USJ-­‐R

 LAW  
Bar  Ops  2013  
 

1.) Angeles  University  Foundation  vs.  City  of  Angeles  

For  resolution  are  the  following  issues:  (1)  whether  petitioner  is  exempt  from  the  payment  of  building  
permit  and  related  fees  imposed  under  the  National  Building  Code;  and  (2)  whether  the  parcel  of  land  
owned  by  petitioner  which  has  been  assessed  for  real  property  tax  is  likewise  exempt.  

R.A.  No.  6055  granted  tax  exemptions  to  educational  institutions  like  petitioner  which  converted  to  non-­‐
stock,  non-­‐profit  educational  foundations.  Section  8  of  said  law  provides:  

SECTION  8.     The   Foundation   shall   be   exempt   from   the   payment   of   all   taxes,   import   duties,  
assessments,   and   other   charges   imposed   by   the   Government   on   all   income   derived   from   or   property,  
real  or  personal,  used  exclusively  for  the  educational  activities  of  the  Foundation.    

On   February   19,   1977,   Presidential   Decree   (P.D.)   No.   1096   was   issued   adopting   the   National   Building  
Code  of  the  Philippines.  The  said  Code  requires  every  person,  firm  or  corporation,  including  any  agency  
or   instrumentality   of   the   government   to   obtain   a   building   permit   for   any   construction,   alteration   or  
repair   of   any   building   or   structure.   19   Building   permit   refers   to   "a   document   issued   by   the   Building  
Official   .   .   .   to   an   owner/applicant   to   proceed   with   the   construction,   installation,   addition,   alteration,  
renovation,   conversion,   repair,   moving,   demolition   or   other   work   activity   of   a   specific  
project/building/structure  or  portions  thereof  after  the  accompanying  principal  plans,  specifications  and  
other  pertinent  documents  with  the  duly  notarized  application  are  found  satisfactory  and  substantially  
conforming   with   the   National   Building   Code   of   the   Philippines   .   .   .   and   its   Implementing   Rules   and  
Regulations  (IRR)."  Building  permit  fees  refers  to  the  basic  permit  fee  and  other  charges  imposed  under  
the  National  Building  Code.  

Exempted   from   the   payment   of   building   permit   fees   are:   (1)   public   buildings   and   (2)   traditional  
indigenous  family  dwellings.    Not  being  expressly  included  in  the  enumeration  of  structures  to  which  the  
building  permit  fees  do  not  apply,  petitioner's  claim  for  exemption  rests  solely  on  its  interpretation  of  
the  term  "other  charges  imposed  by  the  National  Government"  in  the  tax  exemption  clause  of  R.A.  No.  
6055.          

A  "charge"  is  broadly  defined  as  the  "price  of,  or  rate  for,  something,"  while  the  word  "fee"  pertains  to  a  
"charge  fixed  by  law  for  services  of  public  officers  or  for  use  of  a  privilege  under  control  of  government."    
As  used  in  the  Local  Government  Code  of  1991  (R.A.  No.  7160),  charges  refers  to  pecuniary  liability,  as  
rents   or   fees   against   persons   or   property,   while   fee   means   a   charge   fixed   by   law   or   ordinance   for   the  
regulation  or  inspection  of  a  business  or  activity.    

That  "charges"  in  its  ordinary  meaning  appears  to  be  a  general  term  which  could  cover  a  specific  "fee"  
does  not  support  petitioner's  position  that  building  permit  fees  are  among  those  "other  charges"  from  

1  
 
which   it   was   expressly   exempted.   Note   that   the   "other   charges"   mentioned   in   Sec.   8   of   R.A.   No.   6055   is  
qualified   by   the   words   "imposed   by   the   Government   on   all   .   .   .   property   used   exclusively   for   the  
educational   activities   of   the   foundation."   Building   permit   fees   are   not   impositions   on   property   but   on  
the  activity  subject  of  government  regulation.  While  it  may  be  argued  that  the  fees  relate  to  particular  
properties,  i.e.,  buildings  and  structures,  they  are  actually  imposed  on  certain  activities  the  owner  may  
conduct  either  to  build  such  structures  or  to  repair,  alter,  renovate  or  demolish  the  same.  This  is  evident  
from  the  following  provisions  of  the  National  Building  Code:    

Section  102.   Declaration  of  Policy.  —  

It   is   hereby   declared   to   be   the   policy   of   the   State   to   safeguard   life,   health,   property,   and   public   welfare,  
consistent  with  the  principles  of  sound  environmental  management  and  control;  and  to  this  end,  make  it  
the   purpose   of   this   Code   to   provide   for   all   buildings   and   structures,   a   framework   of   minimum   standards  
and  requirements  to  regulate  and  control  their  location,  site,  design  quality  of  materials,  construction,  
use,  occupancy,  and  maintenance.  

Section  103.   Scope  and  Application.  —  

(a)   The  provisions  of  this  Code  shall  apply  to  the  design,  location,  sitting,  construction,  alteration,  
repair,   conversion,   use,   occupancy,   maintenance,   moving,   demolition   of,   and   addition   to   public   and  
private  buildings  and  structures,  except  traditional  indigenous  family  dwellings  as  defined  herein.  

xxx                        xxx                        xxx          

Section  301.   Building  Permits.  —  

No  person,  firm  or  corporation,  including  any  agency  or  instrumentality  of  the  government  shall  erect,  
construct,   alter,   repair,   move,   convert   or   demolish   any   building   or   structure   or   cause   the   same   to   be  
done  without  first  obtaining  a  building  permit  therefor  from  the  Building  Official  assigned  in  the  place  
where  the  subject  building  is  located  or  the  building  work  is  to  be  done.    

That   a   building   permit   fee   is   a   regulatory   imposition   is   highlighted   by   the   fact   that   in   processing   an  
application   for   a   building   permit,   the   Building   Official   shall   see   to   it   that   the   applicant   satisfies   and  
conforms   with   approved   standard   requirements   on   zoning   and   land   use,   lines   and   grades,   structural  
design,   sanitary   and   sewerage,   environmental   health,   electrical   and   mechanical   safety   as   well   as   with  
other   rules   and   regulations   implementing   the   National   Building   Code.   Thus,   ancillary   permits   such   as  
electrical  permit,  sanitary  permit  and  zoning  clearance  must  also  be  secured  and  the  corresponding  fees  
paid  before  a  building  permit  may  be  issued.  And  as  can  be  gleaned  from  the  implementing  rules  and  
regulations   of   the   National   Building   Code,   clearances   from   various   government   authorities   exercising  
and   enforcing   regulatory   functions   affecting   buildings/structures,   like   local   government   units,   may   be  
further  required  before  a  building  permit  may  be  issued.      

Since  building  permit  fees  are  not  charges  on  property,  they  are  not  impositions  from  which  petitioner  
is  exempt.  

2  
 
As   to   petitioner's   argument   that   the   building   permit   fees   collected   by   respondents   are   in   reality   taxes  
because  the  primary  purpose  is  to  raise  revenues  for  the  local  government  unit,  the  same  does  not  hold  
water.          

A  charge  of  a  fixed  sum  which  bears  no  relation  at  all  to  the  cost  of  inspection  and  regulation  may  be  
held   to   be   a   tax   rather   than   an   exercise   of   the   police   power.     In   this   case,   the   Secretary   of   Public   Works  
and   Highways   who   is   mandated   to   prescribe   and   fix   the   amount   of   fees   and   other   charges   that   the  
Building   Official   shall   collect   in   connection   with   the   performance   of   regulatory   functions,     has  
promulgated   and   issued   the   Implementing   Rules   and   Regulations     which   provide   for   the   bases   of  
assessment  of  such  fees,  as  follows:          

1.   Character  of  occupancy  or  use  of  building  

2.   Cost  of  construction  "  10,000/sq.m    

3.   Floor  area  

4.   Height  

Petitioner   failed   to   demonstrate   that   the   above   bases   of   assessment   were   arbitrarily   determined   or  
unrelated   to   the   activity   being   regulated.   Neither   has   petitioner   adduced   evidence   to   show   that   the  
rates   of   building   permit   fees   imposed   and   collected   by   the   respondents   were   unreasonable   or   in   excess  
of  the  cost  of  regulation  and  inspection.  

In  Chevron  Philippines,  Inc.  v.  Bases  Conversion  Development  Authority,    this  Court  explained:  

In  distinguishing  tax  and  regulation  as  a  form  of  police  power,  the  determining  factor  is  the  purpose  of  
the   implemented   measure.   If   the   purpose   is   primarily   to   raise   revenue,   then   it   will   be   deemed   a   tax  
even   though   the   measure   results   in   some   form   of   regulation.   On   the   other   hand,   if   the   purpose   is  
primarily  to  regulate,  then  it  is  deemed  a  regulation  and  an  exercise  of  the  police  power  of  the  state,  
even   though   incidentally,   revenue   is   generated.   Thus,   in   Gerochi   v.   Department   of   Energy,   the   Court  
stated:          

"The  conservative  and  pivotal  distinction  between  these  two  (2)  powers  rests  in  the  purpose  for  which  
the   charge   is   made.   If   generation   of   revenue   is   the   primary   purpose   and   regulation   is   merely  
incidental,   the   imposition   is   a   tax;   but   if   regulation   is   the   primary   purpose,   the   fact   that   revenue   is  
incidentally  raised  does  not  make  the  imposition  a  tax."    

Concededly,  in  the  case  of  building  permit  fees  imposed  by  the  National  Government  under  the  National  
Building  Code,  revenue  is  incidentally  generated  for  the  benefit  of  local  government  units.  Thus:  

Section  208.   Fees.  —  

Every  Building  Official  shall  keep  a  permanent  record  and  accurate  account  of  all  fees  and  other  charges  
fixed  and  authorized  by  the  Secretary  to  be  collected  and  received  under  this  Code.  

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Subject   to   existing   budgetary,   accounting   and   auditing   rules   and   regulations,   the   Building   Official   is  
hereby  authorized  to  retain  not  more  than  twenty  percent  of  his  collection  for  the  operating  expenses  
of  his  office.  

The  remaining  eighty  percent  shall  be  deposited  with  the  provincial,  city  or  municipal  treasurer  and  shall  
accrue  to  the  General  Fund  of  the  province,  city  or  municipality  concerned.  

Petitioner's   reliance   on   Sec.   193   of   the   Local   Government   Code   of   1991   is   likewise   misplaced.   Said  
provision  states:          

SECTION  193.   Withdrawal  of  Tax  Exemption  Privileges.  —  Unless  otherwise  provided  in  this  Code,  tax  
exemptions  or  incentives  granted  to,  or  presently  enjoyed  by  all  persons,  whether  natural  or  juridical,  
including  government-­‐owned  or  controlled  corporations,  except  local  water  districts,  cooperatives  duly  
registered   under   R.A.   No.   6938,   non-­‐stock   and   non-­‐profit   hospitals   and   educational   institutions,   are  
hereby  withdrawn  upon  the  effectivity  of  this  Code.    

Considering  that  exemption  from  payment  of  regulatory  fees  was  not  among  those  "incentives"  granted  
to   petitioner   under   R.A.   No.   6055,   there   is   no   such   incentive   that   is   retained   under   the   Local  
Government   Code   of   1991.   Consequently,   no   reversible   error   was   committed   by   the   CA   in   ruling   that  
petitioner  is  liable  to  pay  the  subject  building  permit  and  related  fees.  

Now,   on   petitioner's   claim   that   it   is   exempted   from   the   payment   of   real   property   tax   assessed   against  
its  real  property  presently  occupied  by  informal  settlers.  

Section  28  (3),  Article  VI  of  the  1987  Constitution  provides:  

xxx                                        xxx                                        xxx  

(3)   Charitable   institutions,   churches   and   parsonages   or   convents   appurtenant   thereto,   mosques,  
non-­‐profit  cemeteries,  and  all  lands,  buildings,  and  improvements,  actually,  directly  and  exclusively  used  
for  religious,  charitable  or  educational  purposes  shall  be  exempt  from  taxation.          

xxx                                        xxx                                        xxx  (Emphasis  supplied.)  

Section   234   (b)   of   the   Local   Government   Code   of   1991   implements   the   foregoing   constitutional  
provision  by  declaring  that  —  

SECTION  234.   Exemptions   from   Real   Property   Tax.   —   The   following   are   exempted   from   payment   of  
the  real  property  tax:  

xxx                                        xxx                                        xxx  

(b)   Charitable   institutions,   churches,   parsonages   or   convents   appurtenant   thereto,   mosques,   non-­‐
profit   or   religious   cemeteries   and   all   lands,   buildings,   and   improvements   actually,   directly,   and  
exclusively  used  for  religious,  charitable  or  educational  purposes;  

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In  Lung  Center  of  the  Philippines  v.  Quezon  City,  31  this  Court  held  that  only  portions  of  the  hospital  
actually,   directly   and   exclusively   used   for   charitable   purposes   are   exempt   from   real   property   taxes,  
while   those   portions   leased   to   private   entities   and   individuals   are   not   exempt   from   such   taxes.   We  
explained  the  condition  for  the  tax  exemption  privilege  of  charitable  and  educational  institutions,  as  
follows:        

Under  the  1973  and  1987  Constitutions  and  Rep.  Act  No.  7160  in  order  to  be  entitled  to  the  exemption,  
the   petitioner   is   burdened   to   prove,   by   clear   and   unequivocal   proof,   that   (a)   it   is   a   charitable  
institution;   and   (b)   its   real   properties   are   ACTUALLY,   DIRECTLY   and   EXCLUSIVELY   used   for   charitable  
purposes.   "Exclusive"   is   defined   as   possessed   and   enjoyed   to   the   exclusion   of   others;   debarred   from  
participation   or   enjoyment;   and   "exclusively"   is   defined,   "in   a   manner   to   exclude;   as   enjoying   a  
privilege  exclusively."  If  real  property  is  used  for  one  or  more  commercial  purposes,  it  is  not  exclusively  
used   for   the   exempted   purposes   but   is   subject   to   taxation.   The   words   "dominant   use"   or   "principal  
use"   cannot   be   substituted   for   the   words   "used   exclusively"   without   doing   violence   to   the  
Constitutions  and  the  law.  Solely  is  synonymous  with  exclusively.  

What  is  meant  by  actual,  direct  and  exclusive  use  of  the  property  for  charitable  purposes  is  the  direct  
and  immediate  and  actual  application  of  the  property  itself  to  the  purposes  for  which  the  charitable  
institution  is  organized.  It  is  not  the  use  of  the  income  from  the  real  property  that  is  determinative  of  
whether  the  property  is  used  for  tax-­‐exempt  purposes.  

Petitioner  failed  to  discharge  its  burden  to  prove  that  its  real  property  is  actually,  directly  and  exclusively  
used  for  educational  purposes.  While  there  is  no  allegation  or  proof  that  petitioner  leases  the  land  to  its  
present   occupants,   still   there   is   no   compliance   with   the   constitutional   and   statutory   requirement   that  
said   real   property   is   actually,   directly   and   exclusively   used   for   educational   purposes.   The   respondents  
correctly   assessed   the   land   for   real   property   taxes   for   the   taxable   period   during   which   the   land   is   not  
being  devoted  solely  to  petitioner's  educational  activities.  Accordingly,  the  CA  did  not  err  in  ruling  that  
petitioner  is  likewise  not  entitled  to  a  refund  of  the  real  property  tax  it  paid  under  protest.  

2.) CIR  VS.  ST.  LUKE’S  MEDICAL  CENTER,  INC.  

The  sole  issue  is  whether  St.  Luke's  is  liable  for  deficiency  income  tax  in  1998  under  Section  27  (B)  of  the  
NIRC,  which  imposes  a  preferential  tax  rate  of  10%  on  the  income  of  proprietary  non-­‐profit  hospitals.          

The   issue   raised   by   the   BIR   is   a   purely   legal   one.   It   involves   the   effect   of   the   introduction   of   Section   27  
(B)  in  the  NIRC  of  1997  vis-­‐à-­‐vis  Section  30  (E)  and  (G)  on  the  income  tax  exemption  of  charitable  and  
social   welfare   institutions.   The   10%   income   tax   rate   under   Section   27   (B)   specifically   pertains   to  

5  
 
proprietary  educational  institutions  and  proprietary  non-­‐profit  hospitals.  The  BIR  argues  that  Congress  
intended  to  remove  the  exemption  that  non-­‐profit  hospitals  previously  enjoyed  under  Section  27  (E)  of  
the  NIRC  of  1977,  which  is  now  substantially  reproduced  in  Section  30  (E)  of  the  NIRC  of  1997.    Section  
27  (B)  of  the  present  NIRC  provides:          

SEC.  27.  Rates  of  Income  Tax  on  Domestic  Corporations.  —  

xxx                                        xxx                                        xxx  

(B)   Proprietary   Educational   Institutions   and   Hospitals.   —   Proprietary   educational   institutions   and  
hospitals   which   are   non-­‐profit   shall   pay   a   tax   of   ten   percent   (10%)   on   their   taxable   income   except   those  
covered  by  Subsection  (D)  hereof:  Provided,  That  if  the  gross  income  from  unrelated  trade,  business  or  
other   activity   exceeds   fifty   percent   (50%)   of   the   total   gross   income   derived   by   such   educational  
institutions  or  hospitals  from  all  sources,  the  tax  prescribed  in  Subsection  (A)  hereof  shall  be  imposed  on  
the   entire   taxable   income.   For   purposes   of   this   Subsection,   the   term   'unrelated   trade,   business   or   other  
activity'   means   any  trade,  business  or  other  activity,  the  conduct  of  which  is  not  substantially  related  to  
the   exercise   or   performance   by   such   educational   institution   or   hospital   of   its   primary   purpose   or  
function.   A   'proprietary   educational   institution'   is   any   private   school   maintained   and   administered   by  
private   individuals   or   groups   with   an   issued   permit   to   operate   from   the   Department   of   Education,  
Culture  and  Sports  (DECS),  or  the  Commission  on  Higher  Education  (CHED),  or  the  Technical  Education  
and   Skills   Development   Authority   (TESDA),   as   the   case   may   be,   in   accordance   with   existing   laws   and  
regulations.    

St.   Luke's   claims   tax   exemption   under   Section   30   (E)   and   (G)   of   the   NIRC.   It   contends   that   it   is   a  
charitable  institution  and  an  organization  promoting  social  welfare.  The  arguments  of  St.  Luke's  focus  on  
the  wording  of  Section  30  (E)  exempting  from  income  tax  non-­‐stock,  non-­‐profit  charitable  institutions.    
St.   Luke's   asserts   that   the   legislative   intent   of   introducing   Section   27   (B)   was   only   to   remove   the  
exemption  for  "proprietary  non-­‐profit"  hospitals.    The  relevant  provisions  of  Section  30  state:  

SEC.  30.  Exemptions  from  Tax  on  Corporations.  —  The  following  organizations  shall  not  be  taxed  under  
this  Title  in  respect  to  income  received  by  them  as  such:  

xxx                                        xxx                                        xxx  

(E)   Nonstock  corporation  or  association  organized  and  operated  exclusively  for  religious,  charitable,  
scientific,  athletic,  or  cultural  purposes,  or  for  the  rehabilitation  of  veterans,  no  part  of  its  net  income  or  
asset   shall   belong   to   or   inure   to   the   benefit   of   any   member,   organizer,   officer   or   any   specific   person;        
cCTIaS  

xxx                                        xxx                                        xxx  

(G)   Civic  league  or  organization  not  organized  for  profit  but  operated  exclusively  for  the  promotion  
of  social  welfare;  

xxx                                        xxx                                        xxx  

6  
 
Notwithstanding  the  provisions  in  the  preceding  paragraphs,  the  income  of  whatever  kind  and  character  
of   the   foregoing   organizations   from   any   of   their   properties,   real   or   personal,   or   from   any   of   their  
activities   conducted   for   profit   regardless   of   the   disposition   made   of   such   income,   shall   be   subject   to   tax  
imposed  under  this  Code.    

The  Court  partly  grants  the  petition  of  the  BIR  but  on  a  different  ground.  We  hold  that  Section  27  (B)  
of   the   NIRC   does   not   remove   the   income   tax   exemption   of   proprietary   non-­‐profit   hospitals   under  
Section  30  (E)  and  (G).  Section  27  (B)  on  one  hand,  and  Section  30  (E)  and  (G)  on  the  other  hand,  can  be  
construed   together   without   the   removal   of   such   tax   exemption.   The   effect   of   the   introduction   of  
Section   27   (B)   is   to   subject   the   taxable   income   of   two   specific   institutions,   namely,   proprietary   non-­‐
profit  educational  institutions    and  proprietary  non-­‐profit  hospitals,  among  the  institutions  covered  by  
Section   30,   to   the   10%   preferential   rate   under   Section   27   (B)   instead   of   the   ordinary   30%   corporate  
rate  under  the  last  paragraph  of  Section  30  in  relation  to  Section  27  (A)  (1).          

Section   27   (B)   of   the   NIRC   imposes   a   10%   preferential   tax   rate   on   the   income   of   (1)   proprietary   non-­‐
profit   educational   institutions   and   (2)   proprietary   non-­‐profit   hospitals.   The   only   qualifications   for  
hospitals  are  that  they  must  be  proprietary  and  non-­‐profit.  "Proprietary"  means  private,  following  the  
definition   of   a   "proprietary   educational   institution"   as   "any   private   school   maintained   and   administered  
by   private   individuals   or   groups"   with   a   government   permit.   "Non-­‐profit"   means   no   net   income   or   asset  
accrues  to  or  benefits  any  member  or  specific  person,  with  all  the  net  income  or  asset  devoted  to  the  
institution's  purposes  and  all  its  activities  conducted  not  for  profit.  

"Non-­‐profit"   does   not   necessarily   mean   "charitable."  In  Collector  of  Internal  Revenue  v.  Club  Filipino,  
Inc.   de   Cebu,   this   Court   considered   as   non-­‐profit   a   sports   club   organized   for   recreation   and  
entertainment  of  its  stockholders  and  members.  The  club  was  primarily  funded  by  membership  fees  and  
dues.  If  it  had  profits,  they  were  used  for  overhead  expenses  and  improving  its  golf  course.  38  The  club  
was  non-­‐profit  because  of  its  purpose  and  there  was  no  evidence  that  it  was  engaged  in  a  profit-­‐making  
enterprise.    

The   sports   club   in   Club   Filipino,   Inc.   de   Cebu   may   be   non-­‐profit,   but   it   was   not   charitable.   The   Court  
defined  "charity"  in  Lung  Center  of  the  Philippines  v.  Quezon  City    as  "a  gift,  to  be  applied  consistently  
with  existing  laws,  for  the  benefit  of  an  indefinite  number  of  persons,  either  by  bringing  their  minds  and  
hearts  under  the  influence  of  education  or  religion,  by  assisting  them  to  establish  themselves  in  life  or  
[by]  otherwise  lessening  the  burden  of  government."    A  non-­‐profit  club  for  the  benefit  of  its  members  
fails   this   test.   An   organization   may   be   considered   as   non-­‐profit   if   it   does   not   distribute   any   part   of   its  
income   to   stockholders   or   members.   However,   despite   its   being   a   tax   exempt   institution,   any   income  
such   institution   earns   from   activities   conducted   for   profit   is   taxable,   as   expressly   provided   in   the   last  
paragraph  of  Section  30.  

To  be  a  charitable  institution,  however,  an  organization  must  meet  the  substantive  test  of  charity  in  
Lung  Center.  The  issue  in  Lung  Center  concerns  exemption  from  real  property  tax  and  not  income  tax.  
However,   it   provides   for   the   test   of   charity   in   our   jurisdiction.   Charity   is   essentially   a   gift   to   an  
indefinite   number   of   persons   which   lessens   the   burden   of   government.   In   other   words,   charitable  

7  
 
institutions   provide   for   free   goods   and   services   to   the   public   which   would   otherwise   fall   on   the  
shoulders   of   government.   Thus,  as  a  matter  of  efficiency,  the  government  forgoes  taxes  which  should  
have  been  spent  to  address  public  needs,  because  certain  private  entities  already  assume  a  part  of  the  
burden.   This   is   the   rationale   for   the   tax   exemption   of   charitable   institutions.   The   loss   of   taxes   by   the  
government   is   compensated   by   its   relief   from   doing   public   works   which   would   have   been   funded   by  
appropriations  from  the  Treasury.    

Charitable  institutions,  however,  are  not  ipso  facto  entitled  to  a  tax  exemption.  The  requirements  for  a  
tax  exemption  are  specified  by  the  law  granting  it.  The   power   of   Congress   to   tax   implies   the   power   to  
exempt  from  tax.  Congress  can  create  tax  exemptions,  subject  to  the  constitutional  provision  that  "[n]o  
law   granting   any   tax   exemption   shall   be   passed   without   the   concurrence   of   a   majority   of   all   the  
Members   of   Congress."     The   requirements   for   a   tax   exemption   are   strictly   construed   against   the  
taxpayer     because   an   exemption   restricts   the   collection   of   taxes   necessary   for   the   existence   of   the  
government.          

The  Court  in  Lung  Center  declared  that  the  Lung  Center  of  the  Philippines  is  a  charitable  institution  for  
the  purpose  of  exemption  from  real  property  taxes.  This  ruling  uses  the  same  premise  as  Hospital  de  San  
Juan    and  Jesus  Sacred  Heart  College    which  says  that  receiving  income  from  paying  patients  does  not  
destroy  the  charitable  nature  of  a  hospital.  

As   a   general   principle,   a   charitable   institution   does   not   lose   its   character   as   such   and   its   exemption  
from   taxes   simply   because   it   derives   income   from   paying   patients,   whether   out-­‐patient,   or   confined   in  
the  hospital,  or  receives  subsidies  from  the  government,  so  long  as  the  money  received  is  devoted  or  
used  altogether  to  the  charitable  object  which  it  is  intended  to  achieve;  and  no  money  inures  to  the  
private  benefit  of  the  persons  managing  or  operating  the  institution.    

For   real   property   taxes,   the   incidental   generation   of   income   is   permissible   because   the   test   of  
exemption   is   the   use   of   the   property.   The   Constitution   provides   that   "[c]haritable   institutions,  
churches   and   parsonages   or   convents   appurtenant   thereto,   mosques,   non-­‐profit   cemeteries,   and   all  
lands,  buildings,  and  improvements,  actually,  directly,  and  exclusively  used  for  religious,  charitable,  or  
educational   purposes   shall   be   exempt   from   taxation."     The   test   of   exemption   is   not   strictly   a  
requirement  on  the  intrinsic  nature  or  character  of  the  institution.  The  test  requires  that  the  institution  
use   the   property   in   a   certain   way,   i.e.,   for   a   charitable   purpose.   Thus,   the   Court   held   that   the   Lung  
Center   of   the   Philippines   did   not   lose   its   charitable   character   when   it   used   a   portion   of   its   lot   for  
commercial  purposes.  The  effect  of  failing  to  meet  the  use  requirement  is  simply  to  remove  from  the  tax  
exemption  that  portion  of  the  property  not  devoted  to  charity.        

The  Constitution  exempts  charitable  institutions  only  from  real  property  taxes.  In  the  NIRC,  Congress  
decided  to  extend  the  exemption  to  income  taxes.  However,  the  way  Congress  crafted  Section  30  (E)  of  
the  NIRC  is  materially  different  from  Section  28  (3),  Article  VI  of  the  Constitution.  Section  30  (E)  of  the  
NIRC   defines   the   corporation   or   association   that   is   exempt   from   income   tax.   On   the   other   hand,  
Section  28  (3),  Article  VI  of  the  Constitution  does  not  define  a  charitable  institution,  but  requires  that  
the  institution  "actually,  directly  and  exclusively"  use  the  property  for  a  charitable  purpose.  

8  
 
Section  30  (E)  of  the  NIRC  provides  that  a  charitable  institution  must  be:  

(1)   A  non-­‐stock  corporation  or  association;          

(2)   Organized  exclusively  for  charitable  purposes;  

(3)   Operated  exclusively  for  charitable  purposes;  and  

(4)   No   part   of   its   net   income   or   asset   shall   belong   to   or   inure   to   the   benefit   of   any   member,  
organizer,  officer  or  any  specific  person.  

Thus,  both  the  organization  and  operations  of  the  charitable  institution  must  be  devoted  "exclusively"  
for  charitable  purposes.  The  organization  of  the  institution  refers  to  its  corporate  form,  as  shown  by  its  
articles   of   incorporation,   by-­‐laws   and   other   constitutive   documents.   Section   30   (E)   of   the   NIRC  
specifically   requires   that   the   corporation   or   association   be   non-­‐stock,   which   is   defined   by   the  
Corporation   Code   as   "one   where   no   part   of   its   income   is   distributable   as   dividends   to   its   members,  
trustees,   or   officers"     and   that   any   profit   "obtain[ed]   as   an   incident   to   its   operations   shall,   whenever  
necessary  or  proper,  be  used  for  the  furtherance  of  the  purpose  or  purposes  for  which  the  corporation  
was   organized."     However,   under   Lung   Center,   any   profit   by   a   charitable   institution   must   not   only   be  
plowed   back   "whenever   necessary   or   proper,"   but   must   be   "devoted   or   used   altogether   to   the  
charitable  object  which  it  is  intended  to  achieve."    

The  operations  of  the  charitable  institution  generally  refer  to  its  regular  activities.  Section  30  (E)  of  the  
NIRC  requires  that  these  operations  be  exclusive  to  charity.  There  is  also  a  specific  requirement  that  "no  
part  of  [the]  net  income  or  asset  shall  belong  to  or  inure  to  the  benefit  of  any  member,  organizer,  officer  
or  any  specific  person."  The  use  of  lands,  buildings  and  improvements  of  the  institution  is  but  a  part  of  
its  operations.          

There   is   no   dispute   that   St.   Luke's   is   organized   as   a   non-­‐stock   and   non-­‐profit   charitable   institution.  
However,   this   does   not   automatically   exempt   St.   Luke's   from   paying   taxes.   This   only   refers   to   the  
organization  of  St.  Luke's.  Even  if  St.  Luke's  meets  the  test  of  charity,  a  charitable  institution  is  not  ipso  
facto  tax  exempt.  To  be  exempt  from  real  property  taxes,  Section  28  (3),  Article  VI  of  the  Constitution  
requires  that  a  charitable  institution  use  the  property  "actually,  directly  and  exclusively"  for  charitable  
purposes.   To   be   exempt   from   income   taxes,   Section   30   (E)   of   the   NIRC   requires   that   a   charitable  
institution  must  be  "organized  and  operated  exclusively"  for  charitable  purposes.  Likewise,  to  be  exempt  
from   income   taxes,   Section   30   (G)   of   the   NIRC   requires   that   the   institution   be   "operated   exclusively"   for  
social  welfare.  

However,   the   last   paragraph   of   Section   30   of   the   NIRC   qualifies   the   words   "organized   and   operated  
exclusively"  by  providing  that:  

Notwithstanding  the  provisions  in  the  preceding  paragraphs,  the  income  of  whatever  kind  and  character  
of   the   foregoing   organizations   from   any   of   their   properties,   real   or   personal,   or   from   any   of   their  
activities   conducted   for   profit   regardless   of   the   disposition   made   of   such   income,   shall   be   subject   to   tax  
imposed  under  this  Code.    

9  
 
In  short,  the  last  paragraph  of  Section  30  provides  that  if  a  tax  exempt   charitable   institution   conducts  
"any"   activity   for   profit,   such   activity   is   not   tax   exempt   even   as   its   not-­‐for-­‐profit   activities   remain   tax  
exempt.  This  paragraph  qualifies  the  requirements  in  Section  30  (E)  that  the  "[n]on-­‐stock  corporation  or  
association  [must  be]  organized  and  operated  exclusively  for  .  .  .  charitable  .  .  .  purposes  .  .  .  ."  It  likewise  
qualifies  the  requirement  in  Section  30  (G)  that  the  civic  organization  must  be  "operated  exclusively"  for  
the  promotion  of  social  welfare.  

Thus,   even   if   the   charitable   institution   must   be   "organized   and   operated   exclusively"   for   charitable  
purposes,  it  is  nevertheless  allowed  to  engage  in  "activities  conducted  for  profit"  without  losing  its  tax  
exempt  status  for  its  not-­‐for-­‐profit  activities.  The  only  consequence  is  that  the  "income  of  whatever  kind  
and   character"   of   a   charitable   institution   "from   any   of   its   activities   conducted   for   profit,   regardless   of  
the  disposition  made  of  such  income,  shall  be  subject  to  tax."  Prior  to  the  introduction  of  Section  27  (B),  
the  tax  rate  on  such  income  from  for-­‐profit  activities  was  the  ordinary  corporate  rate  under  Section  27  
(A).  With  the  introduction  of  Section  27  (B),  the  tax  rate  is  now  10%.    

In  1998,  St.  Luke's  had  total  revenues  of  P1,730,367,965  from  services  to  paying  patients.  It  cannot  be  
disputed   that   a   hospital   which   receives   approximately   P1.73   billion   from   paying   patients   is   not   an  
institution   "operated   exclusively"   for   charitable   purposes.   Clearly,   revenues   from   paying   patients   are  
income   received   from   "activities   conducted   for   profit."   52   Indeed,   St.   Luke's   admits   that   it   derived  
profits   from   its   paying   patients.   St.   Luke's   declared   P1,730,367,965   as   "Revenues   from   Services   to  
Patients"   in   contrast   to   its   "Free   Services"   expenditure   of   P218,187,498.   In   its   Comment   in   G.R.   No.  
195909,   St.   Luke's   showed   the   following   "calculation"   to   support   its   claim   that   65.20%   of   its   "income  
after  expenses  was  allocated  to  free  or  charitable  services"  in  1998.    

In  Lung  Center,  this  Court  declared:          

"[e]xclusive"   is   defined   as   possessed   and   enjoyed   to   the   exclusion   of   others;   debarred   from  
participation   or   enjoyment;   and   "exclusively"   is   defined,   "in   a   manner   to   exclude;   as   enjoying   a  
privilege  exclusively."  .  .  .  The  words  "dominant  use"  or  "principal  use"  cannot  be  substituted  for  the  
words  "used  exclusively"  without  doing  violence  to  the  Constitution  and  the  law.  Solely  is  synonymous  
with  exclusively.      

The  Court  cannot  expand  the  meaning  of  the  words  "operated  exclusively"  without  violating  the  NIRC.  
Services   to   paying   patients   are   activities   conducted   for   profit.   They   cannot   be   considered   any   other  
way.  There  is  a  "purpose  to  make  profit  over  and  above  the  cost"  of  services.    The  P1.73  billion  total  
revenues   from   paying   patients   is   not   even   incidental   to   St.   Luke's   charity   expenditure   of   P218,187,498  
for  non-­‐paying  patients.          

St.  Luke's  claims  that  its  charity  expenditure  of  P218,187,498  is  65.20%  of  its  operating  income  in  1998.  
However,   if   a   part   of   the   remaining   34.80%   of   the   operating   income   is   reinvested   in   property,  
equipment  or  facilities  used  for  services  to  paying  and  non-­‐paying  patients,  then  it  cannot  be  said  that  
the  income  is  "devoted  or  used  altogether  to  the  charitable  object  which  it  is  intended  to  achieve."  56  
The  income  is  plowed  back  to  the  corporation  not  entirely  for  charitable  purposes,  but  for  profit  as  well.  

10  
 
In  any  case,  the  last  paragraph  of  Section  30  of  the  NIRC  expressly  qualifies  that  income  from  activities  
for  profit  is  taxable  "regardless  of  the  disposition  made  of  such  income."  

Jesus   Sacred  Heart  College  declared  that  there  is  no  official   legislative   record   explaining   the   phrase   "any  
activity  conducted  for  profit."  However,  it  quoted  a  deposition  of  Senator  Mariano  Jesus  Cuenco,  who  
was  a  member  of  the  Committee  of  Conference  for  the  Senate,  which  introduced  the  phrase  "or  from  
any  activity  conducted  for  profit."  

The  question  was  whether  having  a  hospital  is  essential  to  an  educational  institution  like  the  College  of  
Medicine  of  the  University  of  Santo  Tomas.  Senator  Cuenco  answered  that  if  the  hospital  has  paid  rooms  
generally   occupied   by   people   of   good   economic   standing,   then   it   should   be   subject   to   income   tax.   He  
said  that  this  was  one  of  the  reasons  Congress  inserted  the  phrase  "or  any  activity  conducted  for  profit."          

The   question   in   Jesus   Sacred   Heart   College   involves   an   educational   institution.     However,   it   is   applicable  
to  charitable  institutions  because  Senator  Cuenco's  response  shows  an  intent  to  focus  on  the  activities  
of   charitable   institutions.   Activities   for   profit   should   not   escape   the   reach   of   taxation.   Being   a   non-­‐stock  
and  non-­‐profit  corporation  does  not,  by  this  reason  alone,  completely  exempt  an  institution  from  tax.  
An  institution  cannot  use  its  corporate  form  to  prevent  its  profitable  activities  from  being  taxed.  

The   Court   finds   that   St.   Luke's   is   a   corporation   that   is   not   "operated   exclusively"   for   charitable   or  
social  welfare  purposes  insofar  as  its  revenues  from  paying  patients  are  concerned.  This  ruling  is  based  
not   only   on   a   strict   interpretation   of   a   provision   granting   tax   exemption,   but   also   on   the   clear   and  
plain  text  of  Section  30  (E)  and  (G).  Section  30  (E)  and  (G)  of  the  NIRC  requires  that  an  institution  be  
"operated   exclusively"   for   charitable   or   social   welfare   purposes   to   be   completely   exempt   from   income  
tax.  An  institution  under  Section  30  (E)  or  (G)  does  not  lose  its  tax  exemption  if  it  earns  income  from  its  
for-­‐profit   activities.   Such   income   from   for-­‐profit   activities,   under   the   last   paragraph   of   Section   30,   is  
merely   subject   to   income   tax,   previously   at   the   ordinary   corporate   rate   but   now   at   the   preferential  
10%  rate  pursuant  to  Section  27  (B).          

A   tax   exemption   is   effectively   a   social   subsidy   granted   by   the   State  because  an  exempt  institution  is  
spared   from   sharing   in   the   expenses   of   government   and   yet   benefits   from   them.   Tax   exemptions   for  
charitable   institutions   should   therefore   be   limited   to   institutions   beneficial   to   the   public   and   those  
which  improve  social  welfare.  A  profit-­‐making  entity  should  not  be  allowed  to  exploit  this  subsidy  to  the  
detriment  of  the  government  and  other  taxpayers.  

St.  Luke's  fails  to  meet  the  requirements  under  Section  30  (E)  and  (G)  of  the  NIRC  to  be  completely  tax  
exempt  from  all  its  income.  However,  it  remains  a  proprietary  non-­‐profit  hospital  under  Section  27  (B)  of  
the  NIRC  as  long  as  it  does  not  distribute  any  of  its  profits  to  its  members  and  such  profits  are  reinvested  
pursuant   to   its   corporate   purposes.   St.   Luke's,   as   a   proprietary   non-­‐profit   hospital,   is   entitled   to   the  
preferential  tax  rate  of  10%  on  its  net  income  from  its  for-­‐profit  activities.        

St.   Luke's   is   therefore   liable   for   deficiency   income   tax   in   1998   under   Section   27   (B)   of   the   NIRC.  
However,  St.  Luke's  has  good  reasons  to  rely  on  the  letter  dated  6  June  1990  by  the  BIR,  which  opined  
that   St.   Luke's   is   "a   corporation   for   purely   charitable   and   social   welfare   purposes"     and   thus   exempt  

11  
 
from  income  tax.    In  Michael  J.  Lhuillier,  Inc.  v.  Commissioner  of  Internal  Revenue,    the  Court  said  that  
"good   faith   and   honest   belief   that   one   is   not   subject   to   tax   on   the   basis   of   previous   interpretation   of  
government   agencies   tasked   to   implement   the   tax   law,   are   sufficient   justification   to   delete   the  
imposition  of  surcharges  and  interest."  

3.) DIOGEO  PHILIPPINES,  INC.  VS.  CIR  

…the  person  entitled  to  claim  a  tax  refund  is  the  statutory  taxpayer  or  the  person  liable  for  or  subject  to  
tax.    In  the  present  case,  it  is  not  disputed  that  the  supplier  of  Diageo  imported  the  subject  raw  alcohol,  
hence,  it  was  the  one  directly  liable  and  obligated  to  file  a  return  and  pay  the  excise  taxes  under  the  Tax  
Code  before  the  goods  or  products  are  removed  from  the  custom  house.  It  is,  therefore,  the  statutory  
taxpayer   as   contemplated   by   law   and   remains   to   be   so,   even   if   it   shifts   the   burden   of   tax   to   Diageo.  
Consequently,  the  right  to  claim  a  refund,  if  legally  allowed,  belongs  to  it  and  cannot  be  transferred  to  
another,  in  this  case  Diageo,  without  any  clear  provision  of  law  allowing  the  same.  

Unlike   the   law   on   Value   Added   Tax   which   allows   the   subsequent   purchaser   under   the   tax   credit   method  
to  refund  or  credit  input  taxes  passed  on  to  it  by  a  supplier,    no  provision  for  excise  taxes  exists  granting  
non-­‐statutory  taxpayer  like  Diageo  to  claim  a  refund  or  credit.  It  should  also  be  stressed  that  when  the  
excise   taxes   were   included   in   the   purchase   price   of   the   goods   sold   to   Diageo,   the   same   was   no   longer   in  
the  nature  of  a  tax  but  already  formed  part  of  the  cost  of  the  goods.  

Finally,   statutes   granting   tax   exemptions   are   construed   stricissimi   juris   against   the   taxpayer   and  
liberally  in  favor  of  the  taxing  authority.  A  claim  of  tax  exemption  must  be  clearly  shown  and  based  on  
language  in  law  too  plain  to  be  mistaken.    Unfortunately,  Diageo  failed  to  meet  the  burden  of  proof  
that  it  is  covered  by  the  exemption  granted  under  Section  130  (D)  of  the  Tax  Code.  

In  sum,  Diageo,   not   being   the   party   statutorily   liable   to   pay   excise   taxes   and   having   failed   to   prove  
that  it  is  covered  by  the  exemption  granted  under  Section  130  (D)  of  the  Tax  Code,  is  not  the  proper  
party   to   claim   a   refund   or   credit   of   the   excise   taxes   paid   on   the   ingredients   of   its   exported   locally  
produced  liquor.  

4.) CAGAYAN  ELECTRIC  POWER  AND  LIGHT  CO.,  INC.  VS.  CITY  OF  CAGAYAN  DE  ORO  
 

CEPALCO  is  mistaken  when  it  states  that  a  city  can  impose  a  tax  up  to  only  one-­‐half  of  what  the  province  
or  city  may  impose.  A  more  circumspect  reading  of  the  Local  Government  Code  could  have  prevented  
this   error.   Section   151   of   the   Local   Government   Code   states   that,   subject   to   certain   exceptions,   a   city  
may  exceed  by  "not  more  than  50%"  the  tax  rates  allowed  to  provinces  and  municipalities.    A  province  
may  impose  a  franchise  tax  at  a  rate  "not  exceeding  50%  of  1%  of  the  gross  annual  receipts."    Following  
Section  151,  a  city  may  impose  a  franchise  tax  of  up  to  0.0075  (or  0.75%)  of  a  business'  gross  annual  
receipts   for   the   preceding   calendar   year   based   on   the   incoming   receipt,   or   realized,   within   its  

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territorial   jurisdiction.   A   municipality   may   impose   a   business   tax   at   a   rate   not   exceeding   "two   percent  
of  gross  sales  or  receipts."    Following  Section  151,  a  city  may  impose  a  business  tax  of  up  to  0.03  (or  
3%)  of  a  business'  gross  sales  or  receipts  of  the  preceding  calendar  year.          

CEPALCO   also   erred   when   it   equates   Section   137's   "gross   annual   receipts"   with   Ordinance   No.   9503-­‐
2005's   "annual   rental   income."   Section   2   of   Ordinance   No.   9503-­‐2005   imposes   "a   tax   on   the   lease   or  
rental  of  electric  and/or  telecommunication  posts,  poles  or  towers  by  pole  owners  to  other  pole  users  at  
the   rate   of   ten   (10)   percent   of   the   annual   rental   income   derived   therefrom,"   and   not   on   CEPALCO's  
gross   annual   receipts.   Thus,   although   the   tax   rate   of   10%   is   definitely   higher   than   that   imposable   by  
cities   as   franchise   or   business   tax,   the   tax   base   of   annual   rental   income   of   "electric   and/or  
telecommunication   posts,   poles   or   towers   by   pole   owners   to   other   pole   users"   is   definitely   smaller   than  
that  used  by  cities  in  the  computation  of  franchise  or  business  tax.  In  effect,  Ordinance  No.  9503-­‐2005  
wants  a  slice  of  a  smaller  pie.          

However,  we  disagree  with  the  City  of  Cagayan  de  Oro's  submission  that  Ordinance  No.  9503-­‐2005  is  
not   subject   to   the   limits   imposed   by   Sections   143   and   151   of   the   Local   Government   Code.   On   the  
contrary,   Ordinance   No.   9503-­‐2005   is   subject   to   the   limitation   set   by   Section   143   (h).   Section   143  
recognizes  separate  lines  of  business  and  imposes  different  tax  rates  for  different  lines  of  business.  Let  
us  suppose  that  one  is  a  brewer  of  liquor  and,  at  the  same  time,  a  distributor  of  articles  of  commerce.  
The   brewery   business   is   subject   to   the   rates   established   in   Section   143   (a)   while   the   distribution  
business  is  subject  to  the  rates  established  in  Section  143  (b).  The  City  of  Cagayan  de  Oro's  imposition  of  
a  tax  on  the  lease  of  poles  falls  under  Section  143  (h),  as  the  lease  of  poles  is  CEPALCO's  separate  line  of  
business   which   is   not   covered   by   paragraphs   (a)   to   (g)   of   Section   143.   The   treatment   of   the   lease   of  
poles  as  a  separate  line  of  business  is  evident  in  Section  4  (a)  of  Ordinance  No.  9503-­‐2005.  The  City  of  
Cagayan  de  Oro  required  CEPALCO  to  apply  for  a  separate  business  permit.          

More   importantly,   because   "any   person,   who   in   the   course   of   trade   or   business   .   .   .   leases   goods   or  
properties  .  .  .  shall  be  subject  to  the  value-­‐added  tax,"  32  the  imposable  tax  rate  should  not  exceed  two  
percent  of  gross  receipts  of  the  lease  of  poles  of  the  preceding  calendar  year.  Section  143  (h)  states  that  
"on   any   business   subject   to   .   .   .   value-­‐added   .   .   .   tax   under   the   National   Internal   Revenue   Code,   as  
amended,  the  rate  of  tax  shall  not  exceed  two  percent  (2%)  of  gross  sales  or  receipts  of  the  preceding  
calendar  year"  from  the  lease  of  goods  or  properties.  Hence,  the  10%  tax  rate  imposed  by  Ordinance  No.  
9503-­‐2005  clearly  violates  Section  143  (h)  of  the  Local  Government  Code.  

Finally,  in  view  of  the  lack  of  a  separability  clause,  we  declare  void  the  entirety  of  Ordinance  No.  9503-­‐
2005.  Any  payment  made  by  reason  of  the  tax  imposed  by  Ordinance  No.  9503-­‐2005  should,  therefore,  
be   refunded   to   CEPALCO.   Our   ruling,   however,   is   made   without   prejudice   to   the   enactment   by   the   City  
of  Cagayan  de  Oro  of  a  tax  ordinance  that  complies  with  the  limits  set  by  the  Local  Government  Code.  

It   is   hornbook   doctrine   that   tax   exemptions   are   strictly   construed   against   the   claimant.   For   this  
reason,  tax  exemptions  must  be  based  on  clear  legal  provisions.  The  separate  opinion  in  PLDT  v.  City  of  
Davao  25  is  applicable  to  the  present  case,  thus:          

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 “Tax   exemptions   must   be   clear   and   unequivocal.   A   taxpayer   claiming   a   tax   exemption   must  
point   to   a   specific   provision   of   law   conferring   on   the   taxpayer,   in   clear   and   plain   terms,  
exemption   from   a   common   burden.   Any   doubt   whether   a   tax   exemption   exists   is   resolved  
against   the   taxpayer.   Tax   exemptions   cannot   arise   by   mere   implication,   much   less   by   an  
implied  re-­‐enactment  of  a  repealed  tax  exemption  clause.”  

Clearly,  the  law  requires  that  the  dissatisfied   taxpayer   who   questions   the   validity   or   legality   of   a   tax  
ordinance   must   file   his   appeal   to   the   Secretary   of   Justice,   within   30   days   from   effectivity   thereof.  In  
case  the  Secretary  decides  the  appeal,  a  period  also  of  30  days  is  allowed  for  an  aggrieved  party  to  go  to  
court.  But  if  the  Secretary  does  not  act  thereon,  after  the  lapse  of  60  days,  a  party  could  already  proceed  
to  seek  relief  in  court.  These  three  separate  periods  are  clearly  given  for  compliance  as  a  prerequisite  
before   seeking   redress   in   a   competent   court.   Such   statutory   periods   are   set   to   prevent   delays   as   well   as  
enhance  the  orderly  and  speedy  discharge  of  judicial  functions.  For  this  reason  the  courts  construe  these  
provisions  of  statutes  as  mandatory.          

A  municipal  tax  ordinance  empowers  a  local  government  unit  to  impose  taxes.  The  power  to  tax  is  the  
most  effective  instrument  to  raise  needed  revenues  to  finance  and  support  the  myriad  activities  of  local  
government  units  for  the  delivery  of  basic  services  essential  to  the  promotion  of  the  general  welfare  and  
enhancement   of   peace,   progress,   and   prosperity   of   the   people.   Consequently,   any   delay   in  
implementing  tax  measures  would  be  to  the  detriment  of  the  public.  It  is  for  this  reason  that  protests  
over   tax   ordinances   are   required   to   be   done   within   certain   time   frames.  In   the   instant   case,   it   is   our  
view  that  the  failure  of  petitioners  to  appeal  to  the  Secretary  of  Justice  within  30  days  as  required  by  
Sec.  187  of  R.A.  7160  is  fatal  to  their  cause.  

5.) FORT  BONIFACIO  DEVELOPMENT  CORPORATION    VS.  CIR  

Courts   cannot   limit   the   application   or   coverage   of   a   law,   nor   can   it   impose   conditions   not   provided  
therein.  To  do  so  constitutes  judicial  legislation.          

Prior  payment  of  taxes  is  not  required  for  a  taxpayer  to  avail  of  the  8%transitional  input  tax  credit.  

Transitional   input   tax   credits.  —  A  person  who  becomes  liable  to  value-­‐added  tax  or  any  person  who  
elects   to   be   a   VAT-­‐registered   person   shall,   subject   to   the   filing   of   an   inventory   as   prescribed   by  
regulations,   be   allowed   input   tax   on   his   beginning   inventory   of   goods,   materials   and   supplies   equivalent  
to   8%   of   the   value   of   such   inventory   or   the   actual   value-­‐added   tax   paid   on   such   goods,   materials   and  
supplies,  whichever  is  higher,  which  shall  be  creditable  against  the  output  tax.    

Moreover,  prior  payment  of  taxes  is  not  required  to  avail  of  the  transitional  input  tax  credit  because  it  is  
not  a  tax  refund  per  se  but  a  tax  credit.  Tax  credit  is  not  synonymous  to  tax  refund.  Tax  refund  is  defined  
as  the  money  that  a  taxpayer  overpaid  and  is  thus  returned  by  the  taxing  authority.    Tax  credit,  on  the  
other  hand,  is  an  amount  subtracted  directly  from  one's  total  tax  liability.    It  is  any  amount  given  to  a  

14  
 
taxpayer  as  a  subsidy,  a  refund,  or  an  incentive  to  encourage  investment.  Thus,  unlike  a  tax  refund,  prior  
payment  of  taxes  is  not  a  prerequisite  to  avail  of  a  tax  credit.  

In  this  case,  when  petitioner  realized  that  its  transitional  input  tax  credit  was  not  applied  in  computing  
its   output   VAT   for   the   1st   quarter   of   1997,   it   filed   a   claim   for   refund   to   recover   the   output   VAT   it  
erroneously  or  excessively  paid  for  the  1st  quarter  of  1997.  In  filing  a  claim  for  tax  refund,  petitioner  is  
simply   applying   its   transitional   input   tax   credit   against   the   output   VAT   it   has   paid.   Hence,   it   is   merely  
availing  of  the  tax  credit  incentive  given  by  law  to  first  time  VAT  taxpayers.  As  we  have  said  in  the  earlier  
case  of  Fort  Bonifacio,  the  provision  on  transitional  input  tax  credit  was  enacted  to  benefit  first  time  VAT  
taxpayers  by  mitigating  the  impact  of  VAT  on  the  taxpayer.    Thus,  contrary   to   the   view   of   Justice   Carpio,  
the   granting   of   a   transitional   input   tax   credit   in   favor   of   petitioner,   which   would   be   paid   out   of   the  
general  fund  of  the  government,  would  be  an  appropriation  authorized  by  law,  specifically  Section  105  
of  the  old  NIRC.  

As  regards  Section  4.105-­‐1  47  of  RR  7-­‐95  which  limited  the  8%  transitional  input  tax  credit  to  the  value  
of   the   improvements   on   the   land,   the   same   contravenes   the   provision   of   Section   105   of   the   old   NIRC,   in  
relation  to  Section  100  of  the  same  Code,  as  amended  by  RA  7716,  which  defines  "goods  or  properties,"  
to  wit:          

SEC.  100.   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  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.  

(1)   The   term   "goods   or   properties"   shall   mean   all   tangible   and   intangible   objects   which   are   capable  
of  pecuniary  estimation  and  shall  include:  

(A)   Real  properties  held  primarily  for  sale  to  customers  or  held  for  lease  in  the  ordinary  course  of  
trade  or  business;  .  .  .  

In   fact,   in   our   Resolution   dated   October   2,   2009,   in   the   related   case   of   Fort   Bonifacio,   we   ruled   that  
Section   4.105-­‐1   of   RR   7-­‐95,   insofar   as   it   limits   the   transitional   input   tax   credit   to   the   value   of   the  
improvement  of  the  real  properties,  is  a  nullity.    Pertinent  portions  of  the  Resolution  read:        

As  mandated  by  Article  7  of  the  Civil  Code,  an  administrative  rule  or  regulation  cannot  contravene  the  
law  on  which  it  is  based.  RR  7-­‐95  is  inconsistent  with  Section  105  insofar  as  the  definition  of  the  term  
"goods"   is   concerned.   This   is   a   legislative   act   beyond   the   authority   of   the   CIR   and   the   Secretary   of  
Finance.  The  rules  and  regulations  that  administrative  agencies  promulgate,  which  are  the  product  of  
a   delegated   legislative   power   to   create   new   and   additional   legal   provisions   that   have   the   effect   of  
law,  should  be  within  the  scope  of  the  statutory  authority  granted  by  the  legislature  to  the  objects  and  
purposes   of   the   law,   and   should   not   be   in   contradiction   to,   but   in   conformity   with,   the   standards  
prescribed  by  law.  

15  
 
To   be   valid,   an   administrative   rule   or   regulation   must   conform,   not   contradict,   the   provisions   of   the  
enabling  law.  An  implementing  rule  or  regulation  cannot  modify,  expand,  or  subtract  from  the  law  it  is  
intended  to  implement.  Any  rule  that  is  not  consistent  with  the  statute  itself  is  null  and  void.    

While   administrative   agencies,   such   as   the   Bureau   of   Internal   Revenue,   may   issue   regulations   to  
implement   statutes,   they   are   without   authority   to   limit   the   scope   of   the   statute   to   less   than   what   it  
provides,  or  extend  or  expand  the  statute  beyond  its  terms,  or  in  any  way  modify  explicit  provisions  of  
the  law.  Indeed,  a  quasi-­‐judicial  body  or  an  administrative  agency  for  that  matter  cannot  amend  an  act  
of   Congress.   Hence,   in   case   of   a   discrepancy   between   the   basic   law   and   an   interpretative   or  
administrative  ruling,  the  basic  law  prevails.  

To  recapitulate,  RR  7-­‐95,  insofar  as  it  restricts  the  definition  of  "goods"  as  basis  of  transitional  input  tax  
credit  under  Section  105  is  a  nullity.    

As   we   see   it   then,   the   8%   transitional   input   tax   credit   should   not   be   limited   to   the   value   of   the  
improvements  on  the  real  properties  but  should  include  the  value  of  the  real  properties  as  well.  

6.) EASTERN  TELECOMMUNICATIONS  PHILIPPINES,  INC.  VS.  CIR  

Imprinting  of  the  word  "zero-­‐rated"  on  the  invoices  or  receipts  is  required.  

Section   244   of   the   NIRC   explicitly   grants   the   Secretary   of   Finance   the   authority   to   promulgate   the  
necessary   rules   and   regulations   for   the   effective   enforcement   of   the   provisions   of   the   tax   code.   Such  
rules  and  regulations  "deserve  to  be  given  weight  and  respect  by  the  courts  in  view  of  the  rule-­‐making  
authority  given  to  those  who  formulate  them  and  their  specific  expertise  in  their  respective  fields."    

The  need  for  taxpayers  to  indicate  in  their  invoices  and  receipts  the  fact  that  they  are  zero-­‐rated  or  that  
its  transactions  are  zero-­‐rated  became  more  apparent  upon  the  integration  of  the  provisions  of  Revenue  
Regulations   No.   7-­‐95   in   Section   113   of   the   NIRC   enumerating   the   invoicing   requirements   of   VAT-­‐
registered  persons  when  the  tax  code  was  amended  by  Republic  Act  (R.A.)  No.  9337.      

A   consequence   of   failing   to   comply   with   the   invoicing   requirements   is   the   denial   of   the   claim   for   tax  
refund  or  tax  credit,  as  stated  in  Revenue  Memorandum  Circular  No.  42-­‐2003.  

A   consequence   of   failing   to   comply   with   the   invoicing   requirements   is   the   denial   of   the   claim   for   tax  
refund  or  tax  credit,  as  stated  in  Revenue  Memorandum  Circular  No.  42-­‐2003,  to  wit:  

ETPI   should   be   reminded   of   the   well-­‐established   rule   that   tax   refunds,   which   are   in   the   nature   of   tax  
exemptions,  are  construed  strictly  against  the  taxpayer  and  liberally  in  favor  of  the  government.  This  is  
because  taxes  are  the  lifeblood  of  the  nation.  Thus,  the  burden  of  proof  is  upon  the  claimant  of  the  tax  
refund  to  prove  the  factual  basis  of  his  claim.    Unfortunately,  ETPI  failed  to  discharge  this  burden.  

7.) GULF  AIR  COMPANY  PHILIPPINE  BRANCH  (GF)  VS.  CIR  

Section  118  (A)  of  the  NIRC  states  that:  

16  
 
Sec.  118.   Percentage  Tax  on  International  Carriers.  —  

(A)   International  air  carriers  doing  business  in  the  Philippines  shall  pay  a  tax  of  three  percent  (3%)  of  
their  quarterly  gross  receipts.  

Pursuant   to   this,   the   Secretary   of   Finance   promulgated   Revenue   Regulations   No.   15-­‐2002,   which  
prescribes   that   "gross   receipts"   for   the   purpose   of   determining   Common   Carrier's   Tax   shall   be   the   same  
as   the   tax   base   for   calculating   Gross   Philippine   Billings   Tax.     Section   5   of   the   same   provides   for   the  
computation  of  "Gross  Philippine  Billings":  

Sec.  5.   Determination  of  Gross  Philippine  Billings.  —  

(a)   In   computing   for   "Gross   Philippine   Billings,"   there   shall   be   included   the   total   amount   of   gross  
revenue   derived   from   passage   of   persons,   excess   baggage,   cargo   and/or   mail,   originating   from   the  
Philippines   in   a   continuous   and   uninterrupted   flight,   irrespective   of   the   place   of   sale   or   issue   and   the  
place  of  payment  of  the  passage  documents.  

The  gross  revenue  for  passengers  whose  tickets  are  sold  in  the  Philippines  shall  be  the  actual  amount  
derived   for   transportation   services,   for   a   first   class,   business   class   or   economy   class   passage,   as   the   case  
may  be,  on  its  continuous  and  uninterrupted  flight  from  any  port  or  point  in  the  Philippines  to  its  final  
destination   in   any   port   or   point   of   a   foreign   country,   as   reflected   in   the   remittance   area   of   the   tax  
coupon  forming  an  integral  part  of  the  plane  ticket.  For  this  purpose,  the  Gross  Philippine  Billings  shall  
be   determined   by   computing   the   monthly   average   net   fare   of   all   the   tax   coupons   of   plane   tickets   issued  
for   the   month   per   point   of   final   destination,   per   class   of   passage   (i.e.,   first   class,   business   class,   or  
economy   class)   and   per   classification   of   passenger   (i.e.,   adult,   child   or   infant)   and   multiplied   by   the  
corresponding  total  number  of  passengers  flown  for  the  month  as  declared  in  the  flight  manifest.        

For   tickets   sold   outside   the   Philippines,   the   gross   revenue   for   passengers   for   first   class,   business   class   or  
economy  class  passage,  as  the  case  may  be,  on  a  continuous  and  uninterrupted  flight  from  any  port  of  
point   in   the   Philippines   to   final   destination   in   any   port   or   point   of   a   foreign   country   shall   be   determined  
using  the  locally  available  net  fares  applicable  to  such  flight  taking  into  consideration  the  seasonal  fare  
rate   established   at   the   time   of   the   flight,   the   class   of   passage   (whether   first   class,   business   class,  
economy   class   or   non-­‐revenue),   the   classification   of   passenger   (whether   adult,   child   or   infant),   the   date  
of   embarkation,   and   the   place   of   final   destination.   Correspondingly,   the   Gross   Philippine   Billing   for  
tickets   sold   outside   the   Philippines   shall   be   determined   in   the   manner   as   provided   in   the   preceding  
paragraph.  

Passage   documents   revalidated,   exchanged   and/or   endorsed   to   another   on-­‐line   international   airline  
shall   be   included   in   the   taxable   base   of   the   carrying   airline   and   shall   be   subject   to   Gross   Philippine  
Billings   tax   if   the   passenger   is   lifted/boarded   on   an   aircraft   from   any   port   or   point   in   the   Philippines  
towards  a  foreign  destination.  

17  
 
The   gross   revenue   on   excess   baggage   which   originated   from   any   port   or   point   in   the   Philippines   and  
destined   to   any   part   of   a   foreign   country   shall   be   computed   based   on   the   actual   revenue   derived   as  
appearing  on  the  official  receipt  or  any  similar  document  for  the  said  transaction.        

The  gross  revenue  for  freight  or  cargo  and  mail  shall  be  determined  based  on  the  revenue  realized  from  
the  carriage  thereof.  The  amount  realized  for  freight  or  cargo  shall  be  based  on  the  amount  appearing  
on  the  airway  bill  after  deducting  therefrom  the  amount  of  discounts  granted  which  shall  be  validated  
using  the  monthly  cargo  sales  reports  generated  by  the  IATA  Cargo  Accounts  Settlement  System  (IATA  
CASS)  for  airway  bills  issued  through  their  cargo  agents  or  the  monthly  reports  prepared  by  the  airline  
themselves  or  by  their  general  sales  agents  for  direct  issues  made.  The  amount  realized  for  mails  shall,  
on  the  other  hand,  be  determined  based  on  the  amount  as  reflected  in  the  cargo  manifest  of  the  carrier.  

8.) UNITED  INTERNATIONAL  PICTURES  AB  VS.  CIR  

Republic  Act  No  8424,  Section  76  -­‐   Final   Adjustment   Return.   —   Every   corporation   liable   to   tax  
under   Section   27   shall   file   a   final   adjustment   return   covering   the   total   taxable   income   for   the   preceding  
calendar  or  fiscal  year.  If  the  sum  of  the  quarterly  tax  payments  made  during  the  said  taxable  year  is  not  
equal  to  the  total  tax  due  on  the  entire  taxable  income  of  that  year,  the  corporation  shall  either:  

(A)   Pay  the  balance  of  tax  still  due;  or  

(B)   Carry-­‐over  the  excess  credit;  or        

(C)   Be  credited  or  refunded  with  the  excess  amount  paid,  as  the  case  may  be.  

In   case   the   corporation   is   entitled   to   a   tax   credit   or   refund   of   the   excess   estimated   quarterly   income  
taxes   paid,   the   excess   amount   shown   on  its   final   adjustment   return   may   be   carried   over   and   credited  
against  the  estimated  quarterly  income  tax  liabilities  for  the  taxable  quarters  of  the  succeeding  taxable  
years.  Once  the  option  to  carry-­‐over  and  apply  the  excess  quarterly  income  tax  against  income  due  for  
the   taxable   quarters   of   the   succeeding   taxable   years   has   been   made,   such   option   shall   be   considered  
irrevocable   for   that   taxable   period   and   no   application   for   cash   refund   or   issuance   of   a   tax   credit  
certificate  shall  be  allowed  therefore.    

From   the   aforequoted   provision,   it   is   clear   that   once   a   corporation   exercises   the   option   to   carry-­‐over,  
such   option   is   irrevocable   "for   that   taxable   period."   Having   chosen   to   carry-­‐over   the   excess   quarterly  
income   tax,   the   corporation   cannot   thereafter   choose   to   apply   for   a   cash   refund   or   for   the   issuance   of   a  
tax  credit  certificate  for  the  amount  representing  such  overpayment.    

To   avoid   confusion,   this   Court   has   properly   explained   the   phrase   "for   that   taxable   period"   in  
Commissioner  of  Internal  Revenue  v.  Bank  of  the  Philippine  Islands.    In  said  case,  the  Court  held  that  the  
phrase  merely  identifies  the  excess  income  tax,  subject  of  the  option,  by  referring  to  the  "taxable  period  
when  it  was  acquired  by  the  taxpayer."  Thus:          

18  
 
.   .   .   Section   76   remains   clear   and   unequivocal.   Once   the   carry-­‐over   option   is   taken,   actually   or  
constructively,   it   becomes   irrevocable.  It  mentioned  no  exception  or  qualification  to  the  irrevocability  
rule.  

Hence,   the   controlling   factor   for   the   operation   of   the   irrevocability   rule   is   that   the   taxpayer   chose   an  
option;  and  once  it  had  already  done  so,  it  could  no  longer  make  another  one.  Consequently,  after  the  
taxpayer  opts  to  carry-­‐over  its  excess  tax  credit  to  the  following  taxable  period,  the  question  of  whether  
or  not  it  actually  gets  to  apply  said  tax  credit  is  irrelevant.  Section  76  of  the  NIRC  of  1997  is  explicit  in  
stating  that  once  the  option  to  carry  over  has  been  made,  "no  application  for  tax  refund  or  issuance  of  a  
tax  credit  certificate  shall  be  allowed  therefor."  

The   last   sentence   of   Section   76   of   the   NIRC   of   1997   reads:   "Once   the   option   to   carry-­‐over   and   apply   the  
excess  quarterly  income  tax  against  income  tax  due  for  the  taxable  quarters  of  the  succeeding  taxable  
years   has   been   made,   such   option   shall   be   considered   irrevocable   for   that   taxable   period   and   no  
application  for  tax  refund  or  issuance  of  a  tax  credit  certificate  shall  be  allowed  therefore."  The  phrase  
"for  that  taxable  period"  merely  identifies  the  excess  income  tax,  subject  of  the  option,  by  referring  to  
the   taxable   period   when   it   was   acquired   by   the   taxpayer.   In   the   present   case,   the   excess   income   tax  
credit,  which  BPI  opted  to  carry  over,  was  acquired  by  the  said  bank  during  the  taxable  year  1998.  The  
option  of  BPI  to  carry  over  its  1998  excess  income  tax  credit  is  irrevocable;  it  cannot  later  on  opt  to  apply  
for  a  refund  of  the  very  same  1998  excess  income  tax  credit.  

The   Court   of   Appeals   mistakenly   understood   the   phrase   "for   that   taxable   period"   as   a   prescriptive  
period  for  the  irrevocability  rule  .  .  .  .  The  evident  intent  of  the  legislature,  in  adding  the  last  sentence  to  
Section   76   of   the   NIRC   of   1997,   is   to   keep   the   taxpayer   from   flip-­‐flopping   on   its   options,   and   avoid  
confusion  and  complication  as  regards  said  taxpayer's  excess  tax  credit.  The  interpretation  of  the  Court  
of  Appeals  only  delays  the  flip-­‐flopping  to  the  end  of  each  succeeding  taxable  period.    

Plainly,   petitioner's   claim   for   refund   for   1998   should   be   denied   as   its   option   to   carry   over   has   precluded  
it  from  claiming  the  refund  of  the  excess  1998  income  tax  payment.  

Apropos,  we  now  resolve  the  issue  of  whether  petitioner  had  sufficiently  proven  entitlement  to  refund  
its  tax  overpayments  for  taxable  year  1999.  

We  find  for  respondent.      

In   claiming   for   the   refund   of   excess   creditable   withholding   tax,   petitioner   must   show   compliance   with  
the  following  basic  requirements:  

(1)   The  claim  for  refund  was  filed  within  two  years  as  prescribed  under  Section  229    of  the  NIRC  of  
1997;  

(2)   The   income   upon   which   the   taxes   were   withheld   were   included   in   the   return   of   the   recipient  
(Section  10,  Revenue  Regulations  No.  6-­‐85);  

19  
 
(3)   The   fact   of   withholding   is   established   by   a   copy   of   a   statement   (BIR   Form   1743.1)   duly   issued   by  
the  payor  (withholding  agent)  to  the  payee  showing  the  amount  paid  and  the  amount  of  tax  withheld  
therefrom  (Section  10,  Revenue  Regulations  No.  6-­‐85).  

Here,   it   is   undisputed   that   the   claim   for   refund   was   filed   within   the   two-­‐year   prescriptive   period  
prescribed   under   Section   229   of   the   NIRC   of   1997   and   that   the   taxpayer   was   able   to   present   its  
certificate   of   creditable   tax   withheld   from   its   payor.   However,   records   show   that   petitioner   failed   to  
reconcile   the   discrepancy   between   income   payments   per   its   income   tax   return   and   the   certificate   of  
creditable  tax  withheld.          

A  perusal  of  the  certificate  of  tax  withheld  would  reveal  that  petitioner  earned  P146,355,699.80.  On  the  
contrary,   its   annual   income   tax   return   reflects   a   gross   income   from   film   rentals   in   the   amount   of  
P145,381,568.00.   However,   despite   the   P974,131.80   difference,   both   the   certificate   of   taxes   withheld  
and   income   tax   return   filed   by   petitioner   for   taxable   year   1999   indicate   the   same   amount   of  
P7,317,785.00   as   creditable   tax   withheld.   What's   more,   petitioner   failed   to   present   sufficient   proof   to  
allow  the  Court  to  trace  the  discrepancy  between  the  certificate  of  taxes  withheld  and  the  income  tax  
return.  

Parenthetically,   the   Office   of   the   Solicitor   General   correctly   pointed   out   that   the   amount   of   income  
payments  in  the  income  tax  return  must  correspond  and  tally  to  the  amount  indicated  in  the  certificate  
of   withholding,   since   there   is   no   possible   and   efficacious   way   by   which   the   BIR   can   verify   the   precise  
identity  of  the  income  payments  as  reflected  in  the  income  tax  return.  

Therefore,  petitioner's  claim  for  tax  refund  for  taxable  year  1999  must  be  denied,  since  it  failed  to  prove  
that  the  income  payments  subjected  to  withholding  tax  were  declared  as  part  of  the  gross  income  of  the  
taxpayer.        

9.) COCOFED  ET  AL  VS.  REPUBLIC  OF  THE  PHILIPPINES  

The   coconut   levy   funds   are   in   the   nature   of   taxes   and   can   only   be   used   for   public   purpose.  
Consequently,   they   cannot   be   used   to   purchase   shares   of   stocks   to   be   given   for   free   to   private  
individuals.  

Indeed,   We   have   hitherto   discussed,   the   coconut   levy   was   imposed   in   the   exercise   of   the   State's  
inherent  power  of  taxation.  As  We  wrote  in  Republic  v.  COCOFED:      

Indeed,  coconut  levy  funds  partake  of  the  nature  of  taxes,  which,  in  general,  are  enforced  proportional  
contributions   from   persons   and   properties,   exacted   by   the   State   by   virtue   of   its   sovereignty   for   the  
support  of  government  and  for  all  public  needs.  

Based   on   its   definition,   a  tax  has  three  elements,   namely:   a)   it   is   an   enforced   proportional   contribution  
from  persons  and  properties;  b)  it  is  imposed  by  the  State  by  virtue  of  its  sovereignty;  and  c)  it  is  levied  
for   the   support   of   the   government.   The   coconut   levy   funds   fall   squarely   into   these   elements   for   the  
following  reasons:  

20  
 
(a)   They   were   generated   by   virtue   of   statutory   enactments   imposed   on   the   coconut   farmers  
requiring   the   payment   of   prescribed   amounts.   Thus,   PD   No.   276,   which   created   the   Coconut  
Consumer[s]  Stabilization  Fund  (CCSF),  mandated  the  following:  

"a.   A  levy,  initially,  of  P15.00  per  100  kilograms  of  copra  resecada  or  its  equivalent  in  other  coconut  
products,  shall  be  imposed  on  every  first  sale,  in  accordance  with  the  mechanics  established  under  RA  
6260,  effective  at  the  start  of  business  hours  on  August  10,  1973."  

"The   proceeds   from   the   levy   shall   be   deposited   with   the   Philippine   National   Bank   or   any   other  
government  bank  to  the  account  of  the  Coconut  Consumers  Stabilization  Fund,  as  a  separate  trust  fund  
which  shall  not  form  part  of  the  general  fund  of  the  government."  

The   coco   levies   were   further   clarified   in   amendatory   laws,   specifically   PD   No.   961   and   PD   No.   1468  —   in  
this  wise:  

"The   Authority   (PCA)   is   hereby   empowered   to   impose   and   collect   a   levy,   to   be   known   as   the   Coconut  
Consumers  Stabilization  Fund  Levy,  on  every  one  hundred  kilos  of  copra  resecada,  or  its  equivalent  .  .  .  
delivered  to,  and/or  purchased  by,  copra  exporters,  oil  millers,  desiccators  and  other  end-­‐users  of  copra  
or  its  equivalent  in  other  coconut  products.  The  levy  shall  be  paid  by  such  copra  exporters,  oil  millers,  
desiccators  and  other  end-­‐users  of  copra  or  its  equivalent  in  other  coconut  products  under  such  rules  
and  regulations  as  the  Authority  may  prescribe.  Until  otherwise  prescribed  by  the  Authority,  the  current  
levy  being  collected  shall  be  continued."          

Like   other   tax   measures,   they   were   not   voluntary   payments   or   donations   by   the   people.   They   were  
enforced  contributions  exacted  on  pain  of  penal  sanctions,  as  provided  under  PD  No.  276:  

"3.   Any   person   or   firm   who   violates   any   provision   of   this   Decree   or   the   rules   and   regulations  
promulgated   thereunder,   shall,   in   addition   to   penalties   already   prescribed   under   existing   administrative  
and   special   law,   pay   a   fine   of   not   less   than   P2,500   or   more   than   P10,000,   or   suffer   cancellation   of  
licenses  to  operate,  or  both,  at  the  discretion  of  the  Court."  

Such  penalties  were  later  amended  thus:  .  .  .  .  

(b)   The   coconut   levies   were   imposed   pursuant   to   the   laws   enacted   by   the   proper   legislative  
authorities  of  the  State.  Indeed,  the  CCSF  was  collected  under  PD  No.  276  .  .  .  ."  

(c)   They  were  clearly  imposed  for  a  public  purpose.  There  is  absolutely  no  question  that  they  were  
collected   to   advance   the   government's   avowed   policy   of   protecting   the   coconut   industry.   This   Court  
takes   judicial   notice   of   the   fact   that   the   coconut   industry   is   one   of   the   great   economic   pillars   of   our  
nation,   and   coconuts   and   their   byproducts   occupy   a   leading   position   among   the   country's   export  
products.  .  .  .  

Taxation  is  done  not  merely  to  raise  revenues  to  support  the  government,  but  also  to  provide  means  for  
the  rehabilitation  and  the  stabilization  of  a  threatened  industry,  which  is  so  affected  with  public  interest  
as  to  be  within  the  police  power  of  the  State.  .  .  .  

21  
 
Even   if   the   money   is   allocated   for   a   special   purpose   and   raised   by   special   means,   it   is   still   public   in  
character   .   .   .   .   In   Cocofed   v.   PCGG,   the   Court   observed   that   certain   agencies   or   enterprises   "were  
organized  and  financed  with  revenues  derived  from  coconut  levies  imposed  under  a  succession  of  law  of  
the  late  dictatorship  .  .  .  with  deposed  Ferdinand  Marcos  and  his  cronies  as  the  suspected  authors  and  
chief  beneficiaries  of  the  resulting  coconut  industry  monopoly."  The  Court  continued:  "  .  .  .  .  It  cannot  be  
denied  that  the  coconut  industry  is  one  of  the  major  industries  supporting  the  national  economy.  It  is,  
therefore,   the   State's   concern   to   make   it   a   strong   and   secure   source   not   only   of   the   livelihood   of   a  
significant  segment  of  the  population,  but  also  of  export  earnings  the  sustained  growth  of  which  is  one  
of  the  imperatives  of  economic  stability.  

We  have  ruled  time  and  again  that  taxes  are  imposed  only  for  a  public  purpose.    "They  cannot  be  used  
for  purely  private  purposes  or  for  the  exclusive  benefit  of  private  persons."    When  a  law  imposes  taxes  
or  levies  from  the  public,  with  the  intent  to  give  undue  benefit  or  advantage  to  private  persons,  or  the  
promotion  of  private  enterprises,  that  law  cannot  be  said  to  satisfy  the  requirement  of  public  purpose.    
In   Gaston   v.   Republic   Planters   Bank,   the   petitioning   sugar   producers,   sugarcane   planters   and   millers  
sought  the  distribution  of  the  shares  of  stock  of  the  Republic  Planters  Bank,  alleging  that  they  are  the  
true   beneficial   owners   thereof.     In   that   case,   the   investment,   i.e.,   the   purchase   of   the   said   bank,   was  
funded  by  the  deduction  of  PhP1.00  per  picul  from  the  sugar  proceeds  of  the  sugar  producers  pursuant  
to   P.D.   No.   388.     In   ruling   against   the   petitioners,   the   Court   held   that   to   rule   in   their   favor   would  
contravene  the  general  principle  that  revenues  received  from  the  imposition  of  taxes  or  levies  "cannot  
be   used   for   purely   private   purposes   or   for   the   exclusive   benefit   of   private   persons."   The   Court   amply  
reasoned  that  the  Stabilization  Fund  must  "be  utilized  for  the  benefit  of  the  entire  sugar  industry,  and  all  
its  components,  stabilization  of  the  domestic  market  including  foreign  market,  the  industry  being  of  vital  
importance  to  the  country's  economy  and  to  national  interest."    

Similarly   in   this   case,   the   coconut   levy   funds   were   sourced   from   forced   exactions   decreed   under   P.D.  
Nos.   232,   276   and   582,   among   others,     with   the   end-­‐goal   of   developing   the   entire   coconut   industry.    
Clearly,  to  hold  therefore,  even  by  law,  that  the  revenues  received  from  the  imposition  of  the  coconut  
levies   be   used   purely   for   private   purposes   to   be   owned   by   private   individuals   in   their   private   capacity  
and  for  their  benefit,  would  contravene  the  rationale  behind  the  imposition  of  taxes  or  levies.  

Needless  to  stress,  courts  do  not,  as  they  cannot,  allow  by  judicial  fiat  the  conversion  of  special  funds  
into  a  private  fund  for  the  benefit  of  private  individuals.  In  the  same  vein,  We  cannot  subscribe  to  the  
idea   of   what   appears   to   be   an   indirect   —   if   not   exactly   direct   —   conversion   of   special   funds   into   private  
funds,   i.e.,   by   using   special   funds   to   purchase   shares   of   stocks,   which   in   turn   would   be   distributed   for  
free   to   private   individuals.   Even   if   these   private   individuals   belong   to,   or   are   a   part   of   the   coconut  
industry,   the   free   distribution   of   shares   of   stocks   purchased   with   special   public   funds   to   them,  
nevertheless  cannot  be  justified.  The  ratio  in  Gaston,    as  expressed  below,  applies  mutatis  mutandis  to  
this  case:          

The  stabilization  fees  in  question  are  levied  by  the  State  .  .  .  for  a  special  purpose   —  that  of  "financing  
the   growth   and   development   of   the   sugar   industry   and   all   its   components,   stabilization   of   the  
domestic   market   including   the   foreign   market."   The   fact   that   the   State   has   taken   possession   of  

22  
 
moneys   pursuant   to   law   is   sufficient   to   constitute   them   as   state   funds   even   though   they   are   held   for   a  
special  purpose.  .  .  .  

That   the   fees   were   collected   from   sugar   producers,   [etc.],   and   that   the   funds   were   channeled   to   the  
purchase   of   shares   of   stock   in   respondent   Bank   do   not   convert   the   funds   into   a   trust   fund   for   their  
benefit  nor  make  them  the  beneficial  owners  of  the  shares  so  purchased.  It  is  but  rational  that  the  fees  
be  collected  from  them  since  it  is  also  they  who  are  benefited  from  the  expenditure  of  the  funds  derived  
from  it.  .  .  .  .  

In  this  case,  the  coconut  levy  funds  were  being  exacted  from  copra  exporters,  oil  millers,  desiccators  and  
other  end-­‐users  of  copra  or  its  equivalent  in  other  coconut  products.    Likewise  so,  the  funds  here  were  
channeled  to  the  purchase  of  the  shares  of  stock  in  UCPB.  Drawing  a  clear  parallelism  between  Gaston  
and   this   case,   the   fact   that   the   coconut   levy   funds   were   collected   from   the   persons   or   entities   in   the  
coconut   industry,   among   others,   does   not   and   cannot   entitle   them   to   be   beneficial   owners   of   the  
subject   funds   —   or   more   bluntly,   owners   thereof   in   their   private   capacity.   Parenthetically,   the   said  
private  individuals  cannot  own  the  UCPB  shares  of  stocks  so  purchased  using  the  said  special  funds  of  
the  government.    

10.) LASCONA  LAND,  IND.  VS.  CIR  

Respondent,  however,  insists  that  in  case  of  the  inaction  by  the  Commissioner  on  the  protested  
assessment   within   the   180-­‐day   reglementary   period,   petitioner   should   have   appealed   the  
inaction  to  the  CTA.  Respondent  maintains  that  due  to  Lascona's  failure  to  file  an  appeal  with  
the  CTA  after  the  lapse  of  the  180-­‐day  period,  the  assessment  became  final  and  executory.  

We  do  not  agree.  

In  RCBC  v.  CIR,    the  Court  has  held  that  in  case  the  Commissioner  failed  to  act  on  the  disputed  
assessment  within  the  180-­‐day  period  from  date  of  submission  of  documents,  a  taxpayer  can  
either:   (1)   file   a   petition   for   review   with   the   Court   of   Tax   Appeals   within   30   days   after   the  
expiration   of   the   180-­‐day   period;   or   (2)   await   the   final   decision   of   the   Commissioner   on   the  
disputed   assessments   and   appeal   such   final   decision   to   the   Court   of   Tax   Appeals   within   30   days  
after  receipt  of  a  copy  of  such  decision.    

This  is  consistent  with  Section  3  A  (2),  Rule  4  of  the  Revised  Rules  of  the  Court  of  Tax  Appeals,    
to  wit:  

SEC.  3.  Cases   within   the   jurisdiction   of   the   Court   in   Divisions.   —   The   Court   in   Divisions   shall  
exercise:  

(a)   Exclusive  original  or  appellate  jurisdiction  to  review  by  appeal  the  following:  

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(1)   Decisions   of   the   Commissioner   of   Internal   Revenue   in   cases   involving   disputed  
assessments,   refunds   of   internal   revenue   taxes,   fees   or   other   charges,   penalties   in   relation  
thereto,   or   other   matters   arising   under   the   National   Internal   Revenue   Code   or   other   laws  
administered  by  the  Bureau  of  Internal  Revenue;        

(2)   Inaction   by   the   Commissioner   of   Internal   Revenue   in   cases   involving   disputed  

assessments,   refunds   of   internal   revenue   taxes,   fees   or   other   charges,   penalties   in   relation  
thereto,   or   other   matters   arising   under   the   National   Internal   Revenue   Code   or   other   laws  
administered   by   the   Bureau   of   Internal   Revenue,   where   the   National   Internal   Revenue   Code   or  
other   applicable   law   provides   a   specific   period   for   action:   Provided,   that   in   case   of   disputed  
assessments,   the   inaction   of   the   Commissioner   of   Internal   Revenue   within   the   one   hundred  
eighty  day-­‐period  under  Section  228  of  the  National  Internal  revenue  Code  shall  be  deemed  a  
denial   for   purposes   of   allowing   the   taxpayer   to   appeal   his   case   to   the   Court   and   does   not  
necessarily   constitute   a   formal   decision   of   the   Commissioner   of   Internal   Revenue   on   the   tax  
case;   Provided,   further,   that   should   the   taxpayer   opt   to   await   the   final   decision   of   the  
Commissioner   of   Internal   Revenue   on   the   disputed   assessments   beyond   the   one   hundred  
eighty  day-­‐period  abovementioned,  the  taxpayer  may  appeal  such  final  decision  to  the  Court  
under   Section   3(a),   Rule   8   of   these   Rules;   and   Provided,   still   further,   that   in   the   case   of   claims  
for   refund   of   taxes   erroneously   or   illegally   collected,   the   taxpayer   must   file   a   petition   for  
review  with  the  Court  prior  to  the  expiration  of  the  two-­‐year  period  under  Section  229  of  the  
National  Internal  Revenue  Code;    

In  arguing  that  the  assessment  became  final  and  executory  by  the  sole  reason  that  petitioner  
failed   to   appeal   the   inaction   of   the   Commissioner   within   30   days   after   the   180-­‐day  
reglementary  period,  respondent,  in  effect,  limited  the  remedy  of  Lascona,  as  a  taxpayer,  under  
Section  228  of  the  NIRC  to  just  one,  that  is  —  to  appeal  the  inaction  of  the  Commissioner  on  its  
protested  assessment  after  the  lapse  of  the  180-­‐day  period.  This  is  incorrect.        

As   early   as   the   case   of   CIR   v.   Villa,   it   was   already   established   that   the   word   "decisions"   in  
paragraph  1,  Section  7  of  Republic  Act  No.  1125,  quoted  above,  has  been  interpreted  to  mean  
the  decisions  of  the  Commissioner  of  Internal  Revenue  on  the  protest  of  the  taxpayer  against  
the   assessments.   Definitely,   said   word   does   not   signify   the   assessment   itself.   We   quote   what  
this  Court  said  aptly  in  a  previous  case:  

In   the   first   place,   we   believe   the   respondent   court   erred   in   holding   that   the   assessment   in  
question   is   the   respondent   Collector's   decision   or   ruling   appealable   to   it,   and   that  
consequently,  the  period  of  thirty  days  prescribed  by  section  11  of  Republic  Act  No.  1125  within  
which   petitioner   should   have   appealed   to   the   respondent   court   must   be   counted   from   its  
receipt  of  said  assessment.  Where  a  taxpayer  questions  an  assessment  and  asks  the  Collector  to  
reconsider  or  cancel  the  same  because  he  (the  taxpayer)  believes  he  is  not  liable  therefor,  the  

24  
 
assessment  becomes  a  "disputed  assessment"  that  the  Collector  must  decide,  and  the  taxpayer  
can  appeal  to  the  Court  of  Tax  Appeals  only  upon  receipt  of  the  decision  of  the  Collector  on  the  
disputed  assessment,  .  .  .  

Therefore,  as  in  Section  228,  when  the  law  provided  for  the  remedy  to  appeal  the  inaction  of  
the   CIR,   it   did   not   intend   to   limit   it   to   a   single   remedy   of   filing   of   an   appeal   after   the   lapse   of  
the   180-­‐day   prescribed   period.   Precisely,   when   a   taxpayer   protested   an   assessment,   he  
naturally   expects   the   CIR   to   decide   either   positively   or   negatively.   A   taxpayer   cannot   be  
prejudiced   if   he   chooses   to   wait   for   the   final   decision   of   the   CIR   on   the   protested   assessment.  
More   so,   because   the   law   and   jurisprudence   have   always   contemplated   a   scenario   where   the  
CIR  will  decide  on  the  protested  assessment.        

It   must   be   emphasized,   however,   that   in   case   of   the   inaction   of   the   CIR   on   the   protested  
assessment,  while  we  reiterate  —  the  taxpayer  has  two  options,  either:  (1)  file  a  petition  for  
review  with  the  CTA  within  30  days  after  the  expiration  of  the  180-­‐day  period;  or  (2)  await  the  
final   decision   of   the   Commissioner   on   the   disputed   assessment   and   appeal   such   final   decision  
to   the   CTA   within   30   days   after   the   receipt   of   a   copy   of   such   decision,   these   options   are  
mutually  exclusive  and  resort  to  one  bars  the  application  of  the  other.  

Accordingly,   considering   that   Lascona   opted   to   await   the   final   decision   of   the   Commissioner   on  
the   protested   assessment,   it   then   has   the   right   to   appeal   such   final   decision   to   the   Court   by  
filing  a  petition  for  review  within  thirty  days  after  receipt  of  a  copy  of  such  decision  or  ruling,  
even  after  the  expiration  of  the  180-­‐day  period  fixed  by  law  for  the  Commissioner  of  Internal  
Revenue  to  act  on  the  disputed  assessments.    Thus,  Lascona,  when  it  filed  an  appeal  on  April  
12,  1999  before  the  CTA,  after  its  receipt  of  the  Letter  18  dated  March  3,  1999  on  March  12,  
1999,  the  appeal  was  timely  made  as  it  was  filed  within  30  days  after  receipt  of  the  copy  of  the  
decision.  

Finally,  the  CIR  should  be  reminded  that  taxpayers  cannot  be  left  in  quandary  by  its  inaction  
on  the  protested  assessment.  It  is  imperative  that  the  taxpayers  are  informed  of  its  action  in  
order  that  the  taxpayer  should  then  at  least  be  able  to  take  recourse  to  the  tax  court  at  the  
opportune  time.  As  correctly  pointed  out  by  the  tax  court:          

.   .   .   to   adopt   the   interpretation   of   the   respondent   will   not   only   sanction   inefficiency,   but   will  
likewise  condone  the  Bureau's  inaction.  This  is  especially  true  in  the  instant  case  when  despite  
the   fact   that   respondent   found   petitioner's   arguments   to   be   in   order,   the   assessment   will  
become   final,   executory   and   demandable   for   petitioner's   failure   to   appeal   before   us   within   the  
thirty  (30)  day  period.    

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  
25  
 
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.   20  
Thus,  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.    

11.) CIR  VS.  PETRON  CORPORATION  

We  recognize  the  well-­‐entrenched  principle  that  estoppel  does  not  apply  to  the  government,  
especially  on  matters  of  taxation.  Taxes  are  the  nation's  lifeblood  through  which  government  
agencies  continue  to  operate  and  with  which  the  State  discharges  its  functions  for  the  welfare  
of  its  constituents.    As  an  exception,  however,  this  general  rule  cannot  be  applied  if  it  would  
work  injustice  against  an  innocent  party.    

Petron,  in  this  case,  was  not  proven  to  have  had  any  participation  in  or  knowledge  of  the  CIR's  
allegation  of  the  fraudulent  transfer  and  utilization  of  the  subject  TCCs.  Respondent's  status  as  
a  transferee  in  good  faith  and  for  value  of  these  TCCs  has  been  established  and  even  stipulated  
upon   by   petitioner.     Respondent   was   thereby   provided   ample   protection   from   the   adverse  
findings  subsequently  made  by  the  Center.    Given  the  circumstances,  the  CIR's  invocation  of  the  
non-­‐applicability  of  estoppel  in  this  case  is  misplaced.  

On   the   final   issue   it   raised,   the   CIR   contends   that   a   25%   surcharge   and   a   20%   interest   per  
annum   must   be   imposed   upon   Petron   for   respondent's   excise   tax   liabilities   as   mandated   under  
Sections  248  and  249  of  the  National  Internal  Revenue  Code  (NIRC).    Petitioner  considers  the  
tax   returns   filed   by   respondent   for   the   years   1995   to   1998   as   fraudulent   on   the   basis   of   the  
post-­‐audit  finding  that  the  TCCs  were  void.  It  argues  that  the  prescriptive  period  within  which  
to  lawfully  assess  Petron  for  its  tax  liabilities  has  not  prescribed  under  Section  222  (a)    of  the  
Tax  Code.  The  CIR  explains  that  respondent's  assessment  on  30  January  2002  of  respondent's  
deficiency   excise   tax   for   the   years   1995   to   1998   was   well   within   the   ten-­‐year   prescription  
period.    

In  the  light  of  the  main  ruling  in  this  case,  we  affirm  the  CTA  En  Banc  Decision  finding  Petron  to  
be  an  innocent  transferee  for  value  of  the  subject  TCCs.  Consequently,  the  Tax  Returns  it  filed  
for  the  years  1995  to  1998  are  not  considered  fraudulent.  Hence,  the  CIR  had  no  legal  basis  to  
assess  the  excise  taxes  or  any  penalty  surcharge  or  interest  thereon,  as  respondent  had  already  
paid  the  appropriate  excise  taxes  using  the  subject  TCCs.  

12.) SILKAIR  (SINGAPORE)  PTE.  LTD.  VS.  CIR  

26  
 
Excise  taxes,  which  apply  to  articles  manufactured  or  produced  in  the  Philippines  for  domestic  
sale  or  consumption  or  for  any  other  disposition  and  to  things  imported  into  the  Philippines,    is  
basically  an  indirect  tax.  While  the  tax  is  directly  levied  upon  the  manufacturer/importer  upon  
removal  of  the  taxable  goods  from  its  place  of  production  or  from  the  customs  custody,  the  tax,  
in  reality,  is  actually  passed  on  to  the  end  consumer  as  part  of  the  transfer  value  or  selling  price  
of   the   goods,   sold,   bartered   or   exchanged.     In   early   cases,   we   have   ruled   that   for   indirect   taxes  
(such   as   valued-­‐added   tax   or   VAT),   the  proper  party  to  question  or  seek  a  refund  of  the  tax  is  
the  statutory  taxpayer,  the  person  on  whom  the  tax  is  imposed  by  law  and  who  paid  the  same  
even   when   he   shifts   the   burden   thereof   to   another.     Thus,   in   Contex   Corporation   v.  
Commissioner   of   Internal   Revenue,     we   held   that   while   it   is   true   that   petitioner   corporation  
should  not  have  been  liable  for  the  VAT  inadvertently  passed  on  to  it  by  its  supplier  since  their  
transaction  is  a  zero-­‐rated  sale  on  the  part  of  the  supplier,  the  petitioner  is  not  the  proper  party  
to  claim  such  VAT  refund.  Rather,  it  is  the  petitioner's  suppliers  who  are  the  proper  parties  to  
claim  the  tax  credit  and  accordingly  refund  the  petitioner  of  the  VAT  erroneously  passed  on  to  
the  latter.    

In  the  first  Silkair  case    decided  on  February  6,  2008,  this  Court  categorically  declared:  

The  proper  party  to  question,  or  seek  a  refund  of,  an  indirect  tax  is  the  statutory  taxpayer,  the  
person   on   whom   the   tax   is   imposed   by   law   and   who   paid   the   same   even   if   he   shifts   the  
burden  thereof  to  another.  Section  130  (A)  (2)  of  the  NIRC  provides  that  "[u]nless  otherwise  
specifically  allowed,  the  return  shall  be  filed  and  the  excise  tax  paid  by  the  manufacturer  or  
producer   before   removal   of   domestic   products   from   place   of   production."   Thus,   Petron  
Corporation,  not  Silkair,  is  the  statutory  taxpayer  which  is  entitled  to  claim  a  refund  based  on  
Section  135  of  the  NIRC  of  1997  and  Article  4(2)  of  the  Air  Transport  Agreement  between  RP  
and  Singapore.  

Even   if   Petron   Corporation   passed   on   to   Silkair   the   burden   of   the   tax,   the   additional   amount  
billed   to   Silkair   for   jet   fuel   is   not   a   tax   but   part   of   the   price   which   Silkair   had   to   pay   as   a  
purchaser.    

13.) PAMBANSANG  KOALISYON  NG  MGA  SAMAHANG  MAGSASAKA  AT  MANGGAGAWA  SA  
NIYUGAN  VS.  EXECUTIVE  SECRETARY  

The   Court   was   satisfied   that   the   coco-­‐levy   funds   were   raised   pursuant   to   law   to   support   a   proper  
governmental  purpose.  They  were  raised  with  the  use  of  the  police  and  taxing  powers  of  the  State  for  
the  benefit  of  the  coconut  industry  and  its  farmers  in  general.  The  COA  reviewed  the  use  of  the  funds.  
The   Bureau   of   Internal   Revenue   (BIR)   treated   them   as   public   funds   and   the   very   laws   governing   coconut  
levies  recognize  their  public  character.  

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The  Court  has  also  recently  declared  that  the  coco-­‐levy  funds  are  in  the  nature  of  taxes  and  can  only  
be  used  for  public  purpose.  Taxes  are  enforced  proportional  contributions  from  persons  and  property,  
levied  by  the  State  by  virtue  of  its  sovereignty  for  the  support  of  the  government  and  for  all  its  public  
needs.  Here,  the  coco-­‐levy  funds  were  imposed  pursuant  to  law,  namely,  R.A.  6260  and  P.D.  276.  The  
funds  were  collected  and  managed  by  the  PCA,  an  independent  government  corporation  directly  under  
the  President.  And,  as  the  respondent  public  officials  pointed  out,  the  pertinent  laws  used  the  term  levy,  
which  means  to  tax,  in  describing  the  exaction.          

Of   course,   unlike   ordinary   revenue   laws,   R.A.   6260   and   P.D.   276   did   not   raise   money   to   boost   the  
government's   general   funds   but   to   provide   means   for   the   rehabilitation   and   stabilization   of   a  
threatened  industry,  the  coconut  industry,  which  is  so  affected  with  public  interest  as  to  be  within  the  
police   power   of   the   State.   The   funds   sought   to   support   the   coconut   industry,   one   of  the   main   economic  
backbones  of  the  country,  and  to  secure  economic  benefits  for  the  coconut  farmers  and  farm  workers.  
The   subject   laws   are   akin   to   the   sugar   liens   imposed   by   Sec.   7(b)   of   P.D.   388,   and   the   oil   price  
stabilization  funds  under  P.D.  1956,  as  amended  by  E.O.  137.  

14.) TEAM  PACIFIC  CORPORATION  VS.  DAZA  

A   taxpayer   dissatisfied   with   a   local   treasurer's   denial   of   or   inaction   on   his   protest   over   an   assessment  
has  thirty  (30)  days  within  which  to  appeal  to  the  court  of  competent  jurisdiction.  Under  the  law,  said  
period   is   to   be   reckoned   from   the   taxpayer's   receipt   of   the   denial   of   his   protest   or   the   lapse   of   the   sixty  
(60)-­‐day  period  within  which  the  local  treasurer  is  required  to  decide  the  protest,  from  the  moment  of  
its  filing.  This  is  clear  from  Section  195  of  the  Local  Government  Code.  

Absent   any   showing   of   the   formal   denial   of   the   protest   by   Atty.   Miranda,   then   Chief   of   the   Taguig  
Business  Permit  and  Licensing  Office,  we  find  that  TPC's  filing  of  its  petition  before  the  RTC  on  19  April  
2004  still  timely.  Reckoned  from  the  filing  of  the  letter  protest  on  19  January  2004,  Daza  had  sixty  (60)  
days  or  until  19  March  2004  within  which  to  resolve  the  same  in  view  of  the  fact  that  2004  was  a  leap  
year.   From   the   lapse   of   said   period,   TPC,   in   turn,   had   thirty   (30)   days   or   until   18   March   2004   within  
which  to  file  its  appeal  to  the  RTC.  Since  the  latter  date  fell  on  a  Sunday,  the   RTC   correctly   ruled   that  
TPC's   filing   of   its   petition   on   19   April   2004   was   still   within   the   period   prescribed   under   the   above  
quoted  provision.  Whether  or  not  a  Rule  65  petition  for  certiorari  was  the  appropriate  remedy  from  
Daza's  inaction  on  TPC's  letter-­‐protest  is,  however,  an  entirely  different  issue  which  we  are  now  called  
upon  to  resolve,  considering  the  RTC's  ruling  that  it  should  have  filed  an  ordinary  appeal  instead.  As  
correctly  observed  by  TPC,  after  all,  Section  195  of  the  Local  Government  Code  does  not  elaborate  on  
how   an   appeal   is   to   be   made   from   the   denial   by   a   local   treasurer   of   a   protest   on   assessment   made   by  
a  taxpayer.    

In  the  case  of  Yamane  vs.  BA  Lepanto  Condominium  Corporation    (BLCC),  this  Court  saw  fit  to  rule  that  
the  remedy  to  be  pursued  by  the  taxpayer  is  one  cognizable  by  the  RTC  in  the  exercise  of  its  original   —  
not  its  appellate  —  jurisdiction.  In  said  case,  BLCC's  appeal  from  the  denial  of  its  protest  by  the  Makati  
City   Treasurer   was   dismissed   for   lack   of   merit   by   the   RTC,   prompting   said   taxpayer   to   file   a   Rule   42  

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petition  for  review  with  the  Court  of  Appeals  (CA).  After  reconsidering  its  earlier  decision  to  dismiss  the  
petition  on  the  ground  that  said  remedy  is  restricted  to  decisions  rendered  by  the  RTC  on  appeal,  the  CA  
went   on   to   render   a   decision   finding   BLCC   not   liable   for   the   business   tax   assessed   by   the   Makati   City  
Treasurer.  Sustaining  the  latter's  position  that  the  jurisdiction  exercised  by  the  RTC  over  BLCC's  appeal  
was  original  in  character,  this  Court  ruled  as  follows:          

.  .  .  [S]  significantly,  the  Local  Government  Code,  or  any  other  statute  for  that  matter,  does  not  expressly  
confer  appellate  jurisdiction  on  the  part  of  regional  trial  courts  from  the  denial  of  a  tax  protest  by  a  local  
treasurer.  On  the  other  hand,  Section  22  of  B.P.  129  expressly  delineates  the  appellate  jurisdiction  of  the  
Regional  Trial  Courts,  confining  as  it  does  said  appellate  jurisdiction  to  cases  decided  by  Metropolitan,  
Municipal,  and  Municipal  Circuit  Trial  Courts.  Unlike  in  the  case  of  the  Court  of  Appeals,  B.P.  129  does  
not  confer  appellate  jurisdiction  on  Regional  Trial  Courts  over  rulings  made  by  non-­‐judicial  entities.  

From  these  premises,  it  is  evident  that  the  stance  of  the  City  Treasurer  is  correct  as  a  matter  of  law,  and  
that  the  proper  remedy  of  the  Corporation  from  the  RTC  judgment  is  an  ordinary  appeal  under  Rule  41  
to   the   Court   of   Appeals.   However,   we   make   this   pronouncement   subject   to   two   important  
qualifications.   First,   in   this   particular   case   there   are   nonetheless   significant   reasons   for   the   Court   to  
overlook  the  procedural  error  and  ultimately  uphold  the  adjudication  of  the  jurisdiction  exercised  by  the  
Court  of  Appeals  in  this  case.  Second,  the  doctrinal  weight  of  the  pronouncement  is  confined  to  cases  
and   controversies   that   emerged   prior   to   the   enactment   of   Republic   Act   No.   9282,   the   law   which  
expanded  the  jurisdiction  of  the  Court  of  Tax  Appeals  (CTA).  (Emphasis  supplied)    

The   foregoing   pronouncements   notwithstanding,   we   find   that   TPC   erroneously   availed   of   the   wrong  
remedy  in  filing  a  Rule  65  petition  for  certiorari  to  question  Daza's  inaction  on  its  letter-­‐protest.  The  rule  
is   settled   that,   as   a   special   civil   action,   certiorari   is   available   only   if   the   following   essential   requisites  
concur:  (1)  it  must  be  directed  against  a  tribunal,  board,  or  officer  exercising  judicial  or  quasi-­‐judicial  
functions;  (2)  the  tribunal,  board,  or  officer  must  have  acted  without  or  in  excess  of  jurisdiction  or  with  
grave  abuse  of  discretion  amounting  to  lack  or  excess  of  jurisdiction;  and,  (3)  there  is  no  appeal  nor  
any   plain,   speedy,   and   adequate   remedy   in   the   ordinary   course   of   law.     Judicial  function  entails  the  
power   to   determine   what   the   law   is   and   what   the   legal   rights   of   the   parties   are,   and   then   undertakes   to  
determine  these  questions  and  adjudicate  upon  the  rights  of  the  parties.  Quasi-­‐judicial  function,  on  the  
other   hand,   refers   to   the   action   and   discretion   of   public   administrative   officers   or   bodies,   which   are  
required   to   investigate   facts   or   ascertain   the   existence   of   facts,   hold   hearings,   and   draw   conclusions  
from  them  as  a  basis  for  their  official  action  and  to  exercise  discretion  of  a  judicial  nature.    

Gauged  from  the  foregoing  definitions,  Daza  cannot  be  said  to  be  performing  a  judicial  or  quasi-­‐judicial  
function   in   assessing   TPC's   business   tax   and/or   effectively   denying   its   protest   as   then   Municipal  
Treasurer  of  Taguig.  For  this  reason,  Daza's   actions   are   not   the   proper   subjects   of   a   Rule   65   petition   for  
certiorari   which   is   the   appropriate   remedy   in   cases   where   the   tribunal,   board,   or   officer   exercising  
judicial  or  quasi-­‐judicial  functions  acted  without  or  in  grave  abuse  of  discretion  amounting  to  lack  or  
excess   of   jurisdiction   and   there   is   no   appeal   or   any   plain,   speedy,   and   adequate   remedy   in   law.    
Narrow   in   scope   and   inflexible   in   character,     certiorari   is   an   extraordinary   remedy   designed   for   the  
correction   of   errors   of   jurisdiction   and   not   errors   of   judgment.     It   is   likewise   considered   mutually  

29  
 
exclusive   with   appeal     like   the   one   provided   by   Article   195   of   the   Local   Government   Code   for   a   local  
treasurer's  denial  of  or  inaction  on  a  protest.          

Even  if,  in  the  interest  of  substantial  justice,  we  were  to  consider  its  petition  for  certiorari  as  an  appeal  
from  Daza's  denial  of  its  protest,  TPC's  availment  of  the  wrong  mode  of  appeal  from  the  RTC's  assailed  5  
April  2005  Order  has,  moreover,  clearly  rendered  the  same  final  and  executory.  Granted  that  a  Rule  45  
petition   for   review   on   certiorari   is   the   proper   mode   of   appeal   when   the   issues   raised   are   purely  
questions  of  law,    TPC  lost  sight  of  the  fact  that,  as  amended  by  RA  No.  9282,  paragraph  c  (2)  [a],  Section  
7     of   RA   No.   1125     has   vested   the   Court   of   Tax   Appeals   (CTA)  with   the   exclusive   appellate   jurisdiction  
over,  among  others,  appeals  from  the  judgments,  resolutions  or  orders  of  the  RTC  in  tax  collection  cases  
originally   decided   by   them   in   their   respective   territorial   jurisdiction.   As   amended   by   Section   9   of   RA   No.  
9282,    Section  11  of  RA  No.  1125  likewise  requires  that  the  appeal  be  perfected  within  thirty  (30)  days  
after   receipt   of   the   decision   and   shall   be   made   by   filing   a   petition   for   review   under   a   procedure  
analogous  to  that  provided  for  under  Rule  42  of  the  1997  Rules  of  Civil  Procedure.  

To   our   mind,   TPC's   erroneous   availment   of   the   wrong   mode   of   appeal   and   direct   resort   to   this   Court  
instead   of   the   CTA   both   warrant   the   dismissal   of   the   petition   at   bench.   The   rule   is   settled   that   the  
perfection   of   an   appeal   in   the   manner   and   within   the   period   fixed   by   law   is   not   only   mandatory   but  
jurisdictional   and   non-­‐compliance   with   these   legal   requirements   is   fatal   to   a   party's   cause.   In  
Zamboanga  Forest  Managers  Corp.  vs.  Pacific  Timber  and  Supply  Co.,    we  ruled  as  follows:        

Although  appeal  is  an  essential  part  of  our  judicial  process,  it  has  been  held,  time  and  again,  that  the  
right  thereto  is  not  a  natural  right  or  a  part  of  due  process  but  is  merely  a  statutory  privilege.  Thus,  
the   perfection   of   an   appeal   in   the   manner   and   within   the   period   prescribed   by   law   is   not   only  
mandatory  but  also  jurisdictional  and  failure  of  a  party  to  conform  to  the  rules  regarding  appeal  will  
render   the   judgment   final   and   executory.   Once   a   decision   attains   finality,   it   becomes   the   law   of   the  
case   irrespective   of   whether   the   decision   is   erroneous   or   not   and   no   court   —   not   even   the   Supreme  
Court   —   has   the   power   to   revise,   review,   change   or   alter   the   same.   The   basic   rule   of   finality   of  
judgment  is  grounded  on  the  fundamental  principle  of  public  policy  and  sound  practice  that,  at  the  risk  
of  occasional  error,  the  judgment  of  courts  and  the  award  of  quasi-­‐judicial  agencies  must  become  final  
at  some  definite  date  fixed  by  law.  

15.) ACCENTURE,  INC.  VS.  CIR  

Recipient  of  services  must  be  doing  business  outside  the  Philippines  for  the  transactions  to  qualify  as  
zero-­‐rated.  

The  evidence  presented  by  Accenture  may  have  established  that  its  clients  are  foreign.  This  fact  does  
not  automatically  mean,  however,  that  these  clients  were  doing  business  outside  the  Philippines.  After  
all,   the   Tax   Code   itself   has   provisions   for   a   foreign   corporation   engaged   in   business   within   the  
Philippines  and  vice  versa,  to  wit:  

SEC.  22.  Definitions.  —  When  used  in  this  Title:  

30  
 
xxx                                        xxx                                        xxx  

(H)   The   term   "resident   foreign   corporation"   applies   to   a   foreign   corporation   engaged   in   trade   or  
business  within  the  Philippines.  

(I)   The  term  'nonresident  foreign  corporation'  applies  to  a  foreign  corporation  not  engaged  in  trade  
or  business  within  the  Philippines.  (Emphasis  in  the  original)  

Consequently,  to  come  within  the  purview  of  Section  108  (B)  (2),  it  is  not  enough  that  the  recipient  of  
the   service   be   proven   to   be   a   foreign   corporation;   rather,   it   must   be   specifically   proven   to   be   a  
nonresident  foreign  corporation.  

There  is  no  specific  criterion  as  to  what  constitutes  "doing"  or  "engaging  in"  or  "transacting"  business.  
We  ruled  thus  in  Commissioner  of  Internal  Revenue  v.  British  Overseas  Airways  Corporation:    

.   .   .   .   There   is   no   specific   criterion   as   to   what   constitutes   "doing"   or   "engaging   in"   or   "transacting"  

business.  Each  case  must  be  judged  in  the  light  of  its  peculiar  environmental  circumstances.  The  term  
implies  a  continuity  of  commercial  dealings  and  arrangements,  and  contemplates,  to  that  extent,  the  
performance   of   acts   or   works   or   the   exercise   of   some   of   the   functions   normally   incident   to,   and   in  
progressive  prosecution  of  commercial  gain  or  for  the  purpose  and  object  of  the  business  organization.  
"In  order  that  a  foreign  corporation  may  be  regarded  as   doing  business  within  a  State,  there  must  be  
continuity  of  conduct  and  intention  to  establish  a  continuous  business,  such  as  the  appointment  of  a  
local  agent,  and  not  one  of  a  temporary  character."    

A  taxpayer  claiming  a  tax  credit  or  refund  has  the  burden  of  proof  to  establish  the  factual  basis  of  that  
claim.  Tax  refunds,  like  tax  exemptions,  are  construed  strictly  against  the  taxpayer.    

Accenture  failed  to  discharge  this  burden.  It  alleged  and  presented  evidence  to  prove  only  that  its  clients  
were   foreign   entities.   However,   as   found   by   both   the   CTA   Division   and   the   CTA   En   Banc,   no   evidence  
was  presented  by  Accenture  to  prove  the  fact  that  the  foreign  clients  to  whom  petitioner  rendered  its  
services  were  clients  doing  business  outside  the  Philippines.  

As  ruled  by  the  CTA  En  Banc,  the  Official  Receipts,  Intercompany  Payment  Requests,  Billing  Statements,  
Memo   Invoices-­‐Receivable,   Memo   Invoices-­‐Payable,   and   Bank   Statements   presented   by   Accenture  
merely   substantiated   the   existence   of   sales,   receipt   of   foreign   currency   payments,   and   inward  
remittance  of  the  proceeds  of  such  sales  duly  accounted  for  in  accordance  with  BSP  rules,  all  of  these  
were  devoid  of  any  evidence  that  the  clients  were  doing  business  outside  of  the  Philippines.    

16.) REPUBLIC  OF  THE  PHILIPPINES  VS.  CITY  OF  PARANAQUE  

The   Constitution   expressly   authorizes   the   legislature   to   create   "government-­‐owned   or   controlled  

corporations"  through  special  charters  only  if  these  entities  are  required  to  meet  the  twin  conditions  of  
common   good   and   economic   viability.   In   other   words,   Congress   has   no   power   to   create   government-­‐
owned   or   controlled   corporations   with   special   charters   unless   they   are   made   to   comply   with   the   two  
conditions   of   common   good   and   economic   viability.   The   test   of   economic   viability   applies   only   to  

31  
 
government-­‐owned   or   controlled   corporations   that   perform   economic   or   commercial   activities   and  
need  to  compete  in  the  market  place.  Being  essentially  economic  vehicles  of  the  State  for  the  common  
good   —   meaning   for   economic   development   purposes   —   these   government-­‐owned   or   controlled  
corporations  with  special  charters  are  usually  organized  as  stock  corporations  just  like  ordinary  private  
corporations.          

In   contrast,   government   instrumentalities   vested   with   corporate   powers   and   performing  

governmental   or   public   functions   need   not   meet   the   test   of   economic   viability.  These  instrumentalities  
perform  essential  public  services  for  the  common  good,  services  that  every  modern  State  must  provide  
its   citizens.   These   instrumentalities   need   not   be   economically   viable   since   the   government   may   even  
subsidize  their  entire  operations.  These  instrumentalities  are  not  the  "government-­‐owned  or  controlled  
corporations"  referred  to  in  Section  16,  Article  XII  of  the  1987  Constitution.  

Clearly,   the   test   of   economic   viability   does   not   apply   to   government   entities   vested   with   corporate  
powers   and   performing   essential   public   services.   The   State   is   obligated   to   render   essential   public  
services   regardless   of   the   economic   viability   of   providing   such   service.   The   non-­‐economic   viability   of  
rendering   such   essential   public   service   does   not   excuse   the   State   from   withholding   such   essential  
services  from  the  public.  

There  is,  moreover,  no  point  in  national  and  local  governments  taxing  each  other,  unless  a  sound  and  
compelling  policy  requires  such  transfer  of  public  funds  from  one  government  pocket  to  another.          

There  is  also  no  reason  for  local  governments  to  tax  national  government  instrumentalities  for  rendering  
essential  public  services  to  inhabitants  of  local  governments.  The   only   exception   is   when  the  legislature  
clearly   intended   to   tax   government   instrumentalities   for   the   delivery   of   essential   public   services   for  
sound  and  compelling  policy  considerations.  There  must  be  express  language  in  the  law  empowering  
local   governments   to   tax   national   government   instrumentalities.   Any   doubt   whether   such   power  
exists  is  resolved  against  local  governments.  

17.) CITY  OF  IRIGA  VS.  CAMARINES  SUR  III  ELECTRIC  COOPERATIVE,  INC.  

Considering  that  RA  9282  was  already  in  effect  when  the  RTC  rendered  its  decision  on  February  7,  2005,  
CASURECO  III  should  have  filed  its  appeal,  not  with  the  CA,  but  with  the  CTA  Division  in  accordance  with  
the   applicable   law   and   the   rules   of   the   CTA.   Resort   to   the   CA   was,   therefore,   improper,   rendering   its  
decision  null  and  void  for  want  of  jurisdiction  over  the  subject  matter.  A  void  judgment  has  no  legal  or  
binding   force   or   efficacy   for   any   purpose   or   at   any   place.   Hence,   the   fact   that   petitioner's   motion   for  
reconsideration   from   the   CA   Decision   was   belatedly   filed   is   inconsequential,   because   a   void   and   non-­‐
existent  decision  would  never  have  acquired  finality.    

The  foregoing  procedural  lapses  would  have  been  sufficient  to  dismiss  the  instant  petition  outright  and  
declare   the   decision   of   the   RTC   final.   However,   the   substantial   merits   of  the   case   compel   us   to   dispense  
with  these  lapses  and  instead,  exercise  the  Court's  power  of  judicial  review.  

32  
 
On  March  10,  1990,  Congress  enacted  into  law  RA  6938,    otherwise  known  as  the  "Cooperative  Code  of  
the   Philippines,"   and   RA   6939   creating   the   CDA.   The   latter   law   vested   the   power   to   register  
cooperatives   solely   on   the   CDA,   while   the   former   provides   that   electric   cooperatives   registered   with  
the   NEA   under   PD   269   which   opt   not   to   register   with   the   CDA   shall   not   be   entitled   to   the   benefits   and  
privileges  under  the  said  law.  

On  January  1,  1992,  the  LGC  took  effect,  and  Section  193  thereof  withdrew  tax  exemptions  or  incentives  
previously   enjoyed   by   "all   persons,   whether   natural   or   juridical,   including   government-­‐owned   or  
controlled  corporations,  except  local  water  districts,  cooperatives  duly  registered  under  R.A.  No.  6938,  
non-­‐stock  and  non-­‐profit  hospitals  and  educational  institutions."    

Therefore,   CASURECO   III   can   no   longer   invoke   PD   269   to   evade   payment   of   local   taxes.   Moreover,   its  
provisional   registration   with   the   CDA   which   granted   it   exemption   for   the   payment   of   local   taxes   was  
extended   only   until   May   4,   1992.   Thereafter,   it   can   no   longer   claim   any   exemption   from   the   payment   of  
local  taxes,  including  the  subject  franchise  tax.        

Indisputably,  petitioner  has  the  power  to  impose  local  taxes.  The  power  of  the  local  government  units  
to   impose   and   collect   taxes   is   derived   from   the   Constitution   itself   which   grants   them   "the   power   to  
create   its   own   sources   of   revenues   and   to   levy   taxes,   fees   and   charges   subject   to   such   guidelines   and  
limitation  as  the  Congress  may  provide."    This  explicit  constitutional  grant  of  power  to  tax  is  consistent  
with   the   basic   policy   of   local   autonomy   and   decentralization   of   governance.   With   this   power,   local  
government  units  have  the  fiscal  mechanisms  to  raise  the  funds  needed  to  deliver  basic  services  to  their  
constituents   and   break   the   culture   of   dependence   on   the   national   government.   Thus,   consistent   with  
these  objectives,  the  LGC  was  enacted  granting  the  local  government  units,  like  petitioner,  the  power  to  
impose  and  collect  franchise  tax,  to  wit:  

In  National  Power  Corporation  v.  City  of  Cabanatuan,  29  the  Court  declared  that  "a  franchise  tax  is  'a  tax  
on  the  privilege  of  transacting  business  in  the  state  and  exercising  corporate  franchises  granted  by  the  
state.'"    It  is  not  levied  on  the  corporation  simply  for  existing  as  a  corporation,  upon  its  property  or  its  
income,  but  on  its  exercise  of  the  rights  or  privileges  granted  to  it  by  the  government.    "It  is  within  this  
context   that   the   phrase   'tax   on   businesses   enjoying   a   franchise'   in   Section   137   of   the   LGC   should   be  
interpreted  and  understood."  

Thus,   to   be   liable   for   local   franchise   tax,   the   following   requisites   should   concur:   (1)   that   one   has   a  
"franchise"   in   the   sense   of   a   secondary   or   special   franchise;   and   (2)   that   it   is   exercising   its   rights   or  
privileges  under  this  franchise  within  the  territory  of  the  pertinent  local  government  unit.      

There   is   a   confluence   of   these   requirements   in   the   case   at   bar.   By   virtue   of   PD   269,   NEA   granted  
CASURECO  III  a  franchise  to  operate  an  electric  light  and  power  service  for  a  period  of  fifty  (50)  years  
from  June  6,  1979,    and  it  is  undisputed  that  CASURECO  III  operates  within  Iriga  City  and  the  Rinconada  
area.  It  is,  therefore,  liable  to  pay  franchise  tax  notwithstanding  its  non-­‐profit  nature.  

It   should   be   stressed   that   what   the   petitioner   seeks   to   collect   from   CASURECO   III   is   a   franchise   tax,  
which  as  defined,  is  a  tax  on  the  exercise  of  a  privilege.  As  Section  137    of  the  LGC  provides,  franchise  

33  
 
tax  shall  be  based  on  gross  receipts  precisely  because  it  is  a  tax  on  business,  rather  than  on  persons  or  
property.    Since  it  partakes  of  the  nature  of  an  excise  tax,  the  situs  of  taxation  is  the  place  where  the  
privilege  is  exercised,  in  this  case  in  the  City  of  Iriga,  where  CASURECO  III  has  its  principal  office  and  
from   where   it   operates,   regardless   of   the   place   where   its   services   or   products   are   delivered.   Hence,  
franchise  tax  covers  all  gross  receipts  from  Iriga  City  and  the  Rinconada  area.          

18.) ASIA  INTERNATIONAL  AUCTIONEERS,  INC.  VS.  CIR  

A   tax   amnesty   is   a   general   pardon   or   the   intentional   overlooking   by   the   State   of   its   authority   to  
impose  penalties  on  persons  otherwise  guilty  of  violating  a  tax  law.  It  partakes  of  an  absolute  waiver  
by  the  government  of  its  right  to  collect  what  is  due  it  and  to  give  tax  evaders  who  wish  to  relent  a  
chance  to  start  with  a  clean  slate.    

A   tax   amnesty,   much   like   a   tax   exemption,   is   never   favored   or   presumed   in   law.   The   grant   of   a   tax  
amnesty,  similar  to  a  tax  exemption,  must  be  construed  strictly  against  the  taxpayer  and  liberally  in  
favor  of  the  taxing  authority.    

In   2007,   RA   9480   took   effect   granting   a   tax   amnesty   to   qualified   taxpayers   for   all   national   internal  
revenue   taxes   for   the   taxable   year   2005   and   prior   years,   with   or   without   assessments   duly   issued  
therefor,  that  have  remained  unpaid  as  of  December  31,  2005.    

The   Tax   Amnesty   Program   under   RA   9480   may   be   availed   of   by   any   person   except   those   who   are  
disqualified  under  Section  8  thereof,  to  wit:  

Section  8.   Exceptions.   —   The   tax   amnesty   provided   in   Section   5   hereof   shall   not   extend   to   the  
following  persons  or  cases  existing  as  of  the  effectivity  of  this  Act:  

(a)   Withholding  agents  with  respect  to  their  withholding  tax  liabilities;  

(b)   Those  with  pending  cases  falling  under  the  jurisdiction  of  the  Presidential  Commission  on  Good  
Government;  

(c)   Those   with   pending   cases   involving   unexplained   or   unlawfully   acquired   wealth   or   under   the  
Anti-­‐Graft  and  Corrupt  Practices  Act;          

(d)   Those  with  pending  cases  filed  in  court  involving  violation  of  the  Anti-­‐Money  Laundering  Law;  

(e)   Those  with  pending  criminal  cases  for  tax  evasion  and  other  criminal  offenses  under  Chapter  II  
of  Title  X  of  the  National  Internal  Revenue  Code  of  1997,  as  amended,  and  the  felonies  of  frauds,  illegal  
exactions  and  transactions,  and  malversation  of  public  funds  and  property  under  Chapters  III  and  IV  of  
Title  VII  of  the  Revised  Penal  Code;  and  

(f)   Tax  cases  subject  of  final  and  executory  judgment  by  the  courts.  (Emphasis  supplied)  

34  
 
The  CIR  contends  that  AIA  is  disqualified  under  Section  8  (a)  of  RA  9480  from  availing  itself  of  the  Tax  
Amnesty   Program   because   it   is   "deemed"   a   withholding   agent   for   the   deficiency   taxes.   This   argument   is  
untenable.        

The  CIR  did  not  assess  AIA  as  a  withholding  agent  that  failed  to  withhold  or  remit  the  deficiency  VAT  
and  excise  tax  to  the  BIR  under  relevant  provisions  of  the  Tax  Code.  Hence,  the  argument  that  AIA  is  
"deemed"  a  withholding  agent  for  these  deficiency  taxes  is  fallacious.  

Indirect  taxes,  like  VAT  and  excise  tax,  are  different  from  withholding  taxes.   To   distinguish,   in   indirect  
taxes,  the  incidence  of  taxation  falls  on  one  person  but  the  burden  thereof  can  be  shifted  or  passed  on  
to   another   person,   such   as   when   the   tax   is   imposed   upon   goods   before   reaching   the   consumer   who  
ultimately   pays   for   it.     On   the   other   hand,   in   case   of   withholding   taxes,   the   incidence   and   burden   of  
taxation   fall   on   the   same   entity,   the   statutory   taxpayer.   The   burden   of   taxation   is   not   shifted   to   the  
withholding  agent  who  merely  collects,  by  withholding,  the  tax  due  from  income  payments  to  entities  
arising   from   certain   transactions     and   remits   the   same   to   the   government.   Due   to   this   difference,   the  
deficiency   VAT   and   excise   tax   cannot   be   "deemed"   as   withholding   taxes   merely   because   they   constitute  
indirect   taxes.   Moreover,   records   support   the   conclusion   that   AIA   was   assessed   not   as   a   withholding  
agent  but,  as  the  one  directly  liable  for  the  said  deficiency  taxes.    

The   CIR   also   argues   that   AIA,   being   an   accredited   investor/taxpayer   situated   at   the   Subic   Special  
Economic   Zone,   should   have   availed   of   the   tax   amnesty   granted   under   RA   9399   29   and   not   under   RA  
9480.  This  is  also  untenable.  

RA   9399   was   passed   prior   to   the   passage   of   RA   9480.   RA   9399   does   not   preclude   taxpayers   within   its  
coverage  from  availing  of  other  tax  amnesty  programs  available  or  enacted  in  futuro  like  RA  9480.  More  
so,  RA  9480  does  not  exclude  from  its  coverage  taxpayers  operating  within  special  economic  zones.  As  
long   as   it   is   within   the   bounds   of   the   law,   a   taxpayer   has   the   liberty   to   choose   which   tax   amnesty  
program  it  wants  to  avail.  

Lastly,  the  Court  takes  judicial  notice  of  the  "Certification  of  Qualification"  issued  by  Eduardo  A.  Baluyut,  
BIR   Revenue   District   Officer,   stating   that   AIA   "has   availed   and   is   qualified   for   Tax   Amnesty   for   the  
Taxable  Year  2005  and  Prior  Years"  pursuant  to  RA  9480.  In  the  absence  of  sufficient  evidence  proving  
that   the   certification   was   issued   in   excess   of   authority,   the   presumption   that   it   was   issued   in   the   regular  
performance  of  the  revenue  district  officer's  official  duty  stands.    

19.) DELA  LLANA  VS.  CHAIRPERSON,  COA  

This  Petition  has  been  filed  as  a  taxpayer's  suit.  

A   taxpayer   is   deemed   to   have   the   standing   to   raise   a   constitutional   issue   when   it   is   established   that  
public  funds  from  taxation  have  been  disbursed  in  alleged  contravention  of  the  law  or  the  Constitution.    
Petitioner   claims   that   the   issuance   of   Circular   No.   89-­‐299   has   led   to   the   dissipation   of   public   funds  
through   numerous   irregularities   in   government   financial   transactions.   These   transactions   have   allegedly  
been   left   unchecked   by   the   lifting   of   the   pre-­‐audit   performed   by   COA,   which,   petitioner   argues,   is   its  

35  
 
Constitutional   duty.   Thus,   petitioner   has   standing   to   file   this   suit   as   a   taxpayer,   since   he   would   be  
adversely  affected  by  the  illegal  use  of  public  money.    

20.) ATLAS  CONSOLIDATED  MINING  AND  DEVELOPMENT  CORPORATION  VS.  CIR  

It  must  be  remembered  that  when  claiming  tax  refund/credit,  the  VAT-­‐registered  taxpayer  must  be  able  
to   establish   that   it   does   have   refundable   or   creditable   input   VAT,   and   the   same   has   not   been   applied  
against  its  output  VAT  liabilities  —  information  which  are  supposed  to  be  reflected  in  the  taxpayer's  VAT  
returns.  Thus,  an  application   for   tax   refund/credit   must   be   accompanied   by   copies   of   the   taxpayer's  
VAT  return/s  for  the  taxable  quarter/s  concerned.     The   CTA   and   the   CA,   based   on   their   appreciation   of  
the  evidence  presented,  committed  no  error  when  they  declared  that  petitioner  failed  to  prove  that  it  is  
entitled  to  a  tax  refund  and  this  Court,  not  being  a  trier  of  facts,  must  defer  to  their  findings.    

Taxation  is  a  destructive  power  which  interferes  with  the  personal  and  property  rights  of  the  people  
and  takes  from  them  a  portion  of  their  property  for  the  support  of  the  government.  And,  since  taxes  
are   what   we   pay   for   civilized   society,   or   are   the   lifeblood   of   the   nation,   the   law   frowns   against  
exemptions   from   taxation   and   statutes   granting   tax   exemptions   are   thus   construed   strictissimi   juris  
against   the   taxpayer   and   liberally   in   favor   of   the   taxing   authority.   A   claim   of   refund   or   exemption  
from   tax   payments   must   be   clearly   shown   and   be   based   on   language   in   the   law   too   plain   to   be  
mistaken.  Elsewise  stated,  taxation  is  the  rule,  exemption  therefrom  is  the  exception.    

Anent  the  issue  of  prescription,  wherein  petitioner  questions  the  ruling  of  the  CA  that  the  former's  claim  
for  refund  has  prescribed,  disregarding  the  failure  of  respondent   Commissioner  of  Internal  Revenue  and  
the   CTA   to   raise   the   said   issue   in   their   answer   and   original   decision,   respectively,   this   Court   finds   the  
same  moot  and  academic.  Although  it  may  appear  that  the  CTA  only  brought  up  the  issue  of  prescription  
in  its  later  resolution  and  not  in  its  original  decision,  its  ruling  on  the  merits  of  the  application  for  refund,  
could   only   imply   that   the   issue   of   prescription   was   not   the   main   consideration   for   the   denial   of  
petitioner's   claim   for   tax   refund.   Otherwise,   the   CTA   would   have   just   denied   the   application   on   the  
ground  of  prescription.  

21.) CIR  VS.  PL  MANAGEMENT  INTERNATIONAL,  INC.  

Section  76  of  the  NIRC  of  1997  provides:  

Section  76.   Final  Adjustment  Return.  —  Every  corporation  liable  to  tax  under  Section  27  shall  file  a  
final  adjustment  return  covering  the  total  taxable  income  for  the  preceding  calendar  or  fiscal  year.  If  the  
sum  of  the  quarterly  tax  payments  made  during  the  said  taxable  year  is  not  equal  to  the  total  tax  due  on  
the  entire  taxable  income  of  that  year  the  corporation  shall  either:          

(A)   Pay  the  balance  of  tax  still  due;  or  

(B)   Carry  over  the  excess  credit;  or  

36  
 
(C)   Be  credited  or  refunded  with  the  excess  amount  paid,  as  the  case  may  be.  

In  case  the  corporation  is  entitled  to  a  refund  of  the  excess  estimated  quarterly  income  taxes  paid,  the  
refundable   amount   shown   on   its   final   adjustment   return   may   be   credited   against   the   estimated  
quarterly  income  tax  liabilities  for  the  taxable  quarters  of  the  succeeding  taxable  years.  Once  the  option  
to   carry-­‐over   and   apply   the   excess   quarterly   income   tax   against   income   tax   due   for   the   taxable   quarters  
of   the   succeeding   taxable   years   has   been   made,   such   option   shall   be   considered   irrevocable   for   that  
taxable  period  and  no  application  for  tax  refund  or  issuance  of  a  tax  credit  certificate  shall  be  allowed  
therefor.  

The   predecessor   provision   of   Section   76   of   the   NIRC   of   1997   is   Section   79   of   the   NIRC   of   1985,   which  
provides:  

Section  79.   Final  Adjustment  Return.  —  Every  corporation  liable  to  tax  under  Section  24  shall  file  a  
final   adjustment   return   covering   the   total   net   income   for   the   preceding   calendar   or   fiscal   year.   If   the  
sum  of  the  quarterly  tax  payments  made  during  the  said  taxable  year  is  not  equal  to  the  total  tax  due  on  
the  entire  taxable  net  income  of  that  year  the  corporation  shall  either:          

(a)   Pay  the  excess  tax  still  due;  or  

(b)   Be  refunded  the  excess  amount  paid,  as  the  case  may  be.  

In  case  the  corporation  is  entitled  to  a  refund  of  the  excess  estimated  quarterly  income  taxes-­‐paid,  the  
refundable   amount   shown   on   its   final   adjustment   return   may   be   credited   against   the   estimated  
quarterly  income  tax  liabilities  for  the  taxable  quarters  of  the  succeeding  taxable  year.  

As  can  be  seen,  Congress  added  a  sentence  to  Section  76  of  the  NIRC  of  1997  in  order  to  lay  down  the  
irrevocability  rule,  to  wit:  

.  .  .  Once  the  option  to  carry-­‐over  and  apply  the  excess  quarterly  income  tax  against  income  tax  due  
for   the   taxable   quarters   of   the   succeeding   taxable   years   has   been   made,   such   option   shall   be  
considered  irrevocable  for  that  taxable  period  and  no  application  for  tax  refund  or  issuance  of  a  tax  
credit  certificate  shall  be  allowed  therefor.  

22.) PAGCOR  VS.  BIR  

With   the   subsequent   enactment   of   R.A.   No.   9337,   amending   R.A.   No.   8424,   PAGCOR   has   been  
excluded   from   the   enumeration   of   GOCCs   that   are   exempt   from   paying   corporate   income   tax.   The  
records   of   the   Bicameral   Conference   Meeting   dated   April   18,   2005,   of   the   Committee   on   the  
Disagreeing  Provisions  of  Senate  Bill  No.  1950  and  House  Bill  No.  3555,  show  that  it  is  the  legislative  
intent  that  PAGCOR  be  subject  to  the  payment  of  corporate  income  tax.  

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.    As  a  rule,  tax  exemptions  

37  
 
are   construed   strongly   against   the   claimant.     Exemptions   must   be   shown   to   exist   clearly   and  
categorically,  and  supported  by  clear  legal  provision.    

In  this  case,  PAGCOR  failed  to  prove  that  it  is  still  exempt  from  the  payment  of  corporate  income  tax,  
considering   that   Section   1   of   R.A.   No.   9337   amended   Section   27   (c)   of   the   National   Internal   Revenue  
Code   of   1997   by   omitting   PAGCOR   from   the   exemption.   The   legislative   intent,   as   shown   by   the  
discussions   in   the   Bicameral   Conference   Meeting,   is   to   require   PAGCOR   to   pay   corporate   income   tax;  
hence,  the  omission  or  removal  of  PAGCOR  from  exemption  from  the  payment  of  corporate  income  tax.  
It   is   a   basic   precept   of   statutory   construction   that   the   express   mention   of   one   person,   thing,   act,   or  
consequence  excludes  all  others  as  expressed  in  the  familiar  maxim  expressio  unius  est  exclusio  alterius.    
Thus,  the  express  mention  of  the  GOCCs  exempted  from  payment  of  corporate  income  tax  excludes  all  
others.  Not  being  excepted,  petitioner  PAGCOR  must  be  regarded  as  coming  within  the  purview  of  the  
general   rule   that   GOCCs   shall   pay   corporate   income   tax,   expressed   in   the   maxim:   exceptio   firmat  
regulam  in  casibus  non  exceptis.    

PAGCOR   cannot   find   support   in   the   equal   protection   clause   of   the   Constitution,   as   the   legislative  
records  of  the  Bicameral  Conference  Meeting  dated  October  27,  1997,  of  the  Committee  on  Ways  and  
Means,  show  that  PAGCOR's   exemption   from   payment   of   corporate   income   tax,   as   provided   in   Section  
27  (c)  of  R.A.  No.  8424,  or  the  National  Internal  Revenue  Code  of  1997,  was  not  made  pursuant  to  a  
valid   classification   based   on   substantial   distinctions   and   the   other   requirements   of   a   reasonable  
classification   by   legislative   bodies,   so   that   the   law   may   operate   only   on   some,   and   not   all,   without  
violating   the   equal   protection   clause.   The   legislative   records   show   that   the   basis   of   the   grant   of  
exemption  to  PAGCOR  from  corporate  income  tax  was  PAGCOR's  own  request  to  be  exempted.  

A  franchise  partakes  the  nature  of  a  grant  which  is  beyond  the  purview  of  the  non-­‐impairment  clause  
of  the  Constitution.  Indeed,  Article  XII,  Section  11,  of  the  1987  Constitution,  like  its  precursor  provisions  
in  the  1935  and  the  1973  Constitutions,  is  explicit  that  no  franchise  for  the  operation  of  a  public  utility  
shall   be   granted   except   under   the   condition   that   such   privilege   shall   be   subject   to   amendment,  
alteration  or  repeal  by  Congress  as  and  when  the  common  good  so  requires.    

In  this  case,  PAGCOR  was  granted  a  franchise  to  operate  and  maintain  gambling  casinos,  clubs  and  other  
recreation  or  amusement  places,  sports,  gaming  pools,  i.e.,  basketball,  football,  lotteries,  etc.,  whether  
on   land   or   sea,   within   the   territorial   jurisdiction   of   the   Republic   of   the   Philippines.     Under   Section   11,  
Article   XII   of   the   Constitution,   PAGCOR's   franchise   is   subject   to   amendment,   alteration   or   repeal   by  
Congress   such   as   the   amendment   under   Section   1   of   R.A.   No.   9377.   Hence,   the   provision   in   Section   1   of  
R.A.  No.  9337,  amending  Section  27  (c)  of  R.A.  No.  8424  by  withdrawing  the  exemption  of  PAGCOR  from  
corporate   income   tax,   which   may   affect   any   benefits   to   PAGCOR's   transactions   with   private   parties,   is  
not  violative  of  the  non-­‐impairment  clause  of  the  Constitution.      

Anent  the  validity  of  RR  No.  16-­‐2005,  the  Court  holds  that  the  provision  subjecting  PAGCOR  to  10%  VAT  
is  invalid  for  being  contrary  to  R.A.  No.  9337.  Nowhere  in  R.A.  No.  9337  is  it  provided  that  petitioner  
can  be  subjected  to  VAT.  R.A.  No.  9337  is  clear  only  as  to  the  removal  of  petitioner's  exemption  from  
the  payment  of  corporate  income  tax,  which  was  already  addressed  above  by  this  Court.  

38  
 
It  is  settled  rule  that  in  case  of  discrepancy  between  the  basic  law  and  a  rule  or  regulation  issued  to  
implement  said  law,  the  basic  law  prevails,  because  the  said  rule  or  regulation  cannot  go  beyond  the  
terms  and  provisions  of  the  basic  law.    RR  No.  16-­‐2005,  therefore,  cannot  go  beyond  the  provisions  of  
R.A.  No.  9337.  Since  PAGCOR  is  exempt  from  VAT  under  R.A.  No.  9337,  the  BIR  exceeded  its  authority  in  
subjecting   PAGCOR   to   10%   VAT   under   RR   No.   16-­‐2005;   hence,   the   said   regulatory   provision   is   hereby  
nullified.  

23.) CIR  VS.  MIRANT  (PHILIPPINES)  OPERATIONS,  CORPORATION  

These   two   options   under   Section   76   of   the   Tax   Code   are   alternative   in   nature.   The   choice   of   one  
precludes   the   other.   Indeed,   in   Philippine   Bank   of   Communications   v.   Commissioner   of   Internal  
Revenue,     the   Court   ruled   that   a   corporation   must   signify   its   intention   —   whether   to   request   a   tax  
refund  or  claim  a  tax  credit  —  by  marking  the  corresponding  option  box  provided  in  the  FAR.  While  a  
taxpayer  is  required  to  mark  its  choice  in  the  form  provided  by  the  BIR,  this  requirement  is  only  for  the  
purpose  of  facilitating  tax  collection.  

One  cannot  get  a  tax  refund  and  a  tax  credit  at  the  same  time  for  the  same  excess  income  taxes  paid.  .    

The   amount   being   claimed   as   a   refund   would   remain   in   the   account   of   the   taxpayer   until   utilized   in  
succeeding  taxable  years,  as  provided  in  Section  76  of  the  NIRC  of  1997.  It  is  worthy  to  note  that  unlike  
the  option  for  refund  of  excess  income  tax,  which  prescribes  after  two  years  from  the  filing  of  the  FAR,  
there   is   no   prescriptive   period   for   the   carrying   over   of   the   same.   Therefore,   the   excess   income   tax  
credit   of   BPI,   which   it   acquired   in   1998   and   opted   to   carry   over,   may   be   repeatedly   carried   over   to  
succeeding   taxable   years,   i.e.,   to   1999,   2000,   2001,   and   so   on   and   so   forth,   until   actually   applied   or  
credited  to  a  tax  liability  of  BPI.          

The  Court  agrees  with  the  conclusion  of  the  CTA  En  Banc:  

Contrary   to   petitioner   CIR's   contention,   the   fact   of   withholding   was   likewise   established   through  
respondent's  presentation  of  the  Certificates  of  Creditable  Tax  Withheld  At  Source,  duly  issued  to  it  by  
Southern   Energy   Pangasinan,   Inc.   and   Southern   Energy   Quezon,   Inc.,   for   the   year   2000.   These  
certificates  were  found  by  the  duly  commissioned  independent  CPA  to  be  faithful  reproductions  of  the  
original  copies,  as  per  his  Supplementary  Report  dated  March  24,  2003.  

As   to   petitioner   CIR's   contention   that   the   Report   of   the   independent   CPA   dated   February   21,   2003  
shows   several   discrepancies,   We   sustain   the   findings   of   the   First   Division.   On   direct   examination,   Mr.  
Ruben  Rubio,  the  duly  commissioned  independent  CPA,  testified  and  explained  that  the  discrepancy  was  
merely   brought   about   by:   (1)   the   difference   in   foreign   exchange   (forex)   rates   at   the   time   the   certificates  
were  recorded  by  respondent  Mirant  and  the  forex  rates  used  at  the  time  the  certificates  were  issued  by  
its  customers;  and  (2)  the  timing  difference  between  the  point  when  respondent  Mirant  recognized  or  
accrued  its  income  and  the  time  when  the  corresponding  creditable  tax  was  withheld  by  its  customers.  .    

24.) SILICON  PHILIPPINES,  INC.  VS.  CIR  

39  
 
…   Two   types   of   input   VAT   credits:   One   is   a   credit/refund   of   input   VAT   attributable   to   zero-­‐rated   sales  
under   Section   112   (A)   of   the   NIRC,   and   the   other   is   a   credit/refund   of   input   VAT   on   capital   goods  
pursuant  to  Section  112  (B)  of  the  same  Code.  

It   has   been   settled   in   Intel   Technology   Philippines,   Inc.   v.   Commissioner   of   Internal   Revenue   that   the  
Authority  To  Print  (ATP)  need  not  be  reflected  or  indicated  in  the  invoices  or  receipts  because  there  is  
no  law  or  regulation  requiring  it.  Thus,  in  the  absence  of  such  law  or  regulation,  failure  to  print  the  ATP  
on  the  invoices  or  receipts  should  not  result  in  the  outright  denial  of  a  claim  or  the  invalidation  of  the  
invoices  or  receipts  for  purposes  of  claiming  a  refund.    

Under   Section   112   (A)   of   the   NIRC,   a   claimant   must   be   engaged   in   sales   which   are   zero-­‐rated   or  
effectively   zero-­‐rated.   To   prove   this,   duly   registered   invoices   or   receipts   evidencing   zero-­‐rated   sales  
must  be  presented.  However,  since  the  ATP  is  not  indicated  in  the  invoices  or  receipts,  the  only  way  to  
verify  whether  the  invoices  or  receipts  are  duly  registered  is  by  requiring  the  claimant  to  present  its  ATP  
from  the  BIR.  Without  this  proof,  the  invoices  or  receipts  would  have  no  probative  value  for  the  purpose  
of  refund.    

All  told,  the  non-­‐presentation  of  the  ATP  and  the  failure  to  indicate  the  word  "zero-­‐rated"  in  the  invoices  
or   receipts   are   fatal   to   a   claim   for   credit/refund   of   input   VAT   on   zero-­‐rated   sales.   The   failure   to   indicate  
the   ATP   in   the   sales   invoices   or   receipts,   on   the   other   hand,   is   not.   In   this   case,   petitioner   failed   to  
present  its  ATP  and  to  print  the  word  "zero-­‐rated"  on  its  export  sales  invoices.  Thus,  we  find  no  error  on  
the  part  of  the  CTA  in  denying  outright  petitioner's  claim  for  credit/refund  of  input  VAT  attributable  to  
its  zero-­‐rated  sales.        

"Capital  goods  or  properties"  refer  to  goods  or  properties  with  estimated  useful  life  greater  than  one  
year  and  which  are  treated  as  depreciable  assets  under  Section  29  (f),    used  directly  or  indirectly  in  the  
production  or  sale  of  taxable  goods  or  services.  

Based   on   the   foregoing   definition,   we   find   no   reason   to   deviate   from   the   findings   of   the   CTA   that  
training   materials,   office   supplies,   posters,   banners,   T-­‐shirts,   books,   and   the   other   similar   items  
reflected  in  petitioner's  Summary  of  Importation  of  Goods  are  not  capital  goods.  

25.) CIR  VS.  FILINVEST  DEVELOPMENT  CORPORATION  

 
As   may   be   gleaned   from   the   definitions   of   the   terms   "controlled"   and   "controlled   taxpayer"   under  
paragraphs   (a)   (3)   and   (4)   of   the   foregoing   provision,   it   would   appear   that   FDC   and   its   affiliates   come  
within   the   purview   of   Section   43   of   the   1993   NIRC   (Now   Section   50   of   RA   8424).   Aside   from   owning  
significant   portions   of   the   shares   of   stock   of   FLI,   FAI,   DSCC   and   FCI,   the   fact   that   FDC   extended  
substantial   sums   of   money   as   cash   advances   to   its   said   affiliates   for   the   purpose   of   providing   them  
financial  assistance  for  their  operational  and  capital  expenditures  seemingly  indicate  that  the  situation  
sought  to  be  addressed  by  the  subject  provision  exists.  From  the  tenor  of  paragraph  (c)  of  Section  179  of  
Revenue   Regulations   No.   2,   it   may   also   be   seen   that   the   CIR's   power   to   distribute,   apportion   or   allocate  
gross   income   or   deductions   between   or   among   controlled   taxpayers   may   be   likewise   exercised   whether  
or   not   fraud   inheres   in   the   transaction/s   under   scrutiny.   For   as   long   as   the   controlled   taxpayer's   taxable  

40  
 
income   is   not   reflective   of   that   which   it   would   have   realized   had   it   been   dealing   at   arm's   length   with   an  
uncontrolled   taxpayer,   the   CIR   can   make   the   necessary   rectifications   in   order   to   prevent   evasion   of  
taxes.  
Despite   the   broad   parameters   provided,   however,   we   find   that   the   CIR's   powers   of   distribution,  
apportionment  or  allocation  of  gross  income  and  deductions  under  Section  43  of  the  1993  NIRC  (Now  
Section   50   of   RA   8424)  and  Section  179  of  Revenue  Regulations  No.  2  does   not   include   the   power   to  
impute  "theoretical  interests"  to  the  controlled  taxpayer's  transactions.  Pursuant  to  Section  28  of  the  
1993  NIRC  (Now  Section  32  of  RA  8424),    after  all,  the  term  "gross  income"  is  understood  to  mean  all  
income  from  whatever  source  derived,  including,  but  not  limited  to  the  following  items:  compensation  
for  services,  including  fees,  commissions,  and  similar  items;  gross  income  derived  from  business;  gains  
derived  from  dealings  in  property;"  interest;  rents;  royalties;  dividends;  annuities;  prizes  and  winnings;  
pensions;   and   partner's   distributive   share   of   the   gross   income   of   general   professional   partnership.    
While  it  has  been  held  that  the  phrase  "from  whatever  source  derived"  indicates  a  legislative  policy  to  
include  all  income  not  expressly  exempted  within  the  class  of  taxable  income  under  our  laws,  the  term  
"income"   has   been   variously   interpreted   to   mean   "cash   received   or   its   equivalent",   "the   amount   of  
money   coming   to   a   person   within   a   specific   time"   or   "something   distinct   from   principal   or   capital."    
Otherwise   stated,   there   must   be   proof   of   the   actual   or,   at   the   very   least,   probable   receipt   or   realization  
by   the   controlled   taxpayer   of   the   item   of   gross   income   sought   to   be   distributed,   apportioned   or  
allocated  by  the  CIR.          
 
The  paucity  of  merit  in  the  CIR's  position  is,  however,  evident  from  the  categorical  language  of  Section  
34  (c)  (2)  of  the  1993  NIRC  which  provides  that  gain  or  loss  will  not  be  recognized  in  case  the  exchange  
of   property   for   stocks   results   in   the   control   of   the   transferee   by   the   transferor,   alone   or   with   other  
transferors  not  exceeding  four  persons.  ..Since  the  term  "control"   is   clearly   defined   as   "ownership   of  
stocks   in   a   corporation   possessing   at   least   fifty-­‐one   percent   of   the   total   voting   power   of   classes   of  
stocks  entitled  to  one  vote"  under  Section  34  (c)  (6)  [c]  of  the  1993  NIRC,  the  exchange  of  property  for  
stocks  between  FDC  FAI  and  FLI  clearly  qualify  as  a  tax-­‐free  transaction  under  paragraph  34  (c)  (2)  of  the  
same  provision.  
 
Against  the  clear  tenor  of  Section  34  (c)  (2)  of  the  1993  NIRC,  the  CIR  cites  then  Supreme  Court  Justice  
Jose   Vitug   and   CTA   Justice   Ernesto   D.   Acosta   who,   in   their   book   Tax   Law   and   Jurisprudence,   opined   that  
said   provision   could   be   inapplicable   if   control   is   already   vested   in   the   exchangor   prior   to   exchange.    
Aside  from  the  fact  that  that  the  10  September  2002  Decision  in  CTA  Case  No.  6182  upholding  the  tax-­‐
exempt   status   of   the   exchange   between   FDC,   FAI   and   FLI   was   penned   by   no   less   than   Justice   Acosta  
himself,    FDC  and  FAI  significantly  point  out  that  said  authors  have  acknowledged  that  the  position  taken  
by  the  BIR  is  to  the  effect  that  "the  law  would  apply  even  when  the  exchangor  already  has  control  of  the  
corporation  at  the  time  of  the  exchange."      
 
Inasmuch  as  the  combined  ownership  of  FDC  and  FAI  of  FLI's  outstanding  capital  stock  adds  up  to  a  total  
of  70.99%,  it  stands  to  reason  that  neither  of  said  transferors  can  be  held  liable  for  deficiency  income  
taxes  the  CIR  assessed  on  the  supposed  gain  which  resulted  from  the  subject  transfer.  
 

41  
 
Applying  the  aforesaid  provisions  to  the  case  at  bench,  we  find  that  the  instructional  letters  as  well  as  
the  journal  and  cash  vouchers  evidencing  the  advances  FDC  extended  to  its  affiliates  in  1996  and  1997  
qualified   as   loan   agreements   upon   which   documentary   stamp   taxes   may   be   imposed.   In   keeping   with  
the   caveat   attendant   to   every   BIR   Ruling   to   the   effect   that   it   is   valid   only   if   the   facts   claimed   by   the  
taxpayer  are  correct,  we  find  that  the  CA  reversibly  erred  in  utilizing  BIR  Ruling  No.  116-­‐98,  dated  30  July  
1998  which,  strictly  speaking,  could  be  invoked  only  by  ASB  Development  Corporation,  the  taxpayer  who  
sought  the  same.    
 
In  its  appeal  before  the  CA,  the  CIR  argued  that  the  foregoing  ruling  was  later  modified  in  BIR  Ruling  No.  
108-­‐99   dated   15   July   1999,   which   opined   that   inter-­‐office   memos   evidencing   lendings   or   borrowings  
extended  by  a  corporation  to  its  affiliates  are  akin  to  promissory  notes,  hence,  subject  to  documentary  
stamp   taxes.     In   brushing   aside   the   foregoing   argument,   however,   the   CA   applied   Section   246   of   the  
1993   NIRC   from   which   proceeds   the   settled   principle   that   rulings,   circulars,   rules   and   regulations  
promulgated  by  the  BIR  have  no   retroactive   application   if   to   so   apply   them   would   be   prejudicial   to   the  
taxpayers.     Admittedly,   this   rule   does   not   apply:   (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;  or  (c)  where  the  taxpayer  acted  in  bad  faith.    Not  
being   the   taxpayer   who,   in   the   first   instance,   sought   a   ruling   from   the   CIR,   however,   FDC   cannot  
invoke  the  foregoing  principle  on  non-­‐retroactivity  of  BIR  rulings.  
 
Viewed   in   the   light   of   the   foregoing   considerations,   we   find   that   both   the   CTA   and   the   CA   erred   in  
invalidating  the  assessments  issued  by  the  CIR  for  the  deficiency  documentary  stamp  taxes  due  on  the  
instructional  letters  as  well  as  the  journal  and  cash  vouchers  evidencing  the  advances  FDC  extended  to  
its  affiliates  in  1996  and  1997.  
 
 
26.) DIAZ  VS.  SECRETARY  OF  FINANCE  
 
In  sum,  fees   paid   by   the   public   to   tollway   operators   for   use   of   the   tollways,   are   not   taxes  in  any  sense.  
A   tax   is   imposed   under   the   taxing   power   of   the   government   principally   for   the   purpose   of   raising  
revenues   to   fund   public   expenditures.     Toll   fees,   on   the   other   hand,   are   collected   by   private   tollway  
operators  as  reimbursement  for  the  costs  and  expenses  incurred  in  the  construction,  maintenance  and  
operation  of  the  tollways,  as  well  as  to  assure  them  a  reasonable  margin  of  income.  Although  toll  fees  
are   charged   for   the   use   of   public   facilities,   therefore,   they   are   not   government   exactions   that   can   be  
properly  treated  as  a  tax.  Taxes  may  be  imposed  only  by  the  government  under  its  sovereign  authority,  
toll  fees  may  be  demanded  by  either  the  government  or  private  individuals  or  entities,  as  an  attribute  of  
ownership.    
 
Parenthetically,  VAT  on  tollway  operations  cannot  be  deemed  a  tax  on  tax  due  to  the  nature  of  VAT  as  
an  indirect  tax.  In  indirect  taxation,  a  distinction  is  made  between  the  liability  for  the  tax  and  burden  of  
the  tax.  The  seller  who  is  liable  for  the  VAT  may  shift  or  pass  on  the  amount  of  VAT  it  paid  on  goods,  

42  
 
properties   or   services   to   the   buyer.   In   such   a   case,   what   is   transferred   is   not   the   seller's   liability   but  
merely  the  burden  of  the  VAT.    
 
Thus,  the  seller  remains  directly  and  legally  liable  for  payment  of  the  VAT,  but  the  buyer  bears  its  burden  
since  the  amount  of  VAT  paid  by  the  former  is  added  to  the  selling  price.  Once  shifted,  the  VAT  ceases  to  
be  a  tax    and  simply  becomes  part  of  the  cost  that  the  buyer  must  pay  in  order  to  purchase  the  good,  
property  or  service.          
 
Consequently,   VAT   on   tollway   operations   is   not   really   a   tax   on   the   tollway   user,   but   on   the   tollway  
operator.  Under  Section  105  of  the  Code,    VAT  is  imposed  on  any  person   who,  in  the  course  of  trade  or  
business,   sells   or   renders   services   for   a   fee.   In   other   words,   the   seller   of   services,   who   in   this   case   is   the  
tollway  operator,  is  the  person  liable  for  VAT.  The  latter  merely  shifts  the  burden  of  VAT  to  the  tollway  
user  as  part  of  the  toll  fees.  
 
For   this   reason,   VAT   on   tollway   operations   cannot   be   a   tax   on   tax   even   if   toll   fees   were   deemed   as   a  
"user's   tax."   VAT   is   assessed   against   the   tollway   operator's   gross   receipts   and   not   necessarily   on   the   toll  
fees.  Although  the  tollway  operator  may  shift  the  VAT  burden  to  the  tollway  user,  it  will  not  make  the  
latter  directly  liable  for  the  VAT.  The  shifted  VAT  burden  simply  becomes  part  of  the  toll  fees  that  one  
has  to  pay  in  order  to  use  the  tollways.    
 
Petitioner   has   no   personality   to   invoke   the   non-­‐impairment   of   contract   clause   on   behalf   of   private  
investors   in   the   tollway   projects.   She   will   neither   be   prejudiced   by   nor   be   affected   by   the   alleged  
diminution  in  return  of  investments  that  may  result  from  the  VAT  imposition.  She  has  no  interest  at  all  in  
the   profits   to   be   earned   under   the   TOAs.   The   interest   in   and   right   to   recover   investments   solely   belongs  
to  the  private  tollway  investors.          
 
Besides,  her  allegation  that  the  private  investors'  rate  of  recovery  will  be  adversely  affected  by  imposing  
VAT  on  tollway  operations  is  purely  speculative.  Equally  presumptuous  is  her  assertion  that  a  stipulation  
in  the  TOAs  known  as  the  Material  Adverse  Grantor  Action  will  be  activated  if  VAT  is  thus  imposed.  The  
Court   cannot   rule   on   matters   that   are   manifestly   conjectural.   Neither   can   it   prohibit   the   State   from  
exercising  its  sovereign  taxing  power  based  on  uncertain,  prophetic  grounds.  
 
Administrative   feasibility   is   one   of   the   canons   of   a   sound   tax   system.   It   simply   means   that   the   tax  
system  should  be  capable  of  being  effectively  administered  and  enforced  with  the  least  inconvenience  
to  the  taxpayer.  Non-­‐observance  of  the  canon,  however,  will  not  render  a  tax  imposition  invalid  "except  
to   the   extent   that   specific   constitutional   or   statutory   limitations   are   impaired."   34   Thus,   even   if   the  
imposition   of   VAT   on   tollway   operations   may   seem   burdensome   to   implement,   it   is   not   necessarily  
invalid  unless  some  aspect  of  it  is  shown  to  violate  any  law  or  the  Constitution.          
 
27.) PRUDENTIAL  BANK  VS.  CIR  
 
Petitioner's  Savings  Account  Plus  is  subject  to  Documentary  Stamp  Tax.      

43  
 
  
A   certificate  of  deposit   is   defined   as   "a   written   acknowledgment   by   a   bank   or   banker   of   the   receipt   of   a  
sum  of  money  on  deposit  which  the  bank  or  banker  promises  to  pay  to  the  depositor,  to  the  order  of  the  
depositor,  or  to  some  other  person  or  his  order,  whereby  the  relation  of  debtor  and  creditor  between  
the  bank  and  the  depositor  is  created."    
 
 
28.) CITY  OF  PASIG  VS.  REPUBLIC  OF  THE  PHILIPPINES  
 
In   the   present   case,   the   parcels   of   land   are   not   properties   of   public   dominion   because   they   are   not  
"intended  for  public  use,  such  as  roads,  canals,  rivers,  torrents,  ports  and  bridges  constructed  by  the  
State,   banks,   shores,   roadsteads."   Neither   are   they   "intended   for   some   public   service   or   for   the  
development   of   the   national   wealth."   MPLDC   leases   portions   of   the   properties   to   different   business  
establishments.   Thus,   the   portions   of   the   properties   leased   to   taxable   entities   are   not   only   subject   to  
real  estate  tax,  they  can  also  be  sold  at  public  auction  to  satisfy  the  tax  delinquency.        
 
In  sum,  only  those  portions  of  the  properties  leased  to  taxable  entities  are  subject  to  real  estate  tax  for  
the   period   of   such   leases.   Pasig   City   must,   therefore,   issue   to   respondent   new   real   property   tax  
assessments   covering   the   portions   of   the   properties   leased   to   taxable   entities.   If   the   Republic   of   the  
Philippines   fails   to   pay   the   real   property   tax   on   the   portions   of   the   properties   leased   to   taxable  
entities,  then  such  portions  may  be  sold  at  public  auction  to  satisfy  the  tax  delinquency.  
 
29.) RIZAL  COMMERCIAL  BANKING  CORPORATION  VS.  CIR  
 
Under  Article  1431  of  the  Civil  Code,  the  doctrine   of   estoppel  is  anchored  on  the  rule  that  "an  admission  
or   representation   is   rendered   conclusive   upon   the   person   making   it,   and   cannot   be   denied   or   disproved  
as   against   the   person   relying   thereon."   A   party   is   precluded   from   denying   his   own   acts,   admissions   or  
representations  to  the  prejudice  of  the  other  party  in  order  to  prevent  fraud  and  falsehood.      
 
Estoppel   is   clearly   applicable   to   the   case   at   bench.   RCBC,   through   its   partial   payment   of   the   revised  
assessments   issued   within   the   extended   period   as   provided   for   in   the   questioned   waivers,   impliedly  
admitted   the   validity   of   those   waivers.   Had  petitioner  truly  believed  that  the  waivers  were  invalid  and  
that   the   assessments   were   issued   beyond   the   prescriptive   period,   then   it   should   not   have   paid   the  
reduced   amount   of   taxes   in   the   revised   assessment.   RCBC's   subsequent   action   effectively   belies   its  
insistence  that  the  waivers  are  invalid.  The  records  show  that  on  December  6,  2000,  upon  receipt  of  the  
revised   assessment,   RCBC   immediately   made   payment   on   the   uncontested   taxes.   Thus,   RCBC   is  
estopped  from  questioning  the  validity  of  the  waivers.  To  hold  otherwise  and  allow  a  party  to  gainsay  
its   own   act   or   deny   rights   which   it   had   previously   recognized   would   run   counter   to   the   principle   of  
equity  which  this  institution  holds  dear.    
 

44  
 
In   Chamber   of   Real   Estate   and   Builders'   Associations,   Inc.   v.   The   Executive   Secretary,   the   Court   has  
explained  that  the  purpose  of  the  withholding  tax  system  is  three-­‐fold:  (1)  to  provide  the  taxpayer  with  
a  convenient  way  of  paying  his  tax  liability;  (2)  to  ensure  the  collection  of  tax,  and  (3)  to  improve  the  
government's   cashflow.   Under   the   withholding   tax   system,   the   payor   is   the   taxpayer   upon   whom   the  
tax  is  imposed,  while  the  withholding  agent  simply  acts  as  an  agent  or  a  collector  of  the  government  to  
ensure  the  collection  of  taxes.    
It  is,  therefore,  indisputable  that  the  withholding  agent  is  merely  a  tax  collector  and  not  a  taxpayer.  
 
Based  on  the  foregoing,  the  liability  of  the  withholding  agent  is  independent  from  that  of  the  taxpayer.  
The   former   cannot   be   made   liable   for   the   tax   due   because   it   is   the   latter   who   earned   the   income  
subject  to  withholding  tax.  The  withholding  agent  is  liable  only  insofar  as  he  failed  to  perform  his  duty  
to  withhold  the  tax  and  remit  the  same  to  the  government.  The  liability  for  the  tax,  however,  remains  
with  the  taxpayer  because  the  gain  was  realized  and  received  by  him.  
 
While  the  payor-­‐borrower  can  be  held  accountable  for  its  negligence  in  performing  its  duty  to  withhold  
the  amount  of  tax  due  on  the  transaction,  RCBC,  as  the  taxpayer  and  the  one  which  earned  income  on  
the  transaction,  remains  liable  for  the  payment  of  tax  as  the  taxpayer  shares  the  responsibility  of  making  
certain  that  the  tax  is  properly  withheld  by  the  withholding  agent,  so  as  to  avoid  any  penalty  that  may  
arise  from  the  non-­‐payment  of  the  withholding  tax  due.          
 
RCBC  cannot  evade  its  liability  for  FCDU  Onshore  Tax  by  shifting  the  blame  on  the  payor-­‐borrower  as  
the  withholding  agent.  As  such,  it  is  liable  for  payment  of  deficiency  onshore  tax  on  interest  income  
derived  from  foreign  currency  loans,  pursuant  to  the  Tax  Code.  
 
30.) COMMISSIONER   OF   INTERNAL   REVENUE   VS.   FORTUNE   TOBACCO  
CORPORATION  
 
The  omission  in  the  law  in  fact  reveals  the  legislative  intent  not  to  adopt  the  "higher  tax  rule."  
 
The   CIR   claims   that   the   proviso   in   Section   1   of   RR   17-­‐99   was   patterned   after   the   third   paragraph   of  
Section   145   (c)   of   the   1997   Tax   Code.   Since   the   law's   intent   was   to   increase   revenue,   it   found   no   reason  
not   to   apply   the   same   "higher   tax   rule"   to   excise   taxes   due   after   the   transition   period   despite   the  
absence  of  a  similar  text  in  the  wording  of  Section  145  (c).  What  the  CIR  misses  in  his  argument  is  that  
he   applied   the   rule   not   only   for   cigarettes,   but   also   for   cigars,   distilled   spirits,   wines   and   fermented  
liquors:  
“Provided,   however,   that   the   new   specific   tax   rate   for   any   existing   brand   of   cigars   [and]  
cigarettes   packed   by   machine,   distilled   spirits,   wines   and   fermented   liquors   shall   not   be   lower  
than  the  excise  tax  that  is  actually  being  paid  prior  to  January  1,  2000.”  
 
When  the  pertinent  provisions  of  the  1997  Tax  Code  imposing  excise  taxes  on  these  products  are  read,  
however,   there   is   nothing   similar   to   the   third   paragraph   of   Section   145   (c)   that   can   be   found   in   the  

45  
 
provisions  imposing  excise  taxes  on  distilled  spirits  (Section  141)    and  wines  (Section  142).    In  fact,  the  
rule  will  also  not  apply  to  cigars  as  these  products  fall  under  Section  145  (a).    
 
Evidently,   the   1997   Tax   Code's   provisions   on   excise   taxes   have   omitted   the   adoption   of   certain   tax  
measures.  To  our  mind,  these  omissions  are  telling  indications  of  the  intent  of  Congress  not  to  adopt  the  
omitted   tax   measures;   they   are   not   simply   unintended   lapses   in   the   law's   wording   that,   as   the   CIR  
claims,  are  nevertheless  covered  by  the  spirit  of  the  law.  Had  the  intention  of  Congress  been  solely  to  
increase   revenue   collection,   a   provision   similar   to   the   third   paragraph   of   Section   145   (c)   would   have  
been  incorporated  in  Sections  141  and  142  of  the  1997  Tax  Code.  This,  however,  is  not  the  case.  
 
We   note   that   Congress   was   not   unaware   that   the   "higher   tax   rule"   is   a   proviso   that   should   ideally   apply  
to   the   increase   after   the   transition   period   (as   the   CIR   embodied   in   the   proviso   in   Section   1   of   RR   17-­‐99).  
During  the  deliberations  for  the  law  amending  Section  145  of  the  1997  Tax  Code  (RA  9334),  Rep.  Jesli  
Lapuz  adverted  to  the  "higher  tax  rule"  after  December  31,  1999  when  he  stated:          
 
“This  bill  serves  as  a  catch-­‐up  measure  as  government  attempts  to  collect  additional  revenues  
due  it  since  2001.  Modifications  are  necessary  indeed  to  capture  the  loss  proceeds  and  prevent  
further  erosion  in  revenue  base.  .  .  .  .  As  it  is,  it  plugs  a  major  loophole  in  the  ambiguity  of  the  
law   as   evidenced   by   recent   disputes   resulting   in   the   government   being   ordered   by   the   courts   to  
refund   taxpayers.   This   bill   clarifies   that   the   excise   tax   due   on   the   products   shall   not   be   lower  
than  the  tax  due  as  of  the  date  immediately  prior  to  the  effectivity  of  the  act  or  the  excise  tax  
due  as  of  December  31,  1999.”    
This  remark  notwithstanding,  the  final  version  of  the  bill  that  became  RA  9334  contained  no  provision  
similar  to  the  proviso  in  Section  1  of  RR  17-­‐99  that  imposed  the  tax  due  as  of  December  31,  1999  if  this  
tax  is  higher  than  the  new  specific  tax  rates.  Thus,  it  appears  that  despite  its  awareness  of  the  need  to  
protect   the   increase   of   excise   taxes   to   increase   government   revenue,   Congress   ultimately   decided  
against  adopting  the  "higher  tax  rule".  (Note:  The  claim  for  refund  by  the  Petitioner  was  granted)  
 
31.) COMMISSIONER  OF  INTERNAL  REVENUE  VS.  SAN  MIGUEL  CORPORATION  
 
It  bears  reiterating  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.     In   case   of   discrepancy   between   the   basic   law   and   a   rule   or   regulation   issued   to  
implement  said  law,  the  basic  law  prevails  as  said  rule  or  regulation  cannot  go  beyond  the  terms  and  
provisions  of  the  basic  law.    It  must  be  stressed  that  the  objective  of  issuing  BIR  Revenue  Regulations  
is  to  establish  parameters  or  guidelines  within  which  our  tax  laws  should  be  implemented,  and  not  to  
amend  or  modify  its  substantive  meaning  and  import.    
 
32.) LVM   CONSTRUCTION   CORPORATION   VS.   F.T.   SANCHAEZ/SOKOR/KIMWA  
(JOINT  VENTURE)  
 

46  
 
In  the  absence  of  any  stipulation  regarding  the  Joint  Venture's  sharing  in  the  VAT  deducted  and  withheld  
by  the  DPWH  from  its  payment  on  the  main  contract,  the  CIAC  and  the  CA  correctly  ruled  that  LVM  has  
no   basis   in   offsetting   the   amounts   of   said   tax   from   the   retention   still   in   its   possession.   VAT  is  a  uniform  
tax  levied  on  every  importation  of  goods,  whether  or  not  in  the  course  of  trade  or  business,  or  imposed  
on  each  sale,  barter,  exchange  or  lease  of  goods  or  properties  or  on  each  rendition  of  services  in  the  
course   of   trade   or   business.     It   is   a   tax   on   transactions,   imposed   at   every   stage   of   the   distribution  
process  on  the  sale,  barter,  exchange  of  goods  or  property,  and  on  the  performance  of  services,  even  
in  the  absence  of  profit  attributable  thereto.    As  an  indirect  tax  that  may  be  shifted  or  passed  on  to  the  
buyer,   transferee   or   lessee   of   the   goods,   properties   or   services,   VAT   should   be   understood   not   in   the  
context  of  the  person  or  entity  that  is  primarily,  directly  and  legally  liable  for  its  payment,  but  in  terms  of  
its  nature  as  a  tax  on  consumption.    
 
Neither  do  we  find  merit  in  LVM's  harping  over  the  lack  of  showing  in  the  record  that  the  Joint  Venture  
has   actually   paid   its   liability   for   VAT.   For   this   purpose,   LVM   insists   that   the   Official   Receipts   for   its  
payments  on  the  Joint  Venture's  billing  were  issued  by  respondent  F.  Sanchez  Construction  and  that  the  
Monthly  VAT  Declarations  were,  in  fact,  filed  by  Fortunato  Sanchez,  Sr.  However,  the  evidence  on  record  
is   to   the   effect   that,   failing   to   register   with   the   Securities   and   Exchange   Commission   (SEC)   and   to   obtain  
a  Mayor's  Permit  and  authorization  from  the  BIR  to  print  its  official  receipts,  the  Joint  Venture  apprised  
LVM   of   its   intention   to   use   respondent   F.   Sanchez   Construction's   BIR-­‐registered   receipts.   Aside   from  
being  indicative  of  its  knowledge  of  the  foregoing  circumstances,  LVM's  previous  unqualified  acceptance  
of  said  official  receipts  should,  clearly,  bar  the  belated  exceptions  it  now  takes  with  respect  thereto.  A  
party,   having   performed   affirmative   acts   upon   which   another   person   based   his   subsequent   actions,  
cannot  thereafter  refute  his  acts  or  renege  on  the  effects  of  the  same,  to  the  prejudice  of  the  latter.    
 
To  recapitulate,  LVM,  as  Contractor  for  the  Project,  was  liable  for  the  8.5%  VAT  which  was  withheld  by  
the  DPWH  from  its  payments,  pursuant  to  Section  114  (C)  of  the  NIRC.  Absent  any  agreement  to  that  
effect,   LVM   cannot   deduct   the   amounts   thus   withheld   from   the   sums   it   still   owed   the   Joint   Venture  
which,  as  Sub-­‐Contractor  of  30%  of  the  Project,  had  its  own  liability  for  10%  VAT  insofar  as  the  sums  
paid   for   the   sub-­‐contracted   works   were   concerned.   Although   the   burden   to   pay   an   indirect   tax   like  
VAT  can,  admittedly,  be  passed  on  to  the  purchaser  of  the  goods  or  services,  it  bears  emphasizing  that  
the  liability  to  pay  the  same  remains  with  the  manufacturer  or  seller  like  LVM  and  the  Joint  Venture.  
In   the   same   manner   that   LVM   is   liable   for   the   VAT   due   on   the   payments   made   by   the   DPWH   pursuant  
to   the   contract   on   the   Project,   the   Joint   Venture   is,   consequently,   liable   for   the   VAT   due   on   the  
payments  made  by  LVM  pursuant  to  the  parties'  Sub-­‐Contract.  
 
33.) COMMISSIONER  OF  INTERNAL  REVENUE  VS.  GONZALEZ,  ET  AL.  
 
For   the   crime   of   tax   evasion   in   particular,   compliance   by   the   taxpayer   with   such   subpoena,   if   any   had  
been  issued,  is  irrelevant.  As  we  held  in  Ungab  v.  Cusi,  Jr.,    "[t]he   crime   is   complete   when   the   [taxpayer]  
has  .  .  .  knowingly  and  willfully  filed  [a]  fraudulent  [return]  with  intent  to  evade  and  defeat  .  .  .  the  
tax."    

47  
 
  
Private   respondents'   assertions   regarding   the   qualifications   of   the   "informer"   of   the   Bureau   deserve  
scant  consideration.  We  have  held  that  the  lack   of   consent   of   the   taxpayer   under   investigation   does  
not   imply   that   the   BIR   obtained   the   information   from   third   parties   illegally   or   that   the   information  
received  is  false  or  malicious.  Nor  does  the  lack  of  consent  preclude  the  BIR  from  assessing  deficiency  
taxes  on  the  taxpayer  based  on  the  documents.    In  the  same  vein,  herein  private  respondents  cannot  be  
allowed  to  escape  criminal  prosecution  under  Sections  254  and  255  of  the  NIRC  by  mere  imputation  of  a  
"fictitious"   or   disqualified   informant   under   Section   282   simply   because   other   than   disclosure   of   the  
official   registry   number   of   the   third   party   "informer,"   the   Bureau   insisted   on   maintaining   the  
confidentiality  of  the  identity  and  personal  circumstances  of  said  "informer."        
 
Tax   amnesty   is   a   general   pardon   to   taxpayers   who   want   to   start   a   clean   tax   slate.   It   also   gives   the  
government   a   chance   to   collect   uncollected   tax   from   tax   evaders   without   having   to   go   through   the  
tedious   process   of   a   tax   case.     Even   assuming   arguendo   that   the   issuance   of   RR   No.   2-­‐99   is   in   the   nature  
of   tax   amnesty,   it   bears   noting   that   a   tax   amnesty,   much   like   a   tax   exemption,   is   never   favored   nor  
presumed  in  law  and  if  granted  by  statute,  the  terms  of  the  amnesty  like  that  of  a  tax  exemption  must  
be  construed  strictly  against  the  taxpayer  and  liberally  in  favor  of  the  taxing  authority.    
 
34.) ALLIED  BANKING  CORPORATION  VS.  CIR  
 
The  Commissioner  of  Internal  Revenue  (CIR)  as  well  as  his  duly  authorized  representative  must  indicate  
clearly   and   unequivocally   to   the   taxpayer   whether   an   action   constitutes   a   final   determination   on   a  
disputed   assessment.     Words   must   be   carefully   chosen   in   order   to   avoid   any   confusion   that   could  
adversely  affect  the  rights  and  interest  of  the  taxpayer.  
 
Section   7   of   RA   9282   expressly   provides   that   the   CTA   exercises   exclusive   appellate   jurisdiction   to   review  
by  appeal  decisions  of  the  CIR  in  cases  involving  disputed  assessments.  
 
The   word   "decisions"   in   the   above   quoted   provision   of   RA   9282   has   been   interpreted   to   mean   the  
decisions  of  the  CIR  on  the  protest  of  the  taxpayer  against  the  assessments.    Corollary  thereto,  Section  
228   of   the   National   Internal   Revenue   Code   (NIRC)   provides   for   the   procedure   for   protesting   an  
assessment.    
 
Moreover,   we   cannot   ignore   the   fact   that   in   the   Formal   Letter   of   Demand   with   Assessment   Notices,  
respondent   used   the   word   "appeal"   instead   of   "protest",   "reinvestigation",   or   "reconsideration".  
Although  there  was  no  direct  reference  for  petitioner  to  bring  the  matter  directly  to  the  CTA,  it  cannot  
be  denied  that  the  word  "appeal"  under  prevailing  tax  laws  refers  to  the  filing  of  a  Petition  for  Review  
with  the  CTA.  As  aptly  pointed  out  by  petitioner,  under  Section  228  of  the  NIRC,  the  terms  "protest",  
"reinvestigation"   and   "reconsideration"   refer   to   the   administrative   remedies   a   taxpayer   may   take  
before  the  CIR,  while  the  term  "appeal"  refers  to  the  remedy  available  to  the  taxpayer  before  the  CTA.  
Section   9   of   RA   9282,   amending   Section   11   of   RA   1125,   27   likewise   uses   the   term   "appeal"   when  

48  
 
referring   to   the   action   a   taxpayer   must   take   when   adversely   affected   by   a   decision,   ruling,   or   inaction  
of   the   CIR.   As   we   see   it   then,   petitioner   in   appealing   the   Formal   Letter   of   Demand   with   Assessment  
Notices  to  the  CTA  merely  took  the  cue  from  respondent.  Besides,  any  doubt  in  the  interpretation  or  
use   of   the   word   "appeal"   in   the   Formal   Letter   of   Demand   with   Assessment   Notices   should   be   resolved  
in  favor  of  petitioner,  and  not  the  respondent  who  caused  the  confusion.          
 
To   be   clear,   we   are   not   disregarding   the   rules   of   procedure   under   Section   228   of   the   NIRC,   as  
implemented  by  Section  3  of  BIR  Revenue  Regulations  No.  12-­‐99.    It  is  the  Formal  Letter  of  Demand  and  
Assessment   Notice   that   must   be   administratively   protested   or   disputed   within   30   days,   and   not   the  
PAN.   Neither   are   we   deviating   from   our   pronouncement   in   St.   Stephen's   Chinese   Girl's   School   v.  
Collector   of   Internal   Revenue,     that  the  counting  of  the  30  days  within  which  to  institute  an  appeal  in  
the  CTA  commences  from  the  date  of  receipt  of  the  decision  of  the  CIR  on  the  disputed  assessment,  not  
from  the  date  the  assessment  was  issued.  
 
What  we  are  saying  in  this  particular  case  is  that,  the  Formal  Letter  of  Demand  with  Assessment  Notices  
which   was   not   administratively   protested   by   the   petitioner   can   be   considered   a   final   decision   of   the   CIR  
appealable   to   the   CTA   because   the   words   used,   specifically   the   words   "final   decision"   and   "appeal",  
taken   together   led   petitioner   to   believe   that   the   Formal   Letter   of   Demand   with   Assessment   Notices   was  
in   fact   the   final   decision   of   the   CIR   on   the   letter-­‐protest   it   filed   and   that   the   available   remedy   was   to  
appeal  the  same  to  the  CTA.          
 
35.) UNITED  AIRLINES,  INC.  VS.  CIR  
 
In   South   African   Airways   v.   Commissioner   of   Internal   Revenue,   20   we   ruled   that   the   correct  
interpretation  of  the  said  provisions  is  that,  if  an  international  air  carrier  maintains  flights  to  and  from  
the  Philippines,  it  shall  be  taxed  at  the  rate  of  2  1/2%  of  its  GPB,  while  international  air  carriers  that  do  
not   have   flights   to   and   from   the   Philippines   but   nonetheless   earn   income   from   other   activities   in   the  
country  will  be  taxed  at  the  rate  of  32%  of  such  income.  
 
In   several   instances   prior   to   the   instant   case,   we   have   already   made   the   pronouncement   that   taxes  
cannot  be  subject  to  compensation  for  the  simple  reason  that  the  government  and  the  taxpayer  are  not  
creditors  and  debtors  of  each  other.  There  is  a  material  distinction  between  a  tax  and  debt.  Debts  are  
due  to  the  Government  in  its  corporate  capacity,  while  taxes  are  due  to  the  Government  in  its  sovereign  
capacity.  We  find  no  cogent  reason  to  deviate  from  the  aforementioned  distinction.  
 
We  have  consistently  ruled  that  there  can  be  no  off-­‐setting  of  taxes  against  the  claims  that  the  taxpayer  
may   have   against   the   government.   A   person   cannot   refuse   to   pay   a   tax   on   the   ground   that   the  
government  owes  him  an  amount  equal  to  or  greater  than  the  tax  being  collected.  The  collection  of  a  
tax  cannot  await  the  results  of  a  lawsuit  against  the  government.  
 

49  
 
Commissioner   of   Internal   Revenue   v.   Court   of   Tax   Appeals,   however,   granted   the   offsetting   of   a   tax  
refund  with  a  tax  deficiency  in  this  wise:  
 
“Further,  it  is  also  worth  noting  that  the  Court  of  Tax  Appeals  erred  in  denying  petitioner's  supplemental  
motion   for   reconsideration   alleging   bringing   to   said   court's   attention   the   existence   of   the   deficiency  
income   and   business   tax   assessment   against   Citytrust.   The   fact   of   such   deficiency   assessment   is  
intimately  related  to  and  inextricably  intertwined  with  the  right  of  respondent  bank  to  claim  for  a  tax  
refund  for  the  same  year.  To  award  such  refund  despite  the  existence  of  that  deficiency  assessment  is  
an  absurdity  and  a  polarity  in  conceptual  effects.  Herein  private  respondent  cannot  be  entitled  to  refund  
and  at  the  same  time  be  liable  for  a  tax  deficiency  assessment  for  the  same  year.  
 
The  grant   of   a   refund   is   founded   on   the   assumption   that   the   tax   return   is   valid,  that  is,  the  facts  stated  
therein   are   true   and   correct.   The   deficiency   assessment,   although   not   yet   final,   created   a   doubt   as   to  
and  constitutes  a  challenge  against  the  truth  and  accuracy  of  the  facts  stated  in  said  return  which,  by  
itself  and  without  unquestionable  evidence,  cannot  be  the  basis  for  the  grant  of  the  refund.          
 
Moreover,  to  grant  the  refund  without  determination  of  the  proper  assessment  and  the  tax  due  would  
inevitably   result   in   multiplicity   of   proceedings   or   suits.   If   the   deficiency   assessment   should   subsequently  
be   upheld,   the   Government   will   be   forced   to   institute   anew   a   proceeding   for   the   recovery   of  
erroneously   refunded   taxes   which   recourse   must   be   filed   within   the   prescriptive   period   of   ten   years  
after   discovery   of   the   falsity,   fraud   or   omission   in   the   false   or   fraudulent   return   involved.   This   would  
necessarily  require  and  entail  additional  efforts  and  expenses  on  the  part  of  the  Government,  impose  a  
burden   on   and   a   drain   of   government   funds,   and   impede   or   delay   the   collection   of   much-­‐needed  
revenue  for  governmental  operations.          
 
Thus,  to  avoid  multiplicity  of  suits  and  unnecessary  difficulties  or  expenses,  it  is  both  logically  necessary  
and   legally   appropriate   that   the   issue   of   the   deficiency   tax   assessment   against   Citytrust   be   resolved  
jointly   with   its   claim   for   tax   refund,   to   determine   once   and   for   all   in   a   single   proceeding   the   true   and  
correct  amount  of  tax  due  or  refundable.  
 
We   must   emphasize   that   tax   refunds,   like   tax   exemptions,   are   construed   strictly   against   the   taxpayer  
and  liberally  in  favor  of  the  taxing  authority.    In  any  event,  petitioner  has  not  discharged  its  burden  of  
proof   in   establishing   the   factual   basis   for   its   claim   for   a   refund   and   we   find   no   reason   to   disturb   the  
ruling   of   the   CTA.   It   has   been   a   long-­‐standing   policy   and   practice   of   the   Court   to   respect   the   conclusions  
of  quasi-­‐judicial  agencies  such  as  the  CTA,  a  highly  specialized  body  specifically  created  for  the  purpose  
of  reviewing  tax  cases.    
 
36.) SOUTH  AFRICAN  AIRWAYS  VS.  CIR  
 
In  Commissioner  of  Internal  Revenue  v.  British  Overseas  Airways  Corporation  (British  Overseas  Airways),    
which  was  decided  under  similar  factual  circumstances,  this  Court  ruled  that  off-­‐line  air  carriers  having  

50  
 
general   sales   agents   in   the   Philippines   are   engaged   in   or   doing   business   in   the   Philippines   and   that   their  
income  from  sales  of  passage  documents  here  is  income  from  within  the  Philippines.  Thus,  in  that  case,  
we  held  the  off-­‐line  air  carrier  liable  for  the  32%  tax  on  its  taxable  income.  
 
In   the   instant   case,   the   general   rule   is   that   resident   foreign   corporations   shall   be   liable   for   a   32%  
income  tax  on  their  income  from  within  the  Philippines,  except  for  resident  foreign  corporations  that  
are   international   carriers   that   derive   income   "from   carriage   of   persons,   excess   baggage,   cargo   and  
mail  originating  from  the  Philippines"  which  shall  be  taxed  at  2  1/2%  of  their  Gross  Philippine  Billings.  
Petitioner,   being   an   international   carrier   with   no   flights   originating   from   the   Philippines,   does   not   fall  
under  the  exception.  As  such,  petitioner  must  fall  under  the  general  rule.  This  principle  is  embodied  in  
the   Latin   maxim,   exception   firmat   regulam   in   casibus   non   exceptis,   which   means,   a   thing   not   being  
excepted  must  be  regarded  as  coming  within  the  purview  of  the  general  rule.    
   
To   reiterate,   the   correct   interpretation   of   the   above   provisions   is   that,   if   an   international   air   carrier  
maintains   flights   to   and   from   the   Philippines,   it   shall   be   taxed   at   the   rate   of   2   1/2%   of   its   Gross  
Philippine  Billings,  while  international  air  carriers  that  do  not  have  flights  to  and  from  the  Philippines  
but   nonetheless   earn   income   from   other   activities   in   the   country   will   be   taxed   at   the   rate   of   32%   of  
such  income.          
 
37.) CIR  VS.  SM  PRIME  HOLDINGS,  INC.  
 
Since   the   activity   of   showing   motion   pictures,   films   or   movies   by   cinema/theater   operators   or  
proprietors  is  not  included  in  the  enumeration,  it  is  incumbent  upon  the  court  to  the  determine  whether  
such   activity   falls   under   the   phrase   "similar   services."   The   intent   of   the   legislature   must   therefore   be  
ascertained.    The  legislature  never  intended  operators  or  proprietors  of  cinema/theater  houses  to  be  
covered  by  VAT.  
 
These  reveal  the  legislative  intent  not  to  impose  VAT  on  persons  already  covered  by  the  amusement  tax.  
This   holds   true   even   in   the   case   of   cinema/theater   operators   taxed   under   the   LGC   of   1991   precisely  
because  the  VAT  law  was  intended  to  replace  the  percentage  tax  on  certain  services.  The  mere  fact  that  
they  are  taxed  by  the  local  government  unit  and  not  by  the  national  government  is  immaterial.  The  Local  
Tax   Code,   in   transferring   the   power   to   tax   gross   receipts   derived   by   cinema/theater   operators   or  
proprietor   from   admission   tickets   to   the   local   government,   did   not   intend   to   treat   cinema/theater  
houses  as  a  separate  class.  No  distinction  must,  therefore,  be  made  between  the  places  of  amusement  
taxed  by  the  national  government  and  those  taxed  by  the  local  government.          
 
To   hold   otherwise   would   impose   an   unreasonable   burden   on   cinema/theater   houses   operators   or  
proprietors,   who   would   be   paying   an   additional   10%   55   VAT   on   top   of   the   30%   amusement   tax   imposed  
by   Section   140   of   the   LGC   of   1991,   or   a   total   of   40%   tax.   Such   imposition   would   result   in   injustice,   as  
persons  taxed  under  the  NIRC  of  1997  would  be  in  a  better  position  than  those  taxed  under  the  LGC  of  
1991.  We  need  not  belabor  that  a  literal  application  of  a  law  must  be  rejected  if  it  will  operate  unjustly  

51  
 
or   lead   to   absurd   results.   56   Thus,   we   are   convinced   that   the   legislature   never   intended   to   include  
cinema/theater  operators  or  proprietors  in  the  coverage  of  VAT.  
 
On  this  point,  it  is  apropos  to  quote  the  case  of  Roxas  v.  Court  of  Tax  Appeals,  57  to  wit:  
“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.”  
 
The   repeal   of   the   Local   Tax   Code   by   the   LGC   of   1991   is   not   a   legal   basis   for   the   imposition   of   VAT   on   the  
gross  receipts  of  cinema/theater  operators  or  proprietors  derived  from  admission  tickets.  The  removal  
of  the  prohibition  under  the  Local  Tax  Code  did  not  grant  nor  restore  to  the  national  government  the  
power   to   impose   amusement   tax   on   cinema/theater   operators   or   proprietors.   Neither   did   it   expand   the  
coverage  of  VAT.  Since  the  imposition  of  a  tax  is  a  burden  on  the  taxpayer,  it  cannot  be  presumed  nor  
can  it  be  extended  by  implication.  A  law  will  not  be  construed  as  imposing  a  tax  unless  it  does  so  clearly,  
expressly,   and   unambiguously.     As   it   is,   the   power   to   impose   amusement   tax   on   cinema/theater  
operators  or  proprietors  remains  with  the  local  government.          
 
Revenue  Memorandum  Circular  No.  28-­‐2001  is  invalid    
Considering   that   there   is   no   provision   of   law   imposing   VAT   on   the   gross   receipts   of   cinema/theater  
operators   or   proprietors   derived   from   admission   tickets,   RMC   No.   28-­‐2001   which   imposes   VAT   on   the  
gross  receipts  from  admission  to  cinema  houses  must  be  struck  down.  We  cannot  overemphasize  that  
RMCs   must   not   override,   supplant,   or   modify   the   law,   but   must   remain   consistent   and   in   harmony   with,  
the  law  they  seek  to  apply  and  implement.    
In   view   of   the   foregoing,   there   is   no   need   to   discuss   whether   RMC   No.   28-­‐2001   complied   with   the  
procedural  due  process  for  tax  issuances  as  prescribed  under  RMC  No.  20-­‐86.  
Rule  on  tax  exemption  does  not  apply  
 
Moreover,   contrary   to   the   view   of   petitioner,   respondents   need   not   prove   their   entitlement   to   an  
exemption  from  the  coverage  of  VAT.  The  rule  that  tax  exemptions  should  be  construed  strictly  against  
the  taxpayer  presupposes  that  the  taxpayer  is  clearly  subject  to  the  tax  being  levied  against  him.    The  
reason   is   obvious:   it   is   both   illogical   and   impractical   to   determine   who   are   exempted   without   first  
determining  who  are  covered  by  the  provision.    Thus,  unless  a  statute  imposes  a  tax  clearly,  expressly  
and  unambiguously,  what  applies  is  the  equally  well-­‐settled  rule  that  the  imposition  of  a  tax  cannot  be  
presumed.    In  fact,  in  case  of  doubt,  tax  laws  must  be  construed  strictly  against  the  government  and  in  
favor  of  the  taxpayer.    
 
38.) ANGELES  CITY  VS.  ANGLES  ELECTRIC  CORPORATION  
 

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The  prohibition  on  the  issuance  of  a  writ  of  injunction  to  enjoin  the  collection  of  taxes  applies  
only  to  national  internal  revenue  taxes,  and  not  to  local  taxes.          
 
 
39.) LEPANTO  CONSOLIDATED  MINING  COMPANY  VS.  AMBANLOC  
 
The   provincial   revenue   code   provides   that   the   subject   tax   had   to   be   paid   prior   to   the   issuance   of   the  
permit  to  extract  sand  and  gravel.  Its  Article  D,  Section  2,  enumerates  four  kinds  of  permits:  commercial,  
industrial,  special,  and  gratuitous.  Special  permits  covered  only  personal  use  of  the  extracted  materials  
and   did   not   allow   the   permitees   to   sell   materials   coming   from   his   concession.     Among   applicants   for  
permits,   however,   only   gratuitous   permits   were   exempt   from   the   sand   and   gravel   tax.   It   follows   that  
persons   who   applied   for   special   permits   needed   to   pay   the   tax,   even   though   they   did   not   extract  
materials  for  commercial  purposes.  Thus,  the  tax  needed  to  be  paid  regardless  of  the  applicability  of  
the  administrative  and  reportorial  requirements  of  that  revenue  code.  
 
Lepanto  relies  on  the  principle  that  when  a  company  is  taxed  on  its  main  business,  it  is  no  longer  taxable  
for   engaging   in   an   activity   that   is   but   a   part   of,   incidental   to,   and   necessary   to   such   main   business.  
Lepanto  points  out  that,  since  it  did  not  extract  and  use  sand  and  gravel  as  independent  activities  but  as  
integral  parts  of  its  mining  operations,  it  should  not  be  subjected  to  a  separate  tax  on  the  same.  
But  in  the  cases  where  this  principle  has  been  applied,  the  taxes  which  were  stricken  down  were  in  the  
nature  of  business  taxes.  The  reasoning  behind  those  cases  was  that  the  incidental  activity  could  not  
be   treated   as   a   business   separate   and   distinct   from   the   main   business   of   the   taxpayer.   Here   the   tax   is  
an  excise  tax  imposed  on  the  privilege  of  extracting  sand  and  gravel.  And  it  is  settled  that  provincial  
governments  can  levy  excise  taxes  on  quarry  resources  independently  from  the  national  government.  
 
40.) REPUBLIC  VS.  AQUAFRESH  SEAFOODS,  INC.  
 
While  the  CIR  has  the  authority  to  prescribe  real  property  values  and  divide  the  Philippines  into  zones,  
the   law   is   clear   that   the   same   has   to   be   done   upon   consultation   with   competent   appraisers   both   from  
the   public   and   private   sectors.   It   is   undisputed   that   at   the   time   of   the   sale   of   the   subject   properties  
found  in  Barrio  Banica,  Roxas  City,  the  same  were  classified  as  "RR,"  or  residential,  based  on  the  1995  
Revised  Zonal  Value  of  Real  Properties.  Petitioner,   thus,   cannot   unilaterally  change   the   zonal   valuation  
of   such   properties   to   "commercial"   without   first   conducting   a   re-­‐evaluation   of   the   zonal   values   as  
mandated  under  Section  6  (E)  of  the  NIRC.  
 
This   Court   agrees   with   the   observation   of   the   CTA   that   "zonal   valuation   was   established   with   the  
objective   of   having   an   'efficient   tax   administration   by   minimizing   the   use   of   discretion   in   the  
determination  of  the  tax  based  on  the  part  of  the  administrator  on  one  hand  and  the  taxpayer  on  the  
other   hand.'"     Zonal  value  is  determined  for  the  purpose  of  establishing  a  more  realistic  basis  for  real  
property   valuation.   Since   internal   revenue   taxes,   such   as   CGT   and   DST,   are   assessed   on   the   basis   of  
valuation,  the  zonal  valuation  existing  at  the  time  of  the  sale  should  be  taken  into  account.    

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If   petitioner   feels   that   the   properties   in   Barrio   Banica   should   also   be   classified   as   commercial,   then  
petitioner  should  work  for  its  revision  in  accordance  with  Revenue  Memorandum  Order  No.  58-­‐69.  The  
burden  was  on  petitioner  to  prove  that  the  classification  and  zonal  valuation  in  Barrio  Banica  have  been  
revised   in   accordance   with   the   prevailing   memorandum.   In   the   absence   of   proof   to   the   contrary,   the  
1995  Revised  Zonal  Values  of  Real  Properties  must  be  followed.  
 
Lastly,  this  Court  takes  note  of  the  wording  of  Section  2  (b)  of  the  Zonal  Valuation  Guidelines,  to  wit:  
2.   Predominant  Use  of  Property.  
b)   The   predominant   use   of   other   classification   of   properties   located   in   a   street/barangay  
zone,  regardless  of  actual  use  shall  be  considered  for  purposes  of  zonal  valuation.  
 
Based  thereon,  this  Court  rules  that  even  assuming  arguendo  that  the  subject  properties  were  used  for  
commercial   purposes,   the   same   remains   to   be   residential   for   zonal   value   purposes.   It   appears   that  
actual   use   is   not   considered   for   zonal   valuation,   but   the   predominant   use   of   other   classification   of  
properties  located  in  the  zone.  Again,  it  is  undisputed  that  the  entire  Barrio  Banica  has  been  classified  as  
residential.  
 
41.) MANILA  INTERNATIONAL  AIRPORT  AUTHORITY  VS.  CITY  OF  PASAY  
 
MIAA  is  not  a  government-­‐owned  or  controlled  corporation  but  a  government  instrumentality  which  is  
exempt  from  any  kind  of  tax  from  the  local  governments.  Indeed,  the  exercise  of  the  taxing  power  of  
local   government   units   is   subject   to   the   limitations   enumerated   in   Section   133   of   the   Local   Government  
Code.   10   Under   Section   133   (o)   11   of   the   Local   Government   Code,   local   government   units   have   no  
power  to  tax  instrumentalities  of  the  national  government  like  the  MIAA.  Hence,  MIAA  is  not  liable  to  
pay  real  property  tax  for  the  NAIA  Pasay  properties.      
 
Furthermore,   the   airport   lands   and   buildings   of   MIAA   are   properties   of   public   dominion   intended   for  
public   use,   and   as   such   are   exempt   from   real   property   tax   under   Section   234   (a)   of   the   Local  
Government   Code.   However,   under   the   same   provision,   if   MIAA   leases   its   real   property   to   a   taxable  
person,   the   specific   property   leased   becomes   subject   to   real   property   tax.     In   this   case,   only   those  
portions   of   the   NAIA   Pasay   properties   which   are   leased   to   taxable   persons   like   private   parties   are  
subject  to  real  property  tax  by  the  City  of  Pasay.  
 
42.) THE  PROVINCIAL  ASSESSOR  OF  MARINDUQUE  VS.  CA  
 
As   held   in   Mactan,   the   exemption   granted   under   Sec.   234   (e)   of   R.A.   No.   7160   to   "[m]achinery   and  
equipment   used   for   pollution   control   and   environmental   protection"   is   based   on   usage.   The   term  
usage  means  direct,  immediate  and  actual  application  of  the  property  itself  to  the  exempting  purpose.    
Section  199  of  R.A.  No.  7160  defines  actual  use  as  "the  purpose  for  which  the  property  is  principally  or  
predominantly  utilized  by  the  person  in  possession  thereof".  It  contemplates  concrete,  as  distinguished  
from   mere   potential,   use.   Thus,   a   claim   for   exemption   under   Sec.   234   (e)   of   R.A.   No.   7160   should   be  

54  
 
supported  by  evidence  that  the  property  sought  to  be  exempt  is  actually,  directly  and  exclusively  used  
for  pollution  control  and  environmental  protection.    
 
43.) NATIONAL   POWER   CORPORATION   VS.   PROVINCE   OF   QUEZON   AND  
MUNICIPALITY  OF  PAGBILAO  
 
It   was   an   ill-­‐advised   move   for   Napocor   to   directly   file   an   appeal   with   the   LBAA   under   Section   226  
without   first   paying   the   tax   as   required   under   Section   252.   Sections   252   and   226   provide   successive  
administrative  remedies  to  a  taxpayer  who  questions  the  correctness  of  an  assessment.  Section  226,  in  
declaring  that  "any  owner  or  person  having  legal  interest  in  the  property  who  is  not  satisfied  with  the  
action  of  the  provincial,  city,  or  municipal  assessor  in  the  assessment  of  his  property  may  .  .  .  appeal  to  
the  Board  of  Assessment  Appeals  .  .  .,"  should  be  read  in  conjunction  with  Section  252  (d),  which  states  
that   "in   the   event   that   the   protest   is   denied   .   .   .,   the   taxpayer   may   avail   of   the   remedies   as   provided   for  
in  Chapter  3,  Title  II,  Book  II  of  the  LGC  [Chapter  3  refers  to  Assessment  Appeals,  which  includes  Sections  
226   to   231].   The   "action"   referred   to   in   Section   226   (in   relation   to   a   protest   of   real   property   tax  
assessment)  thus  refers  to  the  local  assessor's  act  of  denying  the  protest  filed  pursuant  to  Section  252.  
Without   the   action   of   the   local   assessor,   the   appellate   authority   of   the   LBAA   cannot   be   invoked.  
Napocor's  action  before  the  LBAA  was  thus  prematurely  filed.  
 
44.) CIR  VS.  ENRON  SUBIC  POWER  CORPORATION  
 
The  advice  of  tax  deficiency,  given  by  the  CIR  to  an  employee  of  Enron,  as  well  as  the  preliminary  five-­‐
day  letter,  were  not  valid  substitutes  for  the  mandatory  notice  in  writing  of  the  legal  and  factual  bases  
of   the   assessment.   These   steps   were   mere   perfunctory   discharges   of   the   CIR's   duties   in   correctly  
assessing   a   taxpayer.     The   requirement   for   issuing   a   preliminary   or   final   notice,   as   the   case   may   be,  
informing   a   taxpayer   of   the   existence   of   a   deficiency   tax   assessment   is   markedly   different   from   the  
requirement   of   what   such   notice   must   contain.   Just   because   the   CIR   issued   an   advice,   a   preliminary  
letter   during   the   pre-­‐assessment   stage   and   a   final   notice,   in   the   order   required   by   law,   does   not  
necessarily  mean  that  Enron  was  informed  of  the  law  and  facts  on  which  the  deficiency  tax  assessment  
was  made.  
 
The   law   requires   that   the   legal   and   factual   bases   of   the   assessment   be   stated   in   the   formal   letter   of  
demand  and  assessment  notice.  Thus,  such  cannot  be  presumed.  Otherwise,  the  express  provisions  of  
Article  228  of  the  NIRC  and  RR  No.  12-­‐99  would  be  rendered  nugatory.  The  alleged  "factual  bases"  in  the  
advice,   preliminary   letter   and   "audit   working   papers"   did   not   suffice.   There   was   no   going   around   the  
mandate   of   the   law   that   the   legal   and   factual   bases   of   the   assessment   be   stated   in   writing   in   the   formal  
letter  of  demand  accompanying  the  assessment  notice.          
 
We  note  that  the  old  law  merely  required  that  the  taxpayer  be  notified  of  the  assessment  made  by  the  
CIR.  This  was  changed  in  1998  and  the  taxpayer  must  now  be  informed  not  only  of  the  law  but  also  of  
the   facts   on   which   the   assessment   is   made.     Such   amendment   is   in   keeping   with   the   constitutional  

55  
 
principle   that   no   person   shall   be   deprived   of   property   without   due   process.     In   view   of   the   absence   of   a  
fair  opportunity  for  Enron  to  be  informed  of  the  legal  and  factual  bases  of  the  assessment  against  it,  the  
assessment  in  question  was  void.  We  reiterate  our  ruling  in  Reyes  v.  Almanzor,  et  al.:    
 
“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  the  Government  itself.”  
 
45.) BRITISH  AMERICAN  TOBACCO  VS.  CAMACHO  
 
Petitioner  asserts  that  the  Court  erroneously  applied  the  rational  basis  test  allegedly  because  this  test  
does   not   apply   in   a   constitutional   challenge   based   on   a   violation   of   Section   19,   Article   XII   of   the  
Constitution  on  unfair  competition.  Citing  Tatad  v.  Secretary  of  the  Department  of  Energy,    it  argues  that  
the   classification   freeze   provision   gives   the   brands   under   Annex   "D"   a   decisive   edge   because   it  
constitutes  a  substantial  barrier  to  the  entry  of  prospective  players;  that  the  Annex  "D"  provision  is  no  
different  from  the  4%  tariff  differential  which  we  invalidated  in  Tatad;  that  some  of  the  new  brands,  like  
Astro,  Memphis,  Capri,  L&M,  Bowling  Green,  Forbes,  and  Canon,  which  were  introduced  into  the  market  
after  the  effectivity  of  the  assailed  law  on  January  1,  1997,  were  "killed"  by  Annex  "D"  brands  because  
the  former  brands  were  reclassified  by  the  BIR  to  higher  tax  brackets;  that  the  finding  that  price  is  not  
the  only  factor  in  the  market  as  there  are  other  factors  like  consumer  preference,  active  ingredients,  etc.  
is   contrary   to   the   evidence   presented   and   the   deliberations   in   Congress;   that   the   classification   freeze  
provision   will   encourage   predatory   pricing   in   contravention   of   the   constitutional   prohibition   on   unfair  
competition;  and  that  the  cumulative  effect  of  the  operation  of  the  classification  freeze  provision  is  to  
perpetuate   the   oligopoly   of   intervenors   Philip   Morris   and   Fortune   Tobacco   in   contravention   of   the  
constitutional   edict   for   the   State   to   regulate   or   prohibit   monopolies,   and   to   disallow   combinations   in  
restraint  of  trade  and  unfair  competition.          
 
The   argument   lacks   merit.   While   previously   arguing   that   the   rational   basis   test   was   not   satisfied,  
petitioner  now  asserts  that  this  test  does  not  apply  in  this  case  and  that  the  proper  matrix  to  evaluate  
the  constitutionality  of  the  assailed  law  is  the  prohibition  on  unfair  competition  under  Section  19,  Article  
XII   of   the   Constitution.   It   should   be   noted   that   during   the   trial   below,   petitioner   did   not   invoke   said  
constitutional  provision  as  it  relied  solely  on  the  alleged  violation  of  the  equal  protection  and  uniformity  
of   taxation   clauses.   Well-­‐settled   is   the   rule   that   points   of   law,   theories,   issues   and   arguments   not  
adequately  brought  to  the  attention  of  the  lower  court  will  not  be  ordinarily  considered  by  a  reviewing  
court  as  they  cannot  be  raised  for  the  first  time  on  appeal.    At  any  rate,  even  if  we  were  to  relax  this  
rule,  as  previously  stated,  the  evidence  presented  before  the  trial  court  is  insufficient  to  establish  the  
alleged  violation  of  the  constitutional  proscription  against  unfair  competition.  
 
In  sum,  the  totality  of  the  evidence  presented  by  petitioner  before  the  trial  court  failed  to  convincingly  
establish   the   alleged   violation   of   the   constitutional   prohibition   on   unfair   competition.   It   is   a   basic  
postulate  that  the  one  who  challenges  the  constitutionality  of  a  law  carries  the  heavy  burden  of  proof  

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for   laws   enjoy   a   strong   presumption   of   constitutionality   as   it   is   an   act   of   a   co-­‐equal   branch   of  
government.  Petitioner  failed  to  carry  this  burden.  
 
[R]egressivity   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,   Section   1]   or   for   the   promotion  
of  the  right  to  "quality  education"  [Art.  XIV,  Section  1].  These  provisions  are  put  in  the  Constitution  as  
moral  incentives  to  legislation,  not  as  judicially  enforceable  rights.    
 
 

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