respondent Board in issuing its Commission on Elections may be called at any time the government deems it necessary to ascertain
questioned Order. the will of the people regarding any important matter whether of national or local interest." If, pursuant
to this grant of power, the President decides, as he has decided, to consult with the people and submit
WHEREFORE, these petitions are DISMISSED. No costs. himself to a vote of confidence in a referendum because he deems it important to do so, he cannot be
SO ORDERED. constitutionally faulted. His action would also be in full accord with the spirit of Section 1, Article XIII of
the Constitution, which states that public office is a public trust and that public officers shall remain
accountable to the people.

It is clear from the above that the petition does not pose any question of sufficient importance or
significance to warrant the further intention of the Court.
G.R. No. L-47245 December 9, 1977

The dismissal of the instant petition is immediately executory.

GUALBERTO J. DELA LLANA, petitioner,
vs.
THE COMMISSION ON ELECTIONS, THE COMMISSION ON AUDIT, THE SECRETARY OF Makasiar, Antonio, Aquino, Concepcion Jr., Santos, Fernandez and Guerrero, JJ., concur.
FINANCE and THE BUDGET COMMISSIONER, respondents.

RESOLUTION

CASTRO, C.J.:

Considering the allegations, issues presented, and arguments adduced (a) in what the petitioner has
denominated as a "Petition for Prohibition or Declaratory Relief," (b) in the Solicitor General's Comment
on the petition, and (c) at the hearing on November 24, 1977, the Court Resolved NOT to give due
course to the petition and to DISMISS the same, for the reasons hereunder set forth.

(1) The question to be submitted to the people in the December 17, 1977 referendum which reads, "Do
you vote that President Ferdinand E. Marcos continue in office as incumbent President and be Prime
Minister after the organization of the Interim Batasang Pambansa as provided for in Amendment No. 3
of the 1976 Amendments to the Constitution?," is in neither the nature nor the form of an amendment.
The holding of the referendum will not result in an indirect amendment to Amendment No. 3 to the
Constitution which provides that "The incumbent President of the Philippines shall be the Prime Minister
and he shall continue to exercise all his powers even after the interim Batasang Pambansa is organized
and ready to discharge its functions and likewise he shall continue to exercise his powers and
prerogatives under the Nineteen Hundred and Thirty Five Constitution and the powers vested in the
President and the Prime Minister under this Constitution." Presidential Decree No. 1229 which calls for
the December 17, 1977 referendum cannot therefore be said to suffer from any constitutional infirmity. If
the people vote "yes," Amendment No. 3 will merely be reaffirmed and reinforced. If the people vote
"no," the incumbent President, heeding "the will" of the people, will - as he has categorically announced
- resign; in such situation, he will be merely exercising the prerogative, inherent in all public officials, to
resign. In either case the Constitution, as it now reads, will remain unaltered.

(2) The matter of whether or not the holding of the December 17, 1977 referendum is unnecessary
because the people, on several occasions, had already expressed their assent to the incumbent
President's continuance in office and their approval of his programs of government, is a political and
non-justiciable question, involving as it does the wisdom, no more and no less, of the decision to call for
a referendum. The power to determine when a referendum should be called and what matter is
important for referral to the people, resides in the political branch of the Government, the exercise of
which involves consideration of a multitude of factors political, social, economic, etc. - normally outside
the periphery of competence of the courts.

(3) The call for the referendum is explicitly authorized by Amendment No. 7 of the Constitution which in
part provides that "Referenda conducted thru the barangays and under the supervision of the
 SECTION 3. Any person, firm or corporation found violating the provision of the
preceding section of this Ordinance shall be punished by a fine of not less than
TWO HUNDRED (P 200.00) PESOS, nor more than FOUR HUNDRED (P400.00)
PESOS, or an imprisonment of hot less than ONE MONTH, nor more than THREE
MONTHS, or both fines and imprisonment at the discretion of the court.

SECTION 4. This Ordinance shall take effect on January 1, 1958.

G.R. No. L-24265 December 28, 1979
APPROVED December 13,1957.
PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION, plaintiff-appellant,
vs.
(Sgd.) TEODORO B. GALACAR Municipal Mayor 1
THE MUNICIPALITY OF JAGNA, PROVINCE OF BOHOL, defendant-appellee.

For a period of six years, from 1958 to 1963, plaintiff paid defendant Municipality, allegedly under
Picazo, Agcaoili, Santayana, Reyes & Tayao for appellant.
protest, storage fees in the total sum of 1142,265.13, broken down as follows:

Joel P. Tiangco and Jesus N. Borromeo for appellee.

Procter & Gamble Trading Co. Procter & Gamble Philippine Manufacturing Corp.

1
5, ______
9
MELENCIO-HERRERA, J.: 0 _____
5 7
8 2.
A direct appeal by plaintiff company from the judgment of the Court of First Instance of Manila, Branch
1
VI, upholding the validity of Ordinance No. 4, Series of 1957, enacted by defendant Municipality, which
3
imposed "storage fees on all exportable copra deposited in the bodega within the jurisdiction of the
Municipality of Jagna Bohol.
1 7, ______
9 0 _____
Plaintiff-appellant is a domestic corporation with principal offices in Manila. lt is a consolidated 5 7
corporation of Procter & Gamble Trading Company and Philippine Manufacturing Company, which later 9 6.
became Procter & Gamble Trading Company, Philippines. It is engaged in the manufacture of soap, 0
edible oil, margarine and other similar products, and for this purpose maintains a "bodega" in defendant 0
Municipality where it stores copra purchased in the municipality and therefrom ships the same for its
manufacturing and other operations. 1 9, ______
9 9 _____
On December 13, 1957, the Municipal Council of Jagna enacted Municipal Ordinance No. 4, Series of 6 5
1957, quoted hereinbelow: 0 0.
0
0
AN ORDINANCE IMPOSING STORAGE FEES OF ALL EXPORTABLE COPRA
DEPOSITED IN THE BODEGA WITHIN THE JURISDlCTI0N OF THE 1 7, ______
MUNICIPALITY OF JAGNA BOHOL. 9 8 _____
6 3
Be it ordained by the Municipal Council of Jagna Bohol, that: 1 0.
0
0
SECTION 1. Any person, firm or corporation having a deposit of exportable copra
in the bodega, within the jurisdiction of the Municipality of Jagna Bohol, shall pay to 1 3, P5,
the Municipal Treasury a storage fee of TEN (P0.10) CENTAVOS FOR EVERY 9 6 279.00
HUNDRED (100) kilos; 6 4
2 8.
SECTION 2. All exportable copra deposited in the bodega within the Municipality of 0
Jagna Bohol, is part of the surveillance and lookout of the Municipal Authorities; 0

1 _ P3,
9 _ 410. 00
6 _
3 _
_
_
P P8,
3 689.00
3,
5 OF THE DEFENDANT HAS ALREADY PRESCRIBED.
7
6.
1
3
T P4
O 2,
T 26
A 5.
L 13
2
C is for its exclusive use in connection with its business as manufacturer of soap, edible oil, margarine
L and other similar products; that the levy is intended as an "export tax" as it is collected on "exportable
AI
M every 100 kilos of copra stored in the bodega is excessive, unreasonable and oppressive and is
On March 3, 1964, plaintiff filed this suit in the Court of First Instance of Manila, Branch VI, wherein it
prayed that 1) Ordinance No. 4 be declared inapplicable to it, or in the alter. native, that it be
pronounced ultra-vires and void for being beyond the power of the Municipality to enact; and 2) that
defendant Municipality be ordered to refund to it the amount of P42,265.13 which it had paid under
protest; and costs.
For its part, defendant Municipality upheld its power to enact the Ordinance in question; questioned the
jurisdiction of the trial Court to take cognizance of the action under section 44(h) of the Judiciary Act in
that it seeks to enjoin the enforcement of a Municipal Ordinance; and pleaded prescription and laches
for plaintiff's failure to timely question the validity of the said Ordinance.
After the parties had agreed to submit the case for judgment on the pleadings, the trial Court upheld its
jurisdiction as well as defendant Municipality's power to enact the Ordinance in question under section
2238 of the Revised Administrative Code, otherwise known as the general welfare clause, and declared
that plaintiff's right of action had prescribed under the 5-year period provided for by Article 1149 of the
Civil Code.
In this appeal, plaintiff interposes the following Assignments of Error:
I useful occupations or enterprises; and (3) license for revenue. 4 It is thus unnecessary, as plaintiff would
THE TRIAL COURT ERRED IN HOLDING THAT ORDINANCE NO. 4, SERIES OF
1957, ENACTED BY THE DEFENDANT MUNICIPALITY OF JAGNA BOHOL, IS A
VALID, LEGAL AND ENFORCEABLE ORDINANCE AGAINST THE PLAINTIFF.
II
THE TRIAL COURT ERRED IN HOLDING THAT PAYMENT OF THE TAX UNDER
ORDINANCE NO. 4, SERIES OF 1957 WAS NOT DONE UNDER PROTEST.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE ACTION OF THE
PLAINTIFF TO ANNUL AND TO DECLARE ORDINANCE NO. 4, SERIES OF 1957
IV
AND, FINALLY, THE TRIAL COURT ERRED IN NOT HOLDING ORDINANCE NO.
4. SERIES OF 1957 ULTRA-VIRES AND VOID AND IN NOT ORDERING THE
REFUND OF TAXES PAID THEREUNDER. 3
It is plaintiff's submission that the subject Ordinance is inapplicable to it as it is not engaged in the
business or trade of storing copra for others for compensation or profit and that the only copra it stores
copra' , and, therefore, beyond the power of the Municipality to enact; and that the fee of P0.10 for
imposed more for revenue than as a regulatory fee.
The main question to determine is whether defendant Municipality was authorized to impose and collect
the storage fee provided for in the challenged Ordinance under the laws then prevailing.
The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon
municipalities by Commonwealth Act No. 472, approved on June 16, 1939, which was the prevailing
law when the Ordinance was enacted (Procter & Gamble Trading Co. vs. Municipality of Medina, 43
SCRA 130 11972]). Section 1 thereof reads:
Section 1. A municipal council or municipal district council shall have the authority
to impose municipal license taxes upon persons engaged in any occupation or
business, or exercising privileges in the municipality or municipal district, by
requiring them to secure licenses at rates fixed by the municipal council, or
municipal district council, and to collect fees and charges for services rendered by
the municipality or municipal district and shall otherwise have power to levy for
public local purposes, and for school purposes, including teachers' salaries, just
and uniform taxes other than percentage taxes and taxes on specified articles.
Under the foregoing provision, a municipality is authorized to impose three kinds of licenses: (1) a
license for regulation of useful occupation or enterprises; (2) license for restriction or regulation of non-
have us do, to determine whether the subject storage fee is a tax for revenue purposes or a license fee
to reimburse defendant Municipality for service of supervision because defendant Municipality is
authorized not only to impose a license fee but also to tax for revenue purposes.
The storage fee imposed under the question Ordinance is actually a municipal license tax or fee on
persons, firms and corporations, like plaintiff, exercising the privilege of storing copra in a bodega within
the Municipality's territorial jurisdiction. For the term "license tax" has not acquired a fixed meaning. It is selling copra. Moreover, by plaintiff's own admission that it is a consolidated corporation with its trading
often used indiseriminately to designate impositions exacted for the exercise of various privileges. In company, it will be hard to segregate the copra it uses for trading from that it utilizes for manufacturing.
many instances, it refers to revenue-raising exactions on privileges or activities. 5
Thus, it can be said that plaintiff's payment of storage fees imposed by the Ordinance in question does
Not only is the imposition of the storage fee authorized by the general grant of authority under section 1 not amount to double taxation. For double taxation to exist, the same property must be taxed twice,
of CA No. 472. Neither is the storage fee in question prohibited nor beyond the power of the municipal when it should be taxed but once. Double taxation has also been defined as taxing the same person
councils and municipal district councils to impose, as listed in section 3 of said CA No. 472. 6 twice by the same jurisdiction for the same thing. 9 Surely, a tax on plaintiff's products is different from a
tax on the privilege of storing copra in a bodega situated within the territorial boundary of defendant
municipality.
Moreover, the business of buying and selling and storing copra is property the subject of regulation
within the police power granted to municipalities under section 2238 of the Revised Administrative Code
or the "general welfare clause", which we quote hereunder: Plaintiff's further contention that the storage fee imposed by the Ordinance is actually intended to be an
export tax, which is expressly prohibited by section 2287 of the Revised Administrative Code, is without
merit. Said provision reads as follows:
Section 2238. General power of council to enact ordinances and make regulations.
— The municipal council shall enact such ordinances and make such regulations,
not repugnant to law, as may be necessary to carry into effect and discharge the Section 2287 ...
powers and duties conferred upon it by law and such as shall seem necessary and
proper to provide for the health and safety, promote the prosperity, improve the
It shall not be in the power of the municipal council to impose a tax in any form
morals, peace, good order, comfort, and convenience of the municipality and the
whatever upon goods and merchandise carried into the municipality, or out of the
inhabitants thereof, and for the protection of property therein.
same, and any attempt to impose an import or export tax upon such goods in the
guise of an unreasonable charge for wharfage use of bridges or otherwise, shall be
For it has been held that a warehouse used for keeping or storing copra is an establishment likely to void.
endanger the public safety or likely to give rise to conflagration because the oil content of the copra
when ignited is difficult to put under control by water and the use of chemicals is necessary to put out
xxx xxx xxx
the fire.7 And as the Ordinance itself states, all exportable copra deposited within the municipality is
"part of the surveillance and lookout of municipal authorities.
We have held that only where there is a clear showing that what is being taxed is an export to any
foreign country would the prohibition come into play. 10 When the Ordinance itself speaks of "exportable"
Plaintiff's argument that the imposition of P0.10 per 100 kilos of copra stored in a bodega within
copra, the meaning conveyed is not exclusively export to a foreign country but shipment out of the
defendant's territory is beyond the cost of regulation and surveillance is not well taken. As enunciated in
municipality. The storage fee impugned is not a tax on export because it is imposed not only upon
the case of Victorias Milling Co. vs. Municipality of Victorias, supra.
copra to be exported but also upon copra sold and to be used for domestic purposes if stored in any
warehouse in the Municipality and the weight thereof is 100 kilos or more. 11
The cost of regulation cannot be taken as a gauge, if the municipality really
intended to enact a revenue ordinance. For, 'if the charge exceeds the expense of
Thus finding the Ordinance in question to be valid, legal and enforceable, we find it unnecessary to
issuance of a license and costs of regulation, it is a tax'. And if it is, and it is validly
discuss the ascribed error that the Court a quo erred in declaring that appellant had not paid the taxes
imposed, 'the rule that license fees for regulation must bear a reasonable relation
under protest.
to the expense of the regulation has no application'.

However, we find merit in plaintiff's contention that the lower Court erred in ruling that its action has
Municipal corporations are allowed wide discretion in determining the rates of imposable license fees
prescribed under Article 1149 of the Civil Code, which provides for a period of five years for all actions
even in cases of purely police power measures. In the absence of proof as to municipal conditions and
whose periods are not fixed in that Code. The case of Municipality of Opon vs. Caltex Phil., 12 is
the nature of the business being taxed as well as other factors relevant to the issue of arbitrariness or
authority for the view that the period for prescription of actions to recover municipal license taxes is six
unreasonableness of the questioned rates, Courts will go slow in writing off an Ordinance. 8 In the case
years under Article 1145(2) of the Civil Code. Thus, plaintiff's action brought within six years from the
at bar, appellant has not sufficiently shown that the rate imposed by the questioned Ordinance is
time the right of action first accrued in 1958 has not yet prescribed.
oppressive, excessive and prohibitive.

WHEREFORE, affirming the judgment appealed, from, we sustain the validity of Ordinance No. 4,
Plaintiff's averment that the Ordinance, even if presumed valid, is inapplicable to it because it is not
Series of 1957, of defendant Municipality of Jagna Bohol, under the laws then prevailing.
engaged in the business or occupation of buying or selling of copra but is only storing copra in
connection with its main business of manufacturing soap and other similar products, and that to be
compelled to pay the storage fees would amount to double taxation, does not inspire assent. The Costs against plaintiff-appellant.
question of whether appellant is engaged in that business or not is irrelevant because the storage fee,
as previously mentioned, is an imposition on the privilege of storing copra in a bodega within defendant
SO ORDERED.
municipality by persons, firms or corporations. Section 1 of the Ordinance in question does not state
that said persons, firms or corporations should be engaged in the business or occupation of buying or
 and further averred that Ordinance No. 5, as amended, being null and void, it cannot be compelled to
pay them.
On April 25, 1959, the Court below admitted appellee's amended complaint which merely included for
recovery the taxes paid by it under the same ordinance subsequent to the filing of the original
complaint.
On February 16, 1960, both parties submitted the following stipulation of facts:
G.R. No. L-18534 December 24, 1964
GOLDEN RIBBON LUMBER COMPANY, INC., plaintiff-appellee,
vs.
THE CITY OF BUTUAN and FRANCISCO MAGNO, in his capacity as City Treasurer of the City of
Butuan, defendants-appellants.
Rodegelio M. Jalandoni for plaintiff-appellee.
City Attorney Jose Villanueva for defendants-appellants.
DIZON, J.:
Appeal taken by the City of Butuan and Francisco Magno, as City Treasurer of the City of Butuan, from
the decision of the Court of First Instance of Agusan in Civil Case No. 624 declaring void Ordinance No.
5, as amended, of said City, and ordering them to refund to appellee, Golden Ribbon Lumber Company,
Inc., the sum of P1,190.92 paid by the latter as tax, under protest, with legal interests thereon from the
filing of the complaint until fully paid, and to pay the costs.
Appellee, a duly organized domestic corporation, operated a lumber mill and lumber yard in Butuan
City. Pursuant to the provisions of Section 1 of Ordinance No. 5, as amended by Ordinance Nos. 9, 10,
47 and 49 of said city, appellee paid to appellants the taxes provided for therein amounting to the total
sum P2,069.26. Claiming that said ordinance, as amended, was void, it later brought the present action
to have it so declared; to recover the amount mentioned heretofore, and to have appellants
permanently enjoined from enforcing said ordinance, as amended.
After the denial of their motion to dismiss the complaint on the ground that it did not state a cause of
action, appellants filed their answer in which, after making some denials and admissions, they alleged,
as affirmative defenses, (a) that the tax assessed under Ordinance No. 5, as amended. is a privilege
tax on business and is therefore legal under paragraph p, section 15, Article III of Republic Act No. 523,
otherwise known as the Charter of the City of Butuan, and (b) that since the payments were not made
under protest, appellee could not ask for their refund. As counterclaim they also alleged that appellee
had incurred tax delinquencies and surcharges as of July, 1957 in the amount of P16,978.44 and
additional undetermined taxes from August, 1957 up to and including January 1958 exclusive of
interests under Ordinance No. 5, as amended by Ordinance No. 49, Series of 1954.
In its answer to the counterclaim appellee denied the alleged unpaid taxes and interests.
On March 7, 1959 the Court admitted appellants' amended answer and counterclaim in which they
alleged, inter alia, that after deducting the taxes paid (P2,981.81), there still remained a balance of
P33,000.74 representing appellee's tax delinquencies, surcharges and interests as of March, 1958. The
latter, answering the amended counterclaim, denied such delinquencies etc., amounting to P33,000.74,
COMES NOW the plaintiff, assisted by counsel, and the defendants, through its counsel, and
to this Honorable Court respectfully submit the following stipulation of facts:
1. The plaintiff is a corporation duly organized and existing under the laws of the Philippines,
with principal office in the City of Butuan; that the defendant City of Butuan is public
corporation created and existing under the law of the Philippines; and that the other
defendant, Francisco Magno, is the City Treasurer of the City of Butuan and has been sued in
that capacity only;
2. That plaintiff pursuant to the purposes for which it was organized and as a necessary
incident to its business, established and operated a lumber yard and/or lumber mill situated
within the territorial jurisdiction of the City of Butuan;
3. That sometime in September, 1950, the defendant City of Butuan enacted and approved,
through its Municipal Board, Ordinance No. 5, copy of, which is hereto attached as Exhibit "A"
and made part of this Stipulation of Facts; that said Ordinance No. 5 was subsequently
amended by the following ordinances: Ordinance No. 9, Ordinance No. 10, Ordinance No. 47
and Ordinance No. 49, copies whereof are likewise hereto attached as Exhibit "B", Exhibit
"C", Exhibit "D" and Exhibit "E", as integral parts hereof; that the dates of enactment or
approval as well as the effectivity of each of the foregoing ordinances are indicated by the
provisions thereof;
4. That defendants maintain that the aforementioned Ordinance No. 5, and all amendments
thereto, were enacted by the defendant City of Butuan pursuant to and under the provisions
of Republic Act No. 523, as amended, otherwise known as the Charter of the City of Butuan,
more particularly Section 15, paragraph (p) thereof;
5. That the plaintiff Golden Ribbon Lumber Company, Inc., as a corporation operating a
lumber mill and/or lumber yard within the territorial jurisdiction of the defendant City of
Butuan, has sawn manufactured and/or produced a total of 7,310,567 board feet of sawn
lumber, irrespective of class, within the period from September, 1956 to March, 1958,
inclusive;
6. That plaintiff corporation has been assessed by the defendants under and pursuant to the
provision of the aforesaid Ordinance No. 5, as amended, and was found delinquent in the
payment of its tax liabilities including surcharges in the total sum of P36,552.84 for the period
from September, 1956 to March, 1958, inclusive;
7. That out of the aforestated tax liabilities and surcharges assessed
against the plaintiff corporation by the defendants pursuant to the
provisions of Ordinance No. 5, as amended, said plaintiff has paid to the
defendant City of Butuan through its co-defendant, the City Treasurer, the On February 28, 1961, the lower court rendered the appealed judgment which appellants seeks to have
Us reverse, claiming that the lower court erred in holding (a) that the tax imposed by said Ordinance
total sum of P2,982.11 only, broken down as follows — No. 5, as amended, is a sales tax on the sawn manufactured or produced lumber, which are forest
products, and in further ruling (b) that said ordinance was ultra vires and, therefore, null and void.

Date of Payment Receipt Number Amount Paid The principal issue to be resolved is whether Ordinance No. 5, as originally approved or as later
amended, the pertinent part of which reads as follows:
Oct. 24, 1957 E-0385101 P1,000.00

Nov. 25, 1957 E-038703 180.89 AN ORDINANCE IMPOSING A TAX ON LUMBER MILLS

Feb. 10, 1958 E-0394669 110.30 SECTION 1. — Every person, association or corporation operating a lumber mill and/or
lumber yard within the territory of the City of Butuan shall pay to the City a tax of two fifths
Mar. 11, 1958 H-6606335 500.00 (P.004) centavo for every board foot of lumber sawn manufactured and/or produced
(regardless of group). The tax shall be paid within the first twenty (20), days of the following
May 14, 1958 E-2941534 1,190.92 month. If the tax is not paid within the time herein prescribed, there shall be added to the
unpaid amount a surcharge of ten per centum (10%) every month of fractional part thereof,
but in no case shall the total surcharge exceed twenty-five per centum (25%).
TOTAL P2,982.11

SECTION 2. — It shall be the duty of every person, association or corporation operating a

thereby leaving still unpaid the amount of P33,570.73, pursuant to assessment;
8. That among the payments stated in the next preceding paragraph, only the last payment
— that made on May 14, 1958 in the amount of P1,190.92 was made under protest;
9. That defendants have repeatedly demanded from plaintiff payment of the aforesaid taxes,
claiming that such have been long due and payable under the provisions of Ordinance No. 5,
as amended, but plaintiff refused and still refuses to make payments up to the present,
except those mentioned in paragraph 7 of this Stipulation of Facts;
10. That, on the other hand, plaintiff since May 1958 has demanded that defendants cease
and desist from enforcing the provisions of Ordinance No. 5, as amended, but defendants
refused to comply with said plaintiff's demand;
11. That there is no question of fact involved in this case and that the only legal question for
this Court to decide and resolve is: (1) whether or not Ordinance No. 5, as amended is valid
and legal and that whether or not the plaintiff's corporation is legally bound to pay the taxes
provided for in said ordinance in question; and (2) whether or not payments made without
protest in case of a decision in favor of the plaintiff is subject to reimbursement.
PRAYER
WHEREFORE, the parties herein respectfully pray this Honorable Court to approve the
aforegoing Stipulation of Facts and to make it the basis for a decision on the issues raised by
the pleadings.
It is further respectfully prayed that both parties be granted thirty (30) days from receipt of
notice of approval of the foregoing Stipulation of Facts within which to file simultaneously their
respective memoranda, and fifteen (15) days from receipt of the other party's memorandum
within which to file a reply thereto, and thereafter, the case shall be deemed submitted for
decision.
lumber mill to submit to the City Treasurer within the first fifteen (15) days of every month a
sworn statement of the number of board feet sawn manufactured or produced by it during the
preceding month.
falls within the provisions of paragraph 5, Section 15 of Republic Act No. 523, which empowers the
municipal board of the City of Butuan:
To tax, fix the license fee for, regulate the business and fix the location of, match factories,
blacksmith shops, foundries, steam boilers, lumber mills and lumber yards, shipyards, the
storage and sale of gunpowder, tar pitch, resin coal, oil, gasoline, benzine turpentine, hemp,
cotton, nitroglycerine, petroleum, or any of the products thereof, and of all other highly
combustible or explosive materials and other establishments likely to endanger the public
safety or give rise to conflagrations or explosions, and subject to the rules and regulations
incured by the Director of Health in accordance with law, tanneries renderies, tallow
chandeleries, embalmers, and funeral parlors, bone factories and soap factories.
Appellee contends that the questioned ordinance imposes a tax, not on lumber mills and lumber yards,
but on the sawn-manufactured and/or produced lumber, which are forest products and not found
among the taxable items enumerated in the law above quoted, thus rendering said ordinance null and
void. It argues further that, even under the latest amendment — Ordinance No. 49, series of 1954,
which purports to impose the tax not on lumber sold but on lumber sawn manufactured and/or
produced — the ordinance is ultra vires because par. (p) Section 15 of the Charter of the City of Butuan
(quoted above), authorizes a tax only on lumber mills and lumber yards, which obviously does not
include the power to impose a tax on sawn manufactured or produced lumber.
Upon the other hand, appellants maintain that the tax in question is a license or privilege tax on the
business of lumber mills or lumber yards imposed by appellant city in the exercise of its police power
under Section 15 of its Charter.
The title given to the original ordinance in question was "An ordinance imposing a tax on the sales of
lumber". Section 1 thereof made the tax collectible on "every board foot of lumber sold" by every
person, association or corporation operating a lumber mill within the territory of the City of Butuan, while
Section 4 expressly exempted lumber mills from the payment of the quarterly sales tax provided for in
Section 3, Article 11 of Ordinance No. 47, Series of 1949.
The above would seem to be sufficient to show that the tax imposed is and was really intended to be on
lumber sold and not a tax on, or, license fee for the privilege of operating a lumber mill and/or a lumber
yard.
manufacture of lumber by them. The rule is well-settled that municipal corporations, unlike sovereign
states, are clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power
granted must be construed strictly, any doubt or ambiguity arising out from the terms of the grant to be
resolved against the municipality. (Cu Unjieng vs. Patstone 42 Phil. 818; Vega, et al. vs. Municipal
Board, etc., 50 O.G. No. 6,p. 2456)

Lastly, appellants' contention that appellee had no cause of action because it does not appear that the
The amendatory ordinances did not change the nature of the tax imposed by the original. Ordinance
taxes sought to be recovered were paid under protest is also untenable. The present action involves
No. 9 simply changed the title of the latter so as to make it read as an ordinance imposing a tax on the
only the recovery of the sum of Pl,190.92 which was paid under protest (paragraph 8, Stipulation of
"produce of lumber mills"; Ordinance No. 10, while entitled as one imposing a tax on lumber mills made
Facts, p. 53, Record on Appeal).
the tax collectible on "every board foot of lumber, regardless of group, sawn manufactured or produced,
etc."; Ordinance No. 47, in turn, made the tax collectible on "every board foot of lumber sold and/or
shipped"; Ordinance No. 49, while changing again the title of the original ordinance so as to make it IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby affirmed, with costs.
read as "An ordinance imposing a tax on lumber mills", also required the tax to be paid "for every board
foot of lumber sawn manufactured and/or produced, etc."
Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera Regala, Makalintal, Bengzon, J.P., and Zaldivar,
JJ., concur.
The clear implication from the original as well as the amendatory ordinances is that the tax imposed is
one on lumber sold, manufactured, sawn or produced by parties duly licensed to engage in said trade
Bautista Angelo and Paredes, JJ., took no part.
or business. As the lower court said — and this we quote with approval. —

The intent of Ordinance No. 5 to tax the sale of lumber is clear and unmistakable. The
subsequent ordinances Nos. 9, 10, 47 and 49, Exhs. B, C, D, and E respectively, being all
amendatory, naturally did not alter the essence or spirit of the basic ordinance. This is
evident, if we consider that section 4 of the original ordinance which exempts lumber mills
from the of quarterly sales tax, as provided in an earlier ordinance was never repealed and
instead was carried over and continued to be in force until the latest amendment.

Moreover, the tax thus levied is virtually one on "forest products" since manufactured or sawn lumber is
so considered under the provisions of Section 263, National Internal Revenue Code, which is embraced
in Chapter V thereof entitled "Charges on Forest Products", as construed by Section VI, Regulation No.
85, Department of Finance. Municipal corporations are prohibited from imposing charges of taxes of
such nature (Commonwealth Act No. 472, Section 3; Republic Act No. 2264).

Appellants' claim that the questioned tax is one on business or a privilege tax for the operation of a
lumber mill or a lumber yard is without merit.

The character or nature of a tax is determined not by the title of the act or ordinance imposing it but by
its operation, practical results and incidents (Dawson vs. Distilleries, etc., 255 U.S. 288, 65 L. Ed. 638;
Association of Customs Brokers, Inc., et al. vs. The Municipal Board, et al., G.R. No. L-4376, May 22,
1953).

Neither the original ordinance in question nor the amendatory ones show that the tax provided for
therein is imposed by reason of the enjoyment of the privilege to engage in a particular trade or
business. Neither do they provide that payment thereof is a condition precedent to the enjoyment of
such privilege or that its non-payment would result in the cancellation of any previous license granted.
The only consequence of its non-payment appears to be the imposition of a surcharge or liability to
suffer the penal sanctions prescribed in Section 3 of the original ordinance. These circumstances lead
Us to the conclusion that the questioned tax cannot be considered as one imposed upon a party for
engaging in the business of operating a lumber mill or a lumber yard.

We likewise find to be unmeritorious appellants' contention that the power of the City of Butuan to tax
lumber mills and lumber yards includes the power to tax the sale, production, sawing and/or

G.R. No. L-30727 July 15, 1975
For Passenger
THE CITY OF OZAMIZ, Represented by THE CITY MAYOR, MUNICIPAL BOARD, CITY
TREASURER, and CITY AUDITOR, petitioner-appellant,
vs.
SERAPIO S. LUMAPAS and HONORABLE GERONIMO R. MARAVE, respondents-appellees.
Assistant City Fiscal Artemio C. Engracia for petitioner-appellant.
Francisco D. Boter for respondents-appellees.
For Cargoes
ANTONIO, J.:
Appeal by certiorari from the decision, dated March 18, 1969, of respondent Judge Geronimo R.
Marave, of the Court of First Instance of Misamis Occidental, Branch II, Ozamiz City, declaring
Ordinance No. 466, series of 1964, of the Municipal Board of the City of Ozamiz, null and void (Civil
Case No. OZ-159), and ordering petitioner to return to respondent Serapio S. Lumapas the sum of
P1,243.00, representing the amount collected as parking fees, by virtue of the ordinance, without costs.
The facts of this case, which are not disputed, are as follows:
Respondent Serapio S. Lumapas is an operator of transportation buses for passengers and cargoes,
under the name of Romar Line, with Ozamiz City and Pagadian, Zamboanga del Sur, as terminal
points, by virtue of a certificate of public convenience issued to him by the Public Service Commission.
On September 15, 1964, the Municipal Board of Ozamiz City enacted the following:
ORDINANCE NO. 466
AN ORDINANCE IMPOSING PARKING FEES FOR EVERY MOTOR VEHICLE
PARKED ON ANY PORTION OF THE EXISTING PARKING SPACE IN THE CITY
OF OZAMIZ. Be it ordained by the Municipal Board of the City of Ozamiz, that:
SECTION 1 — There is hereby imposed parking fees for all motor vehicles parked
on any portion of the duly designated parking areas in the City of Ozamiz;
SECTION 2. — Motor Vechicles' as used in this ordinance shall be construed to
mean all vehicles run by engine whether the same is offered for passengers or for
cargoes of whatever kind or nature;
SECTION 3. — The word "Parking" as used in this ordinance shall be construed to
mean, when a motor vehicle of whatever kind is stopped on any portion of the
existing parking areas for the purpose of loading and unloading passengers or
cargoes;
SECTION 4. — For purposes of the fee hereinabove provided, the following
schedule of rates collectible daily from the conductor, driver, operator and/or owner
must be observed:
(a) Passenger Bus ........................................................................ P1.00
(b) Weapon Carrier, Baby Bus & others of similar nature ..... .70
(c) Pick Up, Jeepneys, PU Cars and others of similar
nature ....................................................................................................................... .
50
(a) Cargo Trucks .......................................................................... 1.00
(b) Pick Up, Jeeps, Jeepneys, Weapon Carriers & Others of similar
nature ...................................................................................................................... .
70
SECTION 5. — That the City Treasurer or his authorized representative is hereby
empowered to collect the herein parking fees using any form of official receipt he
may devise, from the conductor, driver, operator and/or owner of the motor vehicles
parked in said designated parking areas;
SECTION 6. — Any person or persons, violating any provision of this ordinance
shall, upon conviction thereof, be punished by an imprisonment of not less than two
(2) months nor more than six (6) months, or by a fine in the sum of not less than
P100.00 but not more than P400.00 or both such fine and imprisonment at the
discretion of the Court;
SECTION 7. — This ordinance shall take effect immediately upon its approval.
Enacted, September 15, 1964,
Approved, October 7, 1964.1
After approval of the above-quoted ordinance, the City of Ozamiz began collecting the prescribed
parking' fees and collected from respondent-appellee Serapio S. Lumapas, who had paid under protest,
the parking fees at One Peso (P1.00) for each of his buses, from October 1964 to January 1967, or an
aggregate amount of P1,259.002 for which official receipts were issued by petitioner.
About four (4) years later, or on January 11, 1968, respondent Serapio S. Lumapas filed a complaint,
dated August 3, 19673 against the City of Ozamiz, represented by the City Mayor, Municipal Board, City
Treasurer, and City Auditor, with the Court of First instance of Misamis Occidental, Branch II (Civil Case
No. OZ-159), for recovery of parking fees, alleging, among others, that said Ordinance No. 466 is ulta
vires, and praying that judgment be issued (1) nullifying Ordinance No. 466, series of 1964, and (2)
ordering the Municipal Board to appropriate the amount of P1,459.00 for the reimbursement of
P1,259.00 he had paid as parking fees, plus P200.00 as attorney's fees.
4 rendered based upon this stipulation of facts after the parties shall have submitted
On January 25, 1968, petitioner filed its answer, with affirmative defenses to which respondent-
appellee Serapio S. Lumapas filed his reply, dated January 30, 1968.5
On January 3, 1969, the parties, through their respective counsel, filed the following:
STIPULATION OF FACTS
COME NOW the plaintiff and the defendants, through their respective counsel, and
unto this Honorable Court respectfully submit this stipulation of facts, to wit:
(1) That the area enclosed in red pencil in the sketch is a market site of the City of
Ozamiz which holds the same in its proprietary character as evidenced by Tax
Declaration No. 51234. This area is for public use.
(2) That the Zulueta Street is now extended up to the end of the market site
passing a row of tiendas up to the end marked "toilet" in the sketch plan of market
site when the market building was constructed in 1969;
(3) That on the right side near the row of tiendas and near the toilet and marked
with series of x's and where the buses of plaintiff were parking waiting for
passengers going to the south;
(4) That this space marked "rig parking" in the sketch plan marked "x" has been
designated by City Ordinance No. 233 as a parking place marked Exhibit "2";
(5) That the defendant City Government has been collecting parking fees and
issued corresponding official receipts to the plaintiff for each unit belonging to the
plaintiff every time it left Ozamiz City from said parking place but once a day at one
peso per unit;
(6) That the total amount of parking fees collected from the plaintiff by the
defendant is P1,243.00 as per official receipts actually counted in the presence of
both parties;
(7) That the plaintiff made a demand for the reimbursement of the total amount
collected from 1964 to 1967 and this demand was received on September 1, 1967,
by the City Treasurer and that the City Treasurer replied by first indorsement dated
September 11, 1967, asking for reference and verification; and
(8) That in reply to said first indorsement, the plaintiff sent a letter to the City
Treasurer dated January 18, 1967, citing cases in support of the demand, and in
answer to that letter, the City Treasurer in his communication dated January 11,
1968, flatly denied payment of the demand.
(9) That the parties will file their respective memoranda within twenty days from
today.
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be
their respective memoranda or after the lapse of twenty days from today.
Ozamiz City, December 27, 1968.6
On the basis of the foregoing Stipulation of Facts, and of the court's finding, after an ocular inspection
of the parking area designated by Ordinance No. 286, series of 1956,7 superseding Ordinance No. 234,
series of 1953, that it is a municipal street, although part of the public market, said court rendered
judgment on March 18, 1969 declaring that such parking fee is in the nature of toll fees for the use of
public road and made in violation of Section 59[b] of Republic Act No. 4136 (Land Transportation and
Traffic Code), there being no prior approval therefor by the President of the Philippines upon
recommendation of the Secretary of Public Works and Communications (now Public Works). Hence,
the present appeal by certiorari.
Petitioner now contends that the lower court erred: (1) in declaring Ordinance No. 466, series of 1964,
of Ozamiz City, null and void; (2) in considering parking fees as road tolls under Section 59[b] of
Republic Act No. 4136; (3) in declaring the parking area as a public street and not the patrimonial
property of the city; and (4) in ordering the reimbursement of parking fees paid by respondent-appellee.
Decisive of this controversy is whether the Municipal Board of the City of Ozamiz, herein petitioner-
appellant, had the power to enact said Ordinance No. 466.
Petitioner-appellant, in maintaining the affirmative view, contends: (1)that the ordinance is valid for the
fees collected thereunder are in the nature of property rentals for the use of parking spaces belonging
to the City in its proprietary character, as evidenced by Tax Declaration No. 51234, and are authorized
by Section 2308 (f) of the Revised Administrative Code, 8(2) that Section 15 (y) of the Charter of
Ozamiz City (Republic Act No. 321) 9 also authorizes the Municipal Board to regulate the use of streets
which carries with it the power to impose fees for its implementation; (3) that, pursuant to such power,
the Municipal Board passed said Ordinance No. 234, the purpose of which is to minimize accidents, to
avoid congestion of traffic, to enable the passengers to know the exact time of the departure of trucks
and, for this purpose, the Municipal Board provided for parking areas for which the City has to have
funds for the implementation of the purposes abovestated; (4) that Section 2 of the Local Autonomy
Law (Republic Act No. 2264)likewise empowers the local governments to impose taxes and fees,
except those that are enumerated therein, and parking fee is not among the exceptions: and (5) that the
word "toll" connotes the act of passing along the road and the collection of toll fees may not be imposed
unless approved by the President of the Philippines upon the recommendation of the Secretary of
Public Works, pursuant to Section 59[b] of Republic Act No. 4136; whereas the word "parking" implies a
stationary condition and the parking fees provided for in Ordinance No. 466 is for the privilege of using
the designated parking area, which is owned by the City of Ozamiz, as its patrimonial property.
On the other hand, respondent-appellee insists (1) that Ozamiz City has no power to impose parking
fees on motor vehicles parked on Zulueta Street, which is property for public use and, as such,
Ordinance No. 466 imposing such fees is null and void; (2) that granting arguendo that Zulueta Street is
part of the City's public market site, its conversion into a street removes it from its category as
patrimonial property to one for public use; 10 (3) that the use of Zulueta Street as a parking place is
only incidental to the free passage of motor vehicles for, as soon as the buses are loaded with
passengers, the vehicles start their journey to their respective destinations and pay the toll clerk at a
station about one hundred; (100) feet ahead along Zulueta Street before they are allowed to get out of
the City and as such, the prohibition to impose taxes or fees embodied in Section 59[b] of Republic. Act
No. 4136 applies to this case; (4) that Section 2308[f] of the Revised Administrative Code providing that
the "proceeds on income from the ... use or management of property lawfully held by the municipality"
accrue to the municipality, does not grant, either expressly or by implication, to the municipality, the
power to impose such tax, (5) that Section 15[y] of the Charter of Ozamiz City (Republic Act No. 321)
which authorizes the City, among others, "to regulate the use of a street," does not empower the City to
impose parking fees; besides, said section contains a proviso, i.e., "except as otherwise provided by
law", which, in this case, is Republic Act No. 4136; and (6) that, since the power to impose parking fees
is not among those conferred by the Local Autonomy Act on local government, said City cannot,
therefore, impose such parking fees.
After the filing of its brief, or on December 10, 1969, the petitioner- appellant, through its counsel, First
Assistant City Fiscal Artemio C. Engracia, filed the following Manifestation, dated November 27, 1969,
praying that the decision of the lower court be reversed in view of the approval by the President of the
Philippines upon the recommendation of the Secretary of Public Works of the ordinance in question that
validates the same, to wit:
1. That the decision of the lower court, marked Annex "E" of the petition, declaring
Ordinance No. 466, series of 1964, of Ozamiz City, marked Annex "G" of the
petition, null and void is based on the non-compliance with the provisions of
Section 59[b] of Republic Act No. 4136, otherwise known as The Land
Transportation Law, which requires the approval by the President of the Philippines
upon the recommendation of the Secretary of Public Works of such kind of
ordinance..
2. That the President of the Philippines has now approved the Ordinance in
question. A certified copy of said approval is hereunder quoted.
xxx xxx xxx
4th Indorsement
Manila, September 26, 1969
Respectfully returned to the Mayor, City of Ozamiz, hereby approving, as
recommended in the 3rd indorsement hereon of the Secretary of Public Works and
Communications, Ordinance No. 466, series of 1964, of that city, entitled: "AN
ORDINANCE IMPOSING PARKING FEES FOR EVERY MOTOR VEHICLE
PARKED ON ANY PORTION OF THE EXISTING PARKING SPACE IN THE
OZAMIZ."
By Authority of the President:
(Sgd.) FLORES BAYOT
Assistant Executive Secretary
3. That the approval by the President of the Philippines is based upon the
recommendation of the Secretary of Public Works. A certified copy of said
recommendation is hereunder reproduced:
3rd Indorsement
June 3, 1969
Respectfully forwarded to His Excellency, the President of the Philippines,
Malacañang, recommending favorable action, in view of the representations herein
made, on the within letter dated March 21, 1969 of Mayor Hilarion A. Ramiro,
Ozamiz City, requesting approval No. 466, series of 1964, passed by the Municipal
Board, same city regarding the collection of fees for the privilege of parking
vehicles in the lots privately-owned by said City.
(Sgd.) ANTONIO V. RAQUIZA
Secretary
4. That the action of the Secretary of Public Works is based upon the findings of
the Commissioner of the Land Transportation Commission. A certified copy of the
same is herein reproduced:
xxx xxx xxx
2nd Indorsement
May 16, 1969
Respectfully returned to the Honorable Secretary, Department of Public Works and
Communications, Manila, with the statement that this Commission interposes no
objection on the approval of Ordinance No. 466, series of 1964, of Ozamiz City,
considering that the schedule of rate collectible from the conductor, driver, operator
and/or owner as stated under Section 4 thereof appears to be reasonable.
It may be stated in this connection that on the Decision of the CFI of Misamis
Occidental, Branch II, dated March 18, 1969 under Civil Case No. OZ(159), the
said Ordinance was declared null and void for failure to comply with the provisions
of Section 59[b] of R. A. 4136, regarding the required "approval by the President of
the Philippines upon recommendation of the Secretary of Public Works and
Communications."
(Sgd.) ROMEO F. EDU
Commissioner
The rule is well-settled that municipal corporations, being mere creatures of the law, have only such
powers as are expressly granted to them and those which are necessarily implied or incidental to the
exercise thereof, and the power to tax is inherent upon the State and it can only be exercised by
Congress, unless delegated or conferred by it to a municipal corporation. As such, said corporation has
only such powers as the legislative department may have deemed fit to grant. By reason of the limited
powers of local governments and the nature thereof, said powers are to be construed strictissimi
juris and any doubt or ambiguity arising out of the terms used in granting said powers must be
construed against the municipality. 11
The implied powers which a municipal corporation possesses and can exercise are only those
necessarily incident to the powers expressly conferred. Inasmuch as a city has no power, except by
delegation from Congress, in order to enable it to impose a tax or license fee, the power must be
expressly granted or be necessarily implied in, or incident to, the powers expressly conferred upon the
city.
Under Sec. 15[Y] of the Ozamiz City Charter (Rep. Act No. 321), the municipal board has the power "...
to regulate the use of streets, avenues, alleys, sidewalks, wharves, piers, parks, cemeteries and other
public places; ...", and in subsection [nn] of the same section 15, the authority "To enact all ordinances it
may deem necessary and proper for the sanitation and safety, the furtherance of prosperity and the
promotion of the morality, peace, good order, comfort, convenience, and general welfare of the city and
its inhabitants, and such others as may be necessary to carry into effect and discharge the powers and
duties conferred by this Charter ..." By this express legislative grant of authority, police power is
delegated to the municipal corporation to be exercised as a governmental function for municipal
purposes.
It is, therefore, patent that the City of Ozamiz has been clothed with full power to control and regulate
its streets for the purpose of promoting the public health, safety and welfare. Indeed, municipal power
to regulate the use of streets is a delegation of the police power of the national government, and in the
exercise of such power, a municipal corporation can make all necessary and desirable regulations
which are reasonable and manifestly in the interest of public safety and convenience.
By virtue of the aforecited statutory grant of authority, the City of Ozamiz can regulate the time, place,
manner of parking in the streets and public places. It is, however, insisted that the ordinance did not
charge a parking fee but a toll fee for the use of the street. It is true that the term " parking" ordinarily
implies "something more than a mere temporary and momentary stoppage at a curb for the purpose of
loading or unloading passengers or merchandize; it involves the idea of using a portion of the street as
storage space for an automobile." 12
In the case at bar, the TPU buses of respondent-appellee Sergio S. Lumapas stopped on the extended
portion of Zulueta Street beside the public market (Exhibit "X-1" of Exhibit "X", Development Plan for
Ozamiz Market Site),and that as soon as the buses were loaded, they proceeded to the station, about
one hundred (100) feet away from the parking area, where a toll clerk of the City collected the "Parking"
fee of P1.00 per bus once a day, before said buses were allowed to proceed to their destination.
Section 3 of the questioned Ordinance No. 466 defines the word "'parking' to mean the stoppage of a
motor vehicle of whatever kind on any portion of the existing parking areas for the purpose of loading
and unloading passengers or cargoes." 13 (Emphasis supplied.)
The word "toll" when used in connection with highways has been defined as a duty imposed on goods
and passengers travelling public roads. 14 The toll for use of a toll road is for its use in travelling thereon,
not for its use as a parking place for vehicles. 15
It is not pretended, however, that the public utility vehicles are subject to the payment, if they pass
without stopping thru the aforesaid sections of Zulueta Street. Considering that the public utility vehicles
are only charged the fee when said vehicles stop on "any portion of the existing parking areas for the
purpose of loading or unloading passengers or cargoes", the fees collected are actually in the nature of
parking fees and not toll fees for the use of Zulueta Street. This is clear from the Stipulation of Facts
which shows that fees were not exacted for mere passage thru the street but for stopping in the
designated parking areas therein to unload or load passengers or cargoes. It was not, therefore a toll
fee for the use of public roads, within the context of Section 59[b] of Republic Act No. 4136, which
requires the authorization of the President of the Philippines.
As adverted to above, the Municipal Board of Ozamiz City is expressly granted by its Charter the power
to regulate the use of its streets. The ordinance in question appears to have been enacted in pursuance
of this grant. The parking fee imposed is minimal in amount, the maximum being only P1.00 a day for
each passenger bus and P1.00 for each cargo truck, the rates being lower for smaller types of vehicles.
This indicates that its purpose is not for revenue but for regulation. Moreover, it is undeniable that by
designating a specific place wherein passenger and freight vehicles may load and unload passengers
and cargoes, benefits are accorded to the city's residents in the form of increased safety and
convenience arising from the decongestion of traffic.
Undoubtedly the city may impose a fee sufficient in amount to include the expense of issuing the
license and the cost of necessary inspection or police surveillance connected with the business or
calling licensed.
The fees charged in the case at bar are undeniably to cover the expenses for supervision, inspection
and control, to ensure the smooth flow of traffic in the environs of the public market, and for the safety
and convenience of the public.
WHEREFORE, the appealed decision is hereby reversed and Ordinance No. 466, series of 1964
declared valid. No pronouncement as to costs.
Fernando (Chairman), Barredo, Aquino and Concepcion Jr., JJ., concur.
G.R. No. 73705 August 27, 1987
VICTORIAS MILLING CO., INC., petitioner,
vs.
OFFICE OF THE PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS and PHILIPPINE PORTS
AUTHORITY, respondents.
PARAS, J.:
This is a petition for review on certiorari of the July 27, 1984 Decision of the Office of the Presidential
Assistant For Legal Affairs dismissing the appeal from the adverse ruling of the Philippine Ports
Authority on the sole ground that the same was filed beyond the reglementary period.
On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for short) wrote
petitioner Victorias Milling Co., requiring it to have its tugboats and barges undergo harbor formalities
and pay entrance/clearance fees as well as berthing fees effective May 1, 1981. PPA, likewise,
requiring petitioner to secure a permit for cargo handling operations at its Da-an Banua wharf and remit
10% of its gross income for said operations as the government's share.
To these demands, petitioner sent two (2) letters, both dated June 2, 1981, wherein it maintained that it
is exempt from paying PPA any fee or charge because: (1) the wharf and an its facilities were built and
installed in its land; (2) repair and maintenance thereof were and solely paid by it; (3) even the dredging
and maintenance of the Malijao River Channel from Guimaras Strait up to said private wharf are being
done by petitioner's equipment and personnel; and (4) at no time has the government ever spent a
single centavo for such activities. Petitioner further added that the wharf was being used mainly to
handle sugar purchased from district planters pursuant to existing milling agreements.
In reply, on November 3, 1981, PPA Iloilo sent petitioner a memorandum of PPA's Executive Officer,
Maximo Dumlao, which justified the PPA's demands. Further request for reconsideration was denied on
January 14, 1982.
On March 29, 1982, petitioner served notice to PPA that it is appealing the case to the Court of Tax
Appeals; and accordingly, on March 31, 1982, petitioner filed a Petition for Review with the said Court,
entitled "Victorias Milling Co., Inc. v. Philippine Ports Authority," and docketed therein as CTA Case No.
3466.
On January 10, 1984, the Court of Tax Appeals dismissed petitioner's action on the ground that it has
no jurisdiction. It recommended that the appeal be addressed to the Office of the President.
On January 23, 1984, petitioner filed a Petition for Review with this Court, docketed as G.R. No. 66381,
but the same was denied in a Resolution dated February 29, 1984.
On April 2, 1984, petitioner filed an appeal with the Office of the President, but in a Decision dated July
27, 1984 (Record, p. 22), the same was denied on the sole ground that it was filed beyond the
reglementary period. A motion for Reconsideration was filed, but in an Order dated December 16, 1985,
the same was denied (ibid., pp. 3-21): Hence, the instant petition.
The Second Division of this Court, in a Resolution dated June 2, 1986, resolved to require the
respondents to comment (ibid., p. 45); and in compliance therewith, the Solicitor General filed his
Comment on June 4, 1986 (Ibid., pp. 50-59).
In a Resolution of July 2, 1986, petitioner was required to file a reply (Ibid., p. 61) but before receipt of
said resolution, the latter filed a motion on July 1, 1986 praying that it be granted leave to file a reply to
respondents' Comment, and an extension of time up to June 30, 1986 within which to file the same.
(Ibid., p. 62).
On July 18, 1986, petitioner filed its reply to respondents' Comment (Ibid., pp. 68-76).
The Second Division of this Court, in a Resolution dated August 25, 1986, resolved to give due course
to the petition and to require the parties to file their respective simultaneous memoranda (Ibid., p. 78).
On October 8, 1986, the Solicitor General filed a Manifestation and Rejoinder, stating, among others,
that respondents are adopting in toto their Comment of June 3, 1986 as their memorandum; with the
clarification that the assailed PPA Administrative Order No. 13-77 was duly published in full in the
nationwide circulated newspaper, "The Times Journal", on November 9,1977 (ibid., pp. 79-81).
The sole legal issue raised by the petitioner is —
WHETHER OR NOT THE 30-DAY PERIOD FOR APPEAL UNIDER SECTION 131 OF PPA
ADMINISTRATIVE ORDER NO. 13-77 WAS TOLLED BY THE PENDENCY OF THE PETITIONS
FILED FIRST WITH THE COURT OF TAX APPEALS, AND THEN WITH THIS HONORABLE
TRIBUNAL.
The instant petition is devoid of merit.
Petitioner, in holding that the recourse first to the Court of Tax Appeals and then to this Court tolled the
period to appeal, submits that it was guided, in good faith, by considerations which lead to the
assumption that procedural rules of appeal then enforced still hold true. It contends that when Republic
Act No. 1125 (creating the Court of Tax Appeals) was passed in 1955, PPA was not yet in existence;
and under the said law, the Court of Tax Appeals had exclusive appellate jurisdiction over appeals from
decisions of the Commissioner of Customs regarding, among others, customs duties, fees and other
money charges imposed by the Bureau under the Tariff and Customs Code. On the other hand, neither
in Presidential Decree No. 505, creating the PPA on July 11, 1974 nor in Presidential Decree No. 857,
revising its charter (said decrees, among others, merely transferred to the PPA the powers of the
Bureau of Customs to impose and collect customs duties, fees and other money charges concerning
the use of ports and facilities thereat) is there any provision governing appeals from decisions of the
PPA on such matters, so that it is but reasonable to seek recourse with the Court of Tax Appeals.
Petitioner, likewise, contends that an analysis of Presidential Decree No. 857, shows that the PPA is
vested merely with corporate powers and duties (Sec. 6), which do not and can not include the power
to legislate on procedural matters, much less to effectively take away from the Court of Tax Appeals the
latter's appellate jurisdiction.
These contentions are untenable for while it is true that neither Presidential Decree No. 505 nor
Presidential Decree No. 857 provides for the remedy of appeal to the Office of the President,
nevertheless, Presidential Decree No. 857 empowers the PPA to promulgate such rules as would aid it
in accomplishing its purpose. Section 6 of the said Decree provides —
Sec. 6. Corporate Powers and Duties —
a. The corporate duties of the Authority shall be:
xxx xxx xxx
(III) To prescribe rules and regulations, procedures, and
guidelines governing the establishment, construction,
maintenance, and operation of all other ports, including private
ports in the country.
xxx xxx xxx
Pursuant to the aforequoted provision, PPA enacted Administrative Order No. 13-77 precisely to
govern, among others, appeals from PPA decisions. It is now finally settled that administrative rules and
regulations issued in accordance with law, like PPA Administrative Order No. 13-77, have the force and
effect of law (Valerio vs. Secretary of Agriculture and Natural Resources, 7 SCRA 719; Antique
Sawmills, Inc. vs. Zayco, et al., 17 SCRA 316; and Macailing vs. Andrada, 31 SCRA 126), and are
binding on all persons dealing with that body.
As to petitioner's contention that Administrative Order No. 13-77, specifically its Section 131, only
provides for appeal when the decision is adverse to the government, worth mentioning is the
observation of the Solicitor General that petitioner misleads the Court. Said Section 131 provides —
Sec. 131. Supervisory Authority of General Manager and PPA Board. — If in any
case involving assessment of port charges, the Port Manager/OIC renders a
decision adverse to the government, such decision shall automatically be elevated
to, and reviewed by, the General Manager of the authority; and if the Port
Manager's decision would be affirmed by the General Manager, such decision shall
be subject to further affirmation by the PPA Board before it shall become effective;
Provided, however, that if within thirty (30) days from receipt of the record of the
case by the General Manager, no decision is rendered, the decision under review
 shall become final and executory; Provided further, that any party aggrieved by the SO ORDERED.
decision of the General Manager as affirmed by the PPA Board may appeal said
decision to the Office of the President within thirty (30) days from receipt of a copy
Teehankee, C.J., Narvasa and Gancayco, JJ., concur.
thereof.(Emphasis supplied).

From a cursory reading of the aforequoted provision, it is evident that the above contention has no
basis.

As to petitioner's allegation that to its recollection there had been no prior publication of said PPA
Administrative Order No. 13-77, the Solicitor General correctly pointed out that said Administrative
Order was duly published in full in the nationwide newspaper, "The Times Journal", on November
9,1977.

Moreover, it must be stated that as correctly observed by the Solicitor General, the facts of this case
show that petitioner's failure to appeal to the Office of the President on time stems entirely from its own
negligence and not from a purported ignorance of the proper procedural steps to take. Petitioner had
been aware of the rules governing PPA procedures. In fact, as embodied in the December 16, 1985
Order of the Office of the President, petitioner even assailed the PPA's rule making powers at the
hearing before the Court of Tax Appeals.

It is axiomatic that the right to appeal is merely a statutory privilege and may be exercised only in the
manner and in accordance with the provision of law (United CMC Textile Workers Union vs. Clave, 137
SCRA 346, citing the cases of Bello vs. Fernando, 4 SCRA 138; Aguila vs. Navarro, 55 Phil. 898; and
Santiago vs. Valenzuela, 78 Phil. 397).

Furthermore, even if petitioner's appeal were to be given due course, the result would still be the same
as it does not present a substantially meritorious case against the PPA.

Petitioner maintains and submits that there is no basis for the PPA to assess and impose the dues and
charges it is collecting since the wharf is private, constructed and maintained at no expense to the
government, and that it exists primarily so that its tugboats and barges may ferry the sugarcane of its
Panay planters.

As correctly stated by the Solicitor General, the fees and charges PPA collects are not for the use of the
wharf that petitioner owns but for the privilege of navigating in public waters, of entering and leaving
public harbors and berthing on public streams or waters. (Rollo, pp. 056-057).

In Compañia General de Tabacos de Filipinas vs. Actg. Commissioner of Customs (23 SCRA 600), this
Court laid down the rule that berthing charges against a vessel are collectible regardless of the fact that
mooring or berthing is made from a private pier or wharf. This is because the government maintains
bodies of water in navigable condition and it is to support its operations in this regard that dues and
charges are imposed for the use of piers and wharves regardless of their ownership.

As to the requirement to remit 10% of the handling charges, Section 6B-(ix) of the Presidential Decree
No. 857 authorized the PPA "To levy dues, rates, or charges for the use of the premises, works,
appliances, facilities, or for services provided by or belonging to the Authority, or any organization
concerned with port operations." This 10% government share of earnings of arrastre and stevedoring
operators is in the nature of contractual compensation to which a person desiring to operate arrastre
service must agree as a condition to the grant of the permit to operate.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

 10. Jose Valdez — 262,606.16
11. Maria Rita Valdez — 262,606.16
12. Carmen Valdez — 262,606.16
13. Maria Rita Valdez — 262,606.16
14. Rafael Valdez — 43,767.69
15. Mercedes Valdez — 43,767.69
16. Manuel Valdez — 43,767.69
G.R. No. L-11976 August 29, 1961
17. Natividad Valdez — 43,767.69
18. Benito Valdez — 43,767.69
COLLECTOR OF INTERNAL REVENUE, petitioner,
vs. 19. Jose Francisco Valdez — 43,767.69
ANTONIO PRIETO, ET AL., respondents.

However, because of the impossibility of dividing the real properties of the testatrix equally among the
Office of the Solicitor General for petitioner. 14 heir, to respondents Antonio, Benito and Mauro Prieto were allotted properties with a total value
Ramirez & Ortigas and Formolleza & Latorre for respondents. greater than that of the properties allotted to the other 11 heirs. It was, therefore, agreed that, to
equalize the shares of the heirs, the three respondents should reimburse in case to their co-heirs the
DIZON, J.: resulting difference in value. Pursuant to this agreement, Antonio Prieto paid the sum of P110,999.98 to
his 13 co-heirs as follows:

From the stipulation of facts and some documents submitted as evidence by the parties it appears that
Doña. Teresa Tuazon y de la Paz died in Manila on March 9, 1951 leaving a last will and testament, To the six heirs surnamed Valdez — P51,230.76;
subsequently admitted to probate in the Court of First Instance of said city (Civil Case No. 13447). It
To the five heirs surnamed Legarda — 42,692.30;
provided that, with the exception of five specific legacies amounting to P80,800.00, all her property be
distributed in equal shares among 14 heirs, respondents Antonio, Benito and Mauro, all surnamed and to Benito and Mauro Prieto — 17,076.92.
Prieto, being amongst them.

For their part, Benito and Mauro Prieto paid to their 12 co-heirs the total sum of P66,99.96 apportioned
On February 14, 1952 the probate court approved the project of partition submitted by the Executrix, as follows:
according to which the value of the inventoried estate amounted to P3,513,073.63. Deducting therefrom
the five specific legacies amounting to a total of P80,800.00, the resulting net estate to be divided
equally among the 14 heirs was P3,432,273.63, this entitling each heir to a share with a value of P5,583.33
P245,162.40. To Antonio Prieto — ;
To the 5 heirs surnamed Legarda — 27,916.65;
For purposes of estate and inheritance taxes, however, petitioner Collector of Internal Revenue
and to the 6 heirs surnamed Valdez — 33,499.98.
evaluated the net estate in the total sum of P3,757,286.22. Deducting therefrom the total value of the
specific legacies amounting to P80,800.00, the residual estate was P3,676,486.22, to be divided
equally among the 14 heirs as follows: On January 17, 1952 the Executrix filed with petitioner the corresponding estate and inheritance tax
return. Based thereon the estate and inheritance taxes due amounted to P447,491.04 and
P494,224.40, respectively. The corresponding assessment notice was issued by petitioner on January
1. Antonio Prieto — P262,606.16
19,1952, but after an investigation of the decedent's estate, petitioner appraised the same at a total of
2. Benito Prieto — 262,606.16 P5,855,400.24. Inasmuch as by reason of this increased valuation the estate and inheritance taxes
were increased to P798,840.04 and P1,095,394.19, respectively, petitioner issued a revised
3. Mauro Prieto — 262,606.16
assessment notice on January 29, 1952.
4. Rosario Legarda — 262,606.16
5. Alejandro Legarda — 262,606.16 The estate tax, as a per original assessment notice of January 19, 1952, in the sum of P447,491.04
was paid by the Executrix on February 8, 1952.
6. Teresa Legarda — 262,606.16
7. Beatriz Legarda — 262,606.16
Upon receipt of the revised assessment the heirs moved for a reconsideration. The reinvestigation of
8. Jose Legarda — 262,606.16 the matter, however, resulted in a new or revised assessment notice issued on July 18, 1952 calling for
9. Teresa Valdez — 262,606.16 the sum of P681,692.02 as estate tax, and for P897,154.59 as inheritance tax, from which were to be
deducted the sum of P447,491.04 theretofore paid as estate tax and the sum of P182,204.80 as
inheritance tax, thus leaving an unpaid balance of P234,200.98 as estate tax and P714,945.79 as
inheritance tax, from which were to be deducted the sum of P447,491.04 theretofore paid as estate tax
and the sum of P182,208.80 as inheritance tax, thus leaving an unpaid balance of P234,200.98 as
estate tax and P714,945.79 as inheritance tax.
On October 9, 1952 the Executrix paid the sum of P104,178.74 as additional estate tax, said amount
having been allocated by petitioner to the Prietos as follows:
To Antonio Prieto — P39,188.92;
To Benito Prieto — P32,494.76;
To Mauro Prieto — P32,494.76.
After further investigation petitioner issued a revised assessment on December 24, 1952 calling for the
payment on an unpaid balance of P673,193.51. The matter appears to have been heard before the
Conference Staff of the Bureau of Internal Revenue which, after hearing, made its recommendations.
Pursuant thereto, petitioner issued the final revised assessment notice on February 18, 1953 calling for
the payment of an unpaid balance of P594,920.82.
It is not denied that of the sums of P447,491.04 and P104,178.44 paid as estate taxes by the Executrix,
the following amounts: P70,202.88, P63508.72 and P63,508.72 were allocated or credited to Antonio
Prieto, Benito Prieto and Mauro Prieto, respectively, against their estate and inheritance tax liabilities. In
addition, and on account of the inheritance tax assessed against them, the following amount were paid:
P43,038.54 — by Antonio Prieto;
P63,631.04 — by Benito Prieto; and
P63,631.04 — by Mauro Prieto.
In the final analysis, therefore, Antonio Prieto, has paid on account of the estate and inheritance taxes
assessed against him, the total sum of P113,241.42; Benito Prieto — the total sum of P137,140.26 and
Mauro Prieto — the total sum of P137,140.26. Claiming that the amounts thus collected from them
were excess of the taxes and penalties lawfully due, in the sum of P13,249.26 in the case of Antonio
Prieto, and in the sum of P24,424.49 in the case of each of Benito and Mauro Prieto, on January 12,
1955 they asked petitioner to refund the overpayments, but their petition was denied. On appeal,
however, the court of Tax Appeals reversed said ruling and petitioner was ordered to refund to Antonio,
Benito and Mauro, all surnamed Prieto, the sums of P13,249.26, P24,424.49 and P24,424.49,
respectively, with interest from March 11, 1953, as to the first, and from December 9, 1954, as to the
latter two, without costs. Hence the present appeal.
Petitioner claims in his first assignment of error that the Court of Tax Appeals should have ordered the
Executrix of the estate and the other eleven heirs to be joined as parties. In the sixth and seventh, his
contention is that, inasmuch as this case involves the refund not only of inheritance taxes but also of
estate taxes, respondents have no cause of action as far as the refund of estate is concerned.
In the second, third and fourth assignments of error, petitioner contends that the Court of Tax Appeals
erred:(1) in holding that the cash payments made by respondents to their coheirs were made to
equalize the shares of all the 14 heirs; (2) in concluding that, for the purpose of computing the estate
and inheritance taxes due from respondents, said cash payments should be deducted from the value of
the properties respectively received by them from the estate by way of inheritance and (1) in ordering
the refund of the amount claimed, with interests.
Finally, it is petitioner's contention in his fifth assignment of error that the claim for refund of the taxes
paid prior to February 14, 1953 was filed out of time in the light of the provisions of Section 306 of the
National Internal Revenue Code, because the petition for review was filed in the Court of Tax Appeals
only on February 14, 1955.
The first question raised — purely procedural in nature — is without merits. As respondents were only
asking for the refund of inheritance taxes, it seems obvious that it was unnecessary for them to
implead, or for the Court of Tax Appeals to order the impleading of the Executrix and the other 11 heirs.
While said parties could have been impleaded to enable the Court of Tax Appeals to accord a more
complete relief as between those who were already parties, they were not indispensable parties
because, without them, said court was in a position to render — as in fact it rendered — a final
determination of the inheritance tax liability of the Prietos. This, of course, is without prejudice to
whatever tax liability may be timely demanded from the other heirs.
We now come to the main issue of whether or not there has been an overpayment in connection with
respondents' respective inheritance tax liability.
To begin with, it must be borne in mind that, according to the Seventh Clause of the will of Doña Teresa
Tuason y de la Paz, "en lo que respecta al `estate and inheritance tax' cada uno pagara de lo que
reciba". For this reason, the estate tax was paid by the Executrix out of the estate funds for the account
of the heirs. In this connection, there appears to be no question of any kind as regards the estate tax,
because when petitioner made his final assessment notice on February 18, 1953, the estate tax due in
the sum of P681,692.02 assessed under the third assessment notice had been fully paid. In view of the
subsequent reduction of the estate tax to the sum of P613,129.62, there was an overpayment of said
estate tax in the sum of P68,018.02. For this reason, upon making the last assessment notice
aforesaid, petitioner gave the heirs a tax credit of P68,018.02 and credited it against the inheritance
taxes still unpaid (Vol. II, BIR Records, 321-323).
As stated heretofore, the will of Doña Teresa Tuason y de la Paz directed that, after the payment of the
specific legacies therein provided for, the residue of her estate should be divided in equal parts among
14 heirs, namely:(1) Antonio Prieto, (2) Benito Prieto, (3) Mauro Prieto,(4) Rosario Legarda, (5)
Alejandro Legarda, (6) Teresa Lagarda, (7) Beatriz Legarda, (8) Jose Legarda, (9) Teresa Valdez, (10)
Jose Valdez (11) Maria Rosario Valdez,(12) Carmen Valdez, (13) Maria Rita Valdez, and (14) —
constituting only one group of heirs — the Valdezes named Rafael, Mercedes, Manuel, Natividad,
Benito and Jose Francisco.
In accordance with the project of partition submitted in the probate proceedings and duly approved by
the court, the total value of the estate amounted to P3,513,073.63. Deducting therefrom the value of the
five specific legacies amounting to P80,800.00, the net would be P3,432,273.60 to be divided among
the 14 heirs at the rate of P245,162.40 for each of them.
Paragraph A of Clause VII entitled "ADJUDICACIONES" of the project of partition enumerates the
properties alloted to Antonio Prieto and contains the following clause:
OBSERVACION IMPORTANTE. — Por convenio entre to dos los herederos y como una
condicion esencial de las anterioresadjudicaciones, Don Antonio Prieto pagara la suma de
CIENTO ONCE MIL PESOS (P111,000.00) moneda filipina, que se repartira por igual entre
los trece (13) herederos restantes. (p. 29, Vol., I, BIR Records).
Paragraph B of the same Clause VII enumerates the properties alloted to Benito and Mauro Prieto, and
contains likewise a similar clause of the following tenor:
 OBSERVACION IMPORTANTE. — POR Convenio entre to dos los herederos y como una On the other hand, the ruling of the Court of Tax Appeals to the effect that petitioner should pay legal
condicion esencial de las anteriores adjudicaciones, Don Benito Prieto y don Mauro Priesto interest on the amounts improperly collected from respondents is in accord with our decision in Carcar
pagaran la suma de SESENTA Y SIETE MIL PESOS (P67,000.00)moneda filipina, quie se Electric & Ice Plant Co., Inc. vs. The Collector of Internal Revenue (53 O.G. No. 4, p. 1068). Resolving
repartira por igual entre los doce (12)herederos restantes. (p. 25, Vol., I, BIR, Records). the Collector's motion for reconsideration in said case, we held:

The adjudication of properties to the other heirs (Clause VII of the project of Partition) does not contain We conclude that under the present Internal Revenue Code the Collector of Internal Revenue
a similar condition. Moreover, it is apparent from paragraph 5 of Clause IX entitled "OBSERVACIONES may be made to answer for interest at the legal rate on taxes improperly collected. Such
FINALES" that, with the project of partition, the heirs intended to carryout of the will of the testatrix — to liability serves as additional safeguard in favor of the taxpayer against arbitrariness in the
divide her net estate equally among the 14 heirs named in her will. exaction or collection of taxes and imposts.

In accordance with he project of partition, Antonio Prieto received properties worth P368,022.81, while Wit respect to petitioner's contention that the claim for refund had already prescribed when filed, it
Benito and Mauro Prieto received properties valued at P287,567.68 each, as against properties worth should be observed that the estate and inheritance taxes in this case were assessed and reassessed
P248,484.37 received by each of the remaining eleven heirs. Adding to the value of the share of by petitioner five different times in the following manner:
Antonio the sum of P5,583.33 he received from Benito and Mauro Prieto (par. 7, Stipulation of Facts),
the total share of Antonio amounted to P373,606.14. Deducting from the sum of P110,000.00 that he
had to pay to his eleven coheirs, the result would be the sum of P262,606.16 representing the net Estate tax Inh. tax.
value of his share. First Ass. P447,491.04 P 494,224.40
Second Ass. 798,840.04 1,095,394.19
In the case of Benito and Mauro Prieto, the value of the properties alloted to each one of them
amounted to P287,567.08, to which should be added the amount of P8,538.46 each received from Third Ass. 681,692.02 897,154.59
Antonio Prieto (par. 6, Stip. of Facts), this brining up to P296,106.14 the value of their individual share. Fourth Ass. 659,694.74 355,402.31
From this amount, however, should be deducted the sum of P33,399.98 which each of them paid to
their twelve coheirs, and the result would be the sum of P262,606.16 representing the net value of the Last Ass. 613,674.04 777,129.62
share received by each of them.
As stated heretofore, when petitioner made his final assessment notice on February 18, 1953, the
On the other hand, each one of the Valdezes was allotted properties valued at P248,484.37, to which estate tax assessed under the third assessment notice — P681,692.02 — had already been paid in full.
should be added the sum of P8,538.46 each one of them received from Antonio Prieto and the further Consequently, when the aforesaid last assessment reduced the estate tax to P613,674.04, there was a
sum of P5,583.33 each one of them received from Benito and Mauro Prieto (pars. 6 & 7, Stip. of Facts), resulting overpayment of the estate tax in the sum of P68,018.02 which petitioner credited to the unpaid
this resulting in the total sum of P262,600.16 each one of them received as his net share in the inheritance taxes due from the heirs. From February 18, 1953, therefore, there was no longer any
inheritance. question of payment or overpayment of the estate tax — which explains the fact that respondents claim
refund of inheritance tax only.
Exactly the same operation may be made in the case of the five Legarda heirs ending with the result
that each of them received a net share worth P262,606.16. On the other hand, according to the stipulation of facts, the three respondents had made the following
payments on account of their inheritance taxes after February 12, 1953:
The above shows conclusively that the cash payments demanded from and made by respondents were
for the purpose of making equal the share of each one of the fourteen heirs instituted in the last will of Petitioners Amount Date paid Receipt
the deceased Do_¤_a Teresa Tuason y de la Paz.
Antonio Prieto P30,000.00 March 11, 1953 39389 V-2

But petitioner contends that the individual share of each heir in the net estate is what appears in the Benito Prieto &
project of partition, and that the cash payments made by respondents are immaterial in the Mauro Prieto 10,000.00 Sept. 1, 1953 42393 V-2
determination of their respective inheritance tax because the money paid did not form part of the estate 10,000.00 Jan. 16, 1954 42902 V-2
of the decedent. We find no merits in these contentions.
20,000.00 June 9, 1954 48923 V-2

It can not be disputed that the inheritance tax should be paid on the basis of the value of the properties 30,592.50 Dec. 9, 1954 49261 V-2
inherited by an heir. On the other hand, it is clear in this case that what each of the respondents really 30,592.50 Dec. 9, 1954 49260 V-2
and actually received as his share in the inheritance is the value of the properties allotted to them
minus what they had to pay to their coheirs to compensate the latter for the difference in value existing
between the properties allotted to respondents, on the one hand, and those alloted to the other heirs, Inasmuch as, according to petitioner himself, the claim for refund was filed or made on February 14,
on the other. To claim otherwise would be closing one's eyes to the realities of the case. The resulting 1955, it is obvious that the same was filed within the period of two years provided by law. The following
amount, therefore, is the just and fair basis for the determination of the tax liability of respondents. considerations made by the Court of Tax Appeals on this matter sufficiently disposes of it:
 In connection with the statute of limitations as to the inheritance tax, the evidence show, that
considering the amount involved, the entire tax liability of the petitioner for both estate tax
and inheritance tax were settled thru periodical payments or installments, approved by
respondent until the total amount was satisfied. In fact, the last payment of the inheritance tax
pertaining to Antonio Prieto was made on March 11, 1953 and as regards Benito Prieto and
Mauro Prieto on December 9, 1954 (par. 20, Stipulation of Facts). On January 12, 1955
petitioners filed their claim for refund of the taxes allegedly overpaid and on January 14, 1955
respondent rendered his decision thereon from which petitioners interposed the present
appeal.

The defunct Board of Tax Appeals in the case of RCA Communications, Inc. vs. David (B.T.A.
Case No. 116, Resolution, June 18, 1953) held that when the tax is paid in installments, the
prescriptive period of two years provided in section 306 of the Revenue Code should be
counted from the date of the final payment. We agree with this view as being reasonable and
which appears to be the uniform doctrine in American jurisdiction. This rule proceeds from the
theory that, in contemplation of tax laws, there is no payment until the whole or entire tax
liability is completely paid. Thus, a payment of a part or portion thereof, can not operate to
start the commencement of the statute of limitations. In this regard the word "Tax," or words
"the tax" in statutory provisions comparable to section 306 of our Revenue Code have been
uniformly held to refer to the entire tax and not a portion thereof (Clark vs. U.S. 69 F. 2d 748;
A.S. Kriedner Co. vs. U.S. 30 F Supp. 742; Hills vs. U.S. 50 F 2d 302, 55 F 2d 1001), and the
vocables "payment of tax" within statutes requiring refund claim, refer to the date when all the
tax was paid, not when a portion was paid (Braun vs. U.S. 8 F Supp. 860, 863). Hence,
applying the foregoing rule to the instance case, the filing of the claim for refund of the
inheritance tax on January 12, 1955 and the filing of the instant petition for review on
February 14, 1955 were well within the two-year period counted from March 11, 1953 and
December 9, 1954 when the final payment of the tax liability was made. We are therefore of
the opinion and so hold that the present action was filed seasonably within the purview of
section 306 of the Tax Code.

Premises considered, the decision appealed from is affirmed.

Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, De Leon and
Natividad, JJ., concur.
 November 17, 1988

Central Vegetable Oil

Manufacturing Co. Inc.

P.O. Box 2816

G.R. No. 107135 February 23, 1999 Manila

COMMISSIONER OF INTERNAL REVENUE, petitioner, Attention: Mr. James Chua

vs.
THE COURT OF APPEALS, CENTRAL VEGETABLE MANUFACTURING CO., INC., and THE
President
COURT OF TAX APPEALS, respondents.

Gentlemen:

We have received your letter of September 28,1988, relative to

PURISIMA, J.:
Before the Court is a Petition for Review on Certiorari from the judgment of the Court of Appeals
affirming in toto the decision of the Court of Tax Appeals which required the Commissioner of Internal
Revenue to credit the sales taxes paid by Central Vegetable Oil Manufacturing Co., Inc. (CENVOCO)
on containers and packaging materials of its milled products, against the deficiency miller's tax due
thereon for the year 1986.
As culled in the decision of the Court of Tax Appeals, the undisputed facts are, as follows:
Petitioner (private respondent CENVOCO herein) is a manufacturer of edible and
coconut/coprameal cake and such other coconut related oil subject to the miller's
tax of 3%. Petitioner also manufactures lard, detergent and laundry soap subject to
the sales tax of 10%.
In 1986, petitioner purchased a specified number of containers and packaging
materials for its edible oil from its suppliers and paid the sales tax due thereon.
our assessment against your company in the amount of
P1,575,514.75, as deficiency miller's tax for the year 1986.
Sec. 188 of the Tax Code provides that sales, miller's or excise
taxes paid on raw materials or supplies used in the milling
process shall not be allowed against the miller's tax due. You
contend that since packaging materials are not used in the
milling process then, the sales taxes paid thereon should be
allowed as a credit against the miller's tax due because they
do not fall within the scope of the prohibition.
It is our position, however, that since the law specifically does
not allow taxes paid on the raw materials or supplies used in
the milling process as a credit against the miller's tax due, with
more reasons should the sales taxes paid on materials not
used in the milling process be allowed as a credit against the
miller's tax due. There is no provision of law which allows such
a credit-to-be made.

After an investigation conducted by respondent's Revenue Examiner, Assessment

In view of the above, we are reiterating the assessment
Notice No. FAS-B-86-88-001661-001664 dated April 22, 1988 was issued against
referred to above. We request that you make payment
petitioner for deficiency miller's tax in the total amount of P1,575,514.70 . . . .
immediately so that this case may be considered closed and
terminated.
On June 29, 1988, petitioner filed with respondent a letter dated June 27, 1988
requesting for reconsideration of the above deficiency miller's tax assessments,
Very truly yours,
contending that the final provision of Section 168 of the Tax Code does not a apply
to sales tax paid on containers and packaging materials, hence, the amount paid
therefor should have been credited against the miller's tax assessed against it. (SGD) EUFRACIO D. SANTOS
Again, thru letter dated September 28, 1988, petitioner reiterated its request for
reconsideration.
Deputy Commissioner

On November 17, 1988, respondent wrote CENVOCO, the full text of which letter
(CA Decision, pp. 31-33 Rollo)
reads:
Dissatisfied with the adverse action taken by the BIR, CENVOCO filed a petition for review with the
Court of Tax Appeals, which came out with a decision, dated December 3, 1990, in favor of CENVOCO,
disposing, thus:
WHEREFORE, in view of the foregoing, petitioner Central Vegetable Oil
Manufacturing Co., Inc., is not liable for deficiency miller's tax for the year 1986 in
the amount of P1,575,514.70.
No pronouncement as to costs.
SO ORDERED. (Rollo, p. 53)
Appealed to the Court of Appeals, the said decision was affirmed in toto. (Rollo, p. 38)
The Court of Appeals adopted the reasons cited and ratiocination by the Court of Tax Appeals for
allowing the sales tax paid by CENVOCO on the containers and packaging materials of its milled
products to be credited against the miller's tax due thereon, viz —
The main issuein this case is whether or not respondent CENVOCO is liable for
deficiency miller's tax for the year 1986 in the amount of P1,575,514.70. This in
turn hinges on whether or not containers and packaging materials are raw
materials used in the milling process within the contemplation of the final proviso of
Section 168 of the National Internal Revenue Code, which reads:
Provided, finally, that credit for any sales, miller's or excise taxes paid on raw
materials or supplies used in the milling process shall not be allowed against the
miller's tax due, except in the case of a proprietor or operator of a refined sugar
factory as provided hereunder.
xxx xxx xxx
. . . We agree with respondent Court that containers and packages cannot be
considered "raw materials" utilized in the milling process. In arriving at the
conclusion, respondent Court quoted with approval the reasons cited by
CENVOCO, as follows:
FIRST; The raw materials used by Cenvoco in manufacturing
edible oil are copra and/or coconut oil. In other words, the term
"used" in the final proviso of Section 168 of the NIRC refers or
is strictly confined to "raw materials" or supplies fed, supplied
or put into the apparatus, equipment, machinery or its adjuncts
that cause or execute the milling process. On the other hand,
the containers, such as tin cans, and/or packages are not used
or fed into the milling machinery nor were ever intended for
conversion to form part of the finished product, i.e., refined
coconut/edible oil. Consequently, it would be absurd to say
that said containers and packages are "used in the milling
process", for the process. involves "grinding, crushing,
stamping, cutting, shaping or polishing". (See THE
DICTIONARY, by TIME, COPYRIGHT 1974, p. 444) . . .
SECOND; Petitioner's interpretation of the term raw materials
is contrary to law and jurisprudence. Thus, raw materials as
used in the definition of " manufacture", denotes materials from
which final product is made (Black's Law Dictionary, 4th
ed. citing State vs. Hennessy Co., 71 Mont. 301, 230, p. 64,
65). And consistent with said definition, Revenue Regulations
Nos. 2-86 and 11-86 [effective January 1, 1986 and August 11
1986, respectively] which govern the filing of quarterly
percentage tax returns and payment thereof under the
provisions, inter alia, of Section 168 of the NIRC, define raw
materials or material, to wit:
Any article which when used in the MANUFACTURE of
another article becomes a homogenous part thereof, such that
it can no longer be identified in its original state nor may be
removed therefrom without destroying or rendering useless the
finished article to which it has been merged, mixed or
dissolved. . . .
Tested in the light of the foregoing statutory definition, it is evident that containers
and packages used by Cenvoco are not "raw materials" and do not fall within the
purview of the final proviso of Section 168 of the NIRC. . . . As a coup de grace, it is
pertinent to note the case of Caltex (Phils.) Inc. vs. Manila Port Service (17 SCRA
1075) where the Supreme Court aptly defined containers and/or packages.
. . . a package or a bundle made up for transportation; a packet; a bale; a parcel; or
that in which anything is packed: box, case, barrel, crate , etc. in which goods are
packed; a container. (Emphasis Ours)
The definition is an emphatic rejection of petitioner's construction that Cenvoco's
containers and packages are raw materials used in the milling process. . . .
. . . Moreover, Section 168 of the Revenue Code expressly limits the articles
subject to percentage tax (miller's tax) to: "rope, sugar, coconut oil, palm oil,
cassava flour or starch, desiccated coconuts, manufactured, processed or milled
by them, including the by-product of the raw materials, from which said articles are
produced, processed or manufactured". . . .
(CR Decision, Rollo pp. 34-36)
Hence, the petition under consideration, posing the issue:
WHETHER OR NOT THE SALES TAX PAID BY CENVOCO WHEN IT
PURCHASED CONTAINERS AND PACKAGING MATERIALS FOR ITS MILLED
PRODUCTS CAN BE CREDITED AGAINST THE DEFICIENCY MILLER'S TAX
DUE THEREON.
Resolution of the issue posited by the petitioner hinges on. the proper application of Section 168 of the
then applicable National Internal Revenue Code, particularly the last proviso of said section, which
reads:
 Sec. 168. Percentage tax upon proprietors or operators of rope factories, sugar
centrals and mills, coconut oil mills, palm oil mills, cassava mills and desiccated
coconut factories. Proprietors or operators of rope factories, sugar centrals and
mills, coconut oil mills, palm oil mills, cassava mills, and desiccated coconut
factories, shall pay a tax equivalent to three (3) percent of the gross value of
money of all the rope, sugar, coconut, oil, palm oil, cassava flour or starch,
desiccated coconut, manufactured, processed or milled by them, including the by-
product of the raw materials, from which said articles are produced, processed or
manufactured, such tax to be based on the actual selling price or market value of
these articles at the time they leave the factory or mill warehouse: Provided,
however, that this tax shall not apply to rope, coconut oil, palm oil and the by-
product of copra from which it is produced or manufactured, and dessiccated
coconuts, if such rope, coconut oil, palm oil, copra by-products and dessiccated
coconuts, shall be removed for exportation by the proprietor of operator or the
factory or mill himself, and are actually exported without returning to the
Philippines, whether in their original state or as an ingredient or part of any
manufactured article or product: Provided further, That where the planter or the
owner of the raw materials is the exporter of the aforementioned milled or
manufactured products, he shall be entitled to a tax credit of the miller's taxes
withheld by the proprietor or operator of the factory or mill, corresponding to the
quantity exported, which may be used against any internal revenue tax directly due
from him: and Provided, finally, That credit for any sales. miller's or excise taxes
paid on raw materials or supplies used in the milling process shall not be allowed
against the miller's tax due, except in the case of a proprietor or operator of a
refined sugar factory as provided hereunder. (emphasis supplied)
Notably, the law relied upon by the BIR Commissioner as the basis for not allowing Cenvoco's tax credit
is just a proviso of Section 168 of the old Tax Code. The restriction in the said proviso, however, is
limited only to sales, miller's or excise taxes paid "on raw materials used in the milling process".
Under the rules of statutory construction, exceptions, as a general rule, should be strictly but
reasonably construed. They extend only so far as their language fairly warrants, and all doubts should
be resolved in favor of the general provisions rather than the exception. Where a general rule is
established by statute with exceptions, the court will not curtail the former nor add to the latter by
implication. . . . (Samson vs. Court of Appeals, 145 SCRA 659 [1986]).
The exception provided for in Section 168 of the old Tax Code should thus be strictly construed.
Conformably, the sales, miller's and excise taxes paid on all Other materials (except on raw
materials used in the milling process), such as the sales taxes paid on containers and packaging
materials of the milled products under consideration, may be credited against the miller's tax due
therefor.
It is a basic rule of interpretation that words and phrases used in the statute, in the absence of a clear
legislative intent to the contrary, should be given their plain, ordinary and common usage or meaning.
(Mustang Lumber Inc. v. CA, 257 SCRA 430 [1996] citing Ruben E. Agpalo, Statutory Construction,
second ed. [1990], 131).
From the disquisition and rationalization aforequoted, containers and packaging materials are certainly
not raw materials. Cans and tetrakpaks are not used in the manufacture of Cenvoco's finished products
which are coconut, edible oil or coprameal cake. Such finished products are packed in cans and
tetrapaks.
Petitioner laments the pronouncement by the Court of Appeals that Deputy Commissioner Eufracio
Santos' 1988 ruling may not reverse Commissioner Ruben Ancheta's favorable ruling on a similar claim
of CENVOCO of October, 1984, which reads in part:
. . . This refers to your letter dated September 5, 1984 requesting that the 10%
sales tax paid on container cans purchased by you, be credited against the 2%
(now 3%) miller's tax due on the refined coconut edible oil.
It is represented that you process copra and/or coconut oil and sell the refined
edible oil in cans; that said cans are purchased from can manufacturers who in turn
bill to you the price of the cans and the 10% tax paid thereon which are separately
shown on the invoice; and that the cost of the cans, including the 2% miller's tax is
computed.
In reply, I have the honor to inform you that your request is hereby granted. . . .
(Pacific Oxygen & Acetylene Co. vs. Commissioner, GR No. L-17708, April 30,
1905). (Rollo p. 36)
According to petitioner, to hold, as what the Court of Appeals did, that a reversal of the aforesaid ruling
would be violative of the rule on non-retroactivity of rulings of tax officials when prejudicial to the
taxpayer (Section 278 of the old Tax Code) would, in effect, create a perpetual exemption in favor of
CENVOCO although there may be subsequent changes in circumstances warranting a reversal.
This Court is mindful of the well-entrenched principle that the government is never estopped from
collecting taxes because of mistakes or errors on the part of its agents, but this rule admits of
exceptions in the interest of justice and fairplay. (ABS CBN Broadcasting Corp. vs. Court of Tax
Appeals, 108 SCRA 151 [1951]) More so in the present case, where we discern no error in allowing the
sales taxes paid by CENVOCO on the containers and packages of its milled products, to be credited
against the deficiency miller's tax due thereon, for a proper application of the law.
It bears stressing that tax burdens are not to be imposed, nor presumed to be imposed beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the
government. (The Province of Bulacan, et. al, vs. Hon. CA, et. al., GR No. 226232, November 27, 1998;
Republic vs. IAC, 196 SCRA 335[1931]; CIR vs. Firemen's Fund Ins. Co., 148 SCRA 315 (1987); CIR
vs. CA, 204 SCRA 182 [1991])
Then, too, it has been the long standing policy and practice of this Court to respect conclusions arrived
at by quasi-judicial agencies, especially the Court of Tax Appeals which: by the nature of its functions, is
dedicated exclusively to the study and consideration of tax problems, and which has thus developed an
expertise on the subject, unless an abuse or improvident exercise of its authority is shown. Finding no
such abuse or improvident exercise of authority or discretion under the premises, the decision of the
Court of Appeals, affirming that of the Court of Tax Appeals, should be upheld. (Commissioner of
Internal Revenue vs. Court of Appeals, 204 SCRA 189 [1991])
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. L-30232 July 29, 1988
LUZON STEVEDORING CORPORATION, petitioner-appellant,
vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL
REVENUE, respondents-appellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.
PARAS, J.:
This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case
No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal
Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of the same
court denying the motion for reconsideration.
Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported
various engine parts and other equipment for which it paid, under protest, the assessed compensating
tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it
filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA
Case No. 1484, praying among others, that it be granted the refund of the amount of P33,442.13. The
Court of Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27), denied the
various claims for tax refund. The decretal portion of the said decision reads:
WHEREFORE, finding petitioner's various claims for refund amounting to
P33,442.13 without sufficient legal justification, the said claims have to be, as they
are hereby, denied. With costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the
same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.
This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40).
Petitioner-appellant raised three (3) assignments of error, to wit:
I
The lower court erred in holding that the petitioner-appellant is engaged in
business as stevedore, the work of unloading and loading of a vessel in port,
contrary to the evidence on record.
II
The lower court erred in not holding that the business in which petitioner-appellant
is engaged, is part and parcel of the shipping industry.
III
The lower court erred in not allowing the refund sought by petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included
in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National
Internal Revenue Code, as amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. — ... And Provided further, That the tax imposed in
this section shall not apply to articles to be used by the importer himself in the
manufacture or preparation of articles subject to specific tax or those for
consignment abroad and are to form part thereof or to articles to be used by the
importer himself as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax
exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing
the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it
concludes that the engines, spare parts and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo
vessel" because they are neither designed nor used for carrying and/or transporting persons or goods
by themselves but are mainly employed for towing and pulling purposes. As such, it cannot be claimed
that the tugboats in question are used in carrying and transporting passengers or cargoes as a
common carrier by water, either coastwise or oceangoing and, therefore, not within the purview of
Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for Respondents-Appellees,
pp. 45).
This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its
rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in
order that it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that
any claim for exemption from the tax statute should be strictly construed against the taxpayer (Acting
Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of
Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).
As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be
declared exempt from the compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel has been an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal Revenue,
must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484; Rollo, p. 24). 24 SCRA 199 [1981]), which is not present in the instant case.

As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax
tax exemption from the compensating tax to imported items to be used by the importer himself as Appeals is AFFIRMED.
operator of passenger and/or cargo vessel (Ibid., p. 25).
SO ORDERED.
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A tugboat is a strongly built, powerful steam or power vessel, used for towing and,
now, also used for attendance on vessel. (Webster New International Dictionary,
2nd Ed.)

A tugboat is a diesel or steam power vessel designed primarily for moving large
ships to and from piers for towing barges and lighters in harbors, rivers and canals.
(Encyclopedia International Grolier, Vol. 18, p. 256).

A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law
Dictionary.) (Rollo, p. 24).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a
provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense
being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls
within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641, 40 SCRA 555 [1971];
Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).

And, even if construction and interpretation of the law is insisted upon, following another fundamental
rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be
remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the
legislature in amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the records,
intended to provide incentives and inducements to bolster the shipping industry and not the business of
stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was
adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping
industry as an independent business. On the contrary, petitioner-appellant's own evidence supports the
view that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port; and
towing of barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its
trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed under
Section 191 of the National Internal Revenue Code as a contractor, and not an entity which transports
passengers or freight for hire which is taxed under Section 192 of the same Code as a common carrier
by water (Decision, CTA Case No. 1484; Rollo, p. 25).

Under the circumstances, there appears to be no plausible reason to disturb the findings and
conclusion of the Court of Tax Appeals.

As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the
Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the subject unless there

G.R. No. L-31092 February 27, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.
YAP, J.:
The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the
3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it
realized from the construction of the World Health Organization office building in Manila.
The World Health Organization (WHO for short) is an international organization which has a regional
office in Manila. As an international organization, it enjoys privileges and immunities which are defined
more specifically in the Host Agreement entered into between the Republic of the Philippines and the
said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the
Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect
taxes. It is understood, however, that the Organization will not claim exemption from taxes which are, in
fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the other United
Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the
Republic of the Philippines on November 26, 1957. This agreement contained the following provision
(Article III, paragraph 2):
The Organization may import into the country materials and fixtures required for the
construction free from all duties and taxes and agrees not to utilize any portion of
the international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22,
1951 which granted the Organization exemption from all direct and indirect taxes.
In inviting bids for the construction of the building, the WHO informed the bidders that the building to be
constructed belonged to an international organization with diplomatic status and thus exempt from the
payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and
should not include items for such taxes, licenses and other payments to Government agencies."
The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short)
on February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the
price reached a total of P452,544.00.
Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal
Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and income of the
Organization, the gross receipts derived by contractors from their contracts with the WHO for the
construction of its new building, are exempt from tax in accordance with . . . the Host Agreement."
Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion
and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that
is primarily due from the contractor, the same is not covered by . . . the Host Agreement."
On January 2, 1960, the WHO issued a certification state 91 inter alia,:
When the request for bids for the construction of the World Health Organization
office building was called for, contractors were informed that there would be no
taxes or fees levied upon them for their work in connection with the construction of
the building as this will be considered an indirect tax to the Organization caused by
the increase of the contractor's bid in order to cover these taxes. This was upheld
by the Bureau of Internal Revenue and it can be stated that the contractors
submitted their bids in good faith with the exemption in mind.
The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made
under the condition stated above, should be exempted from any taxes in
connection with the construction of the World Health Organization office building.
On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco
demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the gross
receipts it received from the WHO in the construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after
trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The Court of
Tax Appeal's decision is now before us for review on certiorari.
In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption,
contending that the Host Agreement is null and void, not having been ratified by the Philippine Senate
as required by the Constitution. We find no merit in this contention. While treaties are required to be
ratified by the Senate under the Constitution, less formal types of international agreements may be
entered into by the Chief Executive and become binding without the concurrence of the legislative
body. 1 The Host Agreement comes within the latter category; it is a valid and binding international
agreement even without the concurrence of the Philippine Senate.
The privileges and immunities granted to the WHO under the Host Agreement have been recognized by
this Court as legally binding on Philippine authorities. 2
Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is
valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within its
purview. Petitioner's position is that the contractor's tax "is in the nature of an excise tax which is a
charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an
occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building.
Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it."
We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the
respondent court:

In context, direct taxes are those that are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention
that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co.,
1957 US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course
payable by the contractor but in the last analysis it is the owner of the building that
shoulders the burden of the tax because the same is shifted by the contractor to
the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an
indirect tax on the WHO because, although it is payable by the petitioner, the latter
can shift its burden on the WHO. In the last analysis it is the WHO that will pay the
tax indirectly through the contractor and it certainly cannot be said that 'this tax has
no bearing upon the World Health Organization.

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of
Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the
WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this case, since
the Host Agreement specifically exempts the WHO from "indirect taxes." We agree. The Philippine
Acetylene case involved a tax on sales of goods which under the law had to be paid by the
manufacturer or producer; the fact that the manufacturer or producer might have added the amount of
the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The Court held
that the sales tax must be paid by the manufacturer or producer even if the sale is made to tax-exempt
entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice
of America, an agency of the United States Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid or to
be paid by it. This is made clear in Section 12 of the Host Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases,
claim exemption from excise duties, and from taxes on the sale of movable and
immovable property which form part of the price to be paid, nevertheless, when the
Organization is making important purchases for official use of property on which
such duties and taxes have been charged or are chargeable the Government of the
Republic of the Philippines shall make appropriate administrative arrangements for
the remission or return of the amount of duty or tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the
clear intention of the Agreement to exempt the WHO from "indirect" taxation.

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the construction of the WHO office building. The 3%
contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On the
Organization, as the payment thereof or its inclusion in the bid price would have meant an increase in
the construction cost of the building.

Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the
appealed decision is hereby affirmed.

SO ORDERED.
 decision of the petitioner. While the petition was pending before the respondent
court, petitioner issued a final decision dated August 3, 1988 reducing the
assessment for deficiency contractor's tax from P193,475.55 to P46,516.41,
exclusive of surcharge and interest.

On July 12, 1993, the respondent court rendered the questioned decision which
dispositively reads:

WHEREFORE, in view of the foregoing, respondent's decision

is SET ASIDE. The deficiency contractor's tax assessment in
the amount of P46,516.41 exclusive of surcharge and interest
for the fiscal year ended March 31, 1978 is hereby
G.R. No. 115349 April 18, 1997 CANCELED. No pronouncement as to cost.

COMMISSIONER OF INTERNAL REVENUE, petitioner, SO ORDERED.

vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and ATENEO DE MANILA
UNIVERSITY, respondents. Not in accord with said decision, petitioner has come to this Court via the present petition for
review raising the following issues:
In conducting researches and studies of social organizations and cultural values thru its Institute of
Philippine Culture, is the Ateneo de Manila University performing the work of an independent contractor 1) WHETHER OR NOT PRIVATE RESPONDENT FALLS
and thus taxable within the purview of then Section 205 of the National Internal Revenue Code levying UNDER THE PURVIEW OF INDEPENDENT CONTRACTOR
a three percent contractor's tax? This question is answer by the Court in the negative as it resolves this PURSUANT TO SECTION 205 OF THE TAX CODE; and
petition assailing the Decision 1 of the Respondent Court of Appeals 2 in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of the Court of Tax Appeals. 3
2) WHETHER OR NOT PRIVATE RESPONDENT IS
SUBJECT TO 3% CONTRACTOR'S TAX UNDER SECTION
The Antecedent Facts 205 OF THE TAX CODE.

The antecedents as found by the Court of Appeals are reproduced hereinbelow, the same being largely The pertinent portions of Section 205 of the National Internal Revenue Code, as amended, provide:
undisputed by the parties.
Sec. 205. Contractor, proprietors or operators of dockyards, and others. — A
Private respondent is a non-stock, non-profit educational institution with auxiliary contractor's tax of threeper centum of the gross receipts is hereby imposed on the
units and branches all over the Philippines. One such auxiliary unit is the Institute following:
of Philippine Culture (IPC), which has no legal personality separate and distinct
from that of private respondent. The IPC is a Philippine unit engaged in social
xxx xxx xxx
science studies of Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from international organizations, private
foundations and government agencies. (16) Business agents and other independent contractors
except persons, associations and corporations under contract
for embroidery and apparel for export, as well as their agents
On July 8, 1983, private respondent received from petitioner Commissioner of
and contractors and except gross receipts of or from a pioneer
Internal Revenue a demand letter dated June 3, 1983, assessing private
industry registered with the Board of Investments under
respondent the sum of P174,043.97 for alleged deficiency contractor's tax, and an
Republic Act No. 5186:
assessment dated June 27, 1983 in the sum of P1,141,837 for alleged deficiency
income tax, both for the fiscal year ended March 31, 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-protest and subsequently filed The term "independent contractors" include persons (juridical
with the latter a memorandum contesting the validity of the assessments. or natural) not enumerated above (but not including individuals
subject to the occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the sale of all
On March 17, 1988, petitioner rendered a letter-decision canceling the assessment
kinds of services for a fee regardless of whether or not the
for deficiency income tax but modifying the assessment for deficiency contractor's
performance of the service calls for the exercise or use of the
tax by increasing the amount due to P193,475.55. Unsatisfied, private respondent
physical or mental faculties of such contractors or their
requested for a reconsideration or reinvestigation of the modified assessment. At
employees.
the same time, it filed in the respondent court a petition for review of the said letter-
 Petitioner contends that the respondent court erred in holding that private
respondent is not an "independent contractor" within the purview of Section 205 of
the Tax Code. To petitioner, the term "independent contractor", as defined by the
Code, encompasses all kinds of services rendered for a fee and that the only
exceptions are the following:
a. Persons, association and corporations under contract for embroidery and
apparel for export and gross receipts of or from pioneer industry registered with the
Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the Local Tax Code (under the old
Section 182 [b] of the Tax Code); and
c. Regional or area headquarters established in the Philippines by multinational
corporations, including their alien executives, and which headquarters do not earn
or derive income from the Philippines and which act as supervisory, communication
and coordinating centers for their affiliates, subsidiaries or branches in the Asia
Pacific Region (Section 205 of the Tax Code).
Petitioner thus submits that since private respondent falls under the definition of an
"independent contractor" and is not among the aforementioned exceptions, private
respondent is therefore subject to the 3% contractor's tax imposed under the same
Code. 4
The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and affirmed the
assailed decision of the Court of Tax Appeals. Unfazed, petitioner now asks us to reverse the CA
through this petition for review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the purview of independent
contractor pursuant to Section 205 of the Tax Code.
2) Whether or not private respondent is subject to 3% contractor's tax under
Section 205 of the Tax Code. 5
In fine, these may be reduced to a single issue: Is Ateneo de Manila University, through its auxiliary unit
or branch — the Institute of Philippine Culture — performing the work of an independent contractor and,
thus, subject to the three percent contractor's tax levied by then Section 205 of the National Internal
Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue Code germane to the case before us
read:
Sec. 205. Contractors, proprietors or operators of dockyards, and others. — A
contractor's tax of threeper centum of the gross receipts is hereby imposed on the
following:
(16) Business agents and other independent contractors, except persons,
associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors, and except gross receipts of or
from a pioneer industry registered with the Board of Investments under the
provisions of Republic Act No. 5186;
xxx xxx xxx
The term "independent contractors" include persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose activity consists essentially of the
sale of all kinds of services for a fee regardless of whether or not the performance
of the service calls for the exercise or use of the physical or mental faculties of
such contractors or their employees.
The term "independent contractor" shall not include regional or area headquarters
established in the Philippines by multinational corporations, including their alien
executives, and which headquarters do not earn or derive income from the
Philippines and which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region.
The term "gross receipts" means all amounts received by the prime or principal
contractor as the total contract price, undiminished by amount paid to the
subcontractor, shall be excluded from the taxable gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila
University "falls within the definition" of an independent contractor and "is not one of those mentioned
as excepted"; hence, it is properly a subject of the three percent contractor's tax levied by the foregoing
provision of law. 6 Petitioner states that the "term 'independent contractor' is not specifically defined so
as to delimit the scope thereof, so much so that any person who . . . renders physical and mental
service for a fee, is now indubitably considered an independent contractor liable to 3% contractor's
tax." 7 According to petitioner, Ateneo has the burden of proof to show its exemption from the coverage
of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax
exemption without first applying the well-settled doctrine of strict interpretation in the imposition of
taxes. It is obviously both illogical and impractical to determine who are exempted without first
determining who are covered by the aforesaid provision. The Commissioner should have determined
first if private respondent was covered by Section 205, applying the rule of strict interpretation of laws
imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption
therefrom. The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax
laws that "(a) statute will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously . . . (A) tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax lawsand the provisions of a taxing act are not to be extended by
implication." 8 Parenthetically, in answering the question of who is subject to tax statutes, it is basic that
"in case of doubt, such statutes are to be construed most strongly against the government and in favor
of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond
what statutes expressly and clearly import." 9
To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the
independent contractor be engaged in the business of selling its services. Hence, to impose the three
percent contractor's tax on Ateneo's Institute of Philippine Culture, it should be sufficiently proven that
the private respondent is indeed selling its services for a fee in pursuit of an independent business. And
it is only after private respondent has been found clearly to be subject to the provisions of Sec. 205 that
the question of exemption therefrom would arise. Only after such coverage is shown does the rule of
construction — that tax exemptions are to be strictly construed against the taxpayer — come into play,
contrary to petitioner's position. This is the main line of reasoning of the Court of Tax Appeals in its
decision, 10 which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Service of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence that Ateneo's Institute of Philippine Culture
ever sold its services for a fee to anyone or was ever engaged in a business apart from and
independently of the academic purposes of the university.
Stressing that "it is not the Ateneo de Manila University per se which is being taxed," Petitioner
Commissioner of Internal Revenue contends that "the tax is due on its activity of conducting researches
for a fee. The tax is due on the gross receipts made in favor of IPC pursuant to the contracts the latter
entered to conduct researches for the benefit primarily of its clients. The tax is imposed on the exercise
of a taxable activity. . . . [T]he sale of services of private respondent is made under a contract and the
various contracts entered into between private respondent and its clients are almost of the same terms,
showing, among others, the compensation and terms of payment." 11(Emphasis supplied.)
In theory, the Commissioner of Internal Revenue may be correct. However, the records do not show
that Ateneo's IPC in fact contracted to sell its research services for a fee. Clearly then, as found by the
Court of Appeals and the Court of Tax Appeals, petitioner's theory is inapplicable to the established
factual milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to prove its bare contention that, indeed,
contracts for sale of services were ever entered into by the private respondent. As appropriately pointed
out by the latter:
An examination of the Commissioner's Written Formal Offer of Evidence in the
Court of Tax Appeals shows that only the following documentary evidence was
presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiner's Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close to purport to be contracts
between private respondent and third parties. 12
Moreover, the Court of Tax Appeals accurately and correctly declared that the " funds received by the
Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations
which are tax-exempt" as shown by private respondent's compliance with the requirement of Section
123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational
institution. 13
Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into the definition of an "independent
contractor".
For one, the established facts show that IPC, as a unit of the private respondent, is
not engaged in business. Undisputedly, private respondent is mandated by law to
undertake research activities to maintain its university status. In fact, the research
activities being carried out by the IPC is focused not on business or profit but on
social sciences studies of Philippine society and culture. Since it can only finance a
limited number of IPC's research projects, private respondent occasionally accepts
sponsorship for unfunded IPC research projects from international organizations,
private foundations and governmental agencies. However, such sponsorships are
subject to private respondent's terms and conditions, among which are, that the
research is confined to topics consistent with the private respondent's academic
agenda; that no proprietary or commercial purpose research is done; and that
private respondent retains not only the absolute right to publish but also the
ownership of the results of the research conducted by the IPC. Quite clearly, the
aforementioned terms and conditions belie the allegation that private respondent is
a contractor or is engaged in business.
For another, it bears stressing that private respondent is a non-stock, non-profit
educational corporation. The fact that it accepted sponsorship for IPC's unfunded
projects is merely incidental. For, the main function of the IPC is to undertake
research projects under the academic agenda of the private respondent. Moreover
the records do not show that in accepting sponsorship of research work, IPC
realized profits from such work. On the contrary, the evidence shows that for about
30 years, IPC had continuously operated at a loss, which means that sponsored
funds are less than actual expenses for its research projects. That IPC has been
operating at a loss loudly bespeaks of the fact that education and not profit is the
motive for undertaking the research projects.
Then, too, granting arguendo that IPC made profits from the sponsored research
projects, the fact still remains that there is no proof that part of such earnings or
profits was ever distributed as dividends to any stockholder, as in fact none was so
distributed because they accrued to the benefit of the private respondent which is a
non-profit educational institution. 14
Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture are not given in
the concept of a fee or price in exchange for the performance of a service or delivery of an object.
Rather, the amounts are in the nature of an endowment or donation given by IPC's benefactors solely
for the purpose of sponsoring or funding the research with no strings attached. As found by the two
courts below, such sponsorships are subject to IPC's terms and conditions. No proprietary or
commercial research is done, and IPC retains the ownership of the results of the research, including the
absolute right to publish the same. The copyrights over the results of the research are owned by
Ateneo and, consequently, no portion thereof may be reproduced without its permission. 15 The
amounts given to IPC, therefore, may not be deemed, it bears stressing as fees or gross receipts that
can be subjected to the three percent contractor's tax.
It is also well to stress that the questioned transactions of Ateneo's Institute of Philippine Culture cannot
be deemed either as a contract of sale or a contract of a piece of work. "By the contract of sale, one of
the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent." 16 By its very nature, a contract
of sale requires a transfer of ownership. Thus, Article 1458 of the Civil Code "expressly makes the
obligation to transfer ownership as an essential element of the contract of sale, following modern
codes, such as the German and the Swiss. Even in the absence of this express requirement, however,
most writers, including Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the primary purpose of sale. Perez and Alguer follow the
same view, stating that the delivery of the thing does not mean a mere physical transfer, but is a means
of transmitting ownership. Transfer of title or an agreement to transfer it for a price paid or promised to
be paid is the essence of sale." 17 In the case of a contract for a piece of work, "the contractor binds
himself to execute a piece of work for the employer, in consideration of a certain price or compensation.
. . . If the contractor agrees to produce the work from materials furnished by him, he shall deliver the
thing produced to the employer and transfer dominion over the thing, . . ." 18 Ineludably, whether the
contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object. 19 In the case at bench, it is clear from the evidence on record
that there was no sale either of objects or services because, as adverted to earlier, there was no
transfer of ownership over the research data obtained or the results of research projects undertaken by
the Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of Philippine Culture is done in
pursuance of maintaining Ateneo's university status and not in the course of an independent business
of selling such research with profit in mind. This is clear from a reading of the regulations governing
universities:
31. In addition to the legal requisites an institution must meet, among others, the
following requirements before an application for university status shall be
considered:
xxx xxx xxx
(e) The institution must undertake research and operate with a competent qualified
staff at least three graduate departments in accordance with the rules and
standards for graduate education. One of the departments shall be science and
technology. The competence of the staff shall be judged by their effective teaching,
scholarly publications and research activities published in its school journal as well
as their leadership activities in the profession.
(f) The institution must show evidence of adequate and stable financial resources
and support, a reasonable portion of which should be devoted to institutional
development and research. (emphasis supplied)
xxx xxx xxx
32. University status may be withdrawn, after due notice and hearing, for failure to
maintain satisfactorily the standards and requirements therefor. 20
Petitioner's contention that it is the Institute of Philippine Culture that is being taxed and not the Ateneo
is patently erroneous because the former is not an independent juridical entity that is separate and
distinct form the latter.
Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the Court of
Appeals Generally Conclusive
In addition, we reiterate that the "Court of Tax Appeals is a highly specialized body specifically created
for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine
the issue of whether" 21 Ateneo de Manila University may be deemed a subject of the three percent
contractor's tax "through the evidence presented before it." Consequently, "as a matter of principle, this
Court will not set aside the conclusion reached by . . . the Court of Tax Appeals which is, by the very
nature of its function, dedicated exclusively to the study and consideration of tax problems and has
necessarily developed an expertise on the subject unless there has been an abuse or improvident
exercise of authority . . ." 22 This point becomes more evident in the case before us where the findings
and conclusions of both the Court of Tax Appeals and the Court of Appeals appear untainted by any
abuse of authority, much less grave abuse of discretion. Thus, we find the decision of the latter
affirming that of the former free from any palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine Culture conducted its research activities at a huge
deficit of P1,624,014.00 as shown in its statements of fund and disbursements for the period 1972 to
1985. 23 In fact, it was Ateneo de Manila University itself that had funded the research projects of the
institute, and it was only when Ateneo could no longer produce the needed funds that the institute
sought funding from outside. The testimony of Ateneo's Director for Accounting Services, Ms. Leonor
Wijangco, provides significant insight on the academic and nonprofit nature of the institute's research
activities done in furtherance of the university's purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the
Institute of Philippine Culture) that as far as grants from sponsored research it is
possible that the grant sometimes is less than the actual cost. Will you please tell
us in this case when the actual cost is a lot less than the grant who shoulders the
additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a university, because a
university has to have its own research institute. 24
So, why is it that Ateneo continues to operate and conduct researches through its Institute of Philippine
Culture when it undisputedly loses not an insignificant amount in the process? The plain and simple
answer is that private respondent is not a contractor selling its services for a fee but an academic
institution conducting these researches pursuant to its commitments to education and, ultimately, to
public service. For the institute to have tenaciously continued operating for so long despite its
accumulation of significant losses, we can only agree with both the Court of Tax Appeals and the Court
of Appeals that "education and not profit is [IPC's] motive for undertaking the research
projects." 25
WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the Court of
Appeals is hereby AFFIRMED in full.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco JJ., concur.
G.R. No. L-45355 January 12, 1990
THE PROVINCE OF MISAMIS ORIENTAL, represented by its PROVINCIAL
TREASURER, petitioner,
vs.
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC. (CEPALCO), respondent.
Jaime A. Chaves for petitioner.
Quiason, Makalintal, Barot & Torres for respondent.
GRIÑO-AQUINO, J.:
The issue in this case is a legal one: whether or not a corporation whose franchise expressly provides
that the payment of the "franchise tax of three per centum of the gross earnings shall be in lieu of all
taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles,
wires, transformers, and insulators of the grantee." (p. 20, Rollo), is exempt from paying a provincial
franchise tax.
Cagayan Electric Power and Light Company, Inc. (CEPALCO for short) was granted a franchise on
June 17, 1961 under Republic Act No. 3247 to install, operate and maintain an electric light, heat and
power system in the City of Cagayan de Oro and its suburbs. Said franchise was amended on June 21,
1963 by R.A. No. 3570 which added the municipalities of Tagoloan and Opol to CEPALCO's sphere of
operation, and was further amended on August 4, 1969 by R.A. No. 6020 which extended its field of
operation to the municipalities of Villanueva and Jasaan.
R.A. Nos. 3247, 3570 and 6020 uniformly provide that:
Sec. 3. In consideration of the franchise and rights hereby granted, the grantee shall pay a
franchise tax equal to three per centum of the gross earnings for electric current sold under
this franchise, of which two per centum goes into the National Treasury and one per
centum goes into the treasury of the Municipalities of Tagoloan, Opol, Villanueva and Jasaan
and Cagayan de Oro City, as the case may be: Provided, That the said franchise tax of
three per centum of the gross earnings shall be in lieu of all taxes and assessments of
whatever authority upon privileges earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee from which taxes and assessments
the grantee is hereby expressly exempted. (Emphasis supplied.)
On June 28, 1973, the Local Tax Code (P.D. No. 231) was promulgated, Section 9 of which provides:
Sec. 9. Franchise Tax.—Any provision of special laws to the contrary notwithstanding, the
province may impose a tax on businesses enjoying franchise, based on the gross receipts
realized within its territorial jurisdiction, at the rate of not exceeding one-half of one per cent
of the gross annual receipts for the preceding calendar year.
In the case of newly started business, the rate shall not exceed three thousand pesos per
year. Sixty per cent of the proceeds of the tax shall accrue to the general fund of the province
and forty per cent to the general fund of the municipalities serviced by the business on the
basis of the gross annual receipts derived therefrom by the franchise holder. In the case of a
newly started business, forty per cent of the proceeds of the tax shall be divided equally
among the municipalities serviced by the business. (Emphasis supplied.)
Pursuant thereto, the Province of Misamis Oriental (herein petitioner) enacted Provincial Revenue
Ordinance No. 19, whose Section 12 reads:
Sec. 12. Franchise Tax.—There shall be levied, collected and paid on businesses enjoying
franchise tax of one-half of one per cent of their gross annual receipts for the preceding
calendar year realized within the territorial jurisdiction of the province of Misamis Oriental. (p.
27, Rollo.)
The Provincial Treasurer of Misamis Oriental demanded payment of the provincial franchise tax from
CEPALCO. The company refused to pay, alleging that it is exempt from all taxes except the franchise
tax required by R.A. No. 6020. Nevertheless, in view of the opinion rendered by the Provincial Fiscal,
upon CEPALCO's request, upholding the legality of the Revenue Ordinance, CEPALCO paid under
protest on May 27, 1974 the sum of P 4,276.28 and appealed the fiscal's ruling to the Secretary of
Justice who reversed it and ruled in favor of CEPALCO.
On June 26, 1976, the Secretary of Finance issued Local Tax Regulation No. 3-75 adopting entirely the
opinion of the Secretary of Justice.
On February 16, 1976, the Province filed in the Court of First Instance of Misamis Oriental a complaint
for declaratory relief praying, among others, that the Court exercise its power to construe P.D. No. 231
in relation to the franchise of CEPALCO (R.A. No. 6020), and to declare the franchise as having been
amended by P.D. No. 231. The Court dismissed the complaint and ordered the Province to return to
CEPALCO the sum of P4,276.28 paid under protest.
The Province has appealed to this Court, alleging that the lower court erred in holding that:
1) CEPALCO's tax exemption under Section 3 of Republic Act No. 6020 was not amended or repealed
by P.D. No. 231;
2) the imposition of the provincial franchise tax on CEPALCO would subvert the purpose of P.D. No.
231;
3) CEPALCO is exempt from paying the provincial franchise tax; and
4) petitioner should refund CEPALCO's tax payment of P4,276.28.
We find no merit in the petition for review.
There is no provision in P.D. No. 231 expressly or impliedly amending or repealing Section 3 of R.A.
No. 6020. The perceived repugnancy between the two statutes should be very clear before the Court
may hold that the prior one has been repealed by the later, since there is no express provision to that
effect (Manila Railroad Co. vs. Rafferty, 40 Phil. 224). The rule is that a special and local statute
applicable to a particular case is not repealed by a later statute which is general in its terms, provisions
and application even if the terms of the general act are broad enough to include the cases in the special
law (id.) unless there is manifest intent to repeal or alter the special law.
Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable only to CEPALCO, while P.D. No.
231 is a general tax law. The presumption is that the special statutes are exceptions to the general law
(P.D. No. 231) because they pertain to a special charter granted to meet a particular set of conditions
and circumstances.
exempted and . . . no other tax . . . other than the franchise tax of 2% on the gross receipts
as provided for in the original franchise shall be collected.
exempts the company from paying the franchise tax under Section 259 of the National Internal
Revenue Code (Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc., G.R. No.
23771, August 4, 1988).
On the other hand, the Balanga Power Plant Company, Imus Electric Company, Inc., Guagua Electric
Company, Inc. were subjected to the 5% tax on corporate franchise under Section 259 of the Internal
Revenue Code, as amended, because Act No. 667 of the Philippine Commission and the ordinance or
resolutions granting their respective franchises did not contain the "in-lieu-of-all-taxes" clause (Balanga
Power Plant Co. vs. Commissioner of Internal Revenue, G.R. No. L-20499, June 30, 1965; Imus
Electric Co. vs. Court of Tax Appeals, G.R. No. L-22421, March 18, 1967; Guagua Electric Light vs.
Collector of Internal Revenue, G.R. No. L-23611, April 24, 1967).

The franchise of respondent CEPALCO expressly exempts it from payment of "all taxes of whatever
authority" except the three per centum (3%) tax on its gross earnings.
In an earlier case, the phrase "shall be in lieu of all taxes and at any time levied, established by, or
collected by any authority" found in the franchise of the Visayan Electric Company was held to exempt
the company from payment of the 5% tax on corporate franchise provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385).
Local Tax Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it
crystal clear that the franchise tax provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be
imposed on companies with franchises that do not contain the exempting clause. Thus it provides:
The franchise tax imposed under local tax ordinance pursuant to Section 9 of the Local Tax
Code, as amended, shall be collected from businesses holding franchise but not from
business establishments whose franchise contain the "in-lieu-of-all-taxes-proviso".

Similarly, we ruled that the provision: "shall be in lieu of all taxes of every name and nature" in the
franchise of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila Railroad
from payment of internal revenue tax for its importations of coal and oil under Act No. 2432 and the
Amendatory Acts of the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified
the exemption of the Philippine Railway Company from payment of the tax on its corporate franchise
under Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co.
vs. Collector of Internal Revenue, 91 Phil. 35).
Manila Electric Company vs. Vera, 67 SCRA 351, cited by the petitioner, is not applicable here because
what the Government sought to impose on Meralco in that case was not a franchise tax but
a compensating tax on the poles, wires, transformers and insulators which it imported for its use.
WHEREFORE, the petition for review is denied, and the decision of the Court of First Instance is
hereby affirmed in toto. No costs.
SO ORDERED.

Those magic words: "shall be in lieu of all taxes" also excused the Cotabato Light and Ice Plant
Company from the payment of the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato
Light and Power Co. vs. City of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was
required to pay the corporate franchise tax under Section 259 of the Internal Revenue Code, as
amended by R.A. No. 39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4]
1068). This Court pointed out that such exemption is part of the inducement for the acceptance of the
franchise and the rendition of public service by the grantee. As a charter is in the nature of a private
contract, the imposition of another franchise tax on the corporation by the local authority would
constitute an impairment of the contract between the government and the corporation.

Recently, this Court ruled that the franchise (R.A. No. 3843) of the Lingayen Gulf Electric Power
Company which provided that the company shall pay:

tax equal to 2% per annum of the gross receipts . . . and shall be in lieu of any and all
taxes . . . now or in the future . . . from which taxes . . . the grantee is hereby expressly

G.R. No. 108358 January 20, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE HON. COURT OF APPEALS, R.O.H. AUTO PRODUCTS PHILIPPINES, INC. and THE HON.
COURT OF TAX APPEALS, respondents.
VITUG, J.:
On 22 August 1986, during the period when the President of the Republic still wielded legislative
powers, Executive Order No. 41 was promulgated declaring a one-time tax amnesty on unpaid income
taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years
1981 to 1985.
Availing itself of the amnesty, respondent R.O.H. Auto Products Philippines, Inc., filed, in October 1986
and November 1986, its Tax Amnesty Return No. 34-F-00146-41 and Supplemental Tax Amnesty
Return No. 34-F-00146-64-B, respectively, and paid the corresponding amnesty taxes due.
Prior to this availment, petitioner Commissioner of Internal Revenue, in a communication received by
private respondent on 13 August 1986, assessed the latter deficiency income and business taxes for its
fiscal years ended 30 September 1981 and 30 September 1982 in an aggregate amount of
P1,410,157.71. The taxpayer wrote back to state that since it had been able to avail itself of the tax
amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The request was
denied by the Commissioner, in his letter of 22 November 1988, on the ground that Revenue
Memorandum Order No. 4-87, dated 09 February 1987, implementing Executive Order No. 41, had
construed the amnesty coverage to include only assessments issued by the Bureau of Internal
Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments
theretofore made. The invoked provisions of the memorandum order read:
TO: All Internal Revenue Officers and Others Concerned:
1.0. To give effect and substance to the immunity provisions of the tax amnesty
under Executive Order No. 41, as expanded by Executive Order No. 64, the
following instructions are hereby issued:
xxx xxx xxx
1.02. A certification by the Tax Amnesty Implementation Officer of the fact of
availment of the said tax amnesty shall be a sufficient basis for:
xxx xxx xxx
1.02.3. In appropriate cases, the cancellation/withdrawal of assessment notices
and letters of demand issued after August 21, 1986 for the collection of income,
business, estate or donor's taxes due during the same taxable years.1 (Emphasis
supplied)
Private respondent appealed the Commissioner's denial to the Court of Tax Appeals. Ruling for the
taxpayer, the tax court said:
Respondent (herein petitioner Commissioner) failed to present any case or law
which proves that an assessment can withstand or negate the force and effects of
a tax amnesty. This burden of proof on the petitioner (herein respondent taxpayer)
was created by the clear and express terms of the executive order's intention —
qualified availers of the amnesty may pay an amnesty tax in lieu of said unpaid
taxes which are forgiven (Section 2, Section 5, Executive Order No. 41, as
amended). More specifically, the plain provisions in the statute granting tax
amnesty for unpaid taxes for the period January 1, 1981 to December 31, 1985
shifted the burden of proof on respondent to show how the issuance of an
assessment before the date of the promulgation of the executive order could have
a reasonable relation with the objective periods of the amnesty, so as to make
petitioner still answerable for a tax liability which, through the statute, should have
been erased with the proper availment of the amnesty.
Additionally, the exceptions enumerated in Section 4 of Executive Order No. 41, as
amended, do not indicate any reference to an assessment or pending investigation
aside from one arising from information furnished by an informer. . . . Thus, we
deem that the rule in Revenue Memorandum Order No. 4-87 promulgating that
only assessments issued after August 21, 1986 shall be abated by the amnesty is
beyond the contemplation of Executive Order No. 41, as amended.2
On appeal by the Commissioner to the Court of Appeals, the decision of the tax court was affirmed. The
appellate court further observed:
In the instant case, examining carefully the words used in Executive Order No. 41,
as amended, we find nothing which justifies petitioner Commissioner's ground for
denying respondent taxpayer's claim to the benefits of the amnesty law. Section 4
of the subject law enumerates, in no uncertain terms, taxpayers who may not avail
of the amnesty granted,. . . .
Admittedly, respondent taxpayer does not fall under any of the . . . exceptions. The
added exception urged by petitioner Commissioner based on Revenue
Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly
amounts to an act of administrative legislation quite contrary to the mandate of the
law which the regulation ought to implement.
xxx xxx xxx
 Lastly, by its very nature, a tax amnesty, being a general pardon or intentional b) file a certified true copy of his statement declaring his net
overlooking by the State of its authority to impose penalties on persons otherwise worth as of December 31, 1980 on record with the Bureau of
guilty of evasion or violation of a revenue or tax law, partakes of an absolute Internal Revenue, or if no such record exists, file a statement
forgiveness or waiver by the Government of its right to collect what otherwise of said net worth therewith, subject to verification by the
would be due it, and in this sense, prejudicial thereto, particularly to give tax Bureau of Internal Revenue;
evaders, who wish to relent and are willing to reform a chance to do so and thereby
become a part of the new society with a clean slate. (Republic vs. Intermediate
c) file a return and pay a tax equivalent to ten per cent (10%)
Appellate Court. 196 SCRA 335, 340 [1991] citing Commissioner of Internal
of the increase in net worth from December 31, 1980 to
Revenue vs. Botelho Shipping Corp., 20 SCRA 487) To follow [the restrictive
December 31, 1985: Provided, That in no case shall the tax be
application of Revenue Memorandum Order No. 4-87 pressed by petitioner
less than P5,000.00 for individuals and P10,000.00 for judicial
Commissioner would be to work against the raison d'etre of E.O. 41, as amended,
persons.
i.e., to raise government revenues by encouraging taxpayers to declare their
untaxed income and pay the tax due thereon. (E.O. 41, first paragraph)]3
Sec. 3. Computation of Net Worth. — In computing the net worths referred to in
Section 2 hereof, the following rules shall govern:
In this petition for review, the Commissioner raises these related issues:

a) Non-cash assets shall be valued at acquisition cost.

1. WHETHER OR NOT REVENUE MEMORANDUM ORDER NO. 4-87, PROMULGATED TO
IMPLEMENT E.O. NO. 41, IS VALID;
b) Foreign currencies shall be valued at the rates of exchange
prevailing as of the date of the net worth statement.
2. WHETHER OR NOT SAID DEFICIENCY ASSESSMENTS IN QUESTION WERE
EXTINGUISHED BY REASON OR PRIVATE RESPONDENT'S AVAILMENT OF EXECUTIVE
ORDER NO. 41 AS AMENDED BY EXECUTIVE ORDER NO. 64; Sec. 4. Exceptions. — The following taxpayers may not avail themselves of the
amnesty herein granted:
3. WHETHER OR NOT PRIVATE RESPONDENT HAS OVERCOME THE PRESUMPTION
OF VALIDITY OF ASSESSMENTS.4 a) Those falling under the provisions of Executive Order Nos.
1, 2 and 14;
The authority of the Minister of Finance (now the Secretary of Finance), in conjunction with the
Commissioner of Internal Revenue, to promulgate all needful rules and regulations for the effective b) Those with income tax cases already filed in Court as of the
enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules effectivity hereof;
and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and
respect by the courts. Much more fundamental than either of the above, however, is that all such
c) Those with criminal cases involving violations of the income
issuances must not override, but must remain consistent and in harmony with, the law they seek to
tax already filed in court as of the effectivity filed in court as of
apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant
the effectivity hereof;
nor to modify, the law.

d) Those that have withholding tax liabilities under the National

The real and only issue is whether or not the position taken by the Commissioner coincides with the
Internal Revenue Code, as amended, insofar as the said
meaning and intent of executive Order No. 41.
liabilities are concerned;

We agree with both the court of Appeals and court of Tax Appeals that Executive Order No. 41 is quite
explicit and requires hardly anything beyond a simple application of its provisions. It reads:
Sec. 1. Scope of Amnesty. — A one-time tax amnesty covering unpaid income
taxes for the years 1981 to 1985 is hereby declared.
Sec. 2. Conditions of the Amnesty. — A taxpayer who wishes to avail himself of the
tax amnesty shall, on or before October 31, 1986;
a) file a sworn statement declaring his net worth as of
December 31, 1985;
e) Those with tax cases pending investigation by the Bureau of
Internal Revenue as of the effectivity hereof as a result of
information furnished under Section 316 of the National
Internal Revenue Code, as amended;
f) Those with pending cases involving unexplained or
unlawfully acquired wealth before the Sandiganbayan;
g) Those liable under Title Seven, Chapter Three (Frauds,
Illegal Exactions and Transactions) and Chapter Four
(Malversation of Public Funds and Property) of the Revised
Penal Code, as amended.
 xxx xxx xxx
Sec. 9. The Minister of finance, upon the recommendation of the Commissioner of
Internal Revenue, shall promulgate the necessary rules and regulations to
implement this Executive Order.
xxx xxx xxx
Sec. 11. This Executive Order shall take effect immediately.
DONE in the City of Manila, this 22nd day of August in the year of Our Lord,
nineteen hundred and eighty-six.
The period of the amnesty was later extended to 05 December 1986 from 31 October 1986 by
Executive Order No. 54, dated 04 November 1986, and, its coverage expanded, under Executive Order
No. 64, dated 17 November 1986, to include estate and honors taxes and taxes on business.
c) The books of account and other records of the taxpayer for
the period from January 1, 1981 to December 31, 1985 shall
not be examined for income tax purposes: Provided, That the
Commissioner of Internal Revenue may authorize in writing the
examination of the said books of accounts and other records to
verify the validity or correctness of a claim for grant of any tax
refund, tax credit (other than refund on credit of withheld taxes
on wages), tax incentives, and/or exemptions under existing
laws.
There is no pretension that the tax amnesty returns and due payments made by the taxpayer did not
conform with the conditions expressed in the amnesty order.
WHEREFORE, the decision of the court of Appeals, sustaining that of the court of Tax Appeals, is
hereby AFFIRMED in toto. No costs.
SO ORDERED.

If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985
tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so
provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the
executive order has been designed to be in the nature of a general grant of tax amnesty subject only to
the cases specifically excepted by it.

It might not be amiss to recall that the taxable periods covered by the amnesty include the years
immediately preceding the 1986 revolution during which time there had been persistent calls, all too
vivid to be easily forgotten, for civil disobedience, most particularly in the payment of taxes, to the
martial law regime. It should be understandable then that those who ultimately took over the reigns of
government following the successful revolution would promptly provide for abroad, and not a confined,
tax amnesty.

Relative to the two other issued raised by the Commissioner, we need only quote from Executive Order
No. 41 itself; thus:

Sec. 6. Immunities and Privileges. — Upon full compliance with the conditions of
the tax amnesty and the rules and regulations issued pursuant to this Executive
order, the taxpayer shall enjoy the following immunities and privileges:

a) The taxpayer shall be relieved of any income tax liability on

any untaxed income from January 1, 1981 to December 31,
1985, including increments thereto and penalties on account of
the non-payment of the said tax. Civil, criminal or
administrative liability arising from the non-payment of the said
tax, which are actionable under the National Internal Revenue
Code, as amended, are likewise deemed extinguished.

b) The taxpayer's tax amnesty declaration shall not be

admissible in evidence in all proceedings before
judicial, quasi-judicial or administrative bodies, in which he is a
defendant or respondent, and the same shall not be examined,
inquired or looked into by any person, government official,
bureau or office.